Security National Financial Corp (SNFCA) 2025 Q3 法說會逐字稿

Good afternoon, everyone, and welcome to Security National Financial Corporation's third-quarter 2025 earnings call. We thank you for joining us today to review our financial and operational results for the period ended October 31, 2025.

Before we begin, we'd like to remind everyone that our remarks today will include forward-looking statements. These statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from those projected. Such risks include, but are not limited to, changes in economic conditions, interest rates, regulatory developments, competitive pressures, and other factors detailed in our filings of the Securities and Exchange Commission. We caution you not to place undue reliance on these forward-looking statements, which speak only as of today's date. We undertake no obligation to publicly update or revise these statements to reflect future events or circumstances, except as required by law.

With that, I'd like to turn the call over to our Chairman, President, and Chief Executive Officer, Scott Quist. Scott?

Good afternoon. My name is Scott Quist. I am the Chairman and Chief Executive Officer of Security National Financial Corp. With that, I welcome you to this call.

While the third quarter was definitely weak from my point of view, being $4 million below on an after-tax basis, Q3 2024, roughly 33%, there are some definite bright spots which partially illuminate much of the hard work, and I will add progress that was accomplished as gone on.

For example, on a return on equity basis as of September 30, We achieved a 7.9% ROE for the nine months, which, if annualized, would put us in double digits instead of 10.5%. That's an improvement over our June report, where the similar annualized ROE number was 8.5%. In some respects, that improvement highlights the financial diversity and resilience of our company, even when our operating earnings are a little disappointing.

Another financial bright spot that deserves mention is our personnel costs, for they are still up roughly 6% on a year-to-date basis. On a quarter -- for the quarter, they are flat, indicating that we have found and implemented sufficient efficiencies to offset the talent hiring we undertook commencing in Q4 of 2024.

Another way to say it is that we have significantly improved our executive management talent, particularly in the sales area, and have been able to offset those immediate costs with operational efficiencies. In June, by way of further illustration, our year-to-date personnel costs were up roughly 10%. So to be up just 6% year to date in September indicates that significant progress has been made.

Of course, improved management talent, particularly sales talent, should pay for themselves plus a margin. And I believe that is what I am, excuse me, I believe I am seeing that progress. I continue to be very impressed with the people who have chosen to join us.

That process, however, is a process and will take a little time for it to play out. We have spent heavily and have expended much effort this past year to retain first and then recruit improved sales, sales support, and executive talent in all of our segments. It has been and continues to be a major management focus.

Going to our business segments. For the first quarter, our Mortgage segment was profitable and was up over Q3 of 2024. While the numbers are not large, it represents a significant milestone, and I will add my applause to the accomplishment.

The mortgage market continues to be troubled with this being only our third profitable quarter in the last three years. Nevertheless, it was a profitable quarter. Further, I would note that in my estimation, our operational quality has improved year over year with actual operational improvements rather than simply accounting improvements and or drags, which we have seen both.

Segueing to accounting treatments for a moment, using current expected credit losses, CECL, if you will, is the acronym, or bad debt expense, as the example, which are for the most part formulaic and which affect all of our business segments, we have set aside nearly $1 million for mortgage losses when, in fact, for at least the last 36 months, we have suffered no losses due to foreclosures.

Please, I am not arguing that the accounting principles are being misapplied. I am simply saying that sometimes accounting treatments can have a timing effect of moving income between years, if not quarters.

Our Cemetery Mortuary segment also posted improved results over Q3 2024. We are just now seeing stabilized, if not improved, pre-need cemetery land sales, which are a major profit driver. It is a fair statement that over the last nine months, we have completely revamped our cemetery sales force.

Our Life Insurance segment's earnings were weak for the quarter, primarily due to DAF or deferred acquisition costs and their amortization, CECL, and lower unrealized gains on common stock. Our goal is to grow new life premium sales. We did not achieve that goal in the third quarter, and we are working diligently to rectify that situation. Much of the aforementioned management and sales talent and increased personnel costs were and are a standard in our Life Insurance segment.

As a reminder, in Q4, we will be implementing new accounting standards known as long-duration targeted improvements, or LDTI, in our Life Insurance segment. This implementation will cause significant adjustments to our benefit reserves, our deferred acquisition costs, and the implementation of a new concept of a deferred profit liability among other items.

Those accounting adjustments do not reflect any inappropriateness of our current calculations, but will reflect new accounting standards. Whether those new accounting standards are better or worse than existing standards, I will leave such judgment to the discretion of the user.

Our investment income returning out of operations continues to be good corporate-wide, particularly in the Life Insurance segment. As referenced in the June earnings press release, the nature of our real estate-based activities, lending, directly owning, and builder participations does create a significant current drag to income. We believe it will be positive -- but we believe it will be positively accretive over time.

Finally, just commenting on our real estate-based investments, we seem to be seeing weakness in the first-time buyer markets, but strength, if not continued strength, in the move-up markets.

I thank you for your continued support. and I will now turn the time over to Mr. Garrett Sill, our Chief Financial Officer.

Thank you, Scott. Good afternoon, and thank you for joining us today. As Scott mentioned, my name is Garrett Sill, and I am the Chief Financial Officer of Security National Financial Corporation. I want to start off with a couple of highlights just focusing on the changes between Q2 and Q3 of this year.

Reviewing our balance sheet, invested assets increased $5 million as we increased our investment in mortgage loans, real estate, and our equity portfolio saw a $1 million increase in fair value. Most of our liabilities remained relatively flat with the largest increase of $6 million occurring to our future policy benefits quarter over quarter.

Our stockholders' equity improved quarter over quarter due to both quarterly earnings and a continued improvement in the fair value of our bond portfolio. Looking at the income statement, Q3 revenues were essentially flat compared to Q2, but we did see a $2 million reduction in the total expenses in Q3, which resulted in an increase in pre-tax earnings of $2 million compared to our Q2 pre-tax earnings.

Moving to the nine months ended 2025, the balance sheet shows that we've increased our investment in bonds, mortgage loans, real estates, and saw continued improvement in the fair value of both our fixed income and equity investments. Stockholders' equity increased $27 million as a result of earnings and the improved fixed income portfolio fair value that flows through the company's equity statement.

Unfortunately, our income statement does not show similar year-over-year results. Net earnings are down $8 million as a result of increased expenses in several areas, including death benefits, deferred acquisition costs, and personnel-related expenses. We continue to work on reducing costs to improve profitability, and our Q3 results show that we could be successful in our efforts.

As mentioned in our last call, accelerated filing status brings with it some significant changes to the company. Since our Q2 earnings release, we have been on a sprint to both document and audit the company's internal controls on financial reporting. As you are aware, we did file our Q3 report one day earlier than normal. Not a huge step towards the accelerated filing timeline, but it is a step, nonetheless.

Regarding our internal controls, we have a good documentation in place for the majority of our controls and are working through an audit of all our internal controls at this time.

Finally, as promised in our last earnings call, our range of impact and discussion on how adoption of ASU 2018-12, better known as Targeted Improvements to the Accounting for Long-Duration Contracts, or LDTI, affects a company's financial statements is found on page 12 of our Q3 Form 10-Q. I would also note that for comparative purposes, our 2025 Form 10-K will show restated 2024 numbers and subsequent 2026 quarterly volume also show restated 2025 quarterly numbers. This restatement will affect both balance sheet and income statement.

In closing, Q3 earnings improved over Q2 earnings, but our year-to-date net earnings remain well below the standard set for the nine months ended 2024. Despite the decrease in earnings year over year, we remain financially healthy as our balance sheet remains strong with minimal debt and well-balanced investments that are poised for good future returns. For the rest of the year, we will continue to push through the accounting headwinds as we continue to prepare for an audit of the company's internal controls and as we revamp our Form 10-K because of the adoption of LDTI.

Next, we'll hear from Andrew Quist, President and Chief Executive Officer of the Security National Organization.

Good afternoon, fellow shareholders. I'm Andrew Quist, President and CEO of Security National Mortgage Company. In the third quarter of 2025, Security National Mortgage Company had pre-tax net income of $66,000 compared to net income of $16,000 in the third quarter of 2024, an increase of $50,000, or 312%. This was Security National Mortgage's first quarterly profit since the third quarter of last year.

While an improvement, the modest $50,000 increase over Q3 last year doesn't fully reflect the operational results of S&MC. The Q3 results for S&MC last year included a legal settlement awarded to Security National that increased revenue and net income by approximately $1.3 million in the quarter. Thus, excluding the legal settlement, net income improved by almost $1.4 million from year-ago levels. I believe this shows significant operational improvement in our company.

This improvement came on essentially flat origination volumes. In the third quarter of 2025, we originated [$622 million] of loan volume compared to [$632 million] in the third quarter of 2024, a 2% year-over-year decrease. On a sequential quarter basis, origination volumes were up 1%.

Based on the Mortgage Bankers Association reported total industry origination volumes for the third quarter, S&MC's market share decreased to 11 basis points from 12 basis points in the second quarter. I view this decline as a direct result of higher refinance volumes in the third quarter, which the MBA reported represented 33% of all loan originations in the quarter. This is the highest reported share of refinance in the market in over three years.

Security National's third-quarter refinance percentage of total originations was 14%. This is an obvious area of underperformance. As a purchase money-focused lender, we simply must improve our refinance skillset in this environment. This is a key focus of ours heading into 2026.

In summary, Security National Mortgage returned to profitability in the third quarter for the first time since the third quarter of 2024. Excluding the 2024 legal settlement, the year-over-year net income improvement was almost $1.4 million a quarter, which I consider significant. This was accomplished with essentially flat origination volumes, both year over year and on a consecutive quarter basis.

I want to thank our loan officers and our employees for their tireless efforts in returning Security National Mortgage Company to profitability. I know with the outstanding and dedicated team we have at Security National Mortgage, we will continue the improvement we saw in the third quarter. Thank you.

Thank you, Andrew, and good afternoon to everyone, and thank you for joining us today. My name is Adam Quist, and I serve as President and CEO of Secure National Life Insurance Companies. Today, I'll be reporting on our life segment results for the third quarter of 2025.

On a GAAP basis, our Life Segment generated net income before taxes of approximately $7.5 million for the quarter, compared to $11.8 million in Q3 2024. For a pre-tax decrease of $4.4 million, or 37%. While earnings were lower year over year, total revenues increased by roughly $2 million, or about 4%, driven primarily by higher investment income resulting from increased profit share from our builder partners.

The increase in investment income this quarter was driven primarily by continued strength in our builder relationships and construction loan balances. Our builder profit share income remains a key contributor to our earnings, and while we are not immune from macro- and microeconomic trends in the housing market, we expect it to continue to generate attractive returns over time. It is also important to understand that we have deployed over [$50 million] into residential land holdings this year.

While our residential land holdings may be a leading indicator for the prospects of future profit splits with our builder partners, generally speaking, we recognize zero income from these land holdings and, in fact, forego the opportunity cost of other immediate return-generating investments, at least until the construction of a house is started. We believe the diversification of our earnings base provides resilience across market cycles and reflects our focus on generating what we view as attractive risk-adjusted returns over the long term.

Our personnel costs increased $561,000, or about 10%, compared to Q3 2024. While personnel costs have risen this year, it's worth noting that Q3 was our lowest personnel cost of the year and also our lowest personnel cost growth quarter over quarter of the year.

We continue to invest our sales force, technology, and strengthening our value proposition to our funeral home and agent partners. These are strategic investments that naturally come with upfront costs that are intended to drive greater efficiency, scale, and market competitiveness in future periods. But by its nature, it does require investment.

Death benefits were up approximately $2 million compared to the same quarter last year. Net of reserve, this increase reduced earnings by roughly $800,000. Short-term volatility in mortality is expected. However, our overall experience remains within our long-term pricing expectations.

We also recorded an increase in bad debt expense of $500,000 during the quarter. My comments here remain consistent with prior quarters. We continue to view our CECL and bad debt provisions as largely formula-driven. That said, it may be worth highlighting an important point. In the past three years, we've incurred zero realized losses in our commercial and construction loan portfolios, and our delinquency rates remain in line with our historic norms.

The single largest negative driver on our earnings this quarter was deferred acquisition costs, or DAC, both an increased amortization and a decreased deferral. We recorded a $3.2 million higher amortization of DAC in Q3 2025 compared to Q3 2024, combined with approximately $500,000 less in deferral on the same comparative basis, resulting in a total earnings headwind of over $3.7 million on the quarter. This was primarily driven by a higher termination rate from debts, lapses, and policies moving to reduce paid-up status, a shift in product makes, and the impact of recent premium increases.

It is important to note that on a cash basis, our commissions paid were roughly flat to down, and we have not increased actual commission rates as compared to last year. However, the actuarial and accounting treatment of DAC may shift reported profitability between periods. Also, it is important to remember the calculation and treatment of DAC will change as we implement long-duration target improvements for LDTI in Q4 2025.

Looking ahead, our focus remains on strengthening and expanding our sales distribution relationships, enhancing operational efficiency and data-driven decision-making while investing in profitable growth opportunities and deploying capital into what we believe are attractive investment opportunities. We believe that our consistent approach built on underwriting discipline, strategic investment, and measured growth positions us well to continue delivering long-term value.

In summary, while third quarter earnings were lower than last year, our revenues grew, our investment income remained strong, and our expense trends improved. The headwinds we've faced this quarter particularly from DAC mortality and bad debt provisions are largely timing and accounting related, and we remain confident in the strength of our underlying operations and financial position. We continue to focus on sustainable long-term profitability, and I remain encouraged by the foundation we're building for future growth.

Thank you for your continued support, and I look forward to sharing our progress when we report our full-year 2025 results.

I will now turn the time over to [Steve Kiel].

Thank you, Adam. Good afternoon, everyone. I am Steve Kiel, the Chief Operating Officer of Security National Funeral Homes and Cemeteries.

In the third quarter of this year, our earnings before tax grew 7.2% to $3.045 million, compared to the $2.841 million in the third quarter of 2024. Our total revenue in the quarter also increased 4.5% to $8.928 million compared to the $8.543 million in the third quarter of 2024. We are encouraged by the meaningful improvements achieved this quarter across both earnings and revenue.

As we look to our operating highlights in our Funeral Home division, in the third quarter, our Funeral Home earnings before tax came in at $724,000, up 40.5% from the $516,000 in earnings from Q3 last year. Our Funeral Home revenue also rose 9.4% to $3.52 million, up from the $3.22 million in Q3 of '24. This was driven by a 4.2% growth in the number of families served, coupled with a 0.5 percentage increase in our funeral sales averages.

Our realized cremation rate in the third quarter was 49.9%. We're pleased with our education initiatives from our funeral directors as they explain the value of service to our families. From Q2 to Q3, we've realized an additional 2.5% increase in these cremation families that are choosing to have service associated with honoring their loved one's life.

Additionally, for the first nine months of this year, we've realized an increase of 14.8% over the first nine months of 2024 due to these education initiatives. We believe this growth underscores the effectiveness of our expanded service offerings and reflects the enhanced expertise of our funeral directors in guiding families toward meaningful and personalized choices. We have dedicated significant time this year to strengthening our professional training, both within the arrangement conference environment and through elevating our broader standards of excellence across our funeral home teams.

Pertaining to our Cemetery operations, in the third quarter, our Cemetery earnings before tax were $880,000, up 21.7% from prior year quarters, $723,000. Our Cemetery revenue also increased 0.7% from $3.6 million in Q3 of '24 to $3.62 million. As Scott noted in the press release, we are beginning to see stabilization, if not improvement, in our pre-need cemetery land sales.

In the third quarter, our pre-need land sales increased 3.2% compared to Q3 of '24. As shared on our last earnings call, We have strategically rebuilt over 60% of our Cemetery sales team throughout this year, aligning ourselves with growth-minded professionals who are dedicated to educating and serving our families. We also saw a positive shift in our volume of internments during the third quarter, reducing our year-to-date deficit to just 5.2%. As our Cemetery teams continue to educate families on the importance of establishing a final resting place to honor their life lived, we are confident that these efforts will support continued growth and strengthen our long-term position.

In the third quarter, our investment income totaled $1.44 million compared to the $1.6 million during the same period last year. We recognize that the value of our investment strategy and the returns it generates unfold over time. We remain committed to these long-term objectives, including continued investment and our internal development initiatives, such as cemetery garden expansions, which we believe will contribute meaningfully to future growth.

We remain confident in our future. Our operating model is strong, and our core businesses continue to create meaningful opportunities for growth. We are grateful for the progress we've made in the third quarter, yet we also recognize that sustained and advancement will require more than relying on past practices. With resilience and purpose, we are making strategic investments in our people and technology and in elevating the customer experience.

In conclusion, I want to extend my heartfelt appreciation to our funeral home, cemetery, grounds, and operational support teams. Your steadfast dedication to service excellence and professionalism is the foundation of our success. Even amid today's challenging economic environment, your unwavering commitment inspires confidence and ensures that we continue to deliver the highest standard of care to those families that we are privileged to serve.

Thank you for your time, confidence, and your ongoing partnership. I'll now turn the time back over to our Human Resources Director, Heather Street. Heather?

Thank you, Steve. (Event Instructions) Are there any further questions?

As we've come to the end of our time, we'll note the end of our Q&A. And as we have no more questions, we'll note the end of our Q&A. Thank you again for your questions and participation. We value the engagement and thoughtful input of our shareholders and panelists.

For more information about the meeting, our latest financial reports, or any other investor materials, we invite you to visit the Investor Relations section of our website at www.securitynational.com. We appreciate your continued support of the Security National Financial Corporation.

This concludes our third-quarter 2025 earnings call. We look forward to speaking with you again soon. Thank you, and have a great day.