Security National Financial Corporation

Good afternoon, everyone, and welcome to Security National Financial Corporation's second quarter 2026 earnings call. We thank you for joining us today to review our financial and operational results for the period ended June 30th, 2026. 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 that 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.

Thank you. Welcome everyone. I am pleased to report that our second quarter earnings after tax increased 7.3% over 2025 and that our first half earnings increased 8.1% over 2025. This improved profitability for both the quarter and the first half of the year illustrates the very solid operational and sales progress we have made in all of our business segments. It is not lost on me that our top line revenue decreased 6.3% for the quarter and 5% for the half. We are working aggressively and in my view successfully to address those revenue issues. But our first goal was improved profitability and we achieved that goal. Our mortgage segment can be considered the star for the first half of 2026, delivering two very solid quarters of improved performance. The mortgage segment improved Q1 year-over-year profitability by $1.4 million and then followed that great performance in Q2 with a $1.6 million improvement for a total $3 million profit improvement for the first half of 2026. Revenue did decrease 9% for the first half, which is never our goal. But that decrease highlights the tremendous operational improvements that were accomplished. Obviously, there is a nexus between revenue and profitability. But in this market, if we must choose one or the other, meaning revenue growth or improved profitability, at this juncture, I much prefer the improved profitability. And I will say that is not always my preference. Well, I always do want to improve profitability. but sometimes it's the time to grow revenue and sometimes it's the time to grow profitability. A shout out is owed to the entire company for this improved performance. Suffice it to say that all aspects have been worked, worked again and reworked over the last several years including management structures, margins, marketing, commissions, products, pricing, back office, secondary operations, underwriting, The closing and funding to achieve greater efficiency. Much work remains to be done, but after all the hard work of our team, it is gratifying to see this segment profitable in Q2 and within striking distance of profitability for the year. Our cemetery mortuary segment also delivered stellar results, increasing revenue by 21% for the quarter and by 13% for the first half. with a corresponding profit improvement of 69% for the quarter and 29% for the first half. As is many times case, there is much movement going on under the hood achieving those impressive results. First, the overall backdrop. While it's difficult to precisely quantify at this time, I believe most would agree that the death rate in the United States dropped in 2026 to its lowest level in recent years. The improved mortality experienced in our live company segment, decreased case counts in our funeral funding operation, and reviews of our publicly traded peers all reinforce that conclusion. Thus, looking within this segment at our mortuary-only results, while revenue did increase by some 3% for the first half, Profitability actually decreased some 9%. We believe that we have generally increased our market share, but it has been a struggle because of this year's declining death rate. However, demonstrating the benefit of diversified income streams, our cemetery-only results showed an 11% revenue improvement with a 17% profitability improvement basically as a result of improved pre-need cemetery cells. Our cemetery pre-need cell results show that we're controlling that which we can control, which is leading to overall profit improvement. Many thanks are owed to the considerable effort that has gone into rebuilding our pre-need cemetery cell sports. In addition to the improved pre-need cell results, We had a $1 million favorable investment tailwind in the second quarter, which reversed the unfavorable investment results we experienced in the first quarter. All in, we achieved a nearly 23% segment net profit margin in the first half, which in my view is admirable. Our life insurance segment also made very significant positive progress despite its top line revenue decrease and a profitability decrease of 13%. I don't believe those numbers are illustrative of the significant progress which has been accomplished in nearly all facets of our business. Regarding the revenue decrease, there are two major components, which are premium revenue, which is the smaller component of the decrease and our investment income revenue. While there are numerous inputs into the reported premium amount, which makes generalizing somewhat hazardous, to me, the premium revenue decline is primarily due to fewer single premium products being sold in 2026, which in my view is our least profitable product. Our modal pay product sales have actually increased year to date. but those effects won't be realized in our financial statements for several periods. As I have noted in prior releases, we have been spending significant time and resources in improving our sales functions, which efforts in my view have been very successful, even being measured at this very initial stage. Illustrative of that initial success, first year premium sales are now up versus 2025. We have much work to do, but we have built in our building excellent offerings for the marketplace to include a much improved onboarding process for new sales personnel, ease of application for both the agent and the customer, quicker real-time underwriting decisions, better lead generation and management, more predictable commission and advanced structures, and better quality measuring metrics. all resulting in significant first-year traction. The larger factor in this segment's revenue decline and probably also the larger factor in its profitability decline is its investment income. Specifically, we had lower builder profit splits in 2026 vis-a-vis 2025 and also decreased interest income. We have made specific strategic decisions to increase our land holdings which in my view will lead to greater profits in the future albeit at the cost of current profitability since we recognize no profit on land until it is either sold or a home on it has started construction. Many of our land holdings have a 12 to 24 month or even longer time horizon. So increasing land holdings does suppress both revenue and profit in the current period in favor of greater profitability in the future. Regarding the decrease in interest income, this result reflects the impact of loan payoffs, increased rate competition, and lower loan origination volumes during Q1. Construction-related loan originations, however, rebounded strongly during Q2. Utah new homes start from down significantly in 2025. which trend appears to be continuing in 20.6, which led to the decreased construction loans. Primarily due to lower loan production, our cash position has increased by some 61 million since December 31st, 25, which does earn bank interest, but at a rate below that of our lending activities. Despite those declines, I don't believe we've ever had better processes were more talented and capable people in responsible positions than we do today. In summary, I believe we have improved capacity, more talented people, greater wherewithal, and better sales offerings of both products and processes than we have ever had. In a nutshell, when viewed as a whole, SNFC increased profitability in the quarter by 7.3%, and for the first half by 8.1% despite a decline in revenue. Many thanks to our hardworking teams for achieving those impressive operational results.

Thank you Scott and good afternoon and thank you for joining us today. My name is Garrett Sill. I am the Chief Financial Officer of Security National Financial Corporation. This was a good quarter for the company and I too want to thank all our employees for their efforts and dedication and making Security National a great company. In addition to what Scott shared, I want to highlight a few additional items regarding our consolidated financial statements. First, on our balance sheet, total assets grew to 1.61 billion as of June 30th, 2026, an increase of 47 and a half million or 3% compared to year end. We also saw a 60% increase in cash and cash equivalents while our combined investment portfolio decreased 13 million or 1.2% to just over 1 billion as we continue to look for opportunities to deploy the elevated cash balances we discussed in our last call and this call. Total liabilities increased 24.8 million or 2.2% to 1.18 billion. Stockholders equity increased 22.7 million or 5.5% to 433 million. And as a result, our debt to equity ratio improved to 2.72 times from 2.81 times at year end, reflecting a continued strengthening of our capital positions. Moving to our statement of earnings, net earnings for the second quarter were approximately $9 million, an increase of nearly $2 million or 28.3% compared to net earnings of $7 million in the first quarter of 2026. On a year-over-year basis, net earnings for the six months ended June 30, 2026 increased 8.1% compared to the same period in 2025, which Scott addressed in his remarks. I'd also note that combined commissions and personnel expense are two largest cost categories. and 8 million or 11.8% year-to-date during the same period in 2025, reflecting continued efficiency efforts across our segments. As a reminder, all 2025 figures referenced today have been revised to reflect our adoption of LDTI. So these quarter over quarter and year over year comparisons are being made on a consistent basis. Speaking about DTI, I'd like to draw your attention to our statement of comprehensive income, which showed a notable divergence between our quarterly and year-to-date results this quarter. For the six months ended June 30, 2026, comprehensive income totaled $22.4 million, an increase of 86.6% compared to the $12 million for the same period last year. This year-to-date improvement was driven primarily by the interest rate remeasurement of our future policy benefits under LPTI, which swung from a $10.2 million charge to other comprehensive income in the first half of 2025 to a $12.9 million benefit in the first half of 2026, a favorable swing of approximately $23 million tied to the discount rate movements. I would note, however, that on a standalone quarterly basis, comprehensive income for the second quarter of 2026 was $7.3 million, down 18.2% from $8.9 million in the second quarter of 2025. So while our year-to-date comprehensive income trend is strongly positive, the quarter trend moved in the opposite direction this quarter, a good reminder of how sensitive this measure is to discount rate movements from period to period. Thank you for joining us today. Only 1.6% of our total bond portfolio, or approximately $6 million, was held in non-investment grade categories, consistent with year end. On the mortgage loan side, loans more than 90 days past due increased to $15.8 million as of June 30, 2026, from $6.5 million at year end. Our allowance for credit losses on mortgage loan portfolio remains appropriately reserved, and we are monitoring this trend closely. In closing, the second quarter of 2026 was a good quarter for the company as we again saw growth in total assets, stockholders' equity, and net earnings, both sequentially and year-over-year. Regarding our internal controls or financial reporting, we continue to test, improve, and remediate where needed. And as has been noted, we continue to focus on growing top line while also improving overall profitability. Next, we'll hear from Andrew Quist, President and Chief Executive Officer of Security National Mortgage. Thank you.