Security National Financial Corporation

Good afternoon, everyone, and welcome to Security National Financial Corporation's second quarter 2025 earnings call. We thank you for joining us today to review our financial and operational results for the period ended June 30th, 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. Our second quarter press release issued August 14th, 2025 is posted on our company's website. Please refer to our second quarter press release over to our Chief Financial Officer, Garrett Zill.

Garrett. Thank you, Heather. I want to start by thanking those who are on this call. This is our second consecutive earnings call, and we are still working out some of the formalities. So thank you again for joining us. And thank you for your patience as we continue to improve these shareholders' events. Our press release was a little more comprehensive this quarter, so I just want to hit a couple of highlights. Reviewing our balance sheet, our cash decreased $60 million as we increased investments in bonds by $25 million, real estate activities by $28 million, and mortgage loans by $23 million. These increases in investments were offset by Better Home Loan Bank advances and now which is seen in the recent bank loans on the liability section of our balance sheet. Stockholders' equity improved quarter over quarter due to both good earnings and an improvement in the fair value of our bond portfolio. Moving to the income statement, Q2 revenues increased over Q1, which resulted in Q2 net earnings also improving over Q1 net earnings. Expenses remained elevated in strategic areas, as explained in the Q2 press releases. Despite these increases, Q2 and year-to-date net earnings were good. A lot has happened since our last call. On June 27th, Security National Financial was added to the Russell 2000, and then on June 30th, Security National Financial crossed the threshold for accelerated filing status. Although we remain a small reporting company, accelerated filing will have a significant impact on our financial audits and our SEC reporting requirements. Finally, the company distributed a 5% stock dividend on July 18th. Accelerated filing status brings with it some significant changes to the company. First of all, financial reports filed after December 31st, 2025 will need to be filed sooner. Basically, our Form 10-K will now be filed 75 days after year-end, and all Forms 10-Q will be filed 40 days following a quarter-end. Secondly, and probably more importantly, our year-end audit will also include an audit and an opinion by Deloitte on the company's internal controls. The audit of our internal controls will come with a significant increase in audit fees and other implementation expenses. To be a little more precise, the company has good internal controls. However, accelerated filers are required to document their controls in a specific manner, and those controls must be tested both internally and externally. We have a good framework in place. We are working towards compliance by year end. Finally, our progress with our adoption of ASU 2018-12, better known as targeted improvements to the accounting for long duration contracts or LDTI, is still on track to be implemented for year end reporting. Our Q3 form 10Q will disclose a range of impact when adopted at year end. In closing, Q2 and year to date net earnings were good for the company. We are financially healthy as our balance sheet remains strong with minimal debt and well-balanced investments that are poised for great future returns. We will have some significant accounting headwinds moving forward as we adapt to the required changes, but we are confident that we will meet the challenge. Next, we will hear from Andrew Quist, President, Chief Executive Officer of Security National Mortgage. Andrew.

Good afternoon, fellow shareholders. As Garrett mentioned, I'm Andrew Quist, President and CEO of Security National Mortgage Company. In the second quarter of 2025, Security National Mortgage Company had a net loss of $1,670,000 compared to a gain of $134,000 in the second quarter of 2024, a decrease of $1.8 million. This is a disappointing result and one we are working urgently to fix. The number one contributor to the worsening performance was a decrease in our origination volume. In the second quarter of 2025, we originated $617 million of loan volume, compared to $624 million in the second quarter of 2024, for a 1.2% year-over-year decrease. This was our first year-over-year quarterly decrease since the first quarter of 2024. Mortgage market conditions in the United States worsened in the second quarter with Q2 pending home sales at their lowest level since 2012 at 1.4 million contracts signed. This had a significant impact on our results as we are a purchase money focused lender. Almost 90% of our originations in 2025 have been purchased mortgages. Our decrease in origination volume was a reversal from our outperformance in the first quarter. Fannie Mae and Freddie Mac reported single family originations in Q2 were up 3.5% year over year. Thus, from the data available, it appears we underperformed the market conditions, mainly as a result of our purchase focus, as purchase volume was down 6% quarter over quarter at the GSEs. While we work to increase volumes back to the outperformance we experienced in quarter one, we must at the same time continue to rationalize our expenses to lower volume levels. We're well on our way to doing that. In summary, year over year decreasing origination volumes significantly impacted Q2's results. It appears Security National's market outperformance in Q1 was reversed in Q2. The other factors impacting Q2's performance year over year were the same as I reported in Q1, namely current expected credit loss accruals increasing and deferred compensation accruals increasing. I'm confident with the loan officers and employee team we have at Security National Mortgage will return to the market outperformance we experienced earlier. Thank you.

Thank you, Andrew. My name is Adam Quith, and I serve as president and CEO of Security National Life Insurance Companies. And today I'll be reporting on our life segments results for the second quarter and at June 30th, 2025. On a gap basis, our life segment generated earnings of approximately 8.2 million, in the second quarter 2025 compared to 7.2 million in Q2 2024 for an increase of roughly 1 million year over year. This improvement was primarily driven by stronger investment income despite several notable headings. As we mentioned in our press release, premium collections for Q2 were essentially flat compared to the same period last year. While top line premium growth remains a priority, I believe the equally important story both for the second quarter and for the year as a whole is our margin improvement. The premium rate increases we implemented are achieving their intended effect and generating significantly stronger margins on new business. While these changes have created some disruption for our sales force and new sales activity, they represent a positive ongoing trend that we believe is essential to our long-term profitability. I would also note that due to the multi-pay nature of the majority of our business, it will take time for the improved margins to be fully recognized in our financial statements. As discussed, the primary driver of our improved earnings this quarter was increased investment income, largely from gains through our home builder relationship investments. As we discussed in our earnings release, we continue to invest significantly in residential land holdings and home builder relationships. While these investments may exert short-term pressure on earnings, we believe they will generate superior long-term returns. We also faced several pressures offsetting our increased investment income. First, our personnel costs rose by approximately 800,000 in Q2 compared to Q2 of the prior year, bringing the year-to-date total increase to about $2 million. This reflects ongoing investments in our sales teams, improving our operational infrastructure, remaining marketplace competitive in our compensation rates and long-term growth initiatives as previously outlined in Q1. Notably, I would point out that the pace of our personal cost increases moderated in Q2 relative to Q1 2025, highlighting our continued efforts to rationalize expenses while still supporting strategic growth priorities, which by their very nature do require investment. Next, death benefits were about 1 million higher than in Q2 2024. We believe our mortality levels for the first half of 2025 to be an estimated 4% above trend relative to both 2024 and 2019 pre-COVID levels. While short and medium-term fluctuations are expected, we remain confident in our pricing assumptions and long-term experience outlook. Additionally, the increase in amortization of commission expenses, often called deferred averaging costs or DAC, observed in Q1 continued in Q2, bringing the year-to-date increase to approximately $1.5 million. Of note, upon the payment of a death benefit, any remaining unamortized DAC associated with that policy is then amortized. Additionally, the DAC assumptions are reviewed and updated periodically. Lastly, our current expected credit losses, or CECL, increased by approximately 250,000 during the quarter, bringing the year-to-date increase to about 1 million. As a reminder, CECL is driven by formula-based accounting standards combined with generalized market assumptions, which may not reflect our actual long-term credit experience. As we mentioned in the press release, in the past month, we executed leadership changes within our live sales organization. These changes are designed to accelerate new premium sales while preserving the improved profitability delivered by our pricing strategies. We believe this adjustment positions us well to meet our growth targets in the future. In summary, I believe the second quarter was a strong quarter for our live segment. featuring more than $1 million in earnings growth relative to Q2 2024, improved margins, and ongoing strategic investment. Despite elevated mortality and other headwinds, we delivered stronger profitability than in the same quarter last year. We remain confident that our disciplined pricing, strategic investment, and operational improvements will continue to drive sustainable long-term success. Thank you for your continued support, and I look forward to updating you on our progress in the next quarter. I will now turn the time over to Steve Keel.

Thank you, Adam. Good afternoon, everyone. My name is Steve Keel, and I'm the Chief Operating Officer of Security National Funeral Homes and Cemeteries. I'd like to begin by expressing my heartfelt appreciation to our funeral home, cemetery, grounds, and operational support teams. Your unwavering dedication to service excellence and operational professionalism continues to be the cornerstone of our success. Even in the face of today's challenging economic environment, your commitment inspires confidence and upholds the highest standards of care for the families we have the privilege to serve. In the second quarter of 2025, we reported net earnings before tax of $1.79 million. which is down from our 2.09 million second quarter 2024, or 14.2%. Much of this decline rests within our operating earnings, but more specifically derived from our cemetery operations. Our total revenue in the second quarter was 8.14 million, which was down from the 8.28 million in revenue in Q2 of 2024, or 1.7%. These results are not only a reminder of the challenges we're currently navigating, but they're also a catalyst. We continue to act with urgency to address today's pressures while making the investments and implementing operational improvements that will strengthen our foundation and position us for long-term success. Within our funeral home division in our second quarter of 2025, our earnings came in at $387,000. which were down slightly from the 394,000 earned in Q2 of 24. Revenue, however, rose 1.2%, 3.26 million. This was driven by a 3.3% increase in our funeral sales averages. In addition, we continue to see our sales mix move another 3.6% towards cremation as our total cremation rate realized in Q2 of 25 sits at 52.8%. As Scott alluded to in his press release, we have realized a 6.1% increase in these cremation families that are choosing to have service associated with honoring their loved one's life. In our cemetery division, in our second quarter 2025, our earnings were at 822,000, which were down from prior year quarters 1.43 million. Revenue declined 10% from 4.81 million to 4.33 million, with our pre-need land sales lagging behind prior year's quarter, which included large land sales that were absent in Q2 of 25. Another contributing factor to the revenue decrease is from our interment volumes being down 16.4% for 65 interments within the quarter. This is driven largely by the consumer shift towards cremation. We have raised both the level of professionalism and our standards of excellence expectations within our cemetery sales team this year. This initiative has come at a short-term cost. Since January of 2025, we have turned over 60% of our sales team. At the end of Q2, 50% of our cemetery sales team have joined us within the last six months. We have recruited heavily and that has brought us talented professionals with proper mindsets. We also remain committed to investing in and developing our cemeteries to offer a full range of both burial and cremation options that meet the evolving family needs as our team educates on the importance of having a final resting place to honor the life lived. For the remainder of 2025, our focus is clear. Talent development, technology, expense management, and sales culture. We remain optimistic. Our operating model is strong and our core businesses have room to grow. We recognize that reaching our desired destination of sustained growth will require more than simply repeating what we have done in the past. Our deliberate and significant investments in people, technology, and customer service innovation combined with disciplined cost control, will strengthen our competitive position and support performance gains in the quarters ahead. Thank you for your time, for your confidence, and most importantly, for your continued partnership. I now turn the time back over to Heather Street.

Before we conclude today's call, we would like to open the floor for questions. As a reminder to ask a question, please use the Zoom platform to raise your hand to unmute, or you may submit questions through the Zoom Q&A panel. Include your name and organization. We'll take as many as time permits. The question comes in, what specific steps are being taken to turn around the mortgage company losses?

Yeah, this is Andrew Quist again. The specific steps that are being taken are both expense reduction on the mortgage side and an increase in margins. And so we are working on both the revenue and expense side of the equations. We have increased our margins in the second quarter going into the third quarter, which will certainly increase revenue in the third quarter on a comparative basis. And we continue to rationalize our expenses. The two areas that we saw the biggest expense increases year over year in the second quarter were what I mentioned, two that we don't have operational control over, that being CECL, current expected credit losses, and deferred compensation accruals. Outside of that, we continue to work feverishly at reducing the operational expenses we can control.

Thank you, Andrew. Do you feel that the premium increases play a role in the life side?

Yeah, good question. This is Adam Quist. I'll be answering that question. It certainly plays a role. Anytime you increase premiums, there is, in my opinion, a mindset challenge that you have with your sales force. And that is something that we're currently navigating. We are working on the mindset of our Salesforce that we are a value proposition company, that we do not compete on price, but we compete on value. And that because we compete on value, our offerings are still a very compelling offering in the marketplace. I would say that I think we are making good progress on that and that we are seeing some good headway with our sales force mindset and its sales velocity.

Next question. What is the main cause of the $4 million increase in personnel costs?

I can take that. So there's a couple of things that cause it. I mean, if you're looking for one main cause, there are certain natural increases that we have to take to keep competitive with market rate compensation. We find that retaining individuals, while you do have to increase to market rates, it is still cheaper than having to retrain someone. And so that is one element of it. But the other element of it would be strategic investments that we have made and strategic hires that we have made that we believe will make us a stronger company going forward. Speaking specifically, I think that things such as generating a proprietary aftercare program and a proprietary CRM program for our sales force, those things do cost money. It does require a personnel investment, but we believe that that investment will be returned in the future.

Next question from Melanie Smith. What other issues do you feel have created a drop in life sales?

Well, I would note that our premium collections are flat. So I might question the use of the word drop there. But I think the main issue, if I were to summarize it, is our leadership. And we've addressed that sales leadership. We've made changes there. And we mentioned that in the press release and then also in my comments today. I simply think that we did not have good sales leadership at the positions we needed to. And combining that with a premium increase created some challenges for our field level sales. But I think we have addressed the leadership issues. And I think we are seeing some good returns from our sales force at the moment, albeit we're still very early and young in the process.

Next question from Mortgage. Carlos Plaza says, on the mortgage side, if we increase margin, don't we run the risk to be less competitive and have lower volume?

This is Andrew Quist again. Certainly, that's a risk. Thank you for the question, Carlos. That is why we pay close attention to the market environment. And we can see through both our pricing engine, not specific competitor, but market conditions, and through publicly traded results, that our competitors in the market right now have been increasing margin as well. So it's something that we have to monitor carefully and make sure that we don't increase more than what we're seeing the market increase. But yes, that is something that we certainly monitor and we have to balance.

Next question. Can you speak to the overall investment exposure to real estate and your relationships with builders?

So this is Garrett Sill. I'll answer kind of the first part of that question as far as investment exposure. It's something we look at when we look at our investments. I noted that we had increased our investment in real estate by about $25 million this year. And we do look at it, but in spite of that increase of $25 million, we've kind of offset that with an increased investment in our bond portfolio as well. And so, we try to look at it, we look at all our investments in buckets Year over year, I don't think the percentage increase in real estate investment is significant, given our balance sheet size. But it is something we review on a regular basis. And we made a concerted effort beginning of the year. Actually, it started back in Q4 last year to increase our bond portfolio, which is a little more stable, albeit less. It is subject to interest rates and market movements, but the income portion of that portfolio is fixed in nature and pretty steady. So we feel pretty good where we're at as far as ratios go with our investment expenses, sorry, our investment in various assets. And so nothing too concerning the increase in Q2 of our real estate. And I'll let Jason Overbaugh answer kind of a little bit more on the builder side.

Thank you, Garrett. Yes, this is Jason Overbaugh, vice president and director with responsibilities for our builder relationships. I'll say two things about the relationships with builders we work with. One, We choose to only work with high quality builders who have a very strong track record of performance. Typically, these builders are working in the production home models, would provide a very stable base of buyers for their homes. And then the other point I would make about these relationships is we stay very much in markets that we see as growing and expanding where they're strong employment bases to be able to have the ultimate buyers to take out these homes. So high quality builders, stable markets are very much a important part of our strategy. And I will say maybe a third thing we've acquired some very talented people that, you know, Adam didn't really give a nod to or maybe the right phrase is recognized in the increase in compensation that bring 20 plus years of banking experience so that we are sure of our valuations and we are sure of our processes of protecting the investments that we're making in Security National. So high quality builders, high quality markets, and then high-quality talent here at Security National, ensuring the investments are handled properly.

Are there any further questions? Noting no more questions, we want to thank you again for your questions and participation. We value the engagement and thoughtful input that 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 Security National Financial Corporation. This concludes our second quarter 2025 earnings call. We look forward to speaking with you again very soon. Thank you and have a great day.