10-K: Security National Financial Reports Strong 2025 Growth

Security National Financial Corporation reports a 3.0% increase in total revenues and a 10.4% rise in net earnings for 2025, despite an identified material weakness in internal controls.

Summary

• Total revenues increased by $10.065 million, or 3.0%, to $344.588 million for the fiscal year ended December 31, 2025, compared to $334.523 million in 2024.
• Net earnings increased by 10.4% to $32.152 million in 2025 from $29.119 million in 2024.
• Diluted earnings per Class A equivalent common share increased to $1.26 in 2025 from $1.16 in 2024.
• The life insurance segment's net earnings increased by 7% to $29.439 million in 2025.
• The cemetery and mortuary segment's net earnings decreased by 1% to $6.584 million in 2025.
• The mortgage segment's net loss decreased by 22% to $(3.871) million in 2025, showing improved performance.
• A material weakness related to information technology general controls (ITGCs) was identified in the company's internal control over financial reporting as of December 31, 2025.
• The company adopted ASU 2018-12 (Targeted Improvements to the Accounting for Long-Duration Contracts) and ASU 2023-09 (Income Taxes) in 2025.
• A 5.0% stock dividend was paid on Class A and Class C Common Stock for the year 2025.
• A 10b5-1 agreement was executed to repurchase up to $1,000,000 of Class A Common Stock, commencing March 16, 2026, and expiring December 31, 2026.

Sentiment

Score: 7

Explanation: StockSavvy.ai views this as a moderately positive report, reflecting solid revenue and net earnings growth, particularly in the life insurance segment, and an improving trend in the mortgage segment despite a net loss. The identified material weakness in internal controls is a concern, but management's commitment to remediation and the share repurchase program are positive signals.

Positives

• Total revenues increased by 3.0% to $344.588 million in 2025.
• Net earnings increased by 10.4% to $32.152 million in 2025.
• Life insurance segment net earnings increased by 7% to $29.439 million.
• Mortgage segment net loss decreased by 22% to $(3.871) million, indicating improved performance in a challenging market.
• Secondary gains from investors in the mortgage segment increased by $5.462 million.
• Net investment income increased by 10.6% to $79.338 million.
• Gains on investments and other assets increased by 138.8% to $4.636 million.
• Life insurance subsidiaries were in compliance with risk-based capital guidelines as of December 31, 2025.
• The company has sufficient cash to repay outstanding advances of approximately $4,173,449 on warehouse lines of credit if required.
• The Center53 Development's first phase is 93% leased, and the second phase is 100% leased, demonstrating successful real estate development.
• The company maintains cyber insurance coverage to mitigate cybersecurity risks.

Negatives

• Cemetery and mortuary segment net earnings decreased by 1% to $6.584 million.
• The mortgage segment still reported a net loss of $(3.871) million.
• The mortgage segment experienced a $2.254 million decrease in the fair value of loans held for sale and a $1.563 million decrease in the fair value of loan commitments.
• Net mortuary and cemetery sales decreased by 1.1% to $28.704 million, primarily due to an $888,000 decrease in cemetery pre-need sales.
• Other revenues decreased by $662,000, partly due to a $1.350 million legal settlement received in 2024 not recurring in 2025.
• The lapse rate for life insurance increased to 7.2% in 2025 from 7.0% in 2024.
• SecurityNational Mortgage was not in compliance with the net income covenant of its US Bank, Western Alliance Bank, and JP Morgan Chase Bank warehouse lines of credit as of December 31, 2025, although waivers were received.
• Mortgage loans held for investment portfolio had $6.516 million in delinquencies exceeding 90 days, with $1.204 million in foreclosure proceedings as of December 31, 2025.
• The allowance for credit losses on mortgage loans held for investment increased by $704,000 in 2025.

Risks

• Changes in the legal or regulatory environment, including tax law changes, new legal theories, or insurance company insolvencies through guaranty fund assessments, may create additional expenses and risks.
• Developments in the mortgage industry and credit markets can adversely affect the ability to sell mortgage loans to investors, potentially requiring the company to assume the risk of holding and servicing unsold loans, and future loan losses may exceed the loan loss reserve.
• Fluctuations in interest rates may cause a decrease in the value of investments or impair the ability to market mortgage and cemetery and mortuary products, potentially making interest-sensitive products uncompetitive or causing disintermediation.
• Actuarial assumptions differing from actual mortality and morbidity experience may lead to underpriced products, early liquidation of insurance, or other adverse consequences.
• Financial statements rely on management's estimates and assumptions (e.g., derivative assets/liabilities, deferred acquisition costs, future policy benefits, loans held for sale, loan loss reserve), and actual results could differ materially from these estimates.
• The life insurance, cemetery and mortuary, and mortgage industries are highly competitive, with many competitors having greater financial resources, longer business histories, and more diversified product lines.
• Cybersecurity incidents, including unauthorized access, malicious software, data corruption, system disruption, and unauthorized release of confidential information, pose a risk despite existing security programs and cyber insurance.
• Current conditions in the financial markets and economy may affect the realization of expected cash flows, impacting liquidity and capital resources.
• There is a risk of non-compliance with debt covenants, such as the net income covenant for warehouse lines of credit, which could lead to required repayment of outstanding advances.
• The company has a significant concentration of credit risk with a single reinsurer, representing 94.6% of ceded life insurance in force as of December 31, 2025.
• Risks may arise if the difference between original contract prices and current prices for guaranteed funeral arrangements cannot be fully met by the life insurance policy, although management believes this risk is minimal.

Future Outlook

The company expects to continue its strategies of increased attention to niche insurance products (funeral plans, traditional whole life), increased emphasis on cemetery and mortuary business, and capitalizing on the housing market by originating mortgage loans. Future phases of the Center53 Development for additional Class A office space are planned. The company plans to continue its development endeavors based upon its assessment of market demand. Management is committed to remediating identified material weaknesses in internal controls and will test the ongoing operating effectiveness of new and existing controls in future periods. The company continues to negotiate other warehouse lines of credit with other lenders.

Management Comments

• The Company believes that funeral plans represent a marketing niche that has less competition because most insurance companies do not offer similar coverage.
• The Company believes that its policies and rates for the markets it serves are generally competitive.
• The Company believes that its products and prices are generally competitive with those in the industry [cemetery and mortuary].
• Management believes the office facilities it occupies are in good operating condition and adequate for current operations.
• Management believes the amounts provided [for estimates] are fairly stated in all material respects.
• The Company believes the loan loss reserve represents probable loan losses incurred as of the balance sheet date.
• The Company believes the fair value option most closely aligns the timing of the recognition of gains and costs.
• The Company believes that six months allows adequate time to remedy any documentation issues, to enforce purchase commitments, and to exhaust other alternatives [for scratch and dent loans].
• The Company believes that in an orderly market, fair value approximates the replacement cost of a home and will list for sale any foreclosed properties.
• The Company believes that none of the actions [legal proceedings], if adversely determined, will have a material effect on the Companys financial position or results of operations.
• The Company does not expect any material losses to result from the issuance of the standby letter of credit given the Companys past performance.
• The Company has also performed an analysis of its funding capacities from both internal and external sources and has determined that there are sufficient funds to continue its current business model.
• The Company is committed to remediating its material weaknesses as promptly as possible.
• Management cannot assure you that the measures taken to date, and are continuing to implement, will be sufficient to remediate the material weakness identified or avoid potential future material weaknesses.

Industry Context

StockSavvy.ai notes that Security National Financial Corporation operates in diverse segments (life insurance, cemetery/mortuary, mortgage) which can provide some insulation from downturns in any single market. The mortgage segment's sensitivity to interest rates, as highlighted by decreased refinance originations and negative impact on purchase originations, aligns with broader industry trends of higher rates impacting housing market activity. The competitive nature of all three industries (insurance, death care, mortgage) is a constant factor, requiring the company to maintain competitive pricing and niche market focus. The adoption of new accounting standards (ASU 2018-12, ASU 2023-09) reflects ongoing regulatory evolution across the financial services sector.

Comparison to Industry Standards

• The life insurance industry is highly competitive with approximately 700 legal reserve life insurance companies in the United States. Many competitors have greater financial resources, longer business histories, and more diversified product lines.
• The company competes with mutual insurance companies which may have a competitive advantage as all profits accrue to policyholders.
• The cemetery and mortuary industry is highly competitive in Utah, California, and New Mexico markets, with several competitors having longer business histories, more established positions, and stronger financial positions.
• Some municipal cemeteries can offer lower prices than the company.
• The mortgage industry is highly competitive with many mortgage companies and banks in the same geographic areas.
• The company's lapse rate for life insurance of 7.2% in 2025 (up from 7.0% in 2024) should be benchmarked against industry averages to assess competitiveness and policyholder retention.
• The company's investment in Center53 Development, a multi-year phased office development project in Salt Lake City, aims to create nearly one million square feet of Class A office space, which can be compared to other regional commercial real estate developments.

Management Changes

Corporate Governance

Legal Proceedings

• The company is not a party to any material legal proceedings outside the ordinary course of business or to any other legal proceedings, which if adversely determined, would be expected to have a material adverse effect on its financial condition or results of operation.

Related Party Transactions

• The company has a 50% ownership interest in three Variable Interest Entities (VIEs): HHH Real Estate LLC, SN Oquirrh LLC, and SN Towns LLC, which hold and develop single-family lots for residential construction. These are accounted for under the equity method.
• A surplus note receivable in the amount of $4,000,000 from Security National Life was eliminated in consolidation.

Stakeholder Impact

• Shareholders: Positive impact from increased net earnings and diluted EPS, and the announcement of a share repurchase program. Continued 5% stock dividends. Potential negative impact from the material weakness in internal controls and the anti-takeover provisions.
• Employees: Eligible employees can participate in group health, retirement (401k with company stock match), supplemental life, and voluntary benefit programs. An employee assistance program is also offered.
• Customers: Continued focus on niche insurance products (funeral plans) and diversified services in the cemetery/mortuary and mortgage segments.
• Creditors: SecurityNational Mortgage received waivers for non-compliance with net income covenants on warehouse lines of credit, indicating ongoing dialogue and resolution with lenders. The company has sufficient cash to cover outstanding advances if needed.

Next Steps

• Remediate the material weakness in internal control over financial reporting.
• Test the ongoing operating effectiveness of new and existing controls in future periods.
• Initiate future phases of the Center53 Development for additional Class A office space.
• Continue development endeavors based on market demand.
• Negotiate other warehouse lines of credit with other lenders.
• A broker will repurchase up to $1,000,000 of Class A Common Stock, commencing March 16, 2026, and expiring December 31, 2026.
• The definitive proxy statement relating to the 2026 Annual Meeting of Shareholders will be filed not later than 120 days after December 31, 2025.
• Life insurance subsidiaries are currently under examination by insurance departments for the years 2021-2024.
• The Texas Department of Banking audits pre-need insurance policies that are issued in the state of Texas.
• The company will adopt ASU 2024-03 commencing with its annual reporting period ending December 31, 2027.
• The company is in the process of estimating the potential impact of ASU 2025-11.

Key Dates

Recommendation

The company demonstrated solid financial performance with increased revenues and net earnings, and an improving mortgage segment. The announced share repurchase program is a positive signal for shareholders. However, the identified material weakness in internal controls and the non-compliance with debt covenants (even with waivers) introduce an element of uncertainty and risk that warrants a cautious 'hold' stance. Investors should monitor the remediation efforts and the company's ability to sustain growth in competitive markets.

Keywords

Life Insurance, Cemetery, Mortuary, Mortgage Lending, SEC Filing, 10-K, Financial Services, Real Estate Development, Corporate Governance, Risk Management, Stock Dividend, Share Repurchase, Internal Controls, ASU 2018-12, ASU 2023-09, Utah Business