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<SEC-DOCUMENT>0000318673-05-000015.txt : 20050611
<SEC-HEADER>0000318673-05-000015.hdr.sgml : 20050611
<ACCEPTANCE-DATETIME>20050603141025
ACCESSION NUMBER:		0000318673-05-000015
CONFORMED SUBMISSION TYPE:	DEF 14A
PUBLIC DOCUMENT COUNT:		3
CONFORMED PERIOD OF REPORT:	20050607
FILED AS OF DATE:		20050603
DATE AS OF CHANGE:		20050603
EFFECTIVENESS DATE:		20050603

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			SECURITY NATIONAL FINANCIAL CORP
		CENTRAL INDEX KEY:			0000318673
		STANDARD INDUSTRIAL CLASSIFICATION:	FINANCE SERVICES [6199]
		IRS NUMBER:				870345941
		STATE OF INCORPORATION:			UT
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		DEF 14A
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-09341
		FILM NUMBER:		05876955

	BUSINESS ADDRESS:	
		STREET 1:		PO BOX 57220
		CITY:			SALT LAKE CITY
		STATE:			UT
		ZIP:			84157
		BUSINESS PHONE:		8012641060

	MAIL ADDRESS:	
		STREET 1:		PO BOX 57220
		CITY:			SALT LAKE CITY
		STATE:			UT
		ZIP:			84157

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	SNL FINANCIAL CORP
		DATE OF NAME CHANGE:	19910401
</SEC-HEADER>
<DOCUMENT>
<TYPE>DEF 14A
<SEQUENCE>1
<FILENAME>snfcprx.txt
<TEXT>
                     SECURITY NATIONAL FINANCIAL CORPORATION

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


                                  June 7, 2005






Dear Stockholder:

     On behalf of the Board of  Directors,  it is my  pleasure  to invite you to
attend the  Annual  Meeting  of  Stockholders  of  Security  National  Financial
Corporation  (the "Company") to be held on Friday,  July 8, 2005, at 10:00 a.m.,
Mountain Daylight Time, at 5300 South 360 West, Suite 250, Salt Lake City, Utah.

     The formal notice of the Annual  Meeting and the Proxy  Statement have been
made a part of this invitation.  Also enclosed is a copy of the Company's Annual
Report for the year ended December 31, 2004.

     The matters to be  addressed  at the meeting  will  include the election of
seven directors and the  ratification  of the  appointment of Hansen,  Barnett &
Maxwell, P.C. as the Company's registered public independent accountants for the
fiscal year  ending  December  31,  2005.  I will also  report on the  Company's
business activities and answer any stockholder questions. The Board of Directors
recommends  that  you  vote  FOR  election  of the  director  nominees  and  FOR
ratification of appointment of the registered  public  independent  accountants.
Please  refer to the Proxy  Statement  for detailed  information  on each of the
proposals and the Annual Meeting.

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

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

                                Sincerely yours,



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



<PAGE>


                     SECURITY NATIONAL FINANCIAL CORPORATION

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




                    NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
                             TO BE HELD JULY 8, 2005

Dear Stockholders:

     NOTICE IS HEREBY GIVEN that the Annual Meeting of  Stockholders of Security
National Financial Corporation (the "Company"), a Utah corporation, will be held
on Friday,  July 8, 2005,  at 5300  South 360 West,  Suite 250,  Salt Lake City,
Utah,  at 10:00 a.m.,  Mountain  Daylight  Time,  to  consider  and act upon the
following:

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

2.   To ratify  the  appointment  of  Hansen,  Barnett &  Maxwell,  P.C.  as the
     Company's  registered  public  independent  accountants for the fiscal year
     ending December 31, 2005; and

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

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

     The Board of Directors  has fixed the close of business on May 24, 2005, as
the record date for determining  stockholders  entitled to notice of and to vote
at the Annual Meeting and any adjournment  thereof.  A list of such stockholders
will be available for examination by a stockholder  for any purpose  relevant to
the meeting during ordinary business hours at the offices of the Company at 5300
South 360 West,  Suite 250, Salt Lake City, Utah during the 20 days prior to the
meeting.

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

                                     By order of the Board of Directors,



                                    G. Robert Quist
                                    First Vice President and Secretary



June 7, 2005
Salt Lake City, Utah



<PAGE>


                     SECURITY NATIONAL FINANCIAL CORPORATION
                         5300 South 360 West, Suite 250
                           Salt Lake City, Utah 84123

                                 PROXY STATEMENT

                       For Annual Meeting of Stockholders
                           To Be Held on July 8, 2005

                               GENERAL INFORMATION

     This Proxy  Statement is furnished in connection  with the  solicitation of
proxies by the Board of Directors  of Security  National  Financial  Corporation
(the  "Company")  for use at the Annual  Meeting of  Stockholders  to be held on
Friday,  July 8, 2005, at 5300 South 360 West,  Suite 250, Salt Lake City, Utah,
at 10:00 a.m.,  Mountain  Daylight Time, or at any adjournment or  postponements
thereof (the "Annual  Meeting").  The shares covered by the enclosed  Proxy,  if
such is properly  executed and  received by the Board of Directors  prior to the
meeting,  will be voted in favor of the proposals to be considered at the Annual
Meeting,  and in favor of the election of the nominees to the Board of Directors
(two nominees to be elected by the Class A common stockholders voting separately
as a class and five  nominees  to be  elected  by the Class A and Class C common
stockholders  voting together) as listed unless such Proxy specifies  otherwise,
or the authority to vote in the election of directors is withheld.

     A Proxy may be revoked at any time before it is exercised by giving written
notice to the  Secretary of the Company at 5300 South 360 West,  Suite 250, Salt
Lake City,  Utah 84123,  Attention:  G. Robert Quist, by submitting in writing a
Proxy  bearing a later date,  or by attending  the Annual  Meeting and voting in
person.  Stockholders  may vote their shares in person if they attend the Annual
Meeting,  even if they have executed and returned a Proxy.  This Proxy Statement
and accompanying Proxy Card are being mailed to stockholders on or about June 7,
2005.

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

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

     The  matters to be  brought  before  the  Annual  Meeting  are (1) to elect
directors  to serve for the  ensuing  year;  (2) to ratify  the  appointment  of
Hansen,  Barnett & Maxwell,  P.C. as the Company's registered public independent
accountants  for the fiscal year ending  December 31, 2005;  and (3) to transact
such other business as may properly come before the Annual Meeting.

                       RECORD DATE AND VOTING INFORMATION

     Only  holders of record of common stock at the close of business on May 24,
2005, will be entitled to vote at the Annual Meeting.  As of May 24, 2005, there
were issued and outstanding  5,441,713 shares of Class A common stock, $2.00 par
value per share and 6,380,197 shares of Class C common stock, $.20 par value per
share,  resulting  in a total of  11,821,910  shares of both Class A and Class C
common shares.  A majority of the  outstanding  shares (or 5,910,956  shares) of
common  stock will  constitute a quorum for the  transaction  of business at the
meeting.  A list  of our  stockholders  will  be  available  for  review  at the
Company's  executive  offices during  regular  business hours for a period of 20
days before the Annual Meeting.

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


<PAGE>



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

     Proxies received at any time before the Annual Meeting,  and not revoked or
superseded before being voted,  will be voted at the Annual Meeting.  If a Proxy
indicates a specification,  it will be in accordance with the specification.  If
no  specification  is  indicated,  the Proxy will be voted for  approval  of the
election of the seven directors  recommended by the Board of Directors,  for the
ratification  of the  appointment  of  Hansen,  Barnett & Maxwell,  P.C.  as the
Company's  registered public independent  accountants for the fiscal year ending
December 31, 2005,  and in the discretion of the persons named in the Proxy with
respect to the other  business  that may properly come before the meeting or any
adjournments of the meeting. You may also vote in person by ballot at the Annual
Meeting.

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

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

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


                              ELECTION OF DIRECTORS

                                   PROPOSAL 1
The Nominees

     The Company's Board of Directors consists of seven directors. All directors
are elected  annually to serve until the next annual meeting of stockholders and
until their respective successors are duly elected and qualified, or until their
earlier  resignation  or removal.  The  nominees  for the  upcoming  election of
directors include four independent directors, as defined in the applicable rules
for  companies  traded on The  Nasdaq  Stock  Market,  and three  members of the
Company's  senior  management.  All of the nominees for director  have served as
directors since the 2004 Annual Meeting.

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

      Name              Age      Director Since     Position(s) with the Company
      ----               ---      --------------   ----------------------------
J. Lynn Beckstead, Jr.    51      March 2002        Vice President of
                                                      Mortgage Operations
                                                      and Director
H. Craig Moody            53        September 1995    Director

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

      Name               Age      Director Since   Position(s) with the Company
      ----               ---      --------------   ----------------------------
Charles L. Crittenden     85      October 1979       Director
Robert G. Hunter, M.D.    45      October 1998       Director
George R. Quist           84      October 1979       Chairman of the Board
                                                     and Chief Executive Officer
Scott M. Quist            52      May 1986           President, Chief Operating
                                                     Officer and Director
Norman G. Wilbur          66      October 1998       Director

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


<PAGE>

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

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

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

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

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

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

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

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

The Board of Directors, Board Committees and Meetings

     The Company's  Bylaws provide that the Board of Directors  shall consist of
not less than  three nor more than  eleven  members.  The term of office of each
director is for a period of one year or until the election and  qualification of
his successor.  A director is not required to be a resident of the State of Utah
but must be a stockholder of the Company. The Board of Directors held a total of
five  meetings  during the fiscal year ended  December  31,  2004.  No directors
attended  fewer than 75% of all  meetings of the Board of  Directors  during the
2004 fiscal year.


<PAGE>


     The size of the Board of  Directors  of the  Company for the coming year is
seven members.  Four of the directors,  or a majority of the Board of Directors,
are independent  directors.  The independent  directors have regularly scheduled
meetings at which only independent directors are present.

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

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

     The Compensation  Committee is responsible for recommending to the Board of
Directors for approval the annual  compensation of each executive officer of the
Company and the  executive  officers of the Company's  subsidiaries,  developing
policy in the areas of compensation and fringe benefits, contributions under the
Employee Stock Ownership Plan,  contribution under the 401(k) Retirement Savings
Plan,  Deferred  Compensation  Plan,  granting of options under the stock option
plans,  and  creating  other  employee   compensation  plans.  The  Compensation
Committee consists of Messrs. Charles L. Crittenden (Chairman of the Committee),
H. Craig Moody,  Robert G. Hunter,  M.D. and Norman G. Wilbur.  During 2004, the
Compensation Committee met on two occasions.

     The Audit  Committee  directs  the  auditing  activities  of the  Company's
internal  auditors and outside public  accounting firm and approves the services
of the outside public  accounting firm. The Audit Committee  consists of Messrs.
Charles L.  Crittenden,  H. Craig  Moody and Norman G. Wilbur  (Chairman  of the
Committee). During 2004, the Audit Committee met on four occasions.

     The Executive Committee reviews Company policy, major investment activities
and  other  pertinent  transactions  of the  Company.  The  Executive  Committee
consists of Messrs.  George R. Quist, Scott M. Quist, and H. Craig Moody. During
2004, the Executive Committee met on two occasions. During 2004, there were four
meetings of the Company's Board of Directors.

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

Director Nominating Process

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


<PAGE>



     The Nominating and Corporate  Governance  Committee will consider  nominees
proposed by stockholders.  To recommend a perspective nominee for the Nominating
and Corporate Governance Committee's consideration,  stockholders may submit the
candidate's name and  qualifications  to: G. Robert Quist,  First Vice President
and Secretary,  Security National  Financial  Corporation,  5300 South 360 West,
Suite 250, Salt Lake City, Utah 84123.  Recommendations  from  stockholders  for
nominees  must be received by Mr.  Quist not later than the date set forth under
"Deadline for Receipt of  Stockholder's  Proposals for Annual Meeting to be Held
in July 2006"; below.

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

Meetings of Non-Management Directors

     The Company's  non-management  directors  regularly meet without management
participation.  In addition, an executive session including only the independent
directors is held at least annually.

Stockholder Communications with the Board of Directors

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

Executive Officers

     The  following  table sets forth  certain  information  with respect to the
executive  officers of the Company (the business  biographies  for the first two
individuals are set forth above):

        Name                 Age             Title
  ------------------         ---     ------------------
  George R. Quist(1)          84     Chairman of the Board and
                                     Chief Executive Officer
  Scott M. Quist(1)           52     President, Chief Operating Officer
                                     and Director
  G. Robert Quist(1)          53     First Vice President and Secretary
  Stephen M. Sill             59     Vice President, Treasurer and
                                     Chief Financial Officer
  J. Lynn Beckstead, Jr.      51     Vice President of Mortgage Operations
                                     and Director
  Christie Q. Overbaugh(1)    56     Senior Vice President of Internal
                                     Operations of Southern Security Life
                                     Insurance Company

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

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


<PAGE>



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

     Christie Q. Overbaugh has been Senior Vice President of Internal Operations
for Southern Security Life Insurance Company since June 2002, and Vice President
of Underwriting of Security  National Life Insurance Company since October 1998.
Ms. Overbaugh has also served as Vice President of the Company from October 1999
to June 2002, and as Vice President of Underwriting  for Southern  Security Life
Insurance  Company from October 1998 to June 2002.  >From 1985 to 1990,  she was
Chief  Underwriter  for Investors  Equity Life  Insurance  Company of Hawaii and
Security National Life Insurance  Company.  From 1990 to 1991, Ms. Overbaugh was
President of the Utah Home Office  Underwriters  Association.  Ms.  Overbaugh is
currently  a member  of the Utah Home  Office  Underwriters  Association  and an
Associate Member of LOMA (Life Office Management Association).

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

     No director,  officer or 5% stockholder of the Company or its subsidiaries,
or any  affiliate  thereof  has had any  transactions  with the  Company  or its
subsidiaries during 2004 or 2003.

Corporate Governance

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

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


                COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS

Executive Officer Compensation

     The  following  table sets forth,  for each of the last three fiscal years,
the  compensation  received by George R. Quist,  the  Company's  Chairman of the
Board  and  Chief  Executive   Officer,   and  all  other   executive   officers
(collectively,  the "Named  Executive  Officers")  at December 31,  2004,  whose
salary and bonus for all  services in all  capacities  exceed  $100,000  for the
fiscal year ended December 31, 2004.


<PAGE>
<TABLE>
<CAPTION>



                           Summary Compensation Table
                                                                                           Annual Compensation
                                      Long-Term Compensation
                                                           Other
                                                          Annual     Restricted     Securities      Long-Term    All Other
Name and                                                  Compen-       Stock       Underlying      Incentive    Compen-
Principal Position        Year    Salary($)  Bonus($)  sation($)(2)    Awards($)  Options/SARs(#)   Payout($)    sation($)(3)
- ------------------        ----    ---------  --------  ------------    ---------  ---------------------------    ------------
<S>                       <C>    <C>        <C>          <C>            <C>         <C>              <C>        <C>
George R. Quist (1)       2004   $165,600   $ 50,000     $2,400          $0          100,000          $0        $26,002
  Chairman of the         2003    165,600     50,000      2,400           0          100,000           0         23,273
  Board and Chief         2002    165,600     25,000      2,400           0           80,000           0         31,186
  Executive Officer

Scott M. Quist (1)        2004   $215,900   $ 75,000     $7,200          $0       1,000,000(4)        $0        $34,773
  President, Chief        2003    205,400     60,000      7,200           0          70,000            0         29,531
  Operating Officer       2002    179,400     35,000      7,200           0          40,000            0         24,066
  and Director

J. Lynn Beckstead, Jr.    2004   $195,796   $ 85,000         $0          $0           5,000           $0        $25,750
  Vice President of       2003    158,500    255,675          0           0          15,000            0         16,104
  Mortgage Operations     2002    150,000    120,401          0           0          10,000            0         15,101
  and Director

G. Robert Quist (1)       2004   $104,814   $      0     $2,400          $0          10,000           $0        $10,711
  First Vice President    2003     87,175     16,599      2,400           0          35,000            0          9,748
  and Secretary

Stephen M. Sill           2004   $102,855 $    6,000     $3,600          $0           5,000           $0        $11,684
  Vice President,
  Treasurer and Chief
  Financial Officer

</TABLE>

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

     (2)  The amounts  indicated  under "Other Annual  Compensation"  consist of
          payments  related  to  the  operation  of  automobiles  by  the  Named
          Executive  Officers.   However,  such  payments  do  not  include  the
          furnishing of an  automobile by the Company to George R. Quist,  Scott
          M. Quist, J. Lynn Beckstead Jr., and G. Robert Quist,  nor the payment
          of  insurance  and  property  taxes with  respect  to the  automobiles
          operated by the Named Executive Officers.

     (3)  The amounts  indicated under "All Other  Compensation"  consist of (a)
          amounts contributed by the Company into a trust for the benefit of the
          Named  Executive   Officers  under  the  Security  National  Financial
          Corporation Deferred  Compensation Plan (for the years 2004, 2003, and
          2002, such amounts were George R. Quist, $21,341, $18,590 and $16,207,
          respectively;   Scott  M.  Quist,   $23,001,   $23,000  and   $19,219,
          respectively;  J.  Lynn  Beckstead,  Jr.,  $21,000,  $12,750  and  $0,
          respectively;  G. Robert Quist,  $10,161 and $9,394 for the years 2004
          and 2003,  respectively;  and  Stephen  M. Sill  $11,134  for the year
          2004);  (b)  insurance  premiums paid by the Company with respect to a
          group  life  insurance  plan for the  benefit  of the Named  Executive
          Officers  (for the years 2004,  2003 and 2002,  such  amounts were for
          George R.  Quist  $17,  $39 and $125,  respectively;  and for Scott M.
          Quist, G. Robert Quist,  Stephen M. Sill and J. Lynn  Beckstead,  Jr.,
          $550, $354, and $642 each, respectively);  (c) life insurance premiums
          paid by the  Company  for the benefit of the family of George R. Quist
          ($4,644  for each of the years  2004,  2003 and 2002);  Scott M. Quist
          ($11,222 for the year 2004,  $6,177 for the year 2003,  $4,205 for the
          year 2002); and J. Lynn Beckstead, Jr. ($4,200 for the year 2004); (d)
          compensation  paid for the  cashless  exercise  of  50,000  shares  of
          Company  stock  exercised  by George R. Quist  ($10,210)  for the year
          2002;  (e) amounts  contributed  by the  Company  into a trust for the
          benefit of the Named  Executive  Officers under the Security  National
          Financial  Corporation's Employer Stock Ownership Plan (ESOP) (for the
          years 2003 and 2002,  such amounts were J. Lynn Beckstead Jr.,  $3,000
          and $2,754,  respectively;  and (f) amounts contributed by the Company
          into a trust for the benefit of the Named Executive Officers under the
          Security National Financial Corporation Tax-Favored Retirement Savings
          Plan (401-k) Plan) (for the years 2003 and 2002,  such amounts were J.
          Lynn Beckstead Jr., $0 and $11,705,  respectively).  The amounts under
          "All Other  Compensation"  do not include the no-interest  loan in the
          amount of $172,000  that the Company  made to George R. Quist on April
          29, 1998 to exercise  stock options  granted to him. The loan has been
          fully paid as of March 31, 2005.


<PAGE>





     (4)  Options to  purchase  1,000,000  shares of Class C common  stock.  The
          Class C common shares are  convertible to Class A common shares on the
          basis of ten  shares  of Class C common  stock to one share of Class A
          common stock.

     The  following  table sets forth  information  concerning  the  exercise of
options to acquire shares of the Company's  Common Stock by the Named  Executive
Officers  during  the  fiscal  year  ended  December  31,  2004,  as well as the
aggregate  number and value of unexercised  options held by the Named  Executive
Officers on December 31, 2004.

     Aggregated  Option/SAR  Exercised  in Last Fiscal Year and Fiscal  Year-End
Option/SAR Values:
<TABLE>
<CAPTION>

                                                              Number of
                                                             Securities                                  Value of
                                                             Underlying                                 Unexercised
                                                             Unexercised                               In-the-Money
                                                           Options/SARs at                            Options/SARs at
                        Shares                              December 31,                               December 31,
                     Acquired on                               2004(#)                                    2004
                      Exercise       Value                    -------                                    ------
Name                   (#)         Realized       Exercisable          Unexercisable            Exercisable  Unexercisable
- ----                 --------      --------       -----------          -------------            -----------  -------------
<S>                   <C>          <C>               <C>                    <C>              <C>               <C>
George R.  Quist      68,298       $560,040          153,620               -0-               $    27,233       $   -0-
Scott M. Quist          -0-            -0-          1,082,175(1)           -0-                       -0-           -0-
J. Lynn Beckstead, Jr. 8,355         62,243           21,788               -0-                       -0-           -0-
G. Robert Quist        6,862         51,455           49,088               -0-                       -0-           -0-
Stephen M. Sill        3,718         32,350            5,250               -0-                    1,228            -0-
- -----------------
</TABLE>


<PAGE>



     (1)  Includes options to purchase 1,000,000 shares of Class C common stock.
          The Class C common shares are  convertible to Class A common shares on
          the basis of ten shares of Class C common  stock to one share of Class
          A common stock.

Retirement Plans

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

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


<PAGE>



Employment Agreements

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

     In the  event  of a sale or  merger  of the  Company  and Mr.  Quist is not
retained in his current position, the Company would be obligated to continue Mr.
Quist's current  compensation  and benefits for seven years following the merger
or sale.  The agreement  further  provides that Mr. Quist is entitled to receive
annual  retirement  benefits  beginning  (i)  one  month  from  the  date of his
retirement  (to  commence  no sooner  than age 65),  (ii) five  years  following
complete disability,  or (iii) upon termination of his employment without cause.
These  retirement  benefits  are to be paid for a period  of ten years in annual
installments   in  the  amount  equal  to  75%  of  his  then  current  rate  of
compensation.  However,  in the event that Mr. Quist dies prior to receiving all
retirement  benefits  thereunder,  the remaining  benefits are to be paid to his
heirs.  The  Company  accrued  $31,500  and  $328,000  in fiscal  2004 and 2003,
respectively,  to cover the present  value of  anticipated  retirement  benefits
under the employment agreement.

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

     In the event of a sale or merger of the Company, and Mr. Beckstead were not
retained in his current position, the Company would be obligated to continue Mr.
Beckstead's  current  compensation  and  benefits for five years  following  the
merger or sale. The agreement further provides that Mr. Beckstead is entitled to
receive annual retirement  benefits beginning (i) one month from the date of his
retirement  (to  commence no sooner  than age 62 1/2) (ii) five years  following
complete disability,  or (iii) upon termination of his employment without cause.
These  retirement  benefits  are to be paid for a period  of ten years in annual
installments  in the amount equal to one-half of his then current annual salary.
However,  in the event that Mr. Beckstead dies prior to receiving all retirement
benefits  thereunder,  the remaining  benefits are to be paid to his heirs.  The
Company   accrued  in  2004  and  2003   approximately   $18,500  and  $172,000,
respectively,  to cover  the  present  value of the  retirement  benefit  of the
agreement.

Director Compensation

     Directors of the Company (but not including  directors  who are  employees)
are paid a director's  fee of $13,200 per year by the Company for their services
and are reimbursed for their expenses in attending board and committee meetings.
No  additional  fees are paid by the  Company  for  committee  participation  or
special assignments.  However, each director is provided with an annual grant of
stock  options to purchase  1,000  shares of Class A Common Stock under the 2000
Director Stock Option Plan.

Employee 401(k) Retirement Savings Plan

     In 1995,  the  Company's  Board of  Directors  adopted a 401(k)  Retirement
Savings  Plan.  Under the terms of the 401(k)  plan,  effective as of January 1,
1995, the Company may make discretionary  employer matching contributions to its
employees who choose to  participate  in the plan.  The plan allows the board to
determine  the amount of the  contribution  at the end of each  year.  The Board
adopted a  contribution  formula  specifying  that such  discretionary  employer
matching   contributions  would  equal  50%  of  the  participating   employee's
contribution to the plan to purchase Company stock up to a maximum discretionary
employee  contribution of 1/2% of a participating  employee's  compensation,  as
defined by the plan.


<PAGE>



     All persons who have completed at least one year's service with the Company
and satisfy other plan  requirements  are eligible to  participate in the 401(k)
plan. All Company matching  contributions  are invested in the Company's Class A
Common Stock. The Company's matching  contributions for 2004, 2003 and 2002 were
approximately  $5,746,  $4,493 and $7,975,  respectively.  Also, the Company may
contribute at the  discretion  of the  Company's  Board of Directors an Employer
Profit  Sharing  Contribution  to the 401(k) plan.  The Employer  Profit Sharing
Contribution  shall be divided among three different  classes of participants in
the  plan  based  upon  the  participant's  title in the  Company.  All  amounts
contributed  to the plan are  deposited  into a trust  fund  administered  by an
independent trustee. The Company's  contributions to the plan for 2004, 2003 and
2002, were $128,949, $110,081 and $142,218, respectively.

Employee Stock Ownership Plan

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

     Under the  Ownership  Plan,  the  Company has  discretionary  power to make
contributions on behalf of all eligible employees into a trust created under the
Ownership Plan.  Employees  become eligible to participate in the Ownership Plan
when they have attained the age of 19 and have  completed one year of service (a
twelve-month  period in which the  Employee  completes  at least  1,040 hours of
service). The Company's  contributions under the Ownership Plan are allocated to
eligible employees on the same ratio that each eligible employee's  compensation
bears to total  compensation  for all eligible  employees  during each year.  To
date, the Ownership Plan has  approximately  234  participants  and had $105,196
contributions  payable to the Plan in 2004.  Benefits  under the Ownership  Plan
vest as follows: 20% after the third year of eligible service by an employee, an
additional 20% in the fourth, fifth, sixth and seventh years of eligible service
by an employee.

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

Deferred Compensation Plan

     In 2001, the Company's Board of Directors  adopted a Deferred  Compensation
Plan.  Under the terms of the  Deferred  Compensation  Plan,  the  Company  will
provide  deferred  compensation  for a select  group  of  management  or  highly
compensated  employees,  within the meaning of Sections  201(2),  301(a)(3)  and
401(a)(1) of the Employee  Retirement  Income  Security Act of 1974, as amended.
The board has appointed a committee of the Company to be the plan  administrator
and to determine the employees who are eligible to  participate in the plan. The
employees  who  participate  may elect to defer a portion of their  compensation
into the plan. The Company may contribute into the plan at the discretion of the
Company's Board of Directors. The Company's contribution for 2004, 2003 and 2002
was $123,249, $95,485 and $100,577, respectively.

1993 Stock Option Plan

     On June 21,  1993,  the Company  adopted the  Security  National  Financial
Corporation  1993 Stock Incentive Plan (the "1993 Plan"),  which reserves shares
of Class A common stock for issuance  thereunder.  The 1993 Plan was approved at
the annual  meeting of the  stockholders  held on June 21,  1993.  The 1993 Plan
allows the  Company to grant  options and issue  shares as a means of  providing
equity  incentives to key personnel,  giving them a proprietary  interest in the
Company and its success and progress.


<PAGE>



     The 1993 Plan  provides  for the grant of options  and the award or sale of
stock to officers,  directors,  and  employees of the Company.  Both  "incentive
stock  options," as defined under  Section 422A of the Internal  Revenue Code of
1986 (the "Code"),  and  "non-qualified  options" may be granted pursuant to the
1993 Plan. The exercise  prices for the options  granted are equal to or greater
than the fair market  value of the stock  subject to such options as of the date
of grant, as determined by the Company's Board of Directors. The options granted
under the 1993 Plan, were to reward certain  officers and key employees who have
been  employed  by the  Company  for a number of years  and to help the  Company
retain  these  officers  by  providing  them  with an  additional  incentive  to
contribute to the success of the Company.

     The 1993  Plan is to be  administered  by the  Board of  Directors  or by a
committee  designated by the Board. The terms of options granted or stock awards
or sales  effected  under  the 1993  Plan are to be  determined  by the Board of
Directors or its committee. The Plan provides that if the shares of common stock
shall be subdivided or combined into a greater or smaller number of shares or if
the Company  shall issue any shares of common  stock as a stock  dividend on its
outstanding  common stock, the number of shares of common stock deliverable upon
the exercise of options  shall be increased  or decreased  proportionately,  and
appropriate adjustments shall be made in the purchase price per share to reflect
such  subdivision,  combination or stock  dividend.  In addition,  the number of
shares of common  stock  reserved  for purposes of the Plan shall be adjusted by
the same  proportion.  No options may be  exercised  for a term of more than ten
years from the date of grant.

     Options  intended  as  incentive  stock  options  may  be  issued  only  to
employees,  and must meet certain  conditions  imposed by the code,  including a
requirement that the option exercise price be no less than the fair market value
of the  option  shares on the date of grant.  The 1993  Plan  provides  that the
exercise price for  non-qualified  options will be not less than at least 50% of
the fair  market  value of the stock  subject  to such  option as of the date of
grant of such options, as determined by the Company's Board of Directors.

     The 1993 Plan has a term of ten years.  The Board of Directors may amend or
terminate   the  1993  Plan  at  any  time,   subject  to  approval  of  certain
modifications  to the 1993 Plan by the  shareholders  of the  Company  as may be
required by law or the 1993 Plan. On November 7, 1996,  the Company  amended the
1993 Plan as  follows:  (i) to  increase  the number of shares of Class A common
stock  reserved for issuance  under the 1993 Plan from 300,000 Class A shares to
600,000  Class A shares;  and (ii) to provide that the stock subject to options,
awards and purchases may include Class C common stock.  On October 14, 1999, the
Company amended the 1993 Plan to increase the number of shares of Class A common
stock  reserved  for  issuance  under  the plan from  746,126  Class A shares to
1,046,126  Class A  shares.  The Plan  terminated  in 2003 and  options  granted
thereunder are non-transferable.

2000 Director Stock Option Plan

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

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


<PAGE>



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

2003 Stock Option Plan

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

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

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

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

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

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

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


<PAGE>



     Based  solely on its review of the copies of stock  reports  received by it
with respect to fiscal 2004, or written  representations  from certain reporting
persons,  the Company  believes that all filing  requirements  applicable to its
directors,  officers and greater than 10% beneficial  owners were compiled with,
except  that  George R.  Quist,  Chairman  and Chief  Executive  Officer  of the
Company,  through  an  oversight,  filed  one late Form 4 report  reporting  the
purchase of shares of Class A common stock in one transaction.

Certain Relationships and Related Transactions

     On December 19, 2001,  the Company  entered into an option  agreement  with
Monument Title,  LLC, a Utah limited liability company in which the Company made
available a $100,000 line of credit to Monument  Title at an interest rate of 8%
per annum.  The line of credit is secured by the assets of Monument Title.  From
December 28, 2001 to June 14, 2002, the Company advanced  Monument Title a total
of $77,953  under the line of  credit.  The  amount  advanced  under the line of
credit plus  accrued  interest  are payable  upon  demand.  Ron Motzkus and Troy
Lashley,  who own  90% and 10% of the  outstanding  shares  of  Monument  Title,
respectively,  are  brother-in-laws  of  Scott M.  Quist,  President  and  Chief
Operating  Officer of the  Company.  The  Company has the right under the option
agreement  for a period of five years from the date  thereof to acquire  100% of
the outstanding  common shares of Monument Title for the sum of $10. The purpose
of the transaction,  which was approved by the Company's Board of Directors,  is
to  insure  that the title and  escrow  work  performed  for  Security  National
Mortgage  Company  in  connection  with its  mortgage  loans  are  completed  as
accurately  as possible by Monument  Title to avoid any  economic  losses to the
Company.

     On  November  1, 2004,  the  Company  entered  into an  Agreement  to Repay
Indebtedness and to Convey Option with Monument Title and Mr. Motzkus. Under the
terms of the  agreement,  Monument  Title  agreed to pay the  Company a total of
$94,177, representing the total of $77,953 that the Company advanced to Monument
Title under the line of credit,  plus interest  thereon,  within seven days from
the date of the  agreement.  Monument  Title  paid the  $94,177  to the  Company
pursuant  to the  agreement.  In  addition,  the  Company  agreed to release its
interest  in the option  agreement  to acquire  100% of the  outstanding  common
shares of Monument  Title,  in  consideration  for the payment of an  additional
$94,177.  Monument  Title is to pay the  additional  $94,177  to the  Company in
minimum  payments of $500 per month for the first twelve  months  following  the
date of the  agreement,  with  additional  payments  of $1,000 per month for the
second twelve months  following the date of the agreement.  After the 24th month
following the date of the agreement, the outstanding balance is to bear interest
at the three-year  treasury rate plus one percent.  The minimum  payment for the
third year is $1,500 per  month,  the  minimum  payment  for the fourth  year is
$2,000 per month and the minimum payment for the fifth year is $2,500 per month.
Any remaining unpaid balance,  including  interest,  shall be due and payable at
the conclusion of the 60th month from the date of the agreement.

     On December 26, 2003,  Security  National  Life entered into a  coinsurance
agreement  and a modified  coinsurance  agreement  with  Southern  Security Life
Insurance  Company,  effective  September  30,  2003.  Under  the terms of these
agreements, Southern Security Life Insurance Company ceded 50% of certain blocks
of its universal life business to Security  National Life. The total liabilities
reinsured  for this  business  on  October  1, 2003 were  $22,195,259.  Southern
Security  Life  Insurance  Company  received a ceding  commission  from Security
National Life of $3,200,000 and will pay a risk charge to Security National Life
of 1% of the outstanding  coinsurance per calendar  quarter.  Southern  Security
Life Insurance  Company placed investment grade bonds in a bank trust, the value
of which equal the  outstanding  liabilities  ceded to Security  National  Life.
Security  National Life is named as a beneficiary of the trust, and the terms of
the trust are such that Southern  Security Life Insurance  Company will maintain
investment grade bonds in the trust to equal the outstanding  liabilities  ceded
to Security National Life.

     Under the coinsurance agreement and the modified coinsurance agreement, the
coinsurance  and the decrease in reserves are equal in amount.  Under U. S. GAAP
the  coinsurance  and the reserve  decreases are netted since these are non-cash
items,  and Southern  Security Life Insurance  Company  expects to recapture the
coinsurance  from future profits of the reinsured  business.  Southern  Security
Life Insurance Company has the right to recapture the business at any time after

<PAGE>


September 30, 2004,  upon 90 days advance  notice.  As of December 31, 2004, the
outstanding coinsurance amount was $2,426,107.  Southern Security Life Insurance
Company  recorded  as an  expense  the risk  charge of  $112,315  for 2004.  The
coinsurance  agreements  have  remained in effect  following  completion  of the
merger of SSLIC Holding Company into Southern  Security Life Insurance  Company.
As a result,  the  coinsurance  agreements have not been impacted or affected by
the completion of such merger.

     On December 28, 2004,  Security  National  Life entered into a  coinsurance
agreement  and a modified  coinsurance  agreement  with  Southern  Security Life
Insurance  Company,  effective  October  1,  2004.  Under  the  terms  of  these
agreements, Southern Security Life Insurance Company ceded 25% of certain blocks
of its universal life business to Security  National Life. The total liabilities
reinsured  for this  business  on  October  1, 2004 were  $11,010,599.  Southern
Security  Life  Insurance  Company  received a ceding  commission  from Security
National Life of $1,200,000 and will pay a risk charge to Security National Life
of 1% of the outstanding  coinsurance per calendar  quarter.  Southern  Security
Life Insurance  Company placed investment grade bonds in a bank trust, the value
of which equal the  outstanding  liabilities  ceded to Security  National  Life.
Security  National Life is named as a beneficiary of the trust, and the terms of
the trust are such that Southern  Security Life Insurance  Company will maintain
investment grade bonds in the trust to equal the outstanding  liabilities  ceded
to Security National Life.

     Under the coinsurance agreement and the modified coinsurance agreement, the
coinsurance  and the decrease in reserves are equal in amount.  Under U. S. GAAP
the  coinsurance  and the reserve  decreases are netted since these are non-cash
items,  and Southern  Security Life Insurance  Company  expects to recapture the
coinsurance  from future profits of the reinsured  business.  Southern  Security
Life Insurance Company has the right to recapture the business at any time after
September 30, 2005,  upon 120 days advance  notice.  As of December 31, 2004 the
outstanding coinsurance amount was $1,157,886.  Southern Security Life Insurance
Company  recorded  as an  expense  the risk  charge of  $12,000  for  2004.  The
coinsurance  agreements  have  remained in effect  following  completion  of the
merger of SSLIC Holding Company into Southern  Security Life Insurance  Company.
As a result,  the  coinsurance  agreements have not been impacted or affected by
the completion of such merger.

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


<PAGE>



         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  following  table  sets forth  security  ownership  information  of the
Company's Class A and Class C common stock as of March 31, 2005, (i) for persons
who own beneficially more than 5% of the Company's  outstanding Class A or Class
C common stock,  (ii) each director of the Company,  and (iii) for all executive
officers and directors of the Company as a group.


<PAGE>
<TABLE>
<CAPTION>


                                                                                                     Class A and
                                            Class A                          Class C                   Class C
                                         Common Stock                     Common Stock              Common Stock
                                         ------------                     ------------              ------------
                                   Amount                           Amount                           Amount
                                Beneficially       Percent       Beneficially        Percent      Beneficially    Percent
Name and Address (1)                Owned         of Class           Owned          of Class          Owned      of Class
- -----------------                  -------        --------           -----          --------          -----      --------
<S>                               <C>              <C>            <C>                 <C>        <C>               <C>
George R. and Shirley C. Quist
  Family Partnership, Ltd. (2)     426,375          7.0%          3,358,687            52.6%     3,785,062          28.1%
Employee Stock
  Ownership Plan (3)               577,183          9.5%          1,553,041            24.3%     2,130,224          15.8%
George R. Quist (4)(5)(7)(8)       449,945          7.4%            470,581             7.4%       920,526           6.8%
Scott M. Quist (4)(7)(9)           347,885          5.7%          1,307,079            20.5%     1,654,964          12.3%
Associated Investors (10)           92,798          1.5%            655,610            10.3%       748,408           5.5%
G. Robert Quist (6)(11)            112,300          1.9%            244,052             3.8%       356,352           2.6%
J. Lynn Beckstead, Jr., (6)(12)    104,193          1.7%            --                  *          104,193            *
Stephen M. Sill (6)(13)             58,087          1.0%            --                  *           58,087            *
Christie Q. Overbaugh (14)          56,979          *               105,501             1.7%       162,480           1.2%
Robert G. Hunter, M.D., (4)(15)      7,296          *               --                  *            7,296            *
Norman G. Wilbur (16)                5,962          *               --                  *            5,962            *
Charles L. Crittenden (17)           5,921          *               --                  *            5,921            *
H. Craig Moody (18)                  5,678          *               --                  *            5,678            *
All directors and executive officers
  (10 persons) (4)(5)(6)(7)      1,580,621         26.1%          5,485,500            86.0%     7,066,521          52.4%

*   Less than 1%
</TABLE>


<PAGE>



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

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

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

     (4)  Does not include  577,183 shares of Class A common stock and 1,553,041
          shares of Class C common stock owned by the Company's  Employee  Stock
          Ownership  Plan (ESOP),  of which  George R Quist,  Scott M. Quist and
          Robert G. Hunter are the trustees  and  accordingly,  exercise  shared
          voting and investment powers with respect to such shares.

     (5)  Does not  include  92,798  shares of Class A common  stock and 655,611
          shares of Class C common stock owned by Associated  Investors,  a Utah
          general partnership,  of which George R. Quist is the managing partner
          and,  accordingly,  exercises sole voting and  investment  powers with
          respect to such shares.


<PAGE>



     (6)  Does not include  252,757  shares of Class A common stock owned by the
          Company's 401(k) Retirement Savings Plan, of which G. Robert Quist, J.
          Lynn  Beckstead,  and  Stephen M. Sill are  members of the  Investment
          Committee  and,  accordingly,  exercise  shared voting and  investment
          powers with respect to such shares.

     (7)  Does not include  140,573  shares of Class A common stock owned by the
          Company's  Deferred  Compensation  Plan,  of which George R. Quist and
          Scott  M.  Quist  are  members  of  the   Investment   Committee  and,
          accordingly, exercise shared voting and investment powers with respect
          to such shares.

     (8)  Includes  options to purchase  153,620  shares of Class A common stock
          granted  to George R.  Quist that are  currently  exercisable  or will
          become exercisable within 60 days of March 31, 2005.

     (9)  Includes options to purchase 77,175 shares of Class A common stock and
          1,050,000  shares of Class C common  stock  granted  to Scott M. Quist
          that are currently  exercisable or will become  exercisable  within 60
          days of March 31, 2005.

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

     (11) Includes  options to purchase  49,088  shares of Class A common  stock
          granted to G.  Robert  Quist that are  currently  exercisable  or will
          become exercisable within 60 days of March 31, 2005.

     (12) Includes  options to purchase  21,788  shares of Class A common  stock
          granted to Mr. Beckstead that are currently exercisable or will become
          exercisable within 60 days of March 31, 2005.

     (13) Includes  options to  purchase  5,250  shares of Class A common  stock
          granted to Mr.  Sill that are  currently  exercisable  or will  become
          exercisable within 60 days of March 31, 2005.

     (14) Includes  options to  purchase  7,875  shares of Class A common  stock
          granted to Ms. Overbaugh that are currently exercisable or will become
          exercisable within 60 days of March 31, 2005.

     (15) Includes  options to  purchase  4,753  shares of Class A common  stock
          granted to Mr.  Hunter that are currently  exercisable  or will become
          exercisable within 60 days of March 31, 2005.

     (16) Includes  options to  purchase  4,753  shares of Class A common  stock
          granted to Mr.  Wilbur that are currently  exercisable  or will become
          exercisable within 60 days of March 31, 2005.

     (17) Includes  options to  purchase  1,103  shares of Class A common  stock
          granted  to Mr.  Crittenden  that are  currently  exercisable  or will
          become exercisable within 60 days of March 31, 2005.

     The  Company's  officers  and  directors,  as  a  group,  own  beneficially
approximately 52.4% of the outstanding shares of the Company's Class A and Class
C common stock.


<PAGE>



                      REPORT OF THE COMPENSATION COMMITTEE

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

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

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

     Base  Salary.  Base  salaries  for  executive  officers  are set at  levels
believed by the  Compensation  Committee to be  sufficient to attract and retain
qualified  executive  officers.  Base pay  increases  are  provided to executive
officers based on an evaluation of each executive's performance,  as well as the
performance  of the  Company as a whole.  In  establishing  base  salaries,  the
Compensation  Committee  not only  considers the  financial  performance  of the
Company,  but also the  success of the  executive  officers  in  developing  and
executing the Company's  strategic plans,  developing  management  employees and
exercising  leadership.  The  Compensation  Committee  believes  that  executive
officer base  salaries for 2004 were  reasonable  as compared to amounts paid by
companies of similar size.

     Annual Incentive.  The Compensation  Committee  believes that a significant
proportion of total cash  compensation for executive  officers should be subject
to attainment of specific Company financial performance. This approach creates a
direct incentive for executive officers to achieve desired performance goals and
places a significant  percentage of each  executive  officer's  compensation  at
risk.  Consequently,  each year the Compensation Committee establishes potential
bonuses for executive  officers  based on the Company's  achievement  of certain
financial  performance.  The  Compensation  Committee  believes  that  executive
officer annual  bonuses for 2004 were  reasonable as compared to amounts paid by
companies of similar size.

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


<PAGE>



     Compensation  of Chief  Executive  Officer.  Consistent  with the executive
compensation policy and components  described above, the Compensation  Committee
determined the salary,  bonus and stock options received by George R. Quist, the
Chairman of the Board and Chief Executive  Officer of the Company,  for services
rendered in 2004. Mr. Quist received a base salary of $165,600 for 2004. He also
received an annual bonus of $50,000 and stock options to purchase 100,000 shares
of the Company's Class A common stock, of which 50,000 shares are exercisable at
$3.96 per share and 50,000 shares are exercisable at $3.55 per share.  Under the
Compensation  Committee's  rules, the Chief Executive Officer may not be present
during voting or deliberations related to his compensation.

                             COMPENSATION COMMITTEE

                             Charles L. Crittenden, Chairman
                             Robert G. Hunter, M.D.
                             H. Craig Moody
                             Norman G. Wilbur

                          REPORT OF THE AUDIT COMMITTEE

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

     During  the year  2004,  the  Audit  Committee  met four  times.  The Audit
Committee has met with management and discussed the Company's internal controls,
the quality of the Company's  financial  reporting,  the results of internal and
external audit examinations,  and the audited financial statements. In addition,
the Audit Committee met with the Company's former independent  auditors,  Tanner
LC, and discussed all matters  required to be discussed by the auditors with the
Audit Committee under Statement on Auditing Standards No. 61 (communication with
audit committees).  The Audit Committee reviewed and discussed with the auditors
their  annual  written  report on their  independence  from the  Company and its
management,  which is made under  Independence  Standards  Board  Standard No. 1
(independence  discussions  with  audit  committees),  and  considered  with the
auditors  whether the  provision of  financial  information  systems  design and
implementation  and other  non-audit  services  provided  by them to the Company
during 2004 was compatible with the auditors' independence.

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

     Pursuant  to  the  reviews  and  discussions  described  above,  the  Audit
Committee  recommended  to the Board of  Directors  that the  audited  financial
statements  be  included  in the  Company's  Annual  Report on Form 10-K for the
fiscal year ended December 31, 2004, for filing with the Securities and Exchange
Commission.

                                      AUDIT COMMITTEE

                                      Norman G. Wilbur, Chairman
                                      Charles L. Crittenden
                                      H. Craig Moody



<PAGE>



                         COMPANY STOCK PRICE PERFORMANCE

     This graph below compares the cumulative  total  stockholder  return of the
Company's Class A common stock with the cumulative  total return on the Standard
& Poor's  500 Stock  Index and the  Standard  & Poor's  Insurance  Index for the
period from December 31, 1999 through  December 31, 2004. The graph assumes that
the value of the investment in the Company's Class A common stock and in each of
the  indexes  was  100 at  December  31,  1999,  and  that  all  dividends  were
reinvested.

     The comparisons in the graph below are based on historical data and are not
intended to forecast the possible  future  performance of the Company's  Class A
common stock.
<TABLE>
<CAPTION>

                        December 31,      December 31,       December 31,       December 31,    December 31,   December 31,
                            1999             2000             2001               2002            2003            2004
                            ----             ----             ----               ----            ----            ----
<S>                          <C>              <C>              <C>               <C>               <C>           <C>
Security National
   Financial Corporation     100               70               81                216               262           117
S&P 500                      100               90               78                 60                76            82
S&P Insurance Index          100              133              116                 91               108           115
</TABLE>


<PAGE>




     The  graph set forth  above is  required  by the  Securities  and  Exchange
Commission  and  shall  not be deemed to be  incorporated  by  reference  by any
general  statement  incorporating  by reference  this proxy  statement  into any
filing under the  Securities  Act of 1933, as amended,  or under the  Securities
Exchange  Act of 1934,  as  amended,  except  to the  extent  that  the  Company
specifically incorporates this information by reference, and shall not otherwise
be deemed soliciting material or filed under such acts.

          RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS

                                   PROPOSAL 2

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

     The Board of Directors recommends that stockholders vote "FOR" ratification
of the  appointment  of  Hansen,  Barnett  &  Maxwell,  P.C.  as  the  Company's
registered  public  independent  accountants for fiscal year ending December 31,
2005.

                AUDIT FEES, FINANCIAL INFORMATION SYSTEMS DESIGN
                   AND IMPLEMENTATION FEES AND ALL OTHER FEES

     Fees for the year 2004 for the annual audit of the financial statements and
employee  benefit  plans and  related  quarterly  reviews  by Tanner  L.C.,  the
Company's former registered public independent  accountants,  were approximately
$262,000. There were $19,000 in other fees during 2004.


<PAGE>



                                  OTHER MATTERS

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

                     ANNUAL REPORT AND FINANCIAL STATEMENTS

     Stockholders  are  referred  to  the  Company's  annual  report,  including
financial  statements,  for the fiscal year ended  December 31, 2004. The annual
report is  incorporated in this Proxy Statement and is not to be considered part
of the  soliciting  material.  The Company will provide,  without charge to each
stockholder  upon written  request,  a copy of the Company's  Annual Report Form
10-K as filed with the  Securities  and Exchange  Commission for the fiscal year
ended  December 31, 2004.  Such requests  should be directed to G. Robert Quist,
First Vice  President and  Secretary,  at P.O. Box 57250,  Salt Lake City,  Utah
84157-0250.

                 DEADLINE FOR RECEIPT OF STOCKHOLDER'S PROPOSALS
                   FOR ANNUAL MEETING TO BE HELD IN JULY 2006

     Any proposal by a stockholder  to be presented at the Company's next Annual
Meeting of Stockholders expected to be held in July 2006 must be received at the
offices of the Company,  P.O. Box 57250,  Salt Lake City,  Utah  84157-0250,  no
later than March 31, 2006.

                                   By order of the Board of Directors,


                                   G. Robert Quist
                                   First Vice President and Secretary
June 7, 2005
Salt Lake City, Utah


<PAGE>



             PROXY - SECURITY NATIONAL FINANCIAL CORPORATION - PROXY
                THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
                              CLASS C COMMON STOCK

     The undersigned Class C common  stockholder of Security National  Financial
Corporation (the "Company") acknowledges receipt of the Notice of Annual Meeting
of the Stockholders to be held on Friday,  July 8, 2005, at 5300 South 360 West,
Suite 250,  Salt Lake City,  Utah, at 10:00 a.m.  Mountain  Daylight  Time,  and
hereby appoints Messrs.  George R. Quist, Scott M. Quist and G. Robert Quist, or
any of them, each with full power of  substitution,  as attorneys and proxies to
vote all the shares of the  undersigned at said Annual  Meeting of  Stockholders
and at all adjournments or postponements thereof,  hereby ratify and confirm all
that said attorneys and proxies may do or cause to be done by virtue hereof. The
above-named   attorneys   and  proxies  are   instructed  to  vote  all  of  the
undersigned's shares as follows:

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

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



<PAGE>




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

             Charles L. Crittenden, Robert G. Hunter, M.D., Scott M. Quist
                      George R. Quist and Norman G. Wilbur

2.   To ratify  the  appointment  of  Hansen,  Barnett &  Maxwell,  P.C.  as the
     Company's  registered  public  independent  accountants for the fiscal year
     ending December 31, 2005;

                   [  ]  FOR                  [  ]  AGAINST

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


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

Dated                                                       , 2005
      ------------------------------------------------------

- -----------------------------------------
Signature of Stockholder

- ------------------------------------------
Signature of Stockholder

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

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


<PAGE>


             PROXY - SECURITY NATIONAL FINANCIAL CORPORATION - PROXY
                THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
                              CLASS A COMMON STOCK

     The undersigned Class A common  stockholder of Security National  Financial
Corporation (the "Company") acknowledges receipt of the Notice of Annual Meeting
of the Stockholders to be held on Friday,  July 8, 2005, at 5300 South 360 West,
Suite 250, Salt Lake City,  Utah, at 10:00 a.m.,  Mountain  Daylight  Time,  and
hereby appoints Messrs.  George R. Quist, Scott M. Quist and G. Robert Quist, or
any of them, each with full power of  substitution,  as attorneys and proxies to
vote all the shares of the  undersigned at said Annual  Meeting of  Stockholders
and at all adjournments or postponements  thereof,  hereby ratify and confirming
all that said attorneys and proxies may do or cause to be done by virtue hereof.
The  above-named  attorneys  and  proxies  are  instructed  to  vote  all of the
undersigned's shares as follows:

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

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

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

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

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

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

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

            Charles L. Crittenden, Robert G. Hunter, M.D., George R. Quist
                      Scott M. Quist, and Norman G. Wilbur

3.   To ratify  the  appointment  of  Hansen,  Barnett &  Maxwell,  P.C.  as the
     Company's  registered  public  independent  accountants for the fiscal year
     ending December 31, 2005;

                     [  ]  FOR                 [  ]  AGAINST

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

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

Dated                                                                 , 2005
      ----------------------------------------------------------------

- -----------------------------------------
Signature of Stockholder

- -----------------------------------------
Signature of Stockholder

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

NOTE:  Securities  dealers or other  representatives  please state the number of
shares voted by this Proxy.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-20
<SEQUENCE>2
<FILENAME>presltr.txt
<TEXT>
My Fellow Shareholders:

     I am pleased to report to you on the  affairs of the  Company  for the year
ended December 31, 2004 and invite you to attend the annual stockholders meeting
to be held on July 8, 2005 at the Company's home office in Salt Lake City, Utah.

     2004  was a year  marked  by  transition  for our  Company.  Some  selected
statistics  are  instructive:   In  2004  Cemetery  and  Mortuary  profitability
increased 152% to $1,286,000 on a 6.55% revenue  increase to  $11,661,000;  Life
insurance  profitability  decreased 4% to  $1,933,000  on a revenue  increase of
11.5% to $25,979,000; Mortgage operations resulted in a loss of $562,000, versus
a profit of $6,943,000 in 2003, on a 32% revenue  decrease to $62,689,000.  Cash
flow was sufficient  that we reduced our outside  indebtedness by 32% paying off
some $4,600,000 in debt.

     The  results  in  our  memorial   operations   reflect  the   profitability
initiatives  of the past several  years.  That segment still faces  considerable
challenges  in the  market  transition  from  in  ground  burial  to  cremation.
Cremation  is neither more nor less  profitable  than  traditional  dispositions
depending upon the level of services requested.  Our continuing  challenge is to
train our staff to be attuned to the service needs of the cremation customer.

     Our life  insurance  segment  has done very  well  marketing  its  products
recording significant gains in year over year first year premium sales. This has
occurred  in  both  our  funeral  planning  and  higher  education   markets.  A
considerable  factor in profitability  has been the persistent low interest rate
environment.   The  current  low  interest  rates  are  approaching  our  policy
contractual  minimums,   which  has  reduced  our  interest  rate  spreads  thus
negatively impacting  profitability.  We have undertaken a number of initiatives
to increase our earned interest rates including  opening a construction  lending
operation,  increasing  our commercial  real estate  lending  activities and our
"Fast Funding" insurance policy factoring program. Still, the low interest rates
remain problematical.

     The  interest  rate  environment  also  continues  to impact  our  mortgage
operations.  As interest  rates have  leveled  off we have seen our  origination
volumes  decrease  by 40%.  This  has  been in line  with  industry  experience.
Correspondingly, we have seen a decrease in the margins we are able to attain in
our secondary operations as we sell our completed loans. Our current strategy is
to  maintain  our  existing  18  branches  and bring  each to  profitability  by
increasing their  respective  sales forces.  This strategy to date has met mixed
results,  however, we believe that over the longer term this strategy will yield
positive results.

     Thank you for your continued confidence in our Company.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-19
<SEQUENCE>3
<FILENAME>annrpt.txt
<TEXT>

                     SECURITY NATIONAL FINANCIAL CORPORATION






                   MANAGEMENT REPORT AND FINANCIAL INFORMATION


The consolidated financial statements of Security National Financial Corporation
and all information in the annual report are the  responsibility  of management.
The  statements  have  been  prepared  in  conformity  with  generally  accepted
accounting  principles  generally  accepted  in  the  United  States.  Financial
information elsewhere in this report is consistent with that in the consolidated
financial statements. The consolidated financial statements have been audited by
the independent  registered  public accounting firm of Tanner LC. Its role is to
render an  independent  professional  opinion  on  Security  National  Financial
Corporation's financial statements.

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

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


<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM















To the Board of Directors and Stockholders
of Security National Financial Corporation

We have audited the accompanying consolidated balance sheet of Security National
Financial Corporation and subsidiaries as of December 31, 2004 and 2003, and the
related  consolidated  statements of earnings,  stockholders'  equity,  and cash
flows for the three years in the period ended  December 31, 2004.  In connection
with our audits of the consolidated  financial statements,  we have also audited
the amounts included in the consolidated financial statement schedules as listed
in the accompanying index under Item 8. These consolidated  financial statements
and  schedules  are  the  responsibility  of  the  Company's   management.   Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements and schedules based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Security National Financial Corporation and subsidiaries as of December 31, 2004
and 2003, and the consolidated  results of their operations and their cash flows
for the three years in the period ended  December 31, 2004, in  conformity  with
accounting principles generally accepted in the United States of America.  Also,
in our opinion,  the related consolidated  financial statement  schedules,  when
considered in relation to the basic consolidated financial statements taken as a
whole,  present  fairly,  in all material  respects,  the  information set forth
therein.





/s/   TANNER  LC

Salt Lake City, Utah
March 31, 2005


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
<TABLE>
<CAPTION>




                                                                  December 31,
Assets:                                                      2004               2003
- -------                                                      ----               ----
<S>                                                      <C>              <C>
Insurance-related investments:
Fixed maturity securities
  held to maturity, at amortized cost (market
  $72,330,878 and $38,624,978 for 2004 and 2003)          $69,984,761      $37,293,989
Fixed maturity securities available
  for sale, at market (cost $10,486,309 in 2004
  and $13,214,057 in 2003)                                 11,066,025       14,270,037
Equity securities available for sale,
  at market (cost $2,037,249 and $1,981,461
  for 2004 and 2003)                                        4,166,769        3,453,444
Mortgage loans on real estate and construction loans,
  net of allowances for losses of $254,893
  and $14,893 for 2004 and 2003                            65,831,586       29,914,745
Real estate, net of accumulated
  depreciation and allowances for
  losses of $4,408,030 and $4,059,934
  for 2004 and 2003                                         9,709,129        8,519,680
Policy, student and other loans                            13,312,471       11,753,617
Short-term investments                                      4,628,999        2,054,248
                                                        -------------    -------------
     Total insurance-related investments                  178,699,740      107,259,760
                                                        -------------    -------------
Restricted assets of cemeteries and mortuaries              5,176,463        4,745,709
                                                        -------------    -------------
Cash                                                       15,333,668       19,704,358
                                                        -------------    -------------
Receivables:
  Trade contracts                                           5,333,891        5,173,964
  Mortgage loans sold to investors                         47,167,150      114,788,185
  Receivable from agents                                    1,416,211        1,318,958
  Receivable from officers                                      1,540           37,540
  Other                                                     1,120,157        1,086,523
                                                        -------------    -------------
     Total receivables                                     55,038,949      122,405,170
  Allowance for doubtful accounts                          (1,302,368)      (1,706,678)
                                                        -------------    -------------
  Net receivables                                          53,736,581      120,698,492
                                                        -------------    -------------
Policyholder accounts on deposit
  with reinsurer                                            6,689,422        6,795,983
Cemetery land and improvements held for sale                8,547,764        8,387,061
Accrued investment income                                   1,743,721        1,142,690
Deferred policy and pre-need
  contract acquisition costs                               20,181,818       17,202,489
Property and equipment, net                                10,520,665       11,009,416
Cost of insurance acquired                                 14,053,497       14,980,763
Excess of cost over net assets
  of acquired subsidiaries                                    683,191          683,191
Other                                                       1,107,230          873,424
                                                        -------------    -------------
     Total assets                                        $316,473,760     $313,483,336
                                                        =============    =============
</TABLE>



See accompanying notes to consolidated financial statements.


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet (Continued)




                                                           December 31,
                                                     2004              2003
                                                     ----              ----

Liabilities:
- ------------
Future life, annuity, and other
  policy benefits                               $224,529,539     $218,793,693
Unearned premium reserve                           2,254,991        1,945,203
Bank loans payable                                10,442,106       14,422,670
Notes and contracts payable                        2,888,539        3,440,694
Deferred pre-need cemetery and funeral
 contract revenues                                10,762,357       10,520,280
Accounts payable                                   1,064,269        1,274,183
Funds held under reinsurance treaties              1,184,463        1,294,589
Other liabilities and accrued expenses             6,371,343        7,745,120
Income taxes                                      11,497,967       10,914,845
                                               -------------    -------------
     Total liabilities                           270,995,574      270,351,277
                                               -------------    -------------

Commitments and contingencies                       --               --
                                               -------------    -------------

Minority interest                                 3,813,346        3,956,628
                                               ------------    -------------

Stockholders' Equity:
Common stock:
  Class A: $2 par value, authorized
         10,000,000 shares, issued 6,755,870
         shares in 2004 and 6,275,104 shares
         in 2003                                13,511,740       12,550,208
  Class C:  convertible, $0.20 par value,
         authorized 7,500,000 shares,
         issued 6,468,199 shares in 2004
         and 6,469,638 shares in 2003            1,293,641        1,293,927
                                              ------------    -------------
     Total common stock                         14,805,381       13,844,135
Additional paid-in capital                      14,922,851       13,569,582
Accumulated other comprehensive (loss)
  and other items, net of deferred taxes
  of $445,761 and $274,091 for 2004 and
  2003, respectively                               (11,352)        (437,973)
Retained earnings                               15,365,259       15,414,681
Treasury stock at cost (1,315,075 Class A shares
     and 79,103 Class C shares in 2004;
     1,276,518 Class A shares and 75,336
     Class C shares in 2003, held
     by affiliated companies)                   (3,417,299)      (3,214,994)
                                             -------------    -------------
     Total stockholders' equity                 41,664,840       39,175,431
                                             -------------    -------------
         Total liabilities and
         stockholders' equity                 $316,473,760     $313,483,336
                                             =============    =============

See accompanying notes to consolidated financial statements.


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Earnings
<TABLE>
<CAPTION>




                                                            Years Ended December 31,
                                                            ------------------------
                                                    2004             2003             2002
Revenues:                                           ----             ----             ----
- ---------
<S>                                             <C>              <C>              <C>
Insurance premiums and other considerations     $25,979,341      $23,294,373      $14,076,652
Net investment income                            15,939,176       17,302,597       12,539,430
Net mortuary and cemetery sales                  11,661,053       10,944,365       10,638,754
Realized gains (losses) on investments
  and other assets                                   74,431           (2,155)       1,020,820
Mortgage fee income                              62,689,391       92,955,165       57,008,283
Other                                               854,425          550,064          479,424
                                              -------------    -------------    -------------
  Total revenue                                 117,197,817      145,044,409       95,763,363
                                              -------------    -------------    -------------

Benefits and expenses:
Death benefits                                   13,248,960       13,315,266        5,637,217
Surrenders and other policy benefits              1,291,621        1,726,275        2,086,829
Increase in future policy benefits                8,821,497        6,712,961        6,031,685
Amortization of deferred
  policy and pre-need acquisition
  costs and cost of insurance acquired            4,602,072        4,929,006        3,993,393
General and administrative expenses:
  Commissions                                    48,690,807       67,536,703       42,114,240
  Salaries                                       14,391,958       14,079,908       10,414,392
  Other                                          19,014,776       21,309,897       15,930,804
Interest expense                                  2,173,778        3,642,046        1,970,342
Cost of goods and services sold of the
  mortuaries and cemeteries                       2,303,821        2,327,475        2,045,476
                                              -------------    -------------    -------------

  Total benefits and expenses                   114,539,290      135,579,537       90,224,378
                                              -------------    -------------    -------------

Earnings before income taxes                      2,658,527        9,464,872        5,538,985
Income tax expense                                 (651,536)      (2,890,669)      (1,565,393)
Minority interest                                   115,281           22,294           17,688
                                              -------------    -------------    -------------
  Net earnings                                   $2,122,272       $6,596,497       $3,991,280
                                              =============    =============    =============

Net earnings per common share (1)                      $.35            $1.13             $.72
                                                       ====            =====             ====

  Weighted average
    outstanding common shares (1)                 6,001,861        5,851,814        5,572,783

Net earnings per common share
  assuming dilution (1)                                $.34            $1.10             $.69
                                                       ====            =====             ====

  Weighted average outstanding common
    shares assuming dilution (1)                  6,217,951        6,003,773        5,744,154

</TABLE>

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

See accompanying notes to consolidated financial statements.


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>




                                                                            Accumulated
                                                                               Other
                                                             Additional    Comprehensive
                                    Class           Class      Paid-in      Income (loss),   Retained   Treasury
                                      A               C        Capital    and Other Items    Earnings     Stock      Total
                                  --------         -------    ---------   ---------------    --------     -----      -----
<S>                             <C>             <C>          <C>          <C>            <C>           <C>          <C>
Balance  as of  January 1, 2002 $10,727,182     $1,222,686   $10,168,523   $ 1,223,930    $9,989,230   $(3,362,233)  $29,969,318
Comprehensive income:
  Net earnings                       --             --           --             --         3,991,280        --         3,991,280
  Unrealized losses                  --             --           --            (32,067)        --           --           (32,067)
                                                                                                                     -----------
Total comprehensive income           --             --           --             --             --           --         3,959,213
                                                                                                                     -----------
Stock dividends                     552,024         58,883       690,316        --        (1,301,223)       --             --
Conversion Class C to Class A        45,036       (45,036)         --           --             --           --             --
Exercise of stock options           264,742        --            422,003        --          (686,745)       --             --
Sale of treasury stock               --                --          --           --             --          584,880       584,880
                                -----------     ----------   -----------   -----------   -----------   -----------   -----------
Balance at December 31, 2002    $11,588,984     $1,236,533   $11,280,842   $ 1,191,863   $11,992,542   $(2,777,353)  $34,513,411
                                -----------     ----------   -----------   -----------   -----------   -----------   -----------

Comprehensive income:
  Net earnings                  $    --         $   --       $   --        $    --       $ 6,596,497   $    --       $ 6,596,497
  Unrealized gains                   --             --           --            352,784        --            --           352,784
                                                                                                                     -----------
Total comprehensive income           --             --           --             --            --            --         6,949,281
                                                                                                                     -----------
Acquisition of Company Stock
  held in escrow (see note 17)       --             --           --         (1,982,620)      --             --        (1,982,620)
Stock dividends                     603,549         61,617     1,529,240        --        (2,194,406)       --             --
Conversion Class C to Class A         4,225         (4,223)          (2)        --            --            --             --
Exercise of stock options           353,450          --         759,502         --          (979,952)       --            133,000
Purchase of treasury stock           --              --           --            --            --          (437,641)      (437,641)
                                -----------     ----------   -----------  ------------   -----------  -------------   -----------
Balance at December 31, 2003    $12,550,208     $1,293,927   $13,569,582  $  (437,973)   $15,414,681   $(3,214,994)   $39,175,431
                                -----------     ----------   -----------  ------------   -----------   -----------    -----------

Comprehensive income:
  Net earnings                  $    --         $    --      $    --      $     --       $ 2,122,272   $    --        $ 2,122,272
  Unrealized gains                   --              --           --          426,621        --             --            426,621
                                                                                                                      -----------
Total comprehensive income           --              --           --            --           --             --          2,548,893
                                                                                                                      -----------
Exercise of stock options           255,776          --          775,801        --        (1,031,577)       --             --
Purchase of Treasury stock           --              --           --            --            --          (422,946)      (422,946)
Sale of Treasury stock               --              --          142,500        --            --           220,641        363,141
Stock dividends                    643,864          61,602       433,862        --         (1,139,328)      --             --
Conversion Class C to Class A       61,892         (61,888)        1,106        --               (789)      --                321
                               -----------      ----------   ----------   -----------     -----------  -----------    -----------
Balance at December 31, 2004   $13,511,740      $1,293,641   $14,922,851  $   (11,352)    $15,365,259  $(3,417,299)   $41,664,840
                               ===========      ==========   ===========  ============    ===========  ===========    ===========

</TABLE>

See accompanying notes to consolidated financial statements.


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>





                                                                              Years Ended December 31,
                                                                              ------------------------
                                                                     2004              2003                2002
                                                                     ----              ----                ----
Cash flows from operating activities:
<S>                                                             <C>                <C>                <C>
     Net earnings                                               $ 2,122,272        $  6,596,497       $  3,991,280
     Adjustments to reconcile net earnings
       to net cash provided by (used in) operating
      activities:
          Realized (gains) losses on investments
               and other assets                                     (74,431)              2,155         (1,020,820)
          Depreciation                                            2,013,113           1,866,924          1,553,399
          Provision for losses on real estate
              accounts and loans receivable                        (165,781)            225,072           (300,412)
          Amortization of premiums and discounts                     (2,489)             44,092            121,329
          Provision for deferred income taxes                       636,430           2,862,343            970,139
          Policy and pre-need acquisition costs deferred         (6,051,793)         (4,527,546)        (4,462,624)
          Policy and pre-need acquisition costs amortized         3,370,763           3,611,674          3,214,710
          Cost of insurance acquired amortized                    1,231,308           1,317,332            778,683
     Change in assets and liabilities net of effects from
         purchases and disposals of subsidiaries:
          Land and improvements held for sale                      (160,703)             42,154            626,688
          Future life and other benefits                          9,000,715           7,426,761          5,349,152
          Receivables for mortgage loans sold                    67,621,035         (25,333,080)       (38,760,032)
          Other operating assets and liabilities                 (2,624,510)          3,402,371            975,682
                                                            ---------------      --------------    ---------------
              Net cash provided by (used in)
              operating activities                               76,915,929          (2,463,251)       (26,962,826)
                                                             --------------      --------------      -------------
Cash flows from investing activities:
     Securities held to maturity:
          Purchase - fixed maturity securities                  (37,371,166)        (15,396,993)        (4,147,878)
          Calls and maturities - fixed maturity securities        6,293,614          11,147,744          8,025,610
     Securities available for sale:
          Purchases - equity securities                             (21,993)            (51,921)          (327,726)
          Sales - equity securities                               2,675,301           3,860,000          3,303,095
     Purchases of short-term investments                        (29,893,323)        (19,065,874)       (13,819,476)
     Sales of short-term investments                             26,731,711          22,347,104          9,937,642
     Purchases of restricted assets                                (262,195)            610,155            (56,899)
     Mortgage, policy, and other loans made                     (78,437,965)        (30,192,467)       (10,129,993)
     Payments received for mortgage, policy, and
          other loans                                            41,116,662          20,479,056          4,939,374
     Purchases of property and equipment                         (1,241,898)         (1,623,310)        (1,348,752)
     Cash received on sale of property and equipment                149,040             --                 --
     Purchases of real estate                                    (1,856,931)         (1,807,658)        (3,153,299)
     Cash paid for purchase of subsidiary                          (304,042)            --                 --
     Sale of real estate                                            352,054           2,287,831          2,825,666
     Cash received in assumed reinsurance transaction               --                  --              55,827,793
                                                              -------------       -------------     --------------
         Net cash (used in) provided by investing activities    (72,071,131)         (7,406,333)        51,875,157
                                                              -------------       -------------     --------------
</TABLE>

See accompanying notes to the consolidated financial statements.




<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows (Continued)
<TABLE>
<CAPTION>





                                                                            Years Ended December 31,
                                                                            ------------------------
                                                                     2004                2003               2002
                                                                     ----                ----               ----
Cash flows from financing activities:
<S>                                                               <C>                 <C>                <C>
     Annuity and pre-need contract receipts                       5,387,393           5,785,310          7,635,422
     Annuity and pre-need contract withdrawals                  (10,276,576)        (10,410,247)       (10,866,398)
     Repayment of bank loans and notes and
        contracts payable                                        (4,401,500)         (3,695,521)        (1,824,440)
     Proceeds from borrowing on notes and contracts                 135,000             --                 --
     Proceeds from borrowings on bank loans and notes
        and contracts payable                                       --                  --               9,000,000
     Stock options exercised                                        --                  133,000            --
     Purchase of Treasury stock                                    (422,946)           (437,641)           --
     Sale of treasury stock                                         363,141             --                 584,880
                                                              -------------      --------------      -------------
     Net cash (used in) provided by financing activities         (9,215,488)         (8,625,099)         4,529,464
                                                              -------------      --------------      -------------
Net change in cash                                               (4,370,690)        (18,494,683)        29,441,795
                                                              -------------       -------------       ------------
Cash at beginning of year                                        19,704,358          38,199,041          8,757,246
                                                               ------------       -------------      -------------
Cash at end of year                                            $ 15,333,668        $ 19,704,358        $38,199,041
                                                               ============        ============        ===========
</TABLE>

Supplemental Schedule of Cash Flow Information:

The following information shows the non-cash items in connection with the
assumption of reinsurance from Acadian Life Insurance Company on December 23,
2002:

     Liabilities assumed:
          Future life, annuity and other policy benefits         $74,199,194
     Less non-cash items:
          Cost of insurance acquired                              (9,106,309)
          Bonds received                                          (9,032,818)
          Policy loans received                                      (82,126)
          Premiums due and unpaid                                   (150,148)
                                                                 -----------
     Cash received                                               $55,827,793
                                                                 ===========

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

        Liabilities assumed:
              Future life, annuity and other policy benefits     $ 1,865,038
        Less non-cash items
              Cost of insurance acquired                            (304,042)
              Bonds received                                      (1,537,801)
              Common stock received                                 (326,325)
              Mortgage loans received                               (471,593)
              Real estate received                                   (32,668)
              Policy loans received                                  (28,180)
              Short-term investments                                 586,601
              Receivables                                            (13,589)
              Accrued investment income                              (24,983)
              Property, plant and equipment                          (16,500)
                                                                  ----------
              Cash paid                                          $  (304,042)
                                                                 ===========

See accompanying notes to the consolidated financial statements.


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



1)  Significant Accounting Principles

General Overview of Business

Security National  Financial  Corporation and its wholly owned subsidiaries (the
"Company")  operates in three main business segments;  life insurance,  cemetery
and mortuary,  and mortgage loans. The life insurance  segment is engaged in the
business of selling and  servicing  selected  lines of life  insurance,  annuity
products  and  accident  and  health   insurance   marketed   primarily  in  the
intermountain west, California,  Florida,  Mississippi,  Oklahoma and Texas. The
cemetery  and mortuary  segment of the Company  consists of five  cemeteries  in
Utah, one cemetery in California,  eight  mortuaries in Utah and four mortuaries
in  Arizona.  The  mortgage  loan  segment  is  an  approved   governmental  and
conventional  lender that originates and underwrites  residential and commercial
loans for new construction, existing homes and real estate projects primarily in
Arizona, California, Colorado, Florida, Nevada, Texas and Utah.

Basis of Presentation

The  accompanying  consolidated  financial  statements  have  been  prepared  in
accordance with U.S. generally accepted  accounting  principles,  which, for the
life  insurance  subsidiaries,   differ  from  statutory  accounting  principles
prescribed  or permitted by  regulatory  authorities.  Certain  amounts in prior
years have been reclassified to conform with the 2004 presentation.

Risks

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

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

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


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



1) Significant Accounting Principles (Continued)

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

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

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

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

Principles of Consolidation

The  accompanying  consolidated  financial  statements  include the accounts and
operations of the Company. The Company's  subsidiaries at December 31, 2004, are
as follows:

Security National Life Insurance Company
SecurityNational Mortgage Company
Memorial Estates, Inc.
Memorial Mortuary
Paradise Chapel Funeral Home
California Memorial Estates
Cottonwood Mortuary, Inc.
Deseret Memorial, Inc.
Holladay Cottonwood Memorial Foundation
Holladay Memorial Park, Inc.
Sunset Funeral Home, Inc.
Greer-Wilson Funeral Home


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



1) Significant Accounting Principles (Continued)

Crystal Rose Funeral Home
Hawaiian Land Holdings
SSLIC Holding Company
Insuradyne Corporation
Southern Security Life Insurance Company (77%)
Security National Life Insurance Company of Louisiana (formerly Paramount
  Security Life Insurance Company)
Security National Capital, Inc.
Security National Funding

All significant  intercompany  transactions and accounts have been eliminated in
consolidation.

On December 17, 1998,  the Company  purchased all of the  outstanding  shares of
common stock of SSLIC Holding Company,  formerly Consolidare Enterprises,  Inc.,
and Insuradyne  Corporation for a total cost of $12,248,194.  As of December 31,
2004,  Security  National Life and its wholly owned  subsidiary,  SSLIC Holding,
owned  approximately  77% of the outstanding  shares of common stock of Southern
Security Life Insurance  Company.  The  acquisition  was accounted for using the
purchase method.

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

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

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


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



1) Significant Accounting Principles (Continued)

On December 23, 2002, the Company,  through its wholly-owned subsidiary Security
National Life Insurance  Company  completed the asset purchase  transaction with
Acadian Life Insurance  Company  ("Acadian") from which it acquired from Acadian
$75,000,000 in assets and $75,000,000 in statutory insurance reserves.  Security
National  Life paid a ceding  commission  of  $10,254,803.  On  January 1, 2003,
Security  National  Life entered into an  assumption  agreement in which Acadian
transferred and assigned to Security  National Life all of its right,  title and
interest in the  reinsured  policies  and Security  National  Life took over the
operations of this block of business.  The assets and liabilities  acquired have
been  included in the  Company's  consolidated  balance sheet as of December 31,
2002.  Since the Company did not take over the  operations  from  Acadian  until
January 1, 2003, nothing was included in the consolidated  statement of earnings
during 2002.

On March 16, 2004,  Security  National  Life  purchased  all of the  outstanding
common stock of Paramount Security Life Insurance Company, now known as Security
National Life of Louisiana,  a Louisiana  domiciled insurance company located in
Shreveport,  Louisiana.  As of December  31,  2003,  Security  National  Life of
Louisiana  had 9,383  policies  in force and 29 agents.  There were no  material
changes  to the  number of  policies  in force or the  number of agents  between
December 31, 2003 and March 16, 2004. The purchase  consideration was $4,398,000
and was  effective  January 26,  2004.  Security  National  Life of Louisiana is
licensed in the State of Louisiana  where it is permitted to appoint  agents who
do not have a full life insurance  license.  These agents are limited to selling
small life insurance  policies in the final expense market. The Company believes
that with this license it will be able to expand its  operations  in  Louisiana.
The Company is servicing  Security National Life of Louisiana  policyholders out
of its Jackson, Mississippi office and has closed its Shreveport office.

Investments

Investments are shown on the following basis:

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

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

Mortgage  loans on real  estate - at unpaid  principal  balances,  adjusted  for
amortization  of premium or accretion of discount,  less  allowance for possible
losses.

Real estate - at cost, less accumulated depreciation provided on a straight-line
basis over the estimated  useful lives of the  properties,  and net of allowance
for impairment in value, if any.

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

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


<PAGE>



SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002


1) Significant Accounting Principles (Continued)

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

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

Cash and Cash Equivalents

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

Property and Equipment

Property,  plant and equipment is recorded at cost.  Depreciation  is calculated
principally on the  straight-line  method over the estimated useful lives of the
assets  which  range  from  three to forty  years.  Leasehold  improvements  are
amortized over the lesser of the useful life or remaining lease terms.

Recognition of Insurance Premiums and Other Considerations

Premiums for traditional  life insurance  products (which include those products
with fixed and guaranteed premiums and benefits and consist principally of whole
life insurance policies,  limited-payment  life insurance policies,  and certain
annuities  with life  contingencies)  are  recognized  as revenues when due from
policyholders. Revenues for interest-sensitive insurance policies (which include
universal life policies,  interest-sensitive life policies,  deferred annuities,
and annuities without life contingencies) consist of policy charges for the cost
of insurance,  policy  administration  charges,  and surrender  charges assessed
against policyholder account balances during the period.

Deferred Policy Acquisition Costs and Cost of Insurance Acquired

Commissions  and other  costs,  net of  commission  and expense  allowances  for
reinsurance ceded, that vary with and are primarily related to the production of
new insurance business have been deferred. Deferred policy acquisition costs for
traditional life insurance are amortized over the  premium-paying  period of the
related  policies  using  assumptions  consistent  with those used in  computing
policy benefit reserves.  For  interest-sensitive  insurance products,  deferred
policy  acquisition  costs are amortized  generally in proportion to the present
value of expected gross profits from surrender  charges,  investment,  mortality
and expense margins.  This amortization is adjusted when estimates of current or
future gross  profits to be realized  from a group of products are  reevaluated.
Deferred   acquisition  costs  are  written  off  when  policies  lapse  or  are
surrendered.

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




<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



1) Significant Accounting Principles (Continued)

Allowance for Doubtful Accounts

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

Future Life, Annuity and Other Policy Benefits

Future policy benefit reserves for traditional life insurance are computed using
a net level method,  including  assumptions as to investment yields,  mortality,
morbidity,  withdrawals,  and  other  assumptions  based on the  life  insurance
subsidiaries  experience,  modified as necessary  to give effect to  anticipated
trends and to include  provisions  for  possible  unfavorable  deviations.  Such
liabilities are, for some plans, graded to equal statutory values or cash values
at or prior to maturity. The range of assumed interest rates for all traditional
life insurance policy reserves was 4.5% to 10%. Benefit reserves for traditional
limited-payment  life  insurance  policies  include the deferred  portion of the
premiums  received  during the  premium-paying  period.  Deferred  premiums  are
recognized as income over the life of the policies.  Policy  benefit  claims are
charged to expense in the period the claims are incurred.

Future policy benefit  reserves for  interest-sensitive  insurance  products are
computed  under a  retrospective  deposit  method and represent  policy  account
balances before applicable  surrender  charges.  Policy benefits and claims that
are charged to expense  include  benefit claims incurred in the period in excess
of   related   policy   account   balances.   Interest   crediting   rates   for
interest-sensitive insurance products ranged from 4% to 6.5%.

Participating Insurance

Participating  business  constitutes  2%, 2%, and 2% of  insurance  in force for
2004, 2003 and 2002,  respectively.  The provision for policyholders'  dividends
included in policyholder  obligations is based on dividend scales anticipated by
management. Amounts to be paid are determined by the Board of Directors.

Reinsurance

The Company  follows the procedure of  reinsuring  risks in excess of $75,000 to
provide for greater  diversification  of business,  allow  management to control
exposure to potential  losses arising from large risks,  and provide  additional
capacity for growth.  The Company  remains liable for amounts ceded in the event
the reinsurers are unable to meet their obligations.

The Company has entered into coinsurance  agreements with unaffiliated insurance
companies  under which the  Company  assumed  100% of the risk for certain  life
insurance policies and certain other policy-related liabilities of the insurance
company.



<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



1) Significant Accounting Principles (Continued)

Reinsurance premiums, commissions, expense reimbursements,  and reserves related
to reinsured business are accounted for on a basis consistent with those used in
accounting  for the original  policies  issued and the terms of the  reinsurance
contracts.  Expense allowances received in connection with reinsurance ceded are
accounted  for as a reduction of the related  policy  acquisition  costs and are
deferred and amortized accordingly.

Cemetery and Mortuary Operations

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

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

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

Pre-need  sales  of  cemetery  services  (primarily   merchandise  delivery  and
installation  fees and burial  opening  and  closing  fees) - revenue  and costs
associated with the sales of pre-need  cemetery  services are deferred until the
services are performed.

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

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

The Company, through its mortuary and cemetery operations, provides a guaranteed
funeral arrangement wherein a prospective  customer can receive future goods and
services at guaranteed prices. To accomplish this, the Company, through its life
insurance operations, sells to the customer an increasing benefit life insurance
policy  that is  assigned  to the  mortuaries.  If,  at the  time of  need,  the
policyholder/potential   mortuary   customer   utilizes  one  of  the  Company's
facilities,  the guaranteed funeral arrangement  contract that has been assigned
will  provide  the  funeral  goods and  services at the  contracted  price.  The
increasing life insurance policy will cover the difference  between the original
contract prices and current prices.  Risks may arise if the difference cannot be
fully met by the life insurance policy. However,  management believes that given
current  inflation rates and related price increases of goods and services,  the
risk of exposure is minimal.


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



1) Significant Accounting Principles (Continued)

Mortgage Operations

Mortgage fee income  consists of origination  fees,  processing fees and certain
other income related to the sale of mortgages.  For mortgages sold, mortgage fee
income and related  expenses are recognized at the time the loan meets the sales
criteria for financial  assets which are: (1) the  transferred  assets have been
isolated from the Company and its creditors, (2) the transferee has the right to
pledge or exchange the mortgage, and (3) the Company does not maintain effective
control over the transferred mortgage.

The majority of loans originated are sold to third party investors.  The amounts
sold to  investors  are shown on the  balance  sheet as  mortgage  loans sold to
investors and are shown on the basis of the amount due from the investors, which
includes fees. Any impairment to sold loans or possible loan losses are included
in a separate provision for loan losses. The estimates are based upon historical
experience  and best  estimate of future  liabilities.  At December 31, 2004 and
2003 the provision for loan losses was $1,432,000 and $1,919,000, respectively.

The Company accrues an estimate of future losses on mortgage loans sold to third
party investors.  The Company may be required to reimburse third party investors
for costs  associated  with  early  payoff  of loans  within  the first  year of
duration and to repurchase loans in default within the first year. The estimates
are based upon historical experience and best estimate of future liabilities.

Excess of Cost Over Net Assets of Acquired Businesses

Previous  acquisitions  have been accounted for as purchases  under which assets
acquired and liabilities  assumed were recorded at the fair values.  The Company
evaluates  annually or when changes in circumstances  warrant the recoverability
of the amounts  recorded and if there is a decrease in value they are recognized
in income.  In accordance with FAS 142 the Company no longer amortizes excess of
cost over net assets of acquired  business  ("goodwill").  Pro forma information
related to the  amortization  of goodwill has not been presented since it is not
material.

Long-lived Assets

Long-lived  assets  to be held and used are  reviewed  for  impairment  whenever
events or changes in circumstances indicate that the related carrying amount may
not be recoverable.  When required,  impairment  losses on assets to be held and
used are recognized based on the fair value of the asset, and long-lived  assets
to be  disposed of are  reported  at the lower of carrying  amount or fair value
less costs to sell.

Income Taxes

Income taxes include taxes currently  payable plus deferred taxes related to the
tax effect of temporary  differences  in the financial  reporting  basis and tax
basis  of  assets  and  liabilities.  Such  temporary  differences  are  related
principally  to the deferral of policy  acquisition  costs and the provision for
future policy  benefits in the insurance  operations,  and  unrealized  gains on
fixed maturity and equity securities available for sale.


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



1) Significant Accounting Principles (Continued)

Earnings Per Common Share

The  Company  computes  earnings  per  share in  accordance  with  Statement  of
Financial  Accounting  Standards  ("SFAS") No. 128,  "Earnings Per Share".  This
Standard  requires  presentation of basic and diluted earnings per share.  Basic
earnings per share are computed by dividing net earnings by the weighted average
number of common shares outstanding during each year presented, after the effect
of the assumed  conversion of Class C Common Stock to Class A Common Stock,  the
acquisition of treasury  stock,  and the  retroactive  effect of stock dividends
declared. Diluted earnings per share is computed by dividing net earnings by the
weighted  average number of common shares  outstanding  during the year plus the
incremental  shares  that would have been  outstanding  under  certain  deferred
compensation plans.

Stock Compensation

In  accordance  with the  provisions  of SFAS 123,  the  Company  has elected to
continue to apply Accounting  Principles  Board Opinion No. 25,  "Accounting for
Stock Issued to Employees"  ("APB Opinion No. 25"), and related  interpretations
in accounting for its stock option plans.

The Company has three fixed option  plans (the "1993 Plan" the "2000 Plan",  and
the "2003 Plan").  In accordance with APB Opinion No. 25, no  compensation  cost
has been recognized for these plans. Had compensation  cost for these plans been
determined  based  upon the fair  value at the grant  date  consistent  with the
methodology  prescribed  under SFAS No. 123, the Company's net income would have
been reduced by  approximately  $1,090,458,  $490,145 and $533,520 in 2004, 2003
and 2002, respectively.  As a result, basic and diluted earnings per share would
have been reduced by $.18, and $.08 in 2004 and 2003, respectively, and basic of
$.10 and diluted of $.09 for the year 2002.

The weighted  average fair value of options  granted in 2004 under the 2000 Plan
and the 2003 Plan is  estimated  at $1.71 as of the grant  date  using the Black
Scholes Option Pricing Model with the following  assumptions:  dividend yield of
5%, volatility of 74%,  risk-free interest rate of 3.4%, and an expected life of
five to ten years.

The weighted  average  fair value of each option  granted in 2003 under the 1993
Plan,  and the 2000 Plan is  estimated  at $2.63 as of the grant  date using the
Black  Scholes  option-pricing  model with the following  assumptions:  dividend
yield of 5%, volatility of 73%,  risk-free  interest rate of 4%, and an expected
life of two years.

The weighted  average fair value of options granted in 2002 under the 1993 Plan,
and the 2000 Plan,  is  estimated  at $2.88 as of the grant date using the Black
Scholes Option Pricing Model with the following  assumptions:  dividend yield of
5%, volatility of 74%,  risk-free interest rate of 3.8%, and an expected life of
five to ten years.

The Company also has one variable  option plan (the "1987 Plan").  In accordance
with APB  Opinion  No. 25,  compensation  cost  related to options  granted  and
outstanding under these plans is estimated and recognized over the period of the
award based on changes in the current  market price of the Company's  stock over
the vesting  period.  Options  granted under the 1987 Plan are exercisable for a
period of ten years from the date of grant.




<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



1) Significant Accounting Principles (Continued)

Concentration of Credit Risk

The Company maintains its cash in bank deposit  accounts,  which at times exceed
federally  insured  limits.  The Company has not  experienced any losses in such
accounts and believes it is not exposed to any  significant  credit risk on cash
and cash equivalents.

Recent Accounting Pronouncements

In April  2003,  the FASB issued SFAS No. 149,  Amendment  of  Statement  133 on
Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts  (collectively referred to as
derivatives)  and for  hedging  activities  under SFAS No. 133,  Accounting  for
Derivative  Instruments and Hedging Activities.  This Statement is effective for
contracts entered into or modified after June 30, 2003, with certain exceptions,
and for hedging relationships  designated after September 30, 2003. The adoption
of SFAS No.  149 did not have a  material  effect on the  Company's  results  of
consolidated operations or financial position.

In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments with  Characteristics  of both Liabilities and Equity." SFAS No. 150
requires that certain financial  instruments,  which under previous guidance may
have been accounted for as equity,  must now be accounted for as liabilities (or
an asset in some  circumstances).  The financial  instruments  affected  include
mandatory  redeemable stock,  certain financial  instruments that require or may
require the issuer to buy back some of its shares in exchange  for cash or other
assets and certain  obligations  that can be settled with shares of stock.  This
Statement  is  effective  for all such  financial  instruments  entered  into or
modified  after May 31, 2003, and otherwise is effective at the beginning of the
first interim period  beginning after June 15, 2003. The Company entered into an
agreement with a stockholder in August 2003, wherein it purchased 124,000 shares
of Class A Common Stock from this  stockholder for $6.00 per share. The purchase
of these shares is reflected in treasury  stock.  Also,  under the terms of this
agreement,  the stockholder  has agreed not to purchase or control,  directly or
indirectly,  any  additional  shares of Class A or Class C Common Stock  through
August  2007,  and on August 27,  2004,  2005,  and 2006,  the  stockholder  may
request,  but is not obligated to request, the Company to purchase an additional
100,000  shares of Class A Common Stock held by this  stockholder  for $6.00 per
share. On October 26, 2004, the Company  completed the stock purchase  agreement
when the Company purchased the remaining amount of 51,959 shares, thus under the
agreement the Company will not be required to purchase any additional shares.

Effective  December 31,  2003,  the Company  adopted  EITF Issue No.  03-1,  The
Meaning  of  Other-Than-Temporary  Impairment  and Its  Application  to  Certain
Investments  ("EITF  03-1").  EITF  03-1  provides  guidance  on the  disclosure
requirements for other-than-temporary  Impairments of debt and marketable equity
investments  that are  accounted  for under  Statement of  Financial  Accounting
Standards  ("SFAS")  No. 115,  Accounting  for Certain  Investments  in Debt and
Equity  Securities.  The  adoption of EITF 03-1  requires the Company to include
certain quantitative and qualitative  disclosures for debt and marketable equity
securities classified as  available-for-sale or held-to-maturity  under SFAS 115
that   are   impaired   at  the   balance   sheet   date   but  for   which   an
other-than-temporary  impairment has not been  recognized.  The adoption of EITF
03-1 did not have a  material  impact on the  Company's  consolidated  financial
position or results of operations.



<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



1) Significant Accounting Principles (Continued)

In April 2003,  the FASB cleared  Statement  133  Implementation  Issue No. B36,
Embedded  Derivatives:  Modified  Coinsurance  Arrangements and Debt Instruments
That  Incorporate  Credit Risk  Exposures  That Are Unrelated or Only  Partially
Related to the  Creditworthiness  of the Obligor under Those Instruments ("Issue
B36").  Issue B36 concluded that (i) a company's  funds withheld  payable and/or
receivable under certain  reinsurance  arrangements,  and (ii) a debt instrument
that  incorporates  credit risk  exposures  that are unrelated or only partially
related to the credit  worthiness of the obligor include an embedded  derivative
feature that is not clearly and closely related to the host contract. Therefore,
the  embedded  derivative  feature must be measured at fair value on the balance
sheet and changes in fair value reported in income.  Issue B36 became  effective
on October 1, 2003. The adoption of Issue No. B36 did not have a material impact
on the Company's consolidated financial position or results of operations.

In  January  2003,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Interpretation  No.  46,   "Consolidation  of  Variable  Interest  Entities,  an
Interpretation  of ARB No.  51",  and  subsequently  issued a  revision  to this
Interpretation in December 2003. This Interpretation addresses the consolidation
by  business  enterprises  of  variable  interest  entities  as  defined  in the
Interpretation.  The Interpretation  applies to those variable interest entities
considered to be  special-purpose  entities no later than December 31, 2003. The
Interpretation  must also be applied to all other variable  interest entities no
later March 31, 2004.  Interpretation  No. 46 did not have a material  impact on
the Company's consolidated financial position or results of operations.

In December 2004, FASB revised SFAS 123 to Share-Based  Payment ("SFAS 123(R)").
SFAS  123(R)  provides   additional  guidance  on  determining  whether  certain
financial   instruments   awarded  in  share-based   payment   transactions  are
liabilities.  SFAS  123(R)  also  requires  that  the  cost  of all  share-based
transactions be recorded in the financial statements.  The revised pronouncement
must be adopted by the  Company by July 1, 2005.  Implementation  of SFAS 123(R)
will not have a  significant  impact  on the  Company's  consolidated  financial
statements in the period of  implementation.  However,  any future stock options
granted could have a significant impact on the Company's  consolidated financial
statements.


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



2)  Investments

The Company's  investments  in fixed  maturity  securities  held to maturity and
equity  securities  available for sale as of December 31, 2004 are summarized as
follows:
<TABLE>
<CAPTION>

                                                                              Gross            Gross           Estimated
                                                          Amortized        Unrealized       Unrealized           Fair
                                                            Cost              Gains           Losses            Value
                                                          --------          ---------       ----------        ---------
December 31, 2004:
Fixed maturity securities held to maturity:
   Bonds:
<S>                                                    <C>                <C>               <C>               <C>
     U.S. Treasury securities
           and obligations of U.S
   .       Government agencies                          $15,033,673        $  194,811       $ (43,407)         $15,185,077

     Obligations of states and
           political subdivisions                           492,290            30,274          (2,765)             519,799

     Corporate securities including
           public utilities                              50,572,235         2,261,608         (33,151)          52,800,692

     Mortgage-backed securities                           3,865,680            34,075        (115,578)           3,784,177

   Redeemable preferred stock                                20,883            20,250         --                    41,133
                                                        -----------        ----------       ---------          -----------
     Total fixed maturity
     securities held to maturity                        $69,984,761        $2,541,018       $(194,901)         $72,330,878
                                                        ===========        ==========       =========          ===========

Securities available for sale:
   Bonds
     U.S.  Treasury securities and obligations of U.S.
           Government agencies                         $    596,898       $    59,626       $   --            $    656,524

     Corporate securities including
           public utilities                               9,889,411           520,090           --              10,409,501

   Non-redeemable preferred stock                            56,031            49,063            (3,431)           101,663

   Common stock                                           1,981,218         2,564,992          (481,104)         4,065,106
                                                        -----------        ----------         ---------        -----------
         Total securities available for sale            $12,523,558        $3,193,771         $(484,535)       $15,232,794
                                                        ===========        ==========         =========        ===========
</TABLE>


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



2)  Investments (Continued)

The Company's  investments  in fixed  maturity  securities  held to maturity and
equity securities  available for sale as of December 31, 2003, are summarized as
follows:
<TABLE>
<CAPTION>


                                                                              Gross             Gross          Estimated
                                                          Amortized        Unrealized        Unrealized          Fair
                                                            Cost              Gains            Losses           Value
                                                          --------          ---------        ----------       ---------
December 31, 2003:
Fixed maturity securities held to maturity:
   Bonds:
<S>                                                     <C>               <C>          <C>                    <C>
     U.S. Treasury securities
           and obligations of U.S
   .       Government agencies                          $ 3,080,471        $  180,125     $     --             $ 3,260,596

     Obligations of states and
           political subdivisions                           261,360            25,091            (693)             285,758

     Corporate securities including
           public utilities                              30,289,401         1,176,618        (110,514)          31,355,505

     Mortgage-backed securities                           3,634,752            78,663         (28,654)           3,684,761

   Redeemable preferred stock                                28,005            17,400          (7,047)              38,358
                                                        -----------        ----------       ---------          -----------
     Total fixed maturity
     securities held to maturity                        $37,293,989        $1,477,897       $(146,908)         $38,624,978
                                                        ===========        ==========       =========          ===========

Securities available for sale:
   Bonds
     U.S.  Treasury securities and obligations of U.S.
           Government agencies                        $     595,177        $   81,604       $  --             $    676,781

     Corporate securities including
           public utilities                              12,618,880           974,376          --               13,593,256

   Non-redeemable preferred stock                            56,030            42,688            (4,006)            94,712

   Common stock                                           1,925,431         1,958,319          (525,018)         3,358,732
                                                        -----------        ----------         ---------        -----------
       Total securities available for sale              $15,195,518        $3,056,987         $(529,024)       $17,723,481
                                                        ===========        ==========         ==========       ===========
</TABLE>


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



2)   Investments (Continued)

The fair values for fixed maturity securities are based on quoted market prices,
when available.  For fixed maturity  securities not actively traded, fair values
are estimated using values obtained from independent pricing services, or in the
case of private  placements,  are estimated by discounting  expected future cash
flows using a current  market value  applicable  to the coupon rate,  credit and
maturity of the investments.  The fair values for equity securities are based on
quoted market prices.

The amortized  cost and  estimated  fair value of fixed  maturity  securities at
December 31, 2004, by contractual maturity, are shown below. Expected maturities
may differ from contractual  maturities  because certain  borrowers may have the
right  to  call  or  prepay  obligations  with or  without  call  or  prepayment
penalties.


                                               Amortized        Estimated Fair
Held to Maturity:                                Cost               Value
                                              ----------          ----------

    Due in 2005                              $ 1,687,683         $ 1,709,558
    Due in 2006 through 2009                   5,209,521           5,600,338
    Due in 2010 through 2014                  11,252,266          11,767,372
    Due after 2014                            43,538,491          44,989,369
    Mortgage-backed securities                 8,275,917           8,223,108
    Redeemable preferred stock                    20,883              41,133
                                             -----------         -----------
         Total held to maturity              $69,984,761         $72,330,878
                                             ===========         ===========

                                               Amortized         Estimated Fair
Available for Sale:                               Cost               Value
                                              ----------          ----------

    Due in 2005                              $ 4,014,336        $  4,091,321
    Due in 2006 through 2009                   5,212,933           5,557,089
    Due in 2010 through 2014                   1,161,101           1,300,541
    Due after 2014                                97,939             117,074
    Non-redeemable preferred stock                56,031             101,663
    Common stock                               1,981,218           4,065,106
                                             -----------         -----------
         Total available for sale            $12,523,558         $15,232,794
                                             ===========         ===========


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



2)  Investments (Continued)

The  Company's  realized  gains and losses in  investments  and other assets are
summarized as follows:


                                           2004         2003        2002
                                           ----         ----        ----
 Fixed maturity securities held to maturity:

     Gross realized gains                $36,933      $ 3,549    $  37,172
     Gross realized losses               (26,355)      (5,665)        (557)

 Securities available for sale:
     Gross realized gains                  3,310            1          354
     Gross realized losses                (6,364)         (40)      (1,424)
     Other assets                         66,907           --      985,275
                                         -------       -------   ---------
         Total                           $74,431       $(2,155)  $1,020,820
                                         =======       =======   ==========

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

Mortgage  loans consist of first and second  mortgages.  The mortgage loans bear
interest at rates  ranging from 3.625% to 21%,  maturity  dates range from three
months to 30 years and are secured by real estate. Concentrations of credit risk
arise  when  a  number  of  mortgage   loan  debtors   have   similar   economic
characteristics  that would cause their ability to meet contractual  obligations
to be similarly affected by changes in economic conditions. Although the Company
has a diversified mortgage loan portfolio  consisting of residential  mortgages,
commercial loans and residential  construction loans and requires  collateral on
all real estate  exposures,  a  substantial  portion of its debtors'  ability to
honor obligations is reliant on the economic  stability of the geographic region
in which the debtors do business.  The Company has 76% of its mortgage  loans in
the  state  of  Utah.  The  mortgage  loans  on  real  estate  balances  on  the
consolidated  balance  sheet  are  reflected  net of an  allowance  for bad debt
$254,893 and $14,893 at December 31, 2004 and 2003, respectively.

There  were  no  investments,   aggregated  by  issuer,  in  excess  of  10%  of
shareholders'  equity (before net  unrealized  gains and losses on available for
sale  securities)  at  December  31,  2004,  other  than  investments  issued or
guaranteed by the United States Government.


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



2)  Investments (Continued)

Major categories of net investment income are as follows:
<TABLE>
<CAPTION>

                                                  2004               2003           2002
                                                  ----               ----           ----
<S>                                           <C>              <C>               <C>
     Fixed maturity  securities               $ 4,438,808        $ 3,407,177     $ 3,228,042
     Equity securities                             67,120             54,481          53,889
     Mortgage loans on real estate              3,403,110          1,931,358       1,350,882
     Real estate                                1,322,796          1,509,932       1,501,534
     Policy loans                                 673,404            676,201         663,554
     Short-term investments and other           7,276,009         10,918,563       6,691,657
                                              -----------       ------------     -----------
       Gross investment income                 17,181,247         18,497,712     13,489,558
     Investment expenses                       (1,242,071)        (1,195,115)      (950,128)
                                             ------------       ------------     ----------
     Net investment income                    $15,939,176        $17,302,597     $12,539,430
                                              ===========        ===========     ===========

</TABLE>

Net investment  income  includes net investment  income earned by the restricted
assets of the cemeteries and mortuaries of approximately $781,000,  $848,000 and
$924,000 for 2004, 2003, and 2002, respectively.

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

Securities on deposit for regulatory  authorities as required by law amounted to
$9,710,534 at December 31, 2004 and $8,850,755 at December 31, 2003.

3)  Cost of Insurance Acquired

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

                                 2004             2003             2002
                                 ----             ----             ----
Balance at
  beginning of year          $14,980,763      $16,408,849       $ 8,081,223
                             -----------      -----------       -----------
Cost of insurance
  acquired                       304,042         (110,754)        9,106,309
                             -----------      -----------       -----------

Imputed interest at 7%        1,016,199         1,098,636           857,153
Amortization                 (2,247,507)       (2,415,968)       (1,635,836)
                             ----------       -----------       -----------
Net amortization
  charged to income          (1,231,308)       (1,317,332)         (778,683)
                             ----------       -----------       -----------
Balance at end
  of year                   $14,053,497       $14,980,763       $16,408,849
                            ===========       ===========       ===========

Presuming no  additional  acquisitions,  net  amortization  charged to income is
expected to approximate $1,130,151, $1,031,605, $962,386, $899,312, and $860,501
for the years 2005 through 2009.  Actual  amortization may vary based on changes
in assumptions or experience.



<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



4) Property and Equipment

The cost of property and equipment is summarized below:

                                                    December 31,
                                               2004             2003
                                               ----             ----
Land and buildings                          $11,310,114     $ 11,140,690
Furniture and equipment                      11,066,917       10,288,299
                                            -----------     ------------
                                             22,377,031       21,428,989
Less accumulated depreciation               (11,856,366      (10,419,573)
                                            -----------     ------------
     Total                                  $10,520,665      $11,009,416
                                            ===========      ===========

5)   Bank Loans Payable

Bank loans payable are summarized as follows:
                                                             December 31,
                                                         2004          2003
                                                         ----          ----
6.59% note payable in monthly installments
  of $34,680 including principal and interest,
  collateralized by 15,000 shares of Security
  National Life stock,  due December 2004.           $      --         $391,363

6% note payable in monthly installments of $5,693
  including principal and interest, collateralized
  by real property, with a book value of
  approximately $850,000, due September 2010.             633,596       662,944

6.93% note payable in monthly installments of
  $14,175 including principal and Interest,
  collateralized by real property with a book
  value of approximately $860,000, due November 2007.   1,476,813     1,519,198

$1,153,572 in 2004 and $2,230,016 in 2003 revolving
  line of credit at 6.15%, interest payable monthly
  and a reduction in principal due in semi-annual
  installments, collateralized by 15,000 shares of
  Security National Life Insurance Company
  stock, due December 2005.                               445,811     2,178,075

Bank prime rate plus 1/2% (5.75% at December 31, 2004)
  note payable in monthly installments of $7,235
  including principal and interest, collateralized by
  real property, with a book value of approximately
  $678,000, due August 2004.                                 --          60,683


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated financial Statements
Years Ended December 31, 2004, 2003, and 2002



5) Bank Loans Payable (Continued)
                                                             December 31,
                                                         2004          2003
                                                         ----          ----

Bank prime rate less 1.35% (3.90% at December 31, 2004)
  note payable in monthly installments of $2,736
  including principal and interest, collateralized by
  15,000 shares of Security National Life Insurance
  Company stock, due December 2005.                     68,562           98,880

7.35% note payable in monthly installments of $14,975
  including principal and interest, collateralized
  by 15,000 shares of Security National Life
  Insurance Company stock, due December 2006.          333,145          482,394

5.87% note payable, interest only to July 1, 2003,
  thereafter, interest and monthly principal payments
  of $134,000, collateralized by 15,000 shares of
  Security National Life Insurance Company Stock,
  due January 2010.                                  7,206,641        8,413,993

Market to market adjustment (see note 17)               36,810          303,029

Other collateralized bank loans payable                240,728          312,111
                                                    ----------      -----------
  Total bank loans                                  10,442,106       14,422,670

Less current installments                            2,136,957        3,688,647
                                                  ------------    -------------
Bank loans, excluding current installments        $  8,305,149    $  10,734,023
                                                  ============    =============

In  addition  to the lines of credit  described  above,  the Company has line of
credit agreements with a bank for $2,500,000,  of which none were outstanding at
December  31,  2004 or 2003.  The  lines of  credit  are for  general  operating
purposes and bear  interest at the bank's prime rate and must be repaid every 30
days.

See Note 6 for summary of maturities in subsequent years.

6)  Notes and Contracts Payable

Notes and contracts payable are summarized as follows:
                                                            December 31,
                                                        2004          2003
                                                        ----          ----
Unsecured note payable due to former
  stockholders of Deseret Memorial, Inc.
  resulting from the acquisition of such entity.
  Amount represents the present value, discounted
  at 8%, of monthly annuity payments ranging from
  $4,600 to $5,000 plus an index adjustment in the
  7th through the 12th years, due September 2011.    $520,477          $545,921


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



6) Notes and Contracts Payable (Continued)
                                                             December 31,
                                                        2004            2003
                                                       ----             ----
Due to former stockholders of Greer Wilson
  resulting from the acquisition of
  such entity. Amount represents the present
  value, discounted at 10%, of monthly annuity
  payments of $7,000, due March 2005.                  20,655            98,319

9% note payable in monthly installments of
  $10,000 including principal and interest,
  collateralized by real property, with a
  book value of approximately $2,908,000,
  due July 2008.                                      397,133           459,138

Due to Memorial Estates Endowment Care
  Trust Fund for the remodel of the
  Cottonwood Funeral Home. 6% note payable
  in monthly installments of $5,339
  including principal and interest
  collateralized by the Funeral Home, with a
  book value of approximately $780,000,
  due March 2030.                                      932,924          954,475

Unsecured note payable due to former shareholder
  of Southern Security Life Insurance Company
  resulting from the acquisition of such entity.
  6.5% note payable in five annual installments
  with principal payments of $158,840, due
  April 2005.                                         158,840           317,680

Due to shareholder of Security National Financial
  Corporation, 6.0% note payable in annual
  installments of $100,000 including principal
  and interest, due July 2005, secured
  by Company stock held in escrow.                    100,000           200,000

Due to shareholder of Security National
  Financial Corporation, 4.0% note payable
  in annual installments of $160,873
  including principal and interest, due
  January 2006, secured by Company
  stock held in escrow                                321,747           482,620

Other notes payable                                   436,763           382,541
                                                   ----------       -----------
Total notes and contracts payable                   2,888,539         3,440,694
Less current installments                             700,321           732,715
                                                   ----------        ----------

Notes and contracts, excluding
current installments                               $2,188,218        $2,707,979
                                                   ==========        ==========


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



6) Notes and Contracts Payable (Continued)

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

              2005                  $  2,837,278
              2006                     2,197,709
              2007                     1,825,997
              2008                     1,895,911
              2009                     1,874,575
              Thereafter               2,699,175
                                     -----------
              Total                  $13,330,645
                                     ===========

Interest paid approximated interest expense in 2004, 2003 and 2002.

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

The Company owns and operates several  endowment care  cemeteries,  for which it
has  established  and maintains an endowment  care fund.  The Company  records a
liability  to the fund for each  space sold at current  statutory  rates.  As of
December  31, 2003 the Company  owed the fund  $41,335 in excess of the required
contribution to the fund, and as of December 31, 2004, the Company owed the fund
$26,587, which is recorded in other liabilities.

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

Assets in the restricted asset account are summarized as follows:

                                                              December 31,
                                                        2004              2003
                                                        ----              ----
Cash and cash equivalents                              $776,997         $617,142
Mutual funds                                            273,258          188,732
Fixed maturity securities                                    --          108,554
Equity securities                                        86,555           77,778
Participation in mortgage loans
 with Security National Life                          4,005,957        3,719,807
Time certificate of deposit                              33,696           33,696
                                                     ----------       ----------
   Total                                             $5,176,463       $4,745,709
                                                     ==========       ==========

<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



8)  Income Taxes

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

                                                         December 31,
                                                  2004                   2003
                                                  ----                   ----
Current                                           $18,585               $18,585
Deferred                                       11,479,382            10,896,260
                                              -----------           -----------
Total                                         $11,497,967           $10,914,845
                                              ===========           ===========


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

                                                            December 31,
                                                      2004               2003
                                                      ----               ----
Assets
Future policy benefits                           $(1,917,789)      $(1,676,881)
Unearned premium                                  (1,524,191)       (1,635,912)
Difference between book
   and tax basis of bonds                            (73,964)          (27,951)
Other                                               (337,038)         (605,932)
                                                ------------      ------------
Total deferred tax assets                         (3,852,982)       (3,946,676)
                                                ------------      ------------

Liabilities
Deferred policy acquisition costs                  5,056,822         4,889,696
Cost of insurance acquired                         2,317,477         2,486,035
Installment sales                                  2,940,268         2,367,510
Depreciation                                         824,718           891,725
Trusts                                             1,155,566         1,054,323
Tax on unrealized appreciation                       689,478           568,944
Reinsurance                                        2,084,117         1,974,996
Other                                                263,918           609,707
                                                ------------      ------------
Total deferred tax liabilities                    15,332,364        14,842,936
                                                ------------      ------------
Net deferred tax liability                       $11,479,382       $10,896,260
                                                ============      ============


The Company paid $126,894,  $55,442 and $462,983 in income taxes for 2004,  2003
and 2002, respectively. The Company's income tax expense (benefit) is summarized
as follows:

                                    2004                2003             2002
                                    ----                ----             ----
Current                            $15,106            $28,326          $595,254
Deferred                           636,430          2,862,343           970,139
                                ----------         ----------        ----------
Total                             $651,536         $2,890,669        $1,565,393
                                ==========         ==========        ==========

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


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



8) Income Taxes (Continued)
                                           2004          2003             2002
                                           ----          ----             ----
Computed expense at statutory rate       $903,899     $3,218,056    $1,883,255
Special deductions allowed
   small life insurance companies        (243,873)      (285,991)     (315,923)
Dividends received deduction               (5,619)        (5,611)         (737)
Minority interest taxes                    47,376         13,469         7,429
Other, net                                (50,247)       (49,254)       (8,631)
                                      -----------    -----------   -----------
   Tax expense                           $651,536     $2,890,669    $1,565,393
                                      ===========    ===========   ===========

A portion of the life  insurance  income earned prior to 1984 was not subject to
current  taxation but was  accumulated  for tax purposes,  in a  "policyholders'
surplus   account."  Under   provisions  of  the  Internal   Revenue  Code,  the
policyholders'  surplus  account was frozen at its December 31, 1983 balance and
will be taxed  generally  only when  distributed.  As of December 31, 2004,  the
policyholders'  surplus accounts  approximated  $4,500,000.  Management does not
intend to take actions nor does management expect any events to occur that would
cause federal  income taxes to become payable on that amount.  However,  if such
taxes  were  accrued,  the  amount  of  taxes  payable  would  be  approximately
$1,500,000.

The Company has a net operating loss carry forward of approximately  $3,024,000,
as of December 31, 2004. These carry forward amounts begin expiring in ten years
and range up to 20 years.

9)       Reinsurance, Commitments and Contingencies

The Company  follows the procedure of reinsuring  risks in excess of a specified
limit,  which ranged from $30,000 to $75,000 during the years 2004 and 2003. The
Company is liable for these amounts in the event such  reinsurers  are unable to
pay their  portion of the claims.  The Company has also assumed  insurance  from
other companies  having insurance in force amounting to $815,445,000 at December
31, 2004 and $940,050,000 at December 31, 2003.

As part of the acquisition of Southern Security,  the Company has a co-insurance
agreement with The Mega Life and Health Insurance Company ("MEGA").  On December
31, 1992 Southern  Security  ceded to MEGA 18% of all universal life policies in
force at that date.  MEGA is  entitled  to 18% of all future  premiums,  claims,
policyholder loans and surrenders  relating to the ceded policies.  In addition,
Southern Security receives certain commission and expense reimbursement.

Mortgage loans originated and sold to unaffiliated investors are sold subject to
certain recourse provisions.

On December 26, 2003,  the Company  entered into a partially  Coinsurance  and a
partially  Modified  Coinsurance  Agreement  (CoModco  Agreement)  with Guaranty
Income Life  Insurance  Company  (Guaranty)  effective  September 30, 2003.  The
Company has reinsured  100% of certain  blocks of Guaranty's  traditional  life,
universal life and annuity businesses. The total liabilities reinsured for these
blocks of  businesses  on October 1, 2003 were  $60,527,887.  The Company paid a
ceding  commission  to Guaranty of  $3,400,000  and will receive from Guaranty a
risk charge of 1% of the outstanding Coinsurance per calendar quarter.  Guaranty
put into a bank  trust  investment  grade  bonds,  which  equal the  outstanding
liabilities assumed by the Company. The Company is named as a beneficiary of the
trust and the terms of the trust are such that Guaranty will maintain investment
grade  bonds in the trust to equal the  outstanding  liabilities  assumed by the
Company.  Under the  CoModco  Agreement  the  Coinsurance  and the  increase  in
reserves are equal.  Under U. S. GAAP the Coinsurance and the reserve  increases
are netted

<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



9) Reinsurance, Commitments and Contingencies (Continued)

since  these are  non-cash  items,  and the  Company  expects to  recapture  the
Coinsurance  from future  profits of the  reinsured  business.  Guaranty has the
right to recapture the business at any time after December 31, 2004 upon 90 days
advance notice.  As of December 31, 2004 and 2003, the  outstanding  Coinsurance
amount was  $2,545,763 and  $3,345,765,  respectively.  The Company  recorded as
income the risk  charge  for the years  ended  December  31,  2004 and 2003,  of
$121,831 and $34,000,  respectively.  In the event that the Company  believes it
will not  recover  the  Coinsurance  it will have to record as an expense  and a
future liability for the amount of such impairment.  Effective  January 1, 2005,
Guaranty  recaptured the reinsurance  under this agreement and the agreement was
cancelled  between the Company and  Guaranty.  The  recapture  did not result in
recognition of a gain or loss in the consolidated financial statements.

The Company  leases  office space and  equipment  under  various  non-cancelable
agreements,  with remaining terms up to five years. Minimum lease payments under
these non-cancelable operating leases as of December 31, 2004, are approximately
as follows:

                     Years Ending
                      December 31:
                         2005                            $588,000
                         2006                             381,000
                         2007                              97,000
                         2008                              90,000
                         2009                              49,000
                                                       ----------
                         Total                         $1,205,000
                                                       ==========

Total rent  expense  related to these  non-cancelable  operating  leases for the
years ended  December  31,  2004,  2003,  and 2002 was  approximately  $734,000,
$396,000 and $200,000, respectively.

An action was brought  against the Company in May 2001 by Glenna  Brown  Thomas,
individually and as personal  representative  of the Estate of Lynn W. Brown, in
the Third  Judicial  Court,  Salt Lake  County,  Utah.  The action  asserts that
Memorial  Estates,  Inc.  delivered  to Lynn W.  Brown  six  stock  certificates
totaling  2,000 shares of its common  stock in 1970 and 1971.  Mr. Brown died in
1972.  It is also  asserted  that at the time the 2,000  shares  were issued and
outstanding,  the shares  represented a 2% ownership of Memorial Estates.  It is
further alleged that Mr. Brown was entitled to preemptive  rights and, after the
issuance  of the stock to Mr.  Brown,  there  were  further  issuances  of stock
without  providing  written  notice to Mr.  Brown or his  estate of his right to
purchase more stock.

It is further  asserted  that  Thomas has the right to the  transfer  of Brown's
shares  on the  books of  Security  National  Financial  Corporation  as well as
Memorial  Estates,  and  to the  restoration  of  Brown's  proportion  of  share
ownership in Memorial  Estates at the time of his death by issuance and delivery
to Thomas of sufficient shares of the Company's publicly traded and unrestricted
stock in exchange  for the 2,000  shares of Memorial  Estates  stock,  including
payment of all dividends from the date of Thomas's demand.  The formal discovery
cutoff was January 15, 2004. The Company has been verbally  informed that Thomas
will dismiss the case but such dismissal has not been  communicated  in writing.
Until the case is actually  dismissed,  the Company intends to vigorously defend
the matter,  including the assertion  that the statute of  limitations  bars the
claims in their entirety.


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



9) Reinsurance, Commitments and Contingencies (Continued)

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

No lawsuit  has been filed in the  matter.  The  Company  has been  engaged in a
review of the claims made in the letter. Based on its investigation, the Company
believes that Mr. Hood voluntarily quit and was not terminated.  Counsel for the
Company and counsel for Mr. Hood have been in discussion  concerning the matter.
At this stage of the  investigation,  the Company does not believe  there is any
justification  for the claims being made.  If a resolution of the dispute is not
achieved and litigation ensues, the Company is prepared to vigorously defend the
action.

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

The claims  made on behalf of Mr.  Gornichec  include,  but are not  limited to,
wrongful  termination  in violation  of public  policy,  misrepresentation,  age
discrimination,   whistle-blower   retaliation,   interference   with   economic
advantage,  breach of  contract,  breach of the  covenant of good faith and fair
dealing, and infliction of emotional distress. Mr. Gornichec also claims that he
is  owed a  certain  amount  from a  retirement  plan.  The  letter  proposes  a
settlement in the amount of $420,000.  Based on its  investigation,  the Company
believes that Mr. Gornichec was an independent contractor,  not an employee, and
that the claims and the  settlement  amount  sought  are not  justified.  If the
matter is not  resolved  and  litigation  ensues,  the  Company is  prepared  to
vigorously defend the action.

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

10)   Retirement Plans

The Company and its subsidiaries have a noncontributory Employee Stock Ownership
Plan (ESOP) for all eligible  employees.  Eligible employees are primarily those
with more than one year of service,  who work in excess of 1,040 hours per year.
Contributions,  which  may be in cash or stock of the  Company,  are  determined
annually by the Board of Directors. The Company's contributions are allocated to
eligible employees based on the ratio of each eligible

<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES\\
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



10) Retirement Plans (Continued)

employee's  compensation to total compensation for all eligible employees during
each year. ESOP contribution expense totaled $105,196,  $98,588, and $99,612 for
2004, 2003, and 2002,  respectively.  At December 31, 2004 the ESOP held 577,183
shares of Class A and  1,553,041  shares of Class C common stock of the Company.
All shares held by the ESOP have been allocated to the  participating  employees
and all shares  held by the ESOP are  considered  outstanding  for  purposes  of
computing earnings per share.

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

The Company may match up to 50% of each employee's  investment in Company stock,
up to 1/2% of 1% of the  employee's  total annual  compensation.  The  Company's
match  will  be  Company  stock  and  the  amount  of the  match  will be at the
discretion of the Company's  Board of Directors.  The Company's  matching 401(k)
contributions  for  2004,  2003,  and 2002  were  $5,746,  $4,493,  and  $7,975,
respectively.  Also,  the  Company  may  contribute,  at the  discretion  of the
Company's  Board of Directors,  an Employer  Profit Sharing  Contribution to the
401(k) savings plan. The Employer Profit Sharing  Contribution  shall be divided
among  three  different  classes  of  participants  in the plan  based  upon the
participant's title in the Company. The Company contributions for 2004, 2003 and
2002  were  $128,949,   $110,081,  and  $142,218,   respectively.   All  amounts
contributed  to the plan are  deposited  into a trust  fund  administered  by an
independent trustee.

In 2001, the Company's Board of Directors adopted a Deferred  Compensation Plan.
Under the terms of the Plan, the Company will provide deferred  compensation for
a select group of management or highly compensated employees, within the meaning
of Sections 201(2),  301(a)(3) and 401(a)(1) of the Employee  Retirement  Income
Security  Act of 1974,  as amended.  The Board has  appointed a Committee of the
Company to be the Plan  Administrator  and to determine  the  employees  who are
eligible to participate in the plan. The employees who  participate may elect to
defer a portion of their  compensation into the plan. The Company may contribute
into  the plan at the  discretion  of the  Company's  Board  of  Directors.  The
Company's  contributions  for 2004,  2003 and 2002 were $123,249,  $95,485,  and
$100,577, respectively.

The  Company  has  Deferred  Compensation  Agreements  with its Chief  Executive
Officer and its past Senior Vice President. The Deferred Compensation is payable
on the retirement or death of these  individuals  either in annual  installments
(10 years) or in a lump sum  settlement,  if approved by the Board of Directors.
The  amount  payable is $65,839  per year with cost of living  adjustments  each
anniversary.  The  Compensation  Agreements  also  provides  that any  remaining
balance will be payable to their heirs in the event of their death.  In addition
the Agreement  provides that the Company will pay the Group Health coverages for
these individuals and/or their spouses.  In 2004 and 2003, the Company increased
its liability for these future obligations by $10,000 and $2,000,  respectively.
The current balance as of December 31, 2004 is $714,000.



<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



10)   Retirement Plans (Continued)

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

In the event of a sale or merger of the Company and Mr. Quist is not retained in
his current  position,  the Company  would be obligated to continue Mr.  Quist's
current  compensation and benefits for seven years following the merger or sale.
The  agreement  further  provides  that Mr. Quist is entitled to receive  annual
retirement  benefits beginning (i) one month from the date of his retirement (to
commence no sooner than age 65), (ii) five years following complete  disability,
or (iii) upon  termination of his employment  without  cause.  These  retirement
benefits are to be paid for a period of ten years in annual  installments in the
amount equal to 75% of his then current rate of  compensation.  However,  in the
event that Mr. Quist dies prior to receiving all retirement benefits thereunder,
the remaining benefits are to be paid to his heirs. The Company expensed $31,500
and $328,000 in fiscal 2004 and 2003,  respectively,  to cover the present value
of anticipated retirement benefits under the employment agreement. The liability
accrued is $359,500 and $328,000 as of December 31, 2004 and 2003, respectively

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

In the event of a sale or  merger of the  Company,  and Mr.  Beckstead  were not
retained in his current position, the Company would be obligated to continue Mr.
Beckstead's  current  compensation  and  benefits for five years  following  the
merger or sale. The agreement further provides that Mr. Beckstead is entitled to
receive annual retirement  benefits beginning (i) one month from the date of his
retirement  (to  commence no sooner  than age 62 1/2) (ii) five years  following
complete disability,  or (iii) upon termination of his employment without cause.
These  retirement  benefits  are to be paid for a period  of ten years in annual
installments  in the amount equal to one-half of his then current annual salary.
However,  in the event that Mr. Beckstead dies prior to receiving all retirement
benefits  thereunder,  the remaining  benefits are to be paid to his heirs.  The
Company  expensed  in  2004  and  2003   approximately   $18,500  and  $172,000,
respectively,  to cover  the  present  value of the  retirement  benefit  of the
agreement.  The liability  accrued is $190,500 and $172,000,  as of December 31,
2004 and 2003, respectively.


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



11)  Capital Stock

The following  table  summarizes the activity in shares of capital stock for the
three-year period ended December 31, 2004:

                                                       Class A         Class C
                                                      --------        ---------
Balance at January 1, 2002                            5,363,591       6,113,430

      Exercise of stock options                         132,371           --
      Stock Dividends                                   276,012         294,419
      Conversion of Class C to Class A                   22,518        (225,180)
                                                     ----------      ----------
Balance at December 31, 2002                          5,794,492       6,182,669
                                                     ----------      ----------

      Exercise of stock options                         176,725           --
      Stock Dividends                                   301,774         308,086
      Conversion of Class C to Class A                    2,113         (21,117)
                                                     ----------      ----------
Balance at December 31, 2003                          6,275,104       6,469,638
                                                     ----------      ----------

      Exercise of stock options                         127,888           --
      Stock Dividends                                   321,932         308,007
      Conversion of Class C to Class A                   30,946        (309,446)
                                                     ----------      ----------

Balance at December 31, 2004                          6,755,870       6,468,199
                                                     ==========      ==========

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

Stockholders of both classes of common stock have received 5% stock dividends in
the years 1990 through 2004, as authorized by the Company's Board of Directors.

The  Company  has Class B Common  Stock of $1.00  par  value,  5,000,000  shares
authorized, of which none are issued. Class B shares are non-voting stock except
to any proposed  amendment to the Articles of  Incorporation  which would affect
Class B Common Stock.


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



11)  Capital Stock (Continued)

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

                                               2004         2003         2002
                                               ----         ----         ----
Numerator:
   Net income                               $2,122,272   $6,596,497  $3,991,280
                                            ==========   ==========  ==========

Denominator:
   Denominator for basic earnings
    per share-weighted-average shares        6,001,861    5,851,814   5,572,783
                                            ----------   ----------  ----------

   Effect of dilutive securities:
     Employee stock options                    214,462      149,952     169,543
     Stock appreciation rights                   1,628        2,007       1,828
                                            ----------   ----------  ----------
Dilutive potential common shares               216,090      151,959     171,371
                                            ----------   ----------  ----------

   Denominator for diluted earnings per
     share-adjusted weighted-average
     shares and assumed conversions          6,217,951    6,003,773   5,744,154
                                            ==========   ==========  ==========

Basic earnings per share                          $.35        $1.13        $.72
                                                  ====        =====        ====
Diluted earnings per share                        $.34        $1.10        $.69
                                                  ====        =====        ====

12)    Stock Compensation Plans

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

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

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


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



12) Stock Compensation Plans (Continued)

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

Activity of the 1987 Plan is summarized as follows:

                                             Number of
                                          Class A Shares   Option Price
Outstanding at January 1, 2002                188,890      $3.53 - $3.88

   Dividend                                       576
   Exercised                                 (119,974)
   Expired                                    (58,773)
                                            ---------

Outstanding at December 31, 2002               10,719             $3.36
                                            ---------

   Dividend                                       201
   Exercised                                   (6,700)
                                             --------

Outstanding at December 31, 2003                4,220              $3.20
                                             --------

   Dividend                                       158
   Exercised                                   (1,055)
                                             --------

Outstanding at December 31, 2004                3,323              $3.05
                                             ========

Exercisable at end of year                      3,323              $3.05
                                             ========

Available options for future grant
   1987 Stock Incentive Plan                     --
                                             ========

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

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

The 1993 Plan  provides  for the grant of options and the award or sale of stock
to officers,  directors,  and employees of the Company.  Both  "incentive  stock
options," as defined  under  Section  422A of the Internal  Revenue Code of 1986
(the "Code"),  and  "non-qualified  options" may be granted pursuant to the 1993
Plan.  Options  intended  as  incentive  stock  options  may be  issued  only to
employees, and must meet certain conditions imposed by the Code,

<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



12) Stock Compensation Plans (Continued)

including a requirement that the option exercise price be not less than the fair
market value of the option  shares on the date of grant.  The 1993 Plan provides
that the exercise price for non-qualified options will be not less than at least
50% of the fair market value of the stock  subject to such option as of the date
of grant of such options, as determined by the Company's Board of Directors.

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

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

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

On October 14, 1999, the Company amended the 1993 Plan to increase the number of
shares of Class A Common Stock reserved for issuance under the plan from 746,126
Class A shares to 1,046,126 Class A shares. The Plan had a term of ten years and
was terminated in 2003 and options granted thereunder are non-transferable.

Activity of the 1993 Plan is summarized as follows:
                                                   Number of
                                                 Class A Shares    Option Price
Outstanding at January 1, 2002                      772,063        $2.02 - $3.59
   Dividend                                          21,077
   Granted                                          185,250
   Cancelled                                       (190,018)
   Exercised                                       (283,703)
                                                 ----------

Outstanding at December 31, 2002                    504,669        $2.02 - $4.46
   Dividend                                          30,609
   Granted                                          371,000
   Exercised                                       (263,496)
                                                 ----------


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



12) Stock Compensation Plans (Continued)

                                                  Number of
                                               Class A Shares      Option Price
Outstanding at December 31, 2003                    642,782       $2.07 - $6.18

   Dividend                                          16,176
   Granted                                            --
   Exercised                                       (310,341)
   Cancelled                                         (8,925)
                                              -------------

Outstanding at December 31, 2004                    339,692       $1.97 - $5.35
                                              =============

Exercisable at end of year                          339,692       $1.97 - $5.35
                                              =============
Available options for future grant
   1993 Stock Incentive Plan                        --
                                              =============

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

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

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

The term of the 2000 Plan is five years.

Activity of the 2000 Plan is summarized as follows:

                                                   Number of
                                                 Class A Shares   Option Price
Outstanding at January 1, 2002                           8,610    $2.04 - $2.43
   Dividend                                                631
   Granted                                               4,000
                                                       -------

Outstanding at December 31, 2002                        13,241    $1.94 - $2.86
   Dividend                                                697
   Granted                                               4,000
   Exercised                                            (3,311)
                                                     ---------


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



12) Stock Compensation Plans (Continued)

                                                     Number of
                                                  Class A Shares   Option Price

Outstanding at December 31, 2003                      14,627       $1.85 - $5.72

   Dividend                                              931
   Granted                                             4,000
   Exercised                                             --
                                                      ------

Outstanding at December 31, 2004                      19,558       $1.76 - $5.45
                                                     =======

Exercisable at end of year                            15,358       $1.76 - $5.45
                                                     =======

Available options for future
    grant 2000 Director Plan                          40,606
                                                     =======

On  July  11,  2003,  the  Company  adopted  the  Security  National   Financial
Corporation  2003 Stock Option Plan (the "2003 Plan"),  which  reserved  500,000
shares of Class A Common Stock and 1,000,000  shares of Class C Common Stock for
issuance thereunder. The 2003 Plan allows the Company to grant options and issue
shares as a means of providing equity incentives to key personnel, giving them a
proprietary interest in the Company and its success and progress.

The 2003 Plan  provides  for the grant of options and the award or sale of stock
to officers,  directors,  and employees of the Company.  Both  "incentive  stock
options",  as defined  under  Section 422A of the Internal  Revenue Code of 1986
(the "Code") and "non-qualified options" may be granted under the 2003 Plan.

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

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


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



12) Stock Compensation Plans (Continued)

Activity of the 2003 Plan is summarized as follows:

                                      Number of        Number of        Option
                                    Class A Shares  Class C Shares(1)  Price(1)
Outstanding at December 31, 2003           -0-           -0-
                                      ---------       ----------

Outstanding at January 1, 2004             -0-           -0-

   Dividend                              7,675           50,000
   Granted                             153,500        1,000,000
   Exercised                             -0-             -0-
                                      --------       ----------

Outstanding at December 31, 2004       161,175       1,050,000    $3.77 - $3.08
                                      ========       =========

Exercisable at end of year             161,175       1,050,000    $3.77 - $3.08
                                      ========       =========

Available options for future grant
   2003 Stock Incentive Plan           390,075          52,500
                                      ========       =========

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

13)  Statutory-Basis Financial Information

The Company's life  insurance  subsidiaries  are domiciled in Utah,  Florida and
Louisiana and prepare their  statutory-basis  financial statements in accordance
with  accounting  practices  prescribed  or permitted  by the Utah,  Florida and
Louisiana   Insurance   Departments.   "Prescribed"  or  "Permitted"   statutory
accounting  practices  are  interspersed  throughout  state  insurance  laws and
regulations.  The  National  Association  of  Insurance  Commissioners  ("NAIC")
Accounting  Practices and Procedures  Manual version  effective January 1, 2001,
has been  adopted as  permitted  practices  by the States of Utah,  Florida  and
Louisiana.

Statutory   net  income  and  statutory   stockholder's   equity  for  the  life
subsidiaries as reported to state regulatory authorities, are presented below:

                                            Statutory Net Income (Loss)
                                           for the year ended December 31,
                                           2004          2003            2002
                                           ----          ----            ----
Security National Life                    $65,724    $(5,404,687)    $1,547,253
Southern Security Life                   (525,237)     2,431,499       (427,439)
Security National Life of Louisiana        50,341         N/A            N/A

                                             Statutory Stockholders' Equity
                                                     December 31,
                                           2004           2003         2002
                                           ----           ----         ----
Security National Life                 $15,183,712    $15,069,057  $14,381,257
Southern Security Life                  10,877,112     11,443,488    8,582,968
Security National Life of Louisiana      1,147,492        N/A           N/A


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



13)  Statutory-Basis Financial Information (Continued)

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

The Utah, Florida and Louisiana Insurance  Departments impose minimum risk-based
capital requirements, that were developed by the NAIC, on insurance enterprises.
The formulas for  determining  the risk-based  capital  ("RBC")  specify various
factors  that are applied to  financial  balances or various  levels of activity
based on the perceived degree of risk.  Regulatory compliance is determined by a
ratio (the "Ratio") of the enterprise's  regulatory total adjusted  capital,  as
defined by the NAIC, to its authorized  control  level,  as defined by the NAIC.
Enterprises  below  specific  trigger  points or ratios  are  classified  within
certain levels,  each of which requires  specified  corrective  action. The life
insurance  subsidiaries have a combined weighted Ratio that is greater than 432%
of the first level of regulatory action.

14)  Business Segment Information

Description of Products and Services by Segment

The Company has three reportable business segments: life insurance, cemetery and
mortuary,  and mortgage loans. The Company's life insurance  segment consists of
life  insurance  premiums  and  operating  expenses  from the sale of  insurance
products  sold by the  Company's  independent  agency  force and net  investment
income  derived from  investing  policyholder  and segment  surplus  funds.  The
Company's  cemetery and  mortuary  segment  consists of revenues  and  operating
expenses from the sale of at-need cemetery and mortuary merchandise and services
at its  mortuaries  and  cemeteries,  pre-need  sales of cemetery  spaces  after
collection of 10% or more of the purchase  price and the net  investment  income
from  investing  segment  surplus  funds.  The  Company's  mortgage loan segment
consists of loan  originations  fee income and expenses from the originations of
residential  mortgage  loans and  interest  earned and  interest  expenses  from
warehousing  pre-sold  loans  before  the  funds  are  received  from  financial
institutional investors.

Measurement of Segment Profit or Loss and Segment Assets

The  accounting  policies  of the  reportable  segments  are the  same as  those
described in the Significant  Accounting  Principles.  Intersegment revenues are
recorded at cost plus an agreed upon intercompany profit.



<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



14)      Business Segment Information (Continued)

Factors Management Used to Identify the Enterprise's Reportable Segments

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

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

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

Identifiable assets            $  305,970,161        $ 47,358,587       $  14,236,837   $(51,091,825)       $  316,473,760
                               ==============        ============       =============   =============       ==============

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

</TABLE>

<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002

<TABLE>
<CAPTION>


14) Business Segment Information (Continued)

                                                                      2003
                                        Life             Cemetery/                          Reconciling
                                      Insurance          Mortuary            Mortgage          Items        Consolidated
Revenues:                            -----------      ------------         -----------     -------------   --------------
From external sources:
<S>                                   <C>              <C>                <C>                               <C>
   Revenue from customers            $ 23,294,373      $10,944,365        $ 92,955,165   $      --         $127,193,903
   Net investment income                6,571,404          936,118           9,795,075          --           17,302,597
   Realized gains (losses)
      on investments and other
      assets                               (2,155)         --                   --               --              (2,155)
   Other revenues                         254,974           94,907             200,183           --             550,064

Intersegment revenues:
   Net investment income               10,028,748           47,651              --         (10,076,399)         --
                                     ------------      -----------        ------------   -------------     ------------
                                       40,147,344       12,023,041         102,950,423     (10,076,399)     145,044,409
                                     ------------      -----------        ------------   --------------    ------------
Expenses:
Death and other policy
   benefits                            15,041,541          --                   --             --            15,041,541
Increase in future policy
   benefits                             6,712,961          --                   --             --             6,712,961
Amortization of deferred policy
   acquisition costs and
   cost of insurance acquired           4,683,556          245,450              --             --             4,929,006
Depreciation                              464,844          760,091             310,595         --             1,535,530
General, administrative
      and other costs:
   Intersegment                           --                84,323             208,362        (292,685)         --
   Other                               10,398,872        9,807,357          83,512,224        --           103,718,453
Interest expense:
   Intersegment                            90,001          179,803           9,513,910      (9,783,714)         --
   Other                                  743,884          436,828           2,461,334          --           3,642,046
                                     ------------      -----------        ------------   -------------    ------------
                                       38,135,659       11,513,852          96,006,425     (10,076,399)    135,579,537
                                     ------------      -----------        ------------   -------------    ------------
Earnings (losses)
   before income taxes               $  2,011,685      $   509,189        $  6,943,998   $      --        $  9,464,872
                                     ============      ===========        ============   =============    ============

Identifiable assets                  $302,319,614      $44,018,131        $ 16,938,151   $(49,792,560)    $313,483,336
                                     ============      ===========        ============   ============     ============

Expenditures for
   long-lived assets                $     235,631     $    559,435        $    828,244   $    --          $  1,623,310
                                    =============     ============     ===============   =============    ============
</TABLE>

<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated
Financial Statements Years Ended December 31, 2004, 2003, and 2002
<TABLE>
<CAPTION>



14) Business Segment Information (Continued)
                                                                     2002

                                      Life              Cemetery/                            Reconciling
                                    Insurance           Mortuary          Mortgage              Items        Consolidated
Revenues:
<S>                              <C>                 <C>                 <C>               <C>               <C>
From external sources:
   Revenue from
      customers                 $ 14,076,652         $10,638,754         $57,008,283      $    --          $  81,723,689
   Net investment income           6,065,652           1,011,786           5,461,992           --             12,539,430
   Realized gains on
      investments and other
      assets                         311,365             709,455               --              --              1,020,820
   Other revenues                     69,741              85,146             324,537           --                479,424

Intersegment revenues:
   Net investment income           4,741,338             --                     --           (4,741,338)
                                ------------         -----------         -----------       ------------     ------------
                                  25,264,748          12,445,141          62,794,812         (4,741,338)      95,763,363
                                ------------         -----------         -----------       ------------     ------------
Expenses:
Death and other policy
   benefits                        7,724,046              --                    --                --           7,724,046
Increase in future
   policy benefits                 6,031,685              --                    --                --           6,031,685
Amortization of deferred
    Policy acquisition costs
    and cost of insurance
    acquired                       3,718,627             274,766                --                 --          3,993,393
Depreciation                         383,139             678,851             167,513               --          1,229,503
General, administrative
    and other costs:
   Intersegment                     (900,000)            486,672             623,872           (210,544)         --
   Other                           6,570,217           9,537,374          53,167,818               --         69,275,409
Interest expense:
   Intersegment                       90,000             201,118           4,239,676         (4,530,794)         --
   Other                             321,896             428,498           1,219,948             --            1,970,342
                                ------------         -----------         -----------      --------------    ------------
                                  23,939,610          11,607,279          59,418,827         (4,741,338)      90,224,378
                                ------------         -----------         -----------      -------------     ------------
Earnings (losses)
   before income taxes          $  1,325,138         $   837,862         $ 3,375,985      $     --          $  5,538,985
                                ============         ===========         ===========      =============     ============

Identifiable assets             $295,177,565         $42,255,381         $14,960,638      $ (44,331,241)    $308,062,343
                                ============         ===========         ===========      =============     =============

Expenditures for long-
   lived assets             $        189,156       $     677,561      $      482,035      $        --       $   1,348,752
                            ================       =============      ==============      =============     =============
</TABLE>

<PAGE>





65



SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



15)      Related Party Transactions

On December 19, 2001, the Company entered into an option agreement with Monument
Title,  LLC, a Utah limited liability  company  ("Monument  Title") in which the
Company  made  available  a  $100,000  line of  credit to  Monument  Title at an
interest  rate of 8% per  annum.  The line of credit is secured by the assets of
Monument  Title.  From December 28, 2001 to June 14, 2002, the Company  advanced
Monument Title a total of $77,953 under the line of credit.  The amount advanced
under the line of credit plus accrued  interest  are payable  upon demand.  This
receivable  was fully  allowed  for in 2003.  The owners of  Monument  Title are
brothers-in-law of the President and Chief Operating Officer of the Company. The
Company has the right under the option agreement for a period of five years from
the date thereof to acquire 100% of the  outstanding  common  shares of Monument
Title for the sum of $10. The purpose of the transaction,  which was approved by
the Company's  board of  directors,  is to insure that the title and escrow work
performed for SecurityNational  Mortgage Company in connection with its mortgage
loans are  completed as  accurately  as possible by Monument  Title to avoid any
economic losses to the Company.

On November 1, 2004, the Company entered into an Agreement to Repay Indebtedness
and to Convey Option with  Monument  Title and its  principal  owner.  Under the
terms of the  agreement,  Monument  Title  agreed to pay the  Company a total of
$94,177, representing the total of $77,953 that the Company advanced to Monument
Title under the line of credit,  plus interest  thereon,  within seven days from
the date of the  agreement.  Monument  Title  paid the  $94,177  to the  Company
pursuant  to the  agreement.  In  addition,  the  Company  agreed to release its
interest  in the option  agreement  to acquire  100% of the  outstanding  common
shares of Monument  Title,  in  consideration  for the payment of an  additional
$94,177.  Monument  Title is to pay the  additional  $94,177  to the  Company in
minimum  payments of $500 per month for the first twelve  months  following  the
date of the  agreement,  with  additional  payments  of $1,000 per month for the
second twelve months  following the date of the agreement.  After the 24th month
following the date of the agreement, the outstanding balance is to bear interest
at the three-year  treasury rate plus one percent.  The minimum  payment for the
third year is $1,500 per  month,  the  minimum  payment  for the fourth  year is
$2,000 per month and the minimum payment for the fifth year is $2,500 per month.
Any remaining unpaid balance,  including  interest,  shall be due and payable at
the conclusion of the 60th month from the date of the agreement.

The Company has a non-interest  bearing note receivable from the Chairman of the
Board and Chief Executive  Officer.  No installment  payments are required under
the terms of the  note,  but the note  must be paid in full as of  December  31,
2007. The outstanding  balance of the note was approximately  $1,500 and $38,000
at December 31, 2004 and 2003, respectively.

16)  Disclosure about Fair Value of Financial Instruments

The fair values of  investments in fixed  maturity and equity  securities  along
with methods used to estimate such values are disclosed in Note 2. The following
methods and assumptions  were used by the Company in estimating the "fair value"
disclosures related to other significant financial instruments:




<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



16)   Disclosure about Fair Value of Financial Instruments

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

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

Investment  Contracts:  The fair  values  for the  Company's  liabilities  under
investment-type  insurance  contracts are estimated based on the contracts' cash
surrender values. The carrying amount and fair value as of December 31, 2004 and
December 31, 2003, were approximately $82,592,000 and $86,389,000, respectively.

The fair values for the Company's insurance contracts other than investment-type
contracts  are not  required  to be  disclosed.  However,  the  fair  values  of
liabilities  under all insurance  contracts are taken into  consideration in the
Company's  overall  management  of interest  rate risk,  such that the Company's
exposure  to  changing  interest  rates is  minimized  through  the  matching of
investment maturities with amounts due under insurance contracts.

The following summarizes accumulated other comprehensive income:

                                                          December 31,
                                               2004         2003         2002
                                               ----         ----         ----
Unrealized gains
     on available for-sale securities        $226,464   $  638,540    $  84,263
Reclassification
     adjustment for net realized
     gains (losses) in net income               7,524       (2,155)     (35,544)
                                             --------   ----------    ---------
Net unrealized gains (losses)                 233,988      636,385       48,719
Potential unrealized gains (losses) for
     derivative bank loans
     (interest rate swaps)                    266,219     (303,029)       --
Tax (expense) benefit on net unrealized
     gain (losses)                            (73,586)      19,428      (80,786)
                                             --------   ----------    ---------
Other comprehensive income (loss)            $426,621   $   352,784   $(32,067)
                                             ========   ==========    =========

Other items:
     Acquisition of Company Stock
         held in escrow                      $   --     $(1,982,620)  $  --
                                             ========   ===========   ==========

The  "Acquisition  of Company  Stock held in Escrow" above is held in escrow and
voted by trustee  until the  balances  shown  under Note 6 "Notes and  Contracts
Payable" in the amounts of $100,000  and  $321,747,  as of December 31, 2004 and
2003, respectively, are paid per terms of the agreement and promissory note.


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 2004, 2003, and 2002



17)    Accumulated Other Comprehensive Income (Loss), and Other Items

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

Information regarding the swaps is as follows as of December 31, 2004:

     Weighted average variable interest rate of
         the hedged bank loans (prime less .5%)                         4.75%
     Weighted average fixed interest rate of the swaps                  6.1%
     Market value of the swaps- potential unrealized
         loss position                                             $(36,810)

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


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Selected Consolidated Financial Data




The following  selected  financial data for each of the five years in the period
ended  December 31, 2004,  are derived from the audited  consolidated  financial
statements.  The data as of December 31, 2004 and 2003,  and for the three years
ended  December 31, 2004,  should be read in conjunction  with the  consolidated
financial  statements,  related notes and other financial  information  included
herein.

<TABLE>
<CAPTION>

Consolidated Statement of Earnings Data:
                                                                   Year Ended December 31,

Revenue                                    2004              2003(1)            2002             2001              2000
- -------                                    ----              -------            ----             ----              ----
<S>                                   <C>                <C>               <C>               <C>             <C>
Premiums                              $ 25,979,000       $ 23,295,000      $14,077,000       $13,151,000     $12,876,000
Net investment income                   15,939,000         17,303,000       12,540,000        12,947,000      12,136,000
Net mortuary and cemetery sales         11,661,000         10,944,000       10,638,000         9,881,000       8,741,000
Realized (losses) gains on investments      74,000             (2,000)       1,021,000            10,000         424,000
Mortgage fee income                     62,690,000         92,955,000       57,008,000        40,086,000      22,922,000
Other                                      855,000            550,000          479,000           152,000         305,000
                                  ----------------   ----------------   --------------     -------------  --------------
Total revenue                          117,198,000        145,045,000       95,763,000        76,227,000      57,404,000
                                     -------------      -------------     ------------       -----------    ------------

Expenses
Policyholder benefits                   23,362,000         21,755,000       13,756,000        11,775,000      12,931,000
Amortization of deferred
  policy acquisition costs               4,602,000          4,929,000        3,994,000         3,870,000       3,189,000
General and administrative expenses     82,097,000        102,926,000       68,459,000        52,247,000      35,959,000
Interest expense                         2,174,000          3,642,000        1,970,000         2,791,000       2,126,000
Cost of goods and services of
  the mortuaries and cemeteries          2,304,000          2,328,000        2,045,000         1,772,000       1,952,000
                                   ---------------    ---------------    -------------      ------------     -----------
Total benefits and expenses            114,539,000        135,580,000       90,224,000        72,455,000      56,157,000
                                     -------------      -------------     ------------       -----------     -----------
Income before income tax expense         2,659,000          9,465,000        5,539,000         3,772,000       1,247,000
Income tax expense                        (652,000)        (2,891,000)      (1,565,000)         (913,000)       (305,000)
Minority interest in (income)
   loss of subsidiary                      115,000             22,000           18,000           (18,000)        (46,000)
                                   ---------------    ---------------   --------------    --------------   -------------
Net earnings                         $   2,122,000        $ 6,596,000      $ 3,992,000       $ 2,841,000     $   896,000
                                     =============        ===========      ===========       ===========     ===========

Net earnings per common share(3)              $.35              $1.13             $.72             $.52             $.16
                                              ====              =====             ====             ====             ====
Weighted average outstanding
   common shares (3)                     6,002,000          5,852,000        5,573,000         5,485,000       5,511,000
Net earnings per common
   share-assuming dilution(3)                 $.34              $1.10             $.69             $.52             $.16
                                              ====              =====             ====             ====             ====
Weighted average outstanding
   common shares-assuming dilution (3)   6,218,000          6,003,000        5,744,000         5,486,000       5,528,000

</TABLE>


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Selected Consolidated Financial Data (Continued)
<TABLE>
<CAPTION>




                                                                   Year Ended December 31,

                                          2004(2)             2003             2002(1)           2001              2000
                                          -------             ----             -------           ----              ----
Assets
<S>                                   <C>                <C>              <C>               <C>              <C>
Investments and restricted assets     $183,876,000       $112,006,000     $106,161,000      $ 94,514,000     $108,810,000
Cash                                    15,334,000         19,704,000       38,199,000         8,757,000       11,275,000
Receivables                             53,737,000        120,698,000      102,590,000        59,210,000       36,413,000
Other assets                            63,527,000         61,075,000       61,112,000        51,088,000       52,249,000
                                    --------------     --------------   --------------    --------------   --------------
Total assets                          $316,474,000       $313,483,000     $308,062,000      $213,569,000     $208,747,000
                                      ============       ============     ============      ============     ============

Liabilities
Policyholder benefits                 $226,785,000       $220,739,000     $217,895,000      $142,291,000     $141,755,000
Notes & contracts payable               13,331,000         17,863,000       19,273,000        12,098,000       14,046,000
Cemetery & mortuary liabilities         10,789,000         10,562,000       10,076,000         9,344,000        8,659,000
Other liabilities                       20,091,000         21,187,000       22,007,000        15,630,000       12,921,000
                                    --------------    ---------------    -------------     -------------    -------------
Total liabilities                      270,996,000        270,351,000      269,251,000       179,363,000      177,381,000
                                     -------------     --------------    -------------      ------------     ------------

Minority interest                        3,813,000          3,957,000        4,298,000         4,237,000        4,625,000

Stockholders' equity                    41,665,000         39,175,000       34,513,000        29,969,000       26,741,000
                                    --------------      -------------   --------------    --------------   --------------
Total liabilities and
  stockholders' equity                $316,474,000       $313,483,000     $308,062,000      $213,569,000     $208,747,000
                                      ============       ============     ============      ============     ============

</TABLE>

(1)  Reflects the asset purchase transaction with Acadian Life Insurance Company
     on December 23, 2002.

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

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




<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations




Overview

The Company's  operations  over the last several years  generally  reflect three
trends or events which the Company expects to continue:  (i) increased attention
to "niche" insurance  products,  such as the Company's funeral plan policies and
traditional  whole  life  products;  (ii)  emphasis  on  cemetery  and  mortuary
business;  and (iii)  capitalizing  on lower interest  rates by originating  and
refinancing mortgage loans and other "niche" mortgage products.

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

As of December 31, 2004,  SNMC had 17 branches in seven  states.  In 2001,  SNMC
opened wholesale branches in Phoenix,  Arizona and Houston, Texas. In 2003, SNMC
opened offices in Tampa and Jacksonville,  Florida; Las Vegas,  Nevada;  Denver,
Colorado;  Bountiful, Utah; and Dallas, Texas. SNMC opened one office in 2004 at
Cape Coral,  Florida. SNMC originated and sold 11,567 loans ($1,781,000,000 loan
amount),   17,494  loans   ($2,560,000,000   loan  amount),   and  11,737  loans
($1,721,000,000 loan amount) in 2004, 2003 and 2002,  respectively.  SNMC's loan
volume decreased in 2004 due to an increase in interest rates resulting in fewer
borrowers refinancing their loans.

On December 17, 1998,  the Company  purchased all of the  outstanding  shares of
common stock of SSLIC Holding Company,  formerly Consolidare Enterprises,  Inc.,
and Insuradyne  Corporation for a total cost of $12,248,194.  As of December 31,
2004,  Security  National  Life and its wholly owned  subsidiary,  SSLIC Holding
Company,  held  approximately  77% of the outstanding  shares of common stock of
Southern Security Life Insurance Company.

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

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


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations  (Continued)




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

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

Significant Accounting Policies

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

Insurance Operations

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

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

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


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)




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

Cemetery and Mortuary Operations

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

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

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

Pre-need  sales  of  cemetery  services  (primarily   merchandise  delivery  and
installation  fees and burial  opening  and  closing  fees) - revenue  and costs
associated with the sales of pre-need  cemetery  services are deferred until the
services are performed.

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

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

Mortgage Operations

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

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


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)




Use of Significant Accounting Estimates

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

Fixed Maturities Available for Sale

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

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

Deferred Acquisition Costs

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

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

Cost of Insurance Acquired

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

Allowance for Doubtful Accounts

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


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)




Future Policy Benefits

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

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

Unearned Revenue

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

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

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

The Company, through its mortuary and cemetery operations, provides a guaranteed
funeral arrangement wherein a prospective  customer can receive future goods and
services at guaranteed prices. To accomplish this, the Company, through its life
insurance operations, sells to the customer an increasing benefit life insurance
policy  that is  assigned  to the  mortuaries.  If,  at the  time of  need,  the
policyholder/potential   mortuary   customer   utilizes  one  of  the  Company's
facilities,  the guaranteed funeral arrangement  contract that has been assigned
will  provide  the  funeral  goods and  services at the  contracted  price.  The
increasing life insurance policy will cover the difference  between the original
contract prices and current prices.  Risks may arise if the difference cannot be
fully met by the life insurance policy.

Mortgage Loan Loss Reserve

The Company accrues an estimate of future losses on mortgage loans sold to third
party investors.  The Company may be required to reimburse third party investors
for costs  associated  with  early  payoff  of loans  within  the first  year of
duration and to repurchase loans in default within the first year. The estimates
are based upon historical experience and best estimate of future liabilities.

Deferred Compensation

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


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)


Depreciation

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

Results of Operations

2004 Compared to 2003

Total revenues decreased by $27,847,000,  or 19.2%, from $145,045,000 for fiscal
year 2003 to $117,198,000 for fiscal year 2004. Contributing to this decrease in
total  revenues  was  a  $30,265,000  decrease  in  mortgage  fee  income  and a
$1,364,000 decrease in net investment income. This decrease was partially offset
by an  increase in  mortuary  and  cemetery  sales of  $717,000,  an increase in
insurance  premium  and other  considerations  of  $2,684,000,  an  increase  in
realized  gains on  investments  of $76,000 and an increase in other  revenue of
$305,000.

Insurance  premiums  and other  considerations  increased  by  $2,684,000,  from
$23,295,000 in 2003 to  $25,979,000 in 2004.  This increase was primarily due to
the additional  insurance premiums that were realized on new insurance sales and
included premiums from policies acquired from Paramount  Security Life Insurance
Company in 2004.

Net  investment  income  decreased by  $1,364,000,  from  $17,303,000 in 2003 to
$15,939,000  in 2004.  This  decrease  was  primarily  attributable  to  reduced
interest income on fewer mortgage loans originated by SecurityNational  Mortgage
Company during 2004.

Net mortuary and cemetery sales increased by $717,000,  from $10,944,000 in 2003
to  $11,661,000  in 2004.  This increase was primarily due to pre-need  cemetery
sales.

Realized gains on investments and other assets increased by $76,000, from a loss
of $2,000 in 2003 to a gain of $74,000 in 2004.

Other  revenue  increased by $305,000 from $550,000 in 2003 to $855,000 in 2004.
Other  revenue  increased  in part from the  recovery  of funds from a member of
management who was found to have  fraudulently  obtained expense  reimbursements
over a period of several  years.  The total amount of payments that the employee
fraudulently obtained was $111,000.  The employee was terminated and the Company
demanded  and  received  full  restitution.  The employee  made  restitution  by
transferring  to the  Company  shares of the  Company's  common  stock  that the
employee owned at the time he was terminated.

Mortgage  fee income  decreased  by  $30,265,000,  from  $92,955,000  in 2003 to
$62,690,000 in 2004.  This decrease was primarily  attributable to a decrease in
the number of loan originations during 2004 due to an increase in interest rates
resulting in fewer borrowers refinancing mortgage loans.

Total benefits and expenses were  $114,539,000 for 2004, which constituted 97.7%
of the Company's total revenues,  as compared to  $135,580,000,  or 93.5% of the
Company's total revenues for 2003.


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)




During  2004,  there  was  a net  increase  of  $1,607,000  in  death  benefits,
surrenders  and other  policy  benefits,  and in  future  policy  benefits  from
$21,755,000 in 2003 to $23,362,000 in 2004.  This net increase was the result of
an increase in reserves for policyholders offset by decreases in death benefits,
and surrenders and other policy benefits.

Amortization  of  deferred  policy and  pre-need  acquisition  costs and cost of
insurance acquired decreased by $327,000,  from $4,929,000 in 2003 to $4,602,000
in 2004.  This decrease was primarily  due to reduced  amortization  of deferred
policy acquisition costs and cost of insurance  acquired,  which is in line with
actuarial assumptions.

General and administrative expenses decreased by $20,829,000,  from $102,926,000
in 2003 to $82,097,000 in 2004. Contributing to this decrease was an $18,846,000
decrease in commission expenses, from $67,537,000 in 2003 to $48,691,000 in 2004
due to  fewer  mortgage  loan  originations  made by  SecurityNational  Mortgage
Company during 2004.  Salaries increased  $312,000,  from $14,080,000 in 2003 to
$14,392,000 in 2004, primarily due to merit increases.  Other expenses decreased
$2,295,000,  from  $21,310,000 in 2003 to $19,015,000 in 2004.  These  decreases
were  primarily  the  result of  reduced  expenses  due to fewer  mortgage  loan
originations made by SecurityNational Mortgage Company during 2004.

Interest expense decreased by $1,468,000,  from $3,642,000 in 2003 to $2,174,000
in 2004.  This decrease was primarily due to reduced  warehouse  lines of credit
required for fewer  mortgage  loan  originations  by  SecurityNational  Mortgage
Company during 2004.

2003 Compared to 2002

Total revenues  increased by $49,282,000,  or 50.5%, from $95,763,000 for fiscal
year 2002 to $145,045,000 for fiscal year 2003. Contributing to this increase in
total revenues was a $35,947,000  increase in mortgage fee income,  a $4,763,000
increase in net  investment  income,  and a  $9,218,000  increase  in  insurance
premiums and other considerations.

Insurance  premiums  and other  considerations  increased  by  $9,218,000,  from
$14,077,000 in 2002 to  $23,295,000 in 2003.  This increase was primarily due to
the additional premiums from policies acquired in the asset purchase transaction
with Acadian Life.

Net  investment  income  increased by  $4,763,000,  from  $12,540,000 in 2002 to
$17,303,000 in 2003. This increase was primarily  attributable to the additional
investment  income from the assets  acquired in the asset  purchase  transaction
with Acadian Life.

Net mortuary and cemetery sales increased by $306,000,  from $10,638,000 in 2002
to  $10,944,000 in 2003.  This increase was primarily due to additional  at-need
cemetery and mortuary sales.

Realized gains on investments and other assets  decreased by $1,023,000,  from a
gain of  $1,021,000 in 2002 to a loss of $2,000 in 2003.  The realized  gains on
investment  and other assets in 2002 was primarily  from the sale of property at
Lake Hills Cemetery.

Mortgage  fee income  increased  by  $35,947,000,  from  $57,008,000  in 2002 to
$92,955,000  in 2003.  This  increase was  primarily  attributable  to a greater
number of loan originations during 2003 due to the opening of new offices and to
lower  interest  rates  resulting  in  additional  borrowers  refinancing  their
mortgage loans.


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)




Total benefits and expenses were  $135,580,000 for 2003, which constituted 93.5%
of the Company's  total revenues,  as compared to  $90,224,000,  or 94.2% of the
Company's total revenues for 2002.

During  2003,  there  was  a net  increase  of  $7,999,000  in  death  benefits,
surrenders  and other  policy  benefits,  and in  future  policy  benefits  from
$13,756,000 in 2002 to $21,755,000 in 2003.  This net increase was primarily due
to the additional death benefits,  surrenders and other policy benefits acquired
from the additional  policies  acquired in the asset purchase  transaction  with
Acadian Life.

Amortization  of  deferred  policy and  pre-need  acquisition  costs and cost of
insurance acquired increased by $935,000,  from $3,994,000 in 2002 to $4,929,000
in 2003.  This  increase was  primarily due to the  additional  amortization  of
deferred  policy  acquisition  costs  and cost of  insurance  acquired  from the
additional  policies  acquired in the asset  purchase  transaction  with Acadian
Life.

General and administrative  expenses increased by $34,467,000,  from $68,459,000
in 2002 to $102,926,000 in 2003. Contributing to this increase was a $25,422,000
increase in commission  expenses,  from  $42,114,000  in 2002 to  $67,537,000 in
2003. Salaries increased $3,666,000,  from $10,414,000 in 2002 to $14,080,000 in
2003.  Other  expenses  increased  $5,379,000,   from  $15,931,000  in  2002  to
$21,310,000  in 2003.  These  increases  were primarily the result of additional
expenses due to increased  numbers of loan  originations  made by the  Company's
mortgage subsidiary in 2003 and to additional expenses associated with the asset
purchase transaction with Acadian Life.

Interest expense increased by $1,672,000,  from $1,970,000 in 2002 to $3,642,000
in 2003. This increase was primarily due to additional warehouse lines of credit
required  from  the  additional  mortgage  loan  originations  by the  Company's
mortgage subsidiary,  SecurityNational Mortgage Company, and bank borrowings for
the asset purchase transaction with Acadian Life.

Cost of the mortuary and cemetery goods and services sold increased by $282,000,
from  $2,045,000 in 2002 to $2,327,000 in 2003.  This increase was primarily due
to increased at-need 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.

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.


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)




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  predominately  in fixed maturity
securities,  mortgage  loans,  and  the  warehousing  of  mortgage  loans  on  a
short-term  basis before  selling the loans to investors in accordance  with the
requirements and laws governing the life insurance subsidiaries.  Bonds owned by
the  insurance  subsidiaries  amounted to  $81,051,000  as of December  31, 2004
compared to  $51,564,000  as of December 31, 2003.  This  represents  62% of the
total  insurance  related  investments  in  2004  as  compared  to 48% in  2003.
Generally,  all bonds owned by the life insurance  subsidiaries are rated by the
National  Association  of  Insurance  Commissioners  (NAIC).  Under this  rating
system, there are six categories used for rating bonds. At December 31, 2004, 2%
($1,659,000)  and at December 31, 2003, 3%  ($1,739,000)  of the Company's total
bond investments  were invested in bonds in rating  categories three through six
which are considered non-investment grade.

If market conditions were to cause interest rates to change, the market value of
the fixed  income  portfolio  (approximately  $149,469,000)  could change by the
following  amounts based on the respective  basis point swing (the change in the
market values were calculated using a modeling technique):

                          -200 bps    -100 bps     +100 bps       +200 bps
                          --------    --------     --------       --------
Change in Market Value
   (in thousands)          $18,169    $10,620      $(12,346)      $(26,842)

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

The Company is subject to risk based capital guidelines established by statutory
regulators  requiring  minimum  capital  levels based on the  perceived  risk of
assets, liabilities,  disintermediation, and business risk. At December 31, 2004
and 2003, the life subsidiaries exceeded the regulatory criteria.

The Company's total  capitalization  of  stockholders'  equity and bank debt and
notes payable was  $54,995,000 and $57,039,000 as of December 31, 2004 and 2003,
respectively.  Stockholders' equity as a percent of total capitalization was 76%
and 69% as of December 31, 2004 and 2003, respectively.

Lapse  rates  measure the amount of  insurance  terminated  during a  particular
period.  The  Company's  lapse  rate for life  insurance  in 2004 was  9.0%,  as
compared to a rate of 8.6% in 2003.

On December 17, 1998,  the Company  completed  the  acquisition  of  Consolidare
Enterprises,  Inc., a Florida corporation  ("Consolidare") pursuant to the terms
of the Acquisition Agreement,  which the Company entered into on April 17, 1998,
with Consolidare and certain shareholders of Consolidare for the purchase of all
of the  outstanding  shares of common  stock of  Consolidare.  Consolidare  owns
approximately 77% of the outstanding shares of common stock of Southern Security
Life  Insurance  Company,  a Florida  corporation  ("SSLIC").  The Company  also
acquired all of the outstanding  shares of stock of Insuradyne  Corp., a Florida
corporation ("Insuradyne").


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)




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

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

The Administrative Services Agreement is to remain in effect for an initial term
expiring on December  16,  2003.  The term of the  agreement  was  automatically
extended for an  additional  one-year  term  expiring  December  16,  2004.  The
agreement may be  automatically  extended for  additional  one-year terms unless
either  the  Company  or SSLIC  shall  deliver  a  written  notice  on or before
September  30 of any year stating to the other its desire not to extend the term
of the agreement. Neither the Company nor SSLIC provided written notice prior to
September 30, 2004, stating a desire not to extend the term of the agreement. As
a result, the agreement will be extended for an additional  one-year term ending
December 31, 2005.

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

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


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)




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

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

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

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

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

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


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial ConditioN
and Results of Operations (Continued)




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

At December 31, 2004,  $27,208,316 of the Company's  consolidated  stockholders'
equity represents the statutory  stockholders' equity of the Company's insurance
subsidiaries.  The life insurance  subsidiaries  need to comply with  applicable
state regulations before a dividend can be paid to their parent company.

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

Forward-Looking Statements

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

Factors that may cause the Company's  actual results to differ  materially  from
those contemplated or projected, forecast, estimated or budgeted in such forward
looking  statements  include among  others,  the  following  possibilities:  (i)
heightened competition,  including the intensification of price competition, the
entry  of new  competitors,  and the  introduction  of new  products  by new and
existing competitors;  (ii) adverse state and federal legislation or regulation,
including  decreases  in rates,  limitations  on premium  levels,  increases  in
minimum capital and reserve requirements,  benefit mandates and tax treatment of
insurance products;  (iii) fluctuations in interest rates causing a reduction of
investment  income or increase in  interest  expense and in the market  value of
interest rate sensitive investment;  (iv) failure to obtain new customer, retain
existing customers or reductions in policies in force by existing customers; (v)
higher  service,  administrative,  or  general  expense  due  to  the  need  for
additional  advertising,  marketing,  administrative  or management  information
systems  expenditures;  (vi) loss or retirement of key  executives or employees;
(vii) increases in medical costs;  (viii) changes in the Company's liquidity due
to changes in asset and  liability  matching;  (ix)  restrictions  on  insurance
underwriting based on genetic testing and other criteria; (x) adverse changes in
the ratings obtained by independent  rating  agencies;  (xi) failure to maintain
adequate  reinsurance;  (xii) possible  claims  relating to sales  practices for
insurance  products and claim denials and (xiii) adverse trends in mortality and
morbidity.

Off-Balance Sheet Agreements

The Company's off-balance sheet arrangements consist of operating leases for
rental of office space and equipment.


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)




The Company  leases  office space and  equipment  under  various  non-cancelable
agreements,  with remaining terms up to five years. Minimum lease payments under
these non-cancelable operating leases as of December 31, 2004, are approximately
as follows:

                           Years Ending December 31:
                           -------------------------
                          2005               $588,000
                          2006                381,000
                          2007                 97,000
                          2008                 90,000
                          2009                 49,000
                                        -------------
                             Total         $1,205,000

Total rent  expense  related to these  non-cancelable  operating  leases for the
years  ended  December  31,  2004,  2003 and 2002  was  approximately  $734,000,
$396,000 and $200,000, respectively.

Recent Accounting Pronouncements

In April  2003,  the FASB issued SFAS No. 149,  Amendment  of  Statement  133 on
Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts  (collectively referred to as
derivatives)  and for  hedging  activities  under SFAS No. 133,  Accounting  for
Derivative  Instruments and Hedging Activities.  This Statement is effective for
contracts entered into or modified after June 30, 2003, with certain exceptions,
and for hedging relationships  designated after September 30, 2003. The adoption
of SFAS No.  149 did not have a  material  effect on the  Company's  results  of
operations or financial position.

In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments with  Characteristics  of both Liabilities and Equity." SFAS No. 150
requires that certain financial  instruments,  which under previous guidance may
have been accounted for as equity,  must now be accounted for as liabilities (or
an asset in some  circumstances).  The financial  instruments  affected  include
mandatory  redeemable stock,  certain financial  instruments that require or may
require the issuer to buy back some of its shares in exchange  for cash or other
assets and certain  obligations  that can be settled with shares of stock.  This
Statement  is  effective  for all such  financial  instruments  entered  into or
modified  after May 31, 2003, and otherwise is effective at the beginning of the
first interim period  beginning after June 15, 2003. The Company entered into an
agreement  with a  stockholder  in August 2003,  in which it  purchased  124,000
shares of Class A Common Stock from this  stockholder  for $6.00 per share.  The
purchase of these shares is reflected in treasury stock.  Also,  under the terms
of this  agreement,  the  stockholder  has agreed not to  purchase  or  control,
directly or indirectly, any additional shares of Class A or Class C Common Stock
through August 2007, and on August 27, 2004, 2005, and 2006, the stockholder may
request,  but is not obligated to request, the Company to purchase an additional
100,000  shares of Class A Common Stock held by this  stockholder  for $6.00 per
share. On October 26, 2004, the Company completed the stock purchase  agreement,
when the Company purchased the remaining amount of 51,929 shares, thus under the
agreement the Company will not be required to purchase any additional shares.


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)




Effective  December 31,  2003,  the Company  adopted  EITF Issue No.  03-1,  The
Meaning  of  Other-Than-Temporary  Impairment  and Its  Application  to  Certain
Investments  ("EITF  03-1").  EITF  03-1  provides  guidance  on the  disclosure
requirements for other-than-temporary  Impairments of debt and marketable equity
investments  that are  accounted  for under  Statement of  Financial  Accounting
Standards  ("SFAS")  No. 115,  Accounting  for Certain  Investments  in Debt and
Equity  Securities.  The  adoption of EITF 03-1  requires the Company to include
certain quantitative and qualitative  disclosures for debt and marketable equity
securities classified as  available-for-sale or held-to-maturity  under SFAS 115
that   are   impaired   at  the   balance   sheet   date   but  for   which   an
other-than-temporary  impairment has not been  recognized.  The adoption of EITF
03-1 did not have a  material  impact on the  Company's  financial  position  or
results of operations.

In April 2003,  the FASB cleared  Statement  133  Implementation  Issue No. B36,
Embedded  Derivatives:  Modified  Coinsurance  Arrangements and Debt Instruments
That  Incorporate  Credit Risk  Exposures  That Are Unrelated or Only  Partially
Related to the  Creditworthiness  of the Obligor under Those Instruments ("Issue
B36").  Issue B36 concluded that (i) a company's  funds withheld  payable and/or
receivable under certain  reinsurance  arrangements,  and (ii) a debt instrument
that  incorporates  credit risk  exposures  that are unrelated or only partially
related to the  creditworthiness  of the obligor include an embedded  derivative
feature that is not clearly and closely related to the host contract. Therefore,
the  embedded  derivative  feature must be measured at fair value on the balance
sheet and changes in fair value reported in income.  Issue B36 became  effective
on October 1, 2003. The adoption of Issue No. B36 did not have a material impact
on the Company's financial position or results of operations.

In  January  2003,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Interpretation  No.  46,   "Consolidation  of  Variable  Interest  Entities,  an
Interpretation  of ARB No.  51",  and  subsequently  issued a  revision  to this
Interpretation in December 2003. This Interpretation addresses the consolidation
by  business  enterprises  of  variable  interest  entities  as  defined  in the
Interpretation.  The Interpretation  applies to those variable interest entities
considered to be  special-purpose  entities no later than December 31, 2003. The
Interpretation  must also be applied to all other variable  interest entities no
later March 31, 2004.  Interpretation  No. 46 did not have a material  impact on
the Company's financial position or results of operations.

In December 2004, FASB revised SFAS 123 to Share-Based  Payment ("SFAS 123(R)").
SFAS  123(R)  provides   additional  guidance  on  determining  whether  certain
financial   instruments   awarded  in  share-based   payment   transactions  are
liabilities.  SFAS  123(R)  also  requires  that  the  cost  of all  share-based
transactions be recorded in the financial statements.  The revised pronouncement
must be adopted by the  Company by July 1, 2005.  Implementation  of SFAS 123(R)
will not have a  significant  impact  on the  Company's  consolidated  financial
statements in the period of  implementation.  However,  any future stock options
granted could have a significant impact on the Company's  consolidated financial
statements.

Quantitative and Qualitative Disclosures about Market Risk

The Company has no activities in derivative  financial or commodity  instruments
other than those recorded and disclosed in the financial statements. See note 17
of the consolidated  financial  statements  included elsewhere in this Form 10K.
The  Company's  exposure to market  risks  (i.e.,  interest  rate risk,  foreign
currency  exchange  rate risk and equity  price risk)  through  other  financial
instruments,  including  cash  equivalents,  accounts  receivable  and  lines of
credit, is not material.


<PAGE>


SECURITY NATIONAL FINANCIAL CORPORATION
Market for the Registrant's Common Stock and Related Security Holder Matters




The Company's  Class A Common Stock trades on the Nasdaq  National  Market under
the symbol "SNFCA." Prior to August 13, 1987,  there was no active public market
for the Class A and Class C Common  Stock.  As of March 31,  2005,  the  closing
sales price of the Class A Common Stock was $3.51 per share.  The  following are
the high and low market  closing  sales  prices for the Class A Common  Stock by
quarter as reported by Nasdaq since January 1, 2003:

Period (Calendar Year)                           Price Range
                                             High          Low
         2003
              First Quarter                 $6.59          $4.31
              Second Quarter                 6.01           5.02
              Third Quarter                  5.98           4.98
              Fourth Quarter                 7.10           5.47

         2004
              First Quarter                  8.47           6.36
              Second Quarter                 6.51           3.71
               Third Quarter                 3.89           3.08
              Fourth Quarter                 3.81           2.90

         2005
              First Quarter                  4.29           2.99

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

The Class C Common Stock is not actively  traded,  although there are occasional
transactions in such stock by brokerage firms.  (See Note 11 to the Consolidated
Financial Statements.)

The  Company  has never  paid a cash  dividend  on its Class A or Class C Common
Stock.  The  Company  currently  anticipates  that all of its  earnings  will be
retained  for use in the  operation  and  expansion of its business and does not
intend to pay any cash  dividends  on its Class A or Class C Common Stock in the
foreseeable  future.  Any future  determination as to cash dividends will depend
upon the earnings and  financial  position of the Company and such other factors
as the Board of Directors may deem  appropriate.  A 5% stock dividend on Class A
and Class C Common Stock has been paid each year from 1990 through 2004.

As of December 31, 2004, there were 4,437 record holders of Class A Common Stock
and 126 record holders of Class C Common Stock.
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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