Security National Financial Corporation (SNFCA) Earnings Call Transcript

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 30, 2026. Before we begin, I'd like to remind everyone that our remarks stay will include forward-looking statements. These statements are based on current expectations and assumptions that are subject to risks and uncertainties, which may reflect actual results to differ materially from those projected. Such risks include, but are not limited to, changes in economic ignitions, 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 West. 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 mind you successfully to address those revenue issues. But our first goal is to improve profitability, and we achieved that goal. Our mortgage segment can be considered the star for the first half of 2026, delivering 2 very solid quarters of improved performance. The mortgage segment improved Q1 year-over-year profitability by $1.4 million and then follows that great performance in Q2 with a $1.6 million improvement for a total $3 million profit improvement in the first half of 2026. Revenue did decrease 9% from 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 1 or the other, meaning revenue growth or improved profitability at this juncture, I much prefer the improved profitability. And I will say that it's not always my preference will always do want to improve profitability. But sometimes, it's the time to grow revenue and sometimes it's the time to grow profitably. A shout-out is owed to the entire company for its 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 efficiencies. 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 is the profitability towards the year. Our Cemetery mortuary seegment also delivered stellar results, increasing revenue by 21% for the quarter and by 13% for the first half was a corresponding profit improvement of 69% for the quarter and 29% for the first half. As as 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 Life Company segment, decreased case count in our funeral funding operation and reviews of our publicly traded peers all reinforce that conclusion. Thus, looking within this segment at our March are 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 -- that's right. However, demonstrating the benefit of diversified income streams, our cemetery only results showed 11% revenue improvement with a 17% profitability improvement basically as a result of improved preneed cemetery cells. Our cemetery preneed sales results show that we are controlling that which we can control, which is leading to overall profit improvement. Many things are owed to the considerable effort that has gone into rebuilding our preneed cemetery sales force. In addition to the improved preneed sales 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 besides top line revenue decrease of 5.5% for the first half 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 2 major components, which are premium revenue, which is a smaller component of the decrease in our investment income revenue. While there are numerous inputs as 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 model 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 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 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 bill and profit split in 2026 vis-a-vis 2025 and also decreased interest income. We have made specific strategic decisions to increase our landholdings, which, in my view, will lead to greater profits in the future albeit at the cost of current profitability. Since we recognized no profit on land until it is either sold or a home on it has started construction. So increasing landholdings does suppress both revenue and profit in the current period in favor of greater profitability in the future. Regarding the increase 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. Utah New home starts were down significantly in 2025, which trend appears to be continuing at 40.6%, which led to the decreased construction loans. Primarily due to lower loan production, our cash position has increased by some $61 million since December 31, 2025, 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 for 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 to 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. 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 do want to thank all our employees for their efforts and dedication in 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 30, 2026, an increase of $47.5 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 2.72x from 2.81x at year-end, reflecting a continued strengthening of our capital position. Moving to our statement of earnings. Net earnings for the second quarter were approximately $90 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 6 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 2 largest cost categories decreased $4.8 million or 13.5% for the quarter and $8 million or 11.8% year-to-date occurred in 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 of LDTI, 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 6 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 LDTI, which swung from a 12 -- excuse me, 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 stand-alone 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 core 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 and why we continue to take purge to review both the quarterly and year-to-date statement of non-rent income. Turning to credit quality. Our fixed maturity security portfolio remains high in quality with 98.4% rated investment grade as of June 30, 2026, essentially unchanged from 98.5% at year-end. Only 1.6% of our total bond portfolio were approximately $6 million was held in noninvestment-grade categories consistent with -- 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 2026 was a good quarter for the company as we begin grow 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 our needs. And as has been noted, we continue to focus on growing top line while also living overall profitability. Next, we'll hear from Andrew Quist, President and Chief Executive Officer of Security National Mortgage.

Thank you, Garrett, and good afternoon, fellow shareholders. I'm Andrew Quist, President and CEO of Security National Mortgage Company. In the second quarter of 2026, Security National Mortgage Company had a pretax net income of $71,000 compared to a pretax net loss of $1,671,000 in the second quarter of 2025. This was a year-over-year increase of $1,742,000 or 104% from last year's results. While the net income result is modest, I was particularly proud of our first profitable quarter since Q3 of 2025. Furthermore, over $3 million improvement year-to-date is noteworthy. This is evidence that the tireless work and effort of our employees have put in, in reshaping security national mortgage company over the past several years is paying off. Continuing our recent trend -- this improvement in net income and profitability came on reduced year-over-year origination volumes. In the second quarter of 2026, we originated $548 million of loan volume compared to $617 million in the second quarter of 2025, an 11% year-over-year decrease. On a sequential quarter basis, origination volumes were up 12%. Based on the Mortgage Bankers Association reported total industry origination volumes for the second quarter SNFC's market share increased to 10 basis points, up from 9 basis points in Q1. The sequential quarter increase in origination volume outpaced the overall industry origination volume increased, increased, as indicated by our increased market share. While the year-over-year decline continues to be impacted by the company separating from a large group of loan originators in the third quarter of last year. While the separation has negatively impacted our origination volumes, it's contributed significantly to our profitability. As interest rates rose steadily through much of the second quarter, SNFC's purchase transaction volume remains strong, while refinance volume and percentage of overall volume declined from multiyear highs in Q1 and both refinance volume and refinance percentage of overall volume were up over Q2 in 2025. 17% refinance percentage in Q2 2026 versus 14% refinance percentage in Q2 2025. I believe this shows tangible proof that our increased focus on repeat borrowers over the past 9 months has been effective. In 2026, our percentage of borrowers who are repeat borrowers is higher than it's been in the past 3-plus years. This percentage should continue to increase as we strengthen our skill set in serving past borrowers of SNFC with their future lending needs, whatever they may be. A corollary of this activity is offering our past borrowers home equity lines of credit, helping them tap the historic equity in today's housing market. We have averaged 1 KLOC transaction a day in the second quarter, up from virtually 0 as recently as the fourth quarter in 2025. In summary, in the second quarter of 2026, Security National had a pretax net income of $71,000 despite lower origination volumes year-over-year. This was the first profitable quarter for SNFC since Q3 of 2025. I believe a quick survey of other publicly traded retail independent mortgage banks second quarter results will further demonstrate the strength of our profitable quarter. I'd like to conclude by thanking our loan officers and employees for their wonderful work improving security national in this challenging environment. The progress is exciting, and I couldn't be more proud. Thank you. I'll now turn the time over to Adam Quist.

Thank you, Andrew, and congratulations on the profitable quarter and the improvement. As Andrew mentioned, my name is Adam Quist, and I'm the President and CEO, the Security National Life Insurance Company. My remarks today will focus on how our life companies have performed year-to-date with some additional context on the second quarter itself. For the 6 months ended June 30, 2026, our Life segment generated total revenues of approximately $98.4 million compared to $104 million a year ago or a decrease of about 5%. Net earnings before taxes were $16.1 million compared to $18.6 million, a decrease of approximately 13%. For the second quarter alone, revenues were approximately $49.5 million versus $52.4 million and net earnings before taxes were $8.5 million versus $10.6 million. Those are real decreases and decreases are, of course, not our goal. But in my opinion, when evaluating our company's performance is also worth retaining the context that 2025 was our best operational year in our company's history. And year-to-date, 2026 is our second best operating year in our company's history. I believe our team is executing well, making deliberate choices and building towards a stronger future. I now want to discuss the main factors driving those top line numbers. As Scott mentioned, the pressure on our top line this year is concentrated in 2 identifiable places, namely a decrease in single premiums and lower net investment income, primarily associated with homebuilder profit share. Let me start with the [indiscernible] of the 2 factors, premiums. For the 6 months, insurance premiums and other considerations were approximately $57.6 million compared to $60 million a year ago, a decrease of about 4%. In the second quarter, premiums were $28.7 million versus $30.2 million a decrease of roughly 5%. The largest single factor of the year-to-date decline is our single premium business. Single premium is our least profitable product. And as we have discussed before, we are currently emphasizing growing our model sales, which we believe is a business that builds more durable value over time. Our renewal premium base, the truest measure of the health of our in-force book grew year-to-date, up about 1.5% on our individual whole life block. This means our existing policyholders are staying with us. Persistency remains solid and the foundation of our business is strong. Looking at our year-to-date new sales results, our first year model paid premium production or in other words, the multi-pay new business we are writing this year is now running ahead of where it was at this point last year. It is important that you keep in mind, however, that because model premiums feather into our financial statements gradually over time as the policyholders make their monthly premium payments. It will take time for this increase in model pay sales to show up in our reported premium revenues. But this increase reflects the early-stage success of the sales leadership changes we have made and the investments in our distribution platforms we've been making over the last 2 years. Now let me turn to the largest factor affecting both our revenue and net income, our net investment income. For the 6 months, net investment income was $33.4 million compared to $38.6 million, a decrease of about $5.2 million or 14%. In the second quarter, it was $15.7 million versus $20 million, down roughly 21%. There are 2 state pieces at play here, and I want to separate them clearly because they behave different. The largest single factor is a decline on the homebuilder profit share income, which on a net basis, was down about $2.8 million year-to-date and about $2.5 million in the second quarter alone. The second factor is interest and fee income associated with our residential construction lending, which was down about $1 million in the quarter and about $1.1 million year-to-date. However, I should point out that construction loan origination activity picked up meaningfully during the second quarter after a slower start to the year, which we view as an encouraging sign heading into the second half, even though it has not yet fully worked its way through to our outstanding balances and reported interest income. We have deliberately grown our investment in land and residential subdivision development to approximately $122 million as of June 30, up from about $98 million at year-end. That capital is not yet generating reported investment income under GAAP since that only happens once a lot of sold or a construction loan is originated, but we view it as a leading indicator of future builder profit-sharing income. We believe this capital is deployed in projects that will result in greater profitability in future periods, even if it is not showing up on our current numbers. Gain on our equities and other assets were $3.7 million year-to-date compared to $1.2 million a year ago, an approximate $2.5 million increase which was driven mainly by a $1.9 million increase in unrealized gains in our equity portfolio relative to 2025. These are market driven and can move in either direction on that partially offset the headwinds I just described in our builder profit share income and speak to the quality of the portfolio we hold and the benefits of having a diversified investment strategy. We also saw a year-over-year increase in realized gains on real estate of about $850,000 as a result of construction starts for losses. Turning to expenses. I am pleased with the discipline our team continues to show Total selling, general and administrative expenses for the segment were down about 3.3% year-to-date to $25.9 million from $26.8 million and down 3.4% in the second quarter alone. Personnel expense increased modestly, up about 2.8% year-to-date and 3.2% in the second quarter. That increase is intentional and reflects our continued investment in [indiscernible] talent the same investment that is driving the model pay sales trend I mentioned earlier. I am encouraged that our overall expense base is stable even as we continue to invest in the people and systems that will grow this business. Policyholder benefits and claims were also down about 4% year-to-date and roughly 5% in the second quarter, reflecting continued favorable claims experience. That is a credit to our underwriting and claims teams and reflect mortality and surrendering experience that remains close to pre-COVID trends. All total benefits and expenses for the segment were down about 3.7% year-to-date. In closing, year-to-date, our revenue and earnings are lower because we shifted deliberately away from our leased profitable premium product, and saw a sharp, though partially offset decline in builder profit-sharing income. I believe our company's foundation is strong. Our team is making deliberate decisions, exercising discipline, strengthening our sales force and making investments that position ourselves for better perform in the future. While I recognize that our year-to-date numbers are down from 2025, we are still experiencing our second best operational year in the company's history, a testament to the great work of our team. I remain confident in the direction of our life companies and in the team executing our strategy. I look forward to sharing our continued progress with you on future calls. Thank you for your continued support. I will now turn the time over to Steve Kehl to discuss our Funeral Home cemetery vision.

Thank you, Adam. Good afternoon, everyone. I'm Steve Kehl, Chief Operating Officer of Security Nationals Funeral Homes and Cemeteries. Today, I'll walk you through our second quarter results, as Scott has touched on several first half comparisons in his remarks. For the second quarter, earnings before tax increased 69.5% to $3 million from $1.8 million a year ago. Revenue increased 20.7% to $9.8 million from the $8.1 million a year ago. Now as Scott noted, is looking under the fluid, I want to be clear at the outset about what is driving what. That growth in our earnings before tax came from investments. Excluding our investment results, our revenue increased 5.5% in the second quarter of 2026 from $7.4 million to $7.8 million, and operating earnings before tax decreased 4.8% to $963,000 from just over $1 million. Our operating businesses grew revenue and improved on several key indicators. At the same time, we absorbed delivered investments in both talent and technology. Those investments carry costs today, and they are intended to support growth and efficiency going forward. As we review our funeral homes, revenue increased 7.4% to $3.5 million from $3.3 million while earnings before tax decreased 3.2% to $375,000. Our earnings before tax declined because costs outpaced revenue. Total operating costs increased 8.8% against revenue growth of 7.4%. I want to be direct about that cost increase. It was led by compensation and that was a decision not a surprise. We have invested in talent in this segment, and that investment is already showing up in our customer service experience feedback. Trade metrics matter most to us in this segment, and all 3 moved in the right direction. Families served increased 1.1%. Average revenue per call increased $323 or 6.2% to $5,549, and the share of cremation families choosing a memorial or funeral service posed to 41.9%. And that last measure is one we are pushing hardest on because we know a cremation with the service is a better experience for the family and a better economic outcome for us. However, even at an impressive 49.9%, we have room to approve. The work from here is to leverage what we have already invested in our people, our training and our technology across a growing revenue base and to convert that into stronger margins as we continue to navigate a headwind of declining debt rates. In cemeteries, revenue increased 4% to $4.3 million from $4.1 million, while earnings before tax decreased 5.8% to 588,000. Earnings before tax declined because costs once again outpaced revenue. Cost of goods sold increased 3.1% as we face ongoing wholesale margin pressures and operating expenses increased 6.7%. The main driver within our revenue growth was from our net preneed land sales, increasing 6.1% to $2.34 million. Within the quarter, we continued to focus on our prospecting metrics, community seminars and providing events within our memorial parks. Also important to note that our term and activity within our memorial parks was also positive. Placements increased 5.1% to 348 -- even more impressive within that figure, I thought it was important to note that traditional interments in the quarter increased 12.1% to 268 -- so we saw an increase in both volume and a richer mix. Our priorities in cemeteries are consistent. We will continue to focus on building family relationships generating steady preneed production, sharpening our sales execution, recruiting balance, maintain our properties well and keep adding capacity through garden developments. As noted, our investment revenue increased 169.5% to $2 million from $758,000 a year ago, the increase was driven primarily by higher unrealized gains within our portfolio. Now we are pleased with that contribution, but we are also clear-eyed about. Unrealized gains can move in either direction. That is why we evaluate our operating businesses separately from short-term changes in investment valuations and why I have intentionally separated the 2 for you today. Stepping back, this quarter showed both progress and opportunity. Reported earnings benefited significantly from investment performance while operating profitability came in slightly below the prior year. Underneath that, families served revenue per call, cremation with service, cemetery preneed land production and in [indiscernible] activity all improved. Our job now is to control it, we can control and convert those operating improvements in the earnings growth. In closing, I want to thank our funeral homes, cemetery grounds and operational support teams. The results that I just described are their work. It is an honor to work alongside such talented professionals. We are realistic about what is ahead, encouraged by the underlying business and confident that consistent execution creates long-term value for our shareholders. Thank you for your time and your continued confidence. I'll now turn the time back over to Heather Street, our Vice President of Human Resources.

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 on mute or you may submit questions through the Zoom Q&A panel, include your name and organization and will take us as many as time permits. Not seeing any questions. Are there any further questions either in the chat or if you like to you unmute. All right. If we have no questions, we'll note the end of our Q&A. Thank you again for your participation. We value engagement at thoughtful input. 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 www.securitynational.com. We appreciate your continued support of Security National Financial Corporation. This concludes our second quarter 2026 earnings call. We look forward to speaking with you again soon. Thank you, and have a great day.