Security National Financial Corporation Q1 FY2025 earnings call

• Scott Quist mentioned that after-tax earnings decreased by approximately 42% or $3.1 million from $7.475 million in 2024 to $4.338 million in 2025, with pre-tax earnings decreasing approximately 41% or $4.05 million. About 75% of the pre-tax income decrease was due to decreases in realized and unrealized investment income. Insurance segment had second-best first quarter, death care segment had third-best second quarter. Investment income decline related to real estate activities and stock market declines. Personnel costs rose roughly 11.7% or $2.2 million. Mortgage segment volume increased 11% and was profitable in March.
• Garrett Sill noted total investments increased 3%, insurance reserves increased less than 1%, bank loans increased about 15%, and had a $5 million improvement in unrealized losses on bond portfolio. Also mentioned adoption of ASU 2023-07 and upcoming adoption of ASU 2018-12.
• Andrew Quist said mortgage segment origination volumes in Q1 2025 were $518 million, up 11% from Q1 2024, but earnings didn't improve due to accounting items in 2024.
• Adam Quist stated life insurance segment GAAP earnings down but premium margin improved, personnel costs increased for strategic hiring, unrealized gains on common stocks lower, deferral of commission expense decreased, and bad debt expense increased due to CECL. Identified operational trends and focus on margin expansion and talent development.
• Steve Kiel reported funeral homes and cemeteries segment earnings decline, revenue growth in funeral homes, steady revenue in cemeteries, investment income decline, and future priorities on talent development, technology investment, expense management, and sales culture.

Insurance Segment

• Had its second-best first quarter out of the last five years.

Death Care Segment

• Had its third-best second quarter out of the last five years (including the pandemic period).

Mortgage Segment

• Volume increased 11% in Q1 2025 compared to Q1 2024, and was profitable and cash flow positive in March.

Life Insurance Segment

• On a GAAP basis, earned $4.6 million in Q1 2025 compared to $7.1 million in the same period in 2024, a decrease of $2.5 million or about 35%. Premium margin improved by approximately 14%. Personnel costs increased by about $1 million, unrealized gains on common stocks were about $900,000 lower, deferral of commission expense decreased by about $900,000, and bad debt expense increased by roughly $700,000 due to CECL reserve requirements.

Funeral Homes and Cemeteries Segment

• Reported net earnings before tax of $2.21 million in Q1 2025, a 27% decline from Q1 2024. Revenue in funeral home operations grew 3.4% year-over-year to $3.67 million, and cemetery operations had pre-tax net earnings of $815,000, a 1.2% increase. Investment income totaled $778,000 in Q1 2025, a 51% decrease compared to the same period in 2024, mainly due to absence of investment returns from homebuilder relationships and reduction in unrealized gains on common stock positions.

• Will adopt ASU 2018-12 (Targeted Improvements to the Accounting for Long-Duration Contracts) in December 2025, and will report a range of its financial impact with third quarter earnings, with final impact reported in Form 10-K in March 2026.
• Strategic priorities for the remainder of 2025 include talent development and training, technology investment, expense management, and sales culture and accountability.

• Changes in economic conditions, interest rates, regulatory developments, competitive pressures.
• Investment income is lumpy between quarters and years due to close relationship with real estate activities and public equity markets.
• CECL accounting standard has the potential to change bad debt allowances based on outside factors beyond the Company's control.

Q: When looking at tangible equity and return on equity, with adjustments to real estate values, the return on tangible equity is quite low. What do you think the future return on equity can be or what is adequate for a publicly traded company given the risk-free rate?

A: Scott Quist responded that the decline in pre-tax income was due to lower investment returns in real estate and stock market, not solely due to investing in talented people. Disagreed with the comment on low return, stated earnings will grow and the Company believes in operational performance, but also mentioned beauty is in the eye of the beholder regarding return expectations