Earnings call transcript: Security National Financial sees Q3 2025 earnings drop

Security National Financial Corporation (SNFC) reported a significant decline in net earnings for the third quarter of 2025, reflecting a challenging market environment. The company's stock showed a slight decrease of 0.3%, closing at $8.27, as investors digested the earnings news. According to InvestingPro data, SNFC appears undervalued with a current P/E ratio of 9.25 and trading 36% below its 52-week high of $12.94.

Key Takeaways

• Q3 2025 net earnings fell by 33% compared to the same quarter last year.
• Personnel costs increased by 6% year-to-date.
• The mortgage market remains challenging, with refinance volumes at a three-year high.
• Stockholders' equity rose by $27 million, driven by earnings and improved portfolio value.
• The company is implementing new accounting standards in Q4 2025.

Company Performance

Security National Financial faced a tough third quarter, with net earnings decreasing by approximately 33% compared to Q3 2024. This decline is attributed to increased expenses, which reduced net earnings by $8 million year-over-year. Despite these challenges, the company reported a year-to-date return on equity of 7.9%, annualized to 10.5%.

Financial Highlights

• Net earnings: Down 33% year-over-year
• Stockholders' equity: Increased by $27 million
• Year-to-date ROE: 7.9% (annualized to 10.5%)

Outlook & Guidance

Looking forward, Security National Financial is preparing for an accelerated filing status and is focused on enhancing internal controls and financial reporting. The company anticipates positive returns from its real estate-based investments in the long term and continues to invest in sales distribution and operational efficiency.

Executive Commentary

• Scott Quist, CEO, acknowledged the weak third quarter but highlighted "definite bright spots" in the company's performance.
• Adam Quist, Life Insurance CEO, emphasized the resilience provided by the company's diversified earnings base across market cycles.
• Steve Kiel, COO of Funeral Homes and Cemeteries, stated that the company's operating model remains strong, creating meaningful growth opportunities.

Risks and Challenges

• The mortgage market remains difficult, with a decrease in market share to 11 basis points.
• Increased personnel costs could pressure margins if not managed effectively.
• Real estate investments show mixed signals, with weaknesses in first-time buyer markets.

Security National Financial is navigating a challenging market landscape with strategic investments and operational improvements. The company's focus on diversification and efficiency could provide resilience in future quarters. Despite recent challenges, InvestingPro rates SNFC's overall financial health as "GOOD" with a score of 2.68. Investors should note the company's next earnings report is scheduled for November 14, 2025, which may provide further clarity on its recovery trajectory. SNFC currently appears undervalued compared to its Fair Value assessment, placing it among stocks featured in the most undervalued list.

Full transcript - Security National Financial (SNFCA) Q3 2025:

Unidentified Moderator, Security National Financial Corporation: 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 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?

Scott Quist, Chairman and Chief Executive Officer, Security National Financial Corporation: Good afternoon. My name is Scott Quist. I am the Chairman and Chief Executive Officer of Security National Financial Corporation. 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 eliminate much of the hard work, and I will add, progress that was accomplished and has gone on. For example, on a return on equity basis as of September 30, we achieved a 7.9% ROE over nine months, which, if annualized, would put us in double digits and set 10.5%. That is 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, where 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 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%. 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 in which effect 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 foreclosure. 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 DAC, 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 centered 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 up 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.

Garrett Sill, Chief Financial Officer, Security National Financial Corporation: 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 estate, and saw a 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 can 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 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 the 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 filings will also show restated 2025 quarterly numbers. This restatement will affect both the balance sheet and the 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 opinion 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, Chief Executive Officer of Security National Mortgage Company. Thank you.

Andrew Quist, President and CEO, Security National Mortgage Company: 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 SNMC. The Q3 results for SNMC 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, SNMC'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 skill set in this environment.

This is a key focus of ours heading into 2026. In summary, Security National Mortgage Company 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 in the 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 Company, we will continue the improvement we saw in the third quarter. Thank you.

Adam Quist, President and CEO, Security National Life Insurance Companies: Thank you, Andrew. Good afternoon to everyone. Thank you for joining us today. My name is Adam Quist, and I serve as President and CEO of Security 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 in 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 in 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 deaths, lapses, and policies moving to reduced paid-up status, a shift in product mix, 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 targeted 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 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'll now turn the time over to Steve Kiel.

Steve Kiel, Chief Operating Officer, Security National Funeral Homes and Cemeteries: 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 2024.

This was driven by a 4.2% growth in the number of families served, coupled with a half-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 2023 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 quarter's $723,000. Our cemetery revenue also increased 0.7% from $3.6 million in Q3 of 2024 to $3.62 million. As Scott noted in the press release, we are beginning to see stabilization, if not improvement, in our preneed cemetery land sales. In the third quarter, our preneed land sales increased 3.2% compared to Q3 of 2024. 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 interments 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 in 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 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.

Heather Street, Human Resources Director, Security National Financial Corporation: Thank you, Steve. 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 much time as time permits. Again, if you'd like to raise your hand, you're welcome to, and we can unmute you, or you can submit questions through the Zoom Q&A panel. Are there any further questions? As we 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 analysts.

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.

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