Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Overview

The Company's operations over the last several years generally reflect three strategies which the Company expects to continue: (i) increased attention to "niche" insurance products, such as the Company's funeral plan policies and traditional whole life products; (ii) increased emphasis on the funeral home and cemetery business; and (iii) capitalizing on the housing market by originating mortgage loans.

Insurance Operations

The Company's life insurance business includes funeral plans and interest-sensitive life insurance, as well as other traditional life, accident and health insurance products. The Company places specific marketing emphasis on funeral plans through pre-need planning.

A funeral plan is a small face value life insurance policy that generally has face coverage of up to $30,000. The Company believes that funeral plans represent a marketing niche that is less competitive because most insurance companies do not offer similar coverage. The purpose of the funeral plan policy is to pay the costs and expenses incurred at the time of a person's death. On a per thousand-dollar cost of insurance basis, these policies can be more expensive to the policyholder than many types of non-burial insurance due to their low face amount, requiring the fixed cost of the policy administration to be distributed over a smaller policy size, and the simplified underwriting practices that result in higher mortality costs.

The following table shows the condensed financial results of the insurance operations for the three and nine month periods ended September 30, 2026, and 2025. See Note 16 to the condensed consolidated financial statements.

Profitability for the nine-month period ended September 30, 2026 decreased due to (a) a $4,774,000 decrease in net investment income, (b) a $3,860,000 decrease in insurance premiums and other considerations, (c) a $988,000 decrease in intersegment revenue (d) a $293,000 decrease in other revenues, and (e) a $38,000 increase in amortization of deferred policy acquisition costs, which were partially offset by (i) a $3,050,000 decrease in policyholder benefits and claims, (ii) a $2,218,000 increase in gains on investments and other assets, (iii) an $874,000 decrease in income tax expense, (iv) a $366,000 decrease in selling, general and administrative expenses, (v) a $130,000 decrease in interest expense, and (vi) a $63,000 decrease in intersegment expenses.

Funeral Home and Cemetery Operations

The Company sells funeral home services and products through its eleven funeral homes in Utah and four funeral homes in New Mexico. The Company also sells cemetery services, products and land (burial plots) through its five cemeteries in Utah, one cemetery in San Diego County, California, and one cemetery in Santa Fe, New Mexico. At-need funeral home and cemetery product sales and services are recognized as revenue when the services are performed or when the products are delivered. Pre-need funeral home and cemetery product sales and services are deferred until the merchandise is delivered, or services are performed. Revenue for pre-need cemetery land sales is recognized at the time of sale, and land is removed from inventory.

The following table shows the condensed financial results of the funeral home and cemetery operations for the three and nine month periods ended September 30, 2026, and 2025. See Note 16 to the condensed consolidated financial statements.

Profitability in the nine-month period ended September 30, 2026 increased due to (a) a $581,000 increase in gains on investments and other assets, (b) a $527,000 increase in cemetery pre-need sales, (c) a $478,000 increase in cemetery at-need sales, (d) a $446,000 increase in net investment income, (e) a $387,000 increase in funeral home at-need sales, and (f) a $22,000 decrease in intersegment expenses, which were partially offset by (i) a $1,307,000 increase in selling, general and administrative expenses, primarily attributable to a $688,000 increase in personnel expenses, (ii) a $258,000 decrease in other revenues, (iii) a $191,000 increase in amortization of deferred policy acquisition costs, (iv) a $172,000 increase in income tax expense, (v) a $39,000 increase in cost of goods and services sold, and (vi) a $4,000 increase in interest expense.

Mortgage Operations

The Company's wholly owned subsidiary, SecurityNational Mortgage Company ("SecurityNational Mortgage"), is a mortgage lender incorporated under the laws of the State of Utah and approved and regulated by the Federal Housing Administration (FHA), a department of the U.S. Department of Housing and Urban Development (HUD), which originates mortgage loans that qualify for government insurance in the event of default by the borrower, in addition to various conventional mortgage loan products. SecurityNational Mortgage originates and refinances mortgage loans on a retail basis. Mortgage loans originated or refinanced by SecurityNational Mortgage are funded through loan purchase agreements with Security National Life, Kilpatrick Life and unaffiliated financial institutions.

SecurityNational Mortgage receives fees from borrowers that are involved in mortgage loan originations and refinancings, and secondary fees earned from third party investors that purchase the mortgage loans. Mortgage loans are generally sold with mortgage servicing rights ("MSRs") released to third-party investors or retained by SecurityNational Mortgage. SecurityNational Mortgage currently retains the mortgage servicing rights on approximately 2% of its loan origination volume. These mortgage loans are serviced by either SecurityNational Mortgage or an approved third-party sub-servicer.

Mortgage rates have followed the US Treasury yields in response to inflation and slowing new home sales. As expected, the lack of mortgage rate reductions has resulted in a decrease in loan originations classified as 'refinance.' Higher than anticipated mortgage rates have also had a negative effect on loan originations classified as 'purchases' although not as significant as those in the refinance classification.

For the nine month periods ended September 30, 2026, and 2025, SecurityNational Mortgage originated 4,426 loans ($1,506,112,000 total loan volume principal amount) and 5,216 loans ($1,756,289,000 total loan volume principal amount), respectively.

The following table shows the condensed financial results of the mortgage operations for the three and nine month periods ended September 30, 2026, and 2025. See Note 16 to the condensed consolidated financial statements.

Losses for the nine-month period ended September 30, 2026 decreased due to (a) a $7,193,000 decrease in commissions, (b) a $5,918,000 decrease in personnel expenses, (c) a $966,000 decrease in intersegment expenses, (d) a $539,000 decrease in rent and rent related expenses, (e) a $538,000 increase in the fair value of loan commitments, (f) a $436,000 decrease in advertising expenses, (g) a $398,000 decrease in costs related to funding mortgage loans, (h) an $88,000 decrease in depreciation on property and equipment, and (i) a $65,000 increase in net investment income, which were partially offset by (1) an $8,205,000 decrease in secondary gains from investors, (2) a $3,555,000 decrease in the fair value of loans held for sale, (3) a $2,107,000 decrease in income from loan originations, (4) a $933,000 increase in other expenses, (5) a $489,000 increase in data processing and IT related expenses, (6) a $264,000 increase in interest expense, (7) a $228,000 decrease in income tax benefit, (8) a $132,000 decrease in gains on investments and other assets, (9) a $67,000 decrease in other revenues, and (10) a $64,000 decrease in intersegment revenues.

Consolidated Results of Operations

Three-month period ended September 30, 2026, Compared to Three-month period ended September 30, 2025

Total revenues decreased by $9,384,000, or 10.5%, to $79,942,000 for the three-month period ended September 30, 2026, from $89,326,000 for the comparable period in 2025. Contributing to this decrease in total revenues was an $8,322,000 decrease in mortgage fee income, a $1,455,000 decrease in insurance premiums and other considerations, a $536,000 decrease in gains on investments and other assets, and a $279,000 decrease in other revenues, which were partially offset by a $617,000 increase in net funeral home and cemetery sales and a $591,000 increase in net investment income.

Insurance premiums and other considerations decreased by $1,455,000, or 4.9%, to $28,426,000 for the three-month period ended September 30, 2026, from $29,881,000 for the comparable period in 2025. This decrease was primarily due to a decrease of $1,655,000 in first year premiums because of a decrease in sales, which was partially offset by an increase of $200,000 in renewal premiums.

Mortgage fee income decreased by $8,322,000, or 28.6%, to $20,817,000, for the three-month period ended September 30, 2026, from $29,139,000 for the comparable period in 2025. This decrease was primarily due to a $4,375,000 decrease in secondary gains from mortgage loans sold to third-party investors into the secondary market reflecting lower overall loan volume and less favorable pricing conditions, a $2,048,000 decrease in the fair value of loans held for sale, and a $2,024,000 decrease in income from loan originations, which were partially offset by a $125,000 increase in the fair value of loan commitments.

Net investment income increased by $591,000, or 2.9%, to $20,701,000 for the three-month period ended September 30, 2026, from $20,110,000 for the comparable period in 2025. This increase was primarily attributable to a $1,338,000 increase in other investment income, a $767,000 increase in interest on cash and cash equivalents, a $4,000 increase in equity securities income, and a $1,000 increase in policy loan interest, which were partially offset by a $1,111,000 decrease in mortgage loan interest resulting from a decline in the average balance of the mortgage loan portfolio held for investment, a $297,000 increase in investment expenses, a $49,000 decrease in insurance assignment income, a $49,000 decrease in real estate income, and a $13,000 decrease in fixed maturity securities income.

Net funeral home and cemetery sales increased by $617,000, or 8.6%, to $7,758,000 for the three-month period ended September 30, 2026, from $7,141,000 for the comparable period in 2025. This increase was primarily due to a $322,000 increase in cemetery at-need sales, a $175,000 increase in funeral home at-need sales, and a $120,000 increase in cemetery pre-need sales.

Gains on investments and other assets decreased by $536,000 to $1,436,000 for the three-month period ended September 30, 2026, from $1,972,000 for the comparable period in 2025. This decrease in gains on investments and other assets was primarily due to a $1,010,000 decrease in gains on equity securities primarily attributable to decreases in the fair value of these equity securities, which was partially offset by a $347,000 increase in gains on other assets, a $94,000 increase in gains on real estate, and a $33,000 increase in gains on fixed maturity securities.

Other revenues decreased by $279,000, or 25.8%, to $804,000 for the three-month period ended September 30, 2026, from $1,083,000 for the comparable period in 2025. This decrease was primarily due to a decrease of $279,000 in other miscellaneous revenues.

Policyholder benefits and claims decreased by $936,000 or 3.8%, to $23,587,000 for the three-month period ended September 30, 2026, from $24,523,000 for the comparable period in 2025. This decrease was primarily the result of an $888,000 decrease in future policy benefits, a $206,000 decrease in death benefits, and a $44,000 decrease in surrender and other policy benefits, which were partially offset by a $202,000 increase in interest credited to policyholder account balances.

Amortization of deferred policy and pre-need acquisition costs and value of business acquired decreased by $18,000, or 0.6%, to $2,977,000 for the three-month period ended September 30, 2026, from $2,995,000 for the comparable period in 2025. Amortization of value of business acquired decreased by $14,000 because of a declining average outstanding balance, with no additions from new acquisitions. Amortization of deferred policy and pre-need acquisition costs decreased by $4,000, reflecting a relatively stable average outstanding balance between periods.

Selling, general and administrative expenses decreased by $4,041,000, or 8.7%, to $42,484,000 for the three-month period ended September 30, 2026, from $46,526,000 for the comparable period in 2025. This decrease was primarily the result of a $4,267,000 decrease in commissions, a $1,731,000 decrease in personnel expenses, a $375,000 decrease in costs related to funding mortgage loans, a $250,000 decrease in advertising expense, a $185,000 decrease in rent and rent related expenses, and a $21,000 decrease in depreciation on property and equipment, which were partially offset by a $2,789,000 increase in other expenses.

Interest expense increased by $450,000, or 42.2%, to $1,516,000 for the three-month period ended September 30, 2026, from $1,066,000 for the comparable period in 2025. This increase was primarily due to a $465,000 increase in interest expense on mortgage warehouse lines of credit for loans held for sale, which was partially offset by a decrease of $15,000 in interest expense on bank loans.

Funeral home and cemetery cost of goods and services sold increased by $40,000, or 3.6%, to $1,154,000 for the three-month period ended September 30, 2026, from $1,113,000 for the comparable period in 2025. This increase was primarily due to an increase of $44,000 in at-need sales, which was partially offset by a decrease of $4,000 in pre-need sales.

Income tax expense decreased by $997,000, or 32.6%, to $2,057,000 for the three-month period ended September 30, 2026, from $3,054,000 for the comparable period in 2025. This decrease was primarily due to a decrease in earnings before income taxes for 2026 compared to 2025. The Company's overall effective tax rate increased from 23.3% for 2025 to 25.0% in 2026, a 1.7 percentage point increase in the effective tax rate or a 7.3% change. This increase was primarily due to certain permanent tax adjustments that are higher when compared to the prior year.

Nine-month period ended September 30, 2026, Compared to Nine-month period ended September 30, 2025

Total revenues decreased by $18,010,000, or 6.9%, to $243,596,000 for the nine-month period ended September 30, 2026, from $261,607,000 for the comparable period in 2025. Contributing to this decrease in total revenues was a $13,329,000 decrease in mortgage fee income, a $4,262,000 decrease in net investment income, a $3,860,000 decrease in insurance premiums and other considerations, and a $617,000 decrease in other revenues, which were partially offset by a $2,666,000 increase in gains on investments and other assets and a $1,392,000 increase in net funeral home and cemetery sales.

Insurance premiums and other considerations decreased by $3,860,000, or 4.3%, to $85,986,000 for the nine-month period ended September 30, 2026, from $89,846,000 for the comparable period in 2025. This decrease was primarily due to a decrease of $4,441,000 in first year premiums because of a decrease in sales, which was partially offset by an increase of $581,000 in renewal premiums.

Mortgage fee income decreased by $13,329,000, or 16.0%, to $70,104,000, for the nine-month period ended September 30, 2026, from $83,433,000 for the comparable period in 2025. This decrease was primarily due to an $8,205,000 decrease in secondary gains from mortgage loans sold to third-party investors into the secondary market reflecting lower overall loan volume and less favorable pricing conditions, a $3,555,000 decrease in the fair value of loans held for sale, and a $2,107,000 decrease in income from loan originations, which were partially offset by a $538,000 increase in the fair value of loan commitments.

Net investment income decreased by $4,262,000, or 7.1%, to $55,631,000 for the nine-month period ended September 30, 2026, from $59,893,000 for the comparable period in 2025. This decrease was primarily attributable to a $6,917,000 decrease in mortgage loan interest resulting from a decline in the average balance of the mortgage loan portfolio held for investment, a $597,000 decrease in insurance assignment income, a $29,000 decrease in real estate income, a $28,000 decrease in policy loan interest, and a $24,000 decrease in fixed maturity securities income, which were partially offset by a $1,606,000 increase in other investment income, a $1,067,000 decrease in investment expenses, a $655,000 increase in interest on cash and cash equivalents, and a $6,000 increase in equity securities income.

Net funeral home and cemetery sales increased by $1,392,000, or 6.4%, to $23,091,000 for the nine-month period ended September 30, 2026, from $21,699,000 for the comparable period in 2025. This increase was primarily due to a $527,000 increase in cemetery pre-need sales, a $478,000 increase in cemetery at-need sales, and a $387,000 increase in funeral home at-need sales.

Gains on investments and other assets increased by $2,666,000, or 72%, to $6,367,000 for the nine-month period ended September 30, 2026, from $3,701,000 for the comparable period in 2025. This increase in gains on investments and other assets was primarily due to a $1,628,000 increase in gains on equity securities primarily attributable to increases in the fair value of these equity securities, a $879,000 increase in gains on real estate, and a $357,000 increase in gains on other assets, which were partially offset by a $198,000 decrease in gains on fixed maturity securities.

Other revenues decreased by $617,000, or 20.3%, to $2,417,000 for the nine-month period ended September 30, 2026, from $3,034,000 for the comparable period in 2025. This decrease was primarily due to a decrease of $617,000 in other miscellaneous revenues.

Policyholder benefits and claims decreased by $3,050,000 or 4.0%, to $72,444,000 for the nine-month period ended September 30, 2026, from $75,494,000 for the comparable period in 2025. This decrease was primarily the result of a $2,546,000 decrease in future policy benefits, a $697,000 decrease in death benefits, and a $48,000 decrease in surrender and other policy benefits, which were partially offset by a $241,000 increase in interest credited to policyholder account balances.

Amortization of deferred policy and pre-need acquisition costs and value of business acquired increased by $229,000, or 2.6%, to $8,894,000 for the nine-month period ended September 30, 2026, from $8,665,000 for the comparable period in 2025. Amortization of deferred policy and pre-need acquisition costs increased by $262,000 because of a higher average outstanding balance. This increase was partially offset by a $33,000 decrease in amortization of value of business acquired, reflecting a declining average outstanding balance with no additions from new acquisitions.

Selling, general and administrative expenses decreased by $12,209,000, or 8.8%, to $126,142,000 for the nine-month period ended September 30, 2026, from $138,351,000 for the comparable period in 2025. This decrease was primarily the result of a $9,060,000 decrease in commissions, a $4,978,000 decrease in personnel expenses, a $547,000 decrease in advertising expense, a $502,000 decrease in rent and rent related expenses, a $398,000 decrease in costs related to funding mortgage loans, and a $68,000 decrease in depreciation on property and equipment, which were partially offset by a $3,345,000 increase in other expenses.

Interest expense increased by $137,000, or 4.0%, to $3,617,000 for the nine-month period ended September 30, 2026, from $3,479,000 for the comparable period in 2025. This increase was primarily due to an increase of $264,000 in interest expense on mortgage warehouse lines of credit for loans held for sale, which was partially offset by a decrease of $127,000 in interest expense on bank loans.

Funeral home and cemetery cost of goods and services sold increased by $39,000, or 1.1%, to $3,565,000 for the nine-month period ended September 30, 2026, from $3,526,000 for the comparable period in 2025. This increase was primarily due to an increase of $22,000 in at-need sales and an increase of $17,000 in pre-need sales.

Income tax expense decreased by $474,000, or 6.5%, to $6,785,000 for the nine-month period ended September 30, 2026, from $7,259,000 for the comparable period in 2025. This decrease was primarily due to a decrease in earnings before income taxes for 2026 compared to 2025. The Company's overall effective tax rate increased from 22.6% for 2025 to 23.5% in 2026, a 0.9 percentage point increase in the effective tax rate or a 3.7% change. This increase was primarily due to certain permanent tax adjustments that are higher when compared to the prior year.

Liquidity and Capital Resources

The Company's life insurance subsidiaries and funeral home and cemetery subsidiaries realize cash flow from premiums, contract payments and sales on personal services rendered for funeral home and cemetery business, from interest and dividends on invested assets, and from the proceeds from the sale or maturity of investments. The mortgage subsidiaries realize cash flow from fees generated by originating and refinancing mortgage loans and fees from mortgage loans held for sale that are sold to investors into the secondary market. It should be noted that current conditions in the financial markets and economy may affect the realization of these expected cash flows. The Company considers these sources of cash flow to be adequate to fund future policyholder and funeral home and cemetery liabilities, which generally are long-term, and adequate to pay current policyholder claims, annuity payments, expenses related to the issuance of new policies, the maintenance of existing policies, debt service, and to meet current operating expenses.

During the nine-month periods ended September 30, 2026, and 2025, the Company's operations provided cash of approximately $93,387,000 and of approximately $27,553,000, respectively. The increase in cash provided by operations was due primarily to a decrease in originations of loans held for sale.

The Company expects to pay out liabilities under its funeral plans over the long term given the nature of those plans. Funeral plans are small face value life insurance policies that pay out upon a person's death to cover funeral and burial costs; policyholders generally keep these policies in force until, and do not surrender prior to, death. Because of the long-term nature of these liabilities, the Company can hold to maturity or for the targeted investment period its corresponding bond, real estate, and mortgage loan investments, thus reducing the risk of liquidating these long-term investments because of any sudden changes in their fair values.

The Company attempts to match the duration of invested assets with its policyholder and funeral home and cemetery liabilities. The Company may sell investments other than those held to maturity in the portfolio to help in this timing matching. The Company purchases short-term investments on a temporary basis to meet the expected short-term requirements of the Company's insurance products. The Company's investment philosophy is intended to provide a rate of return for the expected duration of its funeral home and cemetery policies that will exceed the accruing of liabilities under those policies regardless of future interest rate movements.

The Company's investment policy is also to invest predominantly in fixed maturity securities, real estate, mortgage loans, and warehousing of mortgage loans. The warehoused mortgage loans are typically held for sale on a short-term basis before selling the loans to investors in accordance with the requirements and laws governing the Company's life insurance subsidiaries. Bonds owned by the insurance subsidiaries amounted to $360,448,000 (at estimated fair value) and $365,986,000 (at estimated fair value) as of September 30, 2026, and December 31, 2025, respectively. This represented 34.5% and 35.2% of the total investments of the Company as of September 30, 2026, and December 31, 2025, respectively. Generally, all bonds owned by the life insurance subsidiaries are rated by the National Association of Insurance Commissioners. Under this rating system, there are six categories used for the rating of bonds. As of September 30, 2026, 1.7% (or $6,036,000) and as of December 31, 2025, 1.6% (or $5,825,000) of the Company's total bond investments were invested in bonds in rating categories three through six, which are considered non-investment grade.

The Company's life insurance subsidiaries are subject to risk-based capital guidelines established by statutory regulators requiring minimum capital levels based on the perceived risk of assets, liabilities, disintermediation, and business risk. As of September 30, 2026, and December 31, 2025, the life insurance subsidiaries were in compliance with the regulatory criteria.

The Company's total capitalization of stockholders' equity, bank and other loans payable was $608,130,000 as of September 30, 2026, as compared to $508,757,000 as of December 31, 2025. This increase was primarily due to an increase of $58,224,000 in stockholders' equity and an increase of $41,149,000 in bank and other loans payable. Stockholders' equity as a percentage of total capitalization was 77.1% and 80.7% as of September 30, 2026, and December 31, 2025, respectively.

As of September 30, 2026, SecurityNational Mortgage was not in compliance with the net income covenant of the U.S. Bank and the Western Alliance Bank warehouse lines of credit. SecurityNational Mortgage received a waiver from U.S. Bank and is in the process of receiving a waiver from Western Alliance Bank. If the lenders require repayment of the outstanding advances of approximately $46,800,000 on the warehouse lines of credit, the Company has sufficient cash to do so. The Company has also performed an analysis of its funding capacities of both internal and external sources and has determined that there are sufficient funds to continue its current business model. The Company continues to negotiate other warehouse lines of credit with other lenders.

Lapse rates measure the amount of insurance terminated during a particular period. The Company's lapse rate for life insurance in 2025 was 7.2% as compared to a lapse rate of 7.0% for 2024. The 2026 lapse rate to date has been approximately the same as 2025.

The combined statutory capital and surplus of the Company's life insurance subsidiaries was approximately $146,702,000 and $139,068,000 as of September 30, 2026, and December 31, 2025, respectively. The life insurance subsidiaries cannot pay a dividend to their parent company without the approval of state insurance regulatory authorities.