Security National Financial Corporation

Good morning, everyone, and welcome to Security National Financial Corporation's first quarter 2025 earnings call. We thank you for joining us today to review our financial and operational results for the period ended March 31st, 2025. Before we begin, I'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 with 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?

Approximately 42 percent, or 3.1 million, from $7.475 million in 2024 to $4.338 million in 2025. Pre-tax earnings decreased approximately 41% or $4.05 million to $5.571 million. Most of my following comments will be using the pre-tax numbers as I go through some of the details. A decrease in quarterly income is never our goal and falls below our self-set standards. Despite the decrease in net income, I thought as a company, we performed well operationally in the first quarter. Our insurance segment had its second best first quarter out of the last five years, and our death care segment had its third best second quarter out of the last five years. Which time period is it important to note includes the pandemic? Speaking now of the decrease in pre-tax net income, of the approximate $4.05 million decrease in pre-tax quarterly income, about 75%, or roughly $3 million, is attributable to decreases in both our realized and unrealized investment income. Our investment income can be and is lumpy between quarters and years, primarily due to its close relationship, real estate activities and markets, meaning home closings or lot sales. And secondly, to public equity markets. Speaking now to the $3 million decline in investment income and referring now to that portion more directly related to real estate activities, Roughly 56% or 1.7 million of the decline is due to decreased construction profits and decreased gains on the sale of residential lots from our builder relationships. We simply participated in fewer home closings in Q1 2025 than in Q1 2024. I think it fair to say that builders to which we have profit sharing relationships had more homes in the process of being built in Q1 2025, but fewer closings. Margins appear to be consistent with 2024's experience, but margins are always an issue until a home closes. Lastly, as a general real estate market comment, housing inventories and days on market appear to have increased, but not to a degree that causes alarm. Roughly 42%, or 1.25 million, of our $3 million investment income decline is due to stock market declines in Q1. Generally speaking, we have chosen not to liquidate our positions, so the afore-referenced loss is simply a recognized but unrealized stock market loss as of March 31, 2025. Roughly 900,000 or 22% of the entire $4.05 million decrease in pre-tax income is related to an increase in our bad debt reserve expense, excuse me, as prescribed by the adoption of the CECL accounting standard. CECL is the Current Expected Credit Losses, the acronym. in Q1 2024. Arguments can be credibly made that this accounting rule is simply another element of our investment income. If that view were accepted, then basically our entire decrease in pre-tax net income is investment income related. In my view, CECL is a very formulaic and forward-looking calculation that places a heavier weight on outside factors at the time an asset is acquired. and less weight on the company's experience over the course of time. Time will tell if the company's allowances are appropriate, but in my view, CECL did change and does have the potential to further change in the future the company's bad debt allowances based on factors that are outside its control. After accounting for the investment income and related decreases, the remaining elements causing increases or decreases to net income are smaller in net impact and are much more numerous and nuanced. One element that probably merits comment is personnel costs. Personnel costs rose roughly 11.7% or roughly $2.2 million over 2024. Roughly speaking, five percentage points of that increase relates to general annual compensation increases for both staff and managers. We find it important to remain marketplace competitive in our compensation or our experienced staff are recruited away from us. The remaining increase relates to increased staffing pretty much across all levels. We are constantly reviewing our operational costs to ensure we remain efficient. But the majority of this increase represents very deliberate strategic hirings of high-quality, high-performing individuals to augment our sales and fulfillment staffs where we determined we needed greater capability to reach our growth goals. Growth is expensive, but is nevertheless our constant goal. We believe these increased personnel costs to be necessary investments which will yield returns in the years to come. Despite the decrease in income, many accomplishments were made in the first quarter. In our death care segment, we increased families served by 4% in what we believe to be a flat to declining mortality climate. In our insurance segment, we've improved our premium margin by several percentage points, reflecting the increased premium rates we've been implementing over the last several years. The full effect of those margin increases will not be apparent for several years hence. In our mortgage segment, we increased volume 11% Q1 2025 over Q1 2024 with an improved mix of products. Importantly, our mortgage segment was both profitable and cash flow positive in March. This concludes my prepared remarks, and I will now turn the time over to Mr. Garrett Sill, our Chief Financial Officer.

Thank you, Scott. Good afternoon. As Scott mentioned, my name is Garrett Sill, and I am the Chief Financial Officer of Security National Financial Corporation. I want to start by pointing out that the investment-related items that Scott highlighted in his comments are really found in three line items on the company's income statement. In the revenue section, construction profits are a component of net investment income. The gains on sale of residential lots and the changes in unrealized gains or losses on common stock are a component of gains on investment and other assets. And finally, our allowances that are related to our adoption of CECL are a component of the other line item in the benefits and expense section. Reviewing our balance sheet, total investments increased 3%, with the largest increase in our investments in mortgage loans, followed by an increase in bond holdings, and then real estate as we continue to expand and develop single-family real estate. In my view, our investments are good credit quality and well-balanced. Looking at our liabilities, insurance reserves increased less than 1% simply due to the aging of our block of business. Bank loans increased about 15% as we saw increased utilization of our outside warehouse lines due to increased mortgage originations. Finally, our statement of comprehensive income doesn't get a lot of time in the spotlight. but I thought it worthwhile to point out that we had a $5 million improvement in our unrealized losses on our bond portfolio. The fair value of our bond portfolio compared to its amortized cost has not been this close since 2020. Now I'd like to revisit our adoption of ASU 2023-07, or improvements to reportable segment disclosures. The purpose of this accounting change was to bring parity into the way that reportable business segments were disclosed by public companies. Prior to the change, the company had always reported its segments earnings before taxes. Beginning this year, ending December 31st, 2024, the company began to disclose its reportable segment earnings after taxes, as this was the SEC's preferred format. To aid our shareholders in multi-year and quarterly comparisons, the company will continue to provide before-tax segment earnings in its quarterly and annual press releases. Now let's look forward to another significant change to our financial reporting. In December this year, we will adopt ASU 2018-12, better known as Targeted Improvements to the Accounting for Long-Turation Contracts, or LDTI. Basically, the way that the company will calculate and report its life insurance reserves will change drastically. This has required a significant investment in time and other resources as we've worked on the implementation of these changes over the last two years. The company is still evaluating the total impact of these accounting changes, but should be able to report a range of its financial impact with our third quarter earnings. The final impact and required disclosures will then be reported in Form 10-K, which will be filed in March of 2026. In closing, we are financially healthy as our balance sheet remains strong with well-balanced investments and minimal debt. We have some significant changes to the way life insurance reserves are calculated and reported in our financial statements for the year ended December 31, 2025, but are confident in our ability to meet the reporting timeline. All things considered, this was a good first quarter for the company. Thank you. I'll turn the time over to Andrew, our president of Security National Mortgage.