Security National Financial Corporation Q1 FY2026 earnings call

• Overall Corporate Performance

  • Despite a 4% consolidated top-line revenue decrease, after-tax net earnings grew over 9% year-over-year, driven by multi-year operational efficiency improvements across all business units
  • Top-line growth is a primary corporate objective, but improved profitability remains the ultimate goal, which was achieved in Q1 2026
  • The company completed implementation of the LDTI accounting standard (ASU 2018-12), with ongoing work to improve internal controls and financial reporting processes

• Mortgage Segment Operations

  • Continued cost rationalization and revenue improvement delivered a 65% reduction in year-over-year net losses, following a 74% improvement in the prior quarter
  • Broadened the product mix to include higher HELOC and reverse mortgage activity, and grew refinance share to 24% to offset industry-wide declines in purchase home sales
  • Average loans per loan officer per month increased 23% year-over-year, driving significant productivity gains despite lower origination volumes
  • An unexpected 50 basis point decline in secondary investor pricing in March on $200 million in loan volume prevented the segment from achieving profitability in the quarter

• Life Insurance Segment Operations

  • Ongoing deliberate reorganization and investment in sales force talent and distribution infrastructure caused near-term top-line disruption, with nearly all of the revenue decline concentrated in low-margin products
  • Statutory underwriting profit increased significantly due to deliberate improvements in premium margins, and renewal premiums remain stable, reflecting a durable policyholder base
  • The segment increased land holdings by $37 million, which caused near-term lower reported investment income (as land profits are only recognized upon sale or construction start), but positions the segment for future profit growth from builder partnerships
  • Net portfolio yield remains approximately 100 basis points above industry average, despite the near-term headwinds

• Cemetery and Mortuary Segment Operations

  • 35% year-over-year growth in pre-need cemetery sales drove strong operating performance, with operating income (excluding investment results) up 16% year-over-year
  • Funeral homes adapted to changing customer preferences: the share of cremations paired with memorial/funeral services increased 22.5%, and higher average sales offset a 6.7% decline in the number of families served
  • The overall net income decline stemmed entirely from increased unrealized losses on the segment's large common stock investment portfolio, not core operating performance; the portfolio is held to fund future growth and acquisitions
  • End-of-life placement volume declined 5.9%, which remains a key focus area for improved outreach and customer experience

1. Mortgage Segment: Pre-tax net loss of $698,000 in Q1 2026, a 65% reduction in losses from the pre-tax net loss of $1,995,000 in Q1 2025. Origination volume totaled $489 million, a 6% year-over-year decrease. Market share held steady at 9 basis points, matching the prior quarter level. Refinance volume increased to 24% of total originations, up from 19% in Q4 2025, hitting a three-year high. Revenue contribution percentage was not disclosed.
2. Life Insurance Segment: Total segment revenues of $48.9 million, a 3% year-over-year decrease from $50.6 million. Segment net earnings of $5.9 million, a 5% decrease from $6.2 million in Q1 2025. Insurance premiums were $28.9 million, down 3% year-over-year, with 60% of the decline concentrated in the lowest-margin single premium product line. Net investment income was $17.7 million, a 5% decrease from $18.6 million. Expenses increased less than 3% year-over-year, while policyholder benefits and claims declined 3.6% to $24.5 million. Revenue contribution percentage was not disclosed.
3. Cemetery and Mortuary Segment: Total revenue increased 4.4% year-over-year to $8.473 million from $8.119 million. Pre-tax earnings decreased 4% to $2.149 million from $2.238 million. Operating earnings before tax (excluding investment results) increased 15.7% to $1.523 million from $1.317 million. Within the segment: Funeral home revenue was flat at $3.671 million, pre-tax earnings decreased 9.5% to $555,000; Cemetery revenue increased 18.5% to $4.209 million, pre-tax earnings increased 37.6% to $996,000, driven by 35% year-over-year growth in pre-need cemetery sales. Investment income decreased 33.5% to $591,000 from $889,000. Revenue contribution percentage was not disclosed. Consolidated Company: Total revenue decreased 3.6% year-over-year, while total expenses decreased 5.6%. Net earnings increased 9.2% ($nearly $600,000) year-over-year. Total stockholders' equity increased $15 million (3.7%) from year-end 2025.

No explicit full-year or future quarterly quantitative financial guidance was provided by management. Management reaffirmed the long-term strategic priorities of delivering improved profitability, growing top-line revenue, and investing in operational infrastructure to support sustainable future growth across all segments. The company expects the near-term sales disruption from the life insurance segment's sales force reorganization to be temporary, and expects top-line growth to resume as the new organizational structure takes hold. Management also expects current land investments in the life insurance segment to drive future profit growth as land development proceeds.

• Macroeconomic risks: Persistent housing affordability issues and declining existing home sales are negatively impacting mortgage origination volume across the industry
• Interest rate and market volatility: Geopolitical conflict can drive interest rate increases and heightened market volatility, which discourages potential homebuyers and negatively impacts mortgage volume
• Secondary mortgage market risk: Unexpected, last-minute declines in secondary investor pricing can compress margins and result in worse-than-expected profitability even when following established internal policies and hedging practices
• Investment portfolio risk: Unrealized losses on public common stock holdings and near-term opportunity costs from unrecognized income on land holdings can reduce short-term reported net income
• Execution risk: Sales force reorganization in the life insurance segment creates near-term disruption and top-line declines, even as it is expected to drive long-term improvement
• Mortuary/cemetery segment risk: End-of-life permanent placement volume has declined year-over-year, requiring targeted operational changes to improve performance

Q: What operational changes are you making to prevent a repeat of the 50 basis point investor pricing shortfall on $200 million in March loan volume, and will the Iran conflict impact future mortgage volume?

A: Management notes that unexpected last-minute pricing cuts from secondary investors are largely outside the scope of traditional hedging strategies, since locked margins are already baked into pricing. To mitigate future risk, the firm will increase daily tracking of pricing changes to adjust built-in margin buffers, and will maintain greater vigilance for this type of shift. The conflict has already driven rising interest rates and increased market volatility, which tends to discourage hesitant homebuyers. Management plans to pre-position the firm to capitalize on future periods of rate drops when they occur, rather than waiting to respond after shifts happen.