Security National Financial Corporation (SNFCA) is a diversified financial services company with a storied history spanning over seven decades. Headquartered in Salt Lake City, Utah, SNFCA has established itself as a leading player in the insurance, mortgage, and cemetery/mortuary industries, demonstrating remarkable adaptability and strategic foresight in the face of evolving market conditions.

Company History and Evolution

Founded in 1965, SNFCA has grown from its initial focus on life insurance to become a multi-faceted financial services conglomerate. The company's early years were marked by a strong emphasis on the funeral plan policy market, which became a niche specialty for SNFCA. This strategic focus laid the foundation for the company's future expansion into related industries.

As SNFCA evolved, it strategically expanded its operations into the cemetery and mortuary business, acquiring and operating funeral homes and cemeteries across several states. This vertical integration allowed the company to offer a comprehensive suite of end-of-life services and products, creating a unique market position in the death care industry.

Growth Strategy

The company's growth strategy has been characterized by a combination of organic initiatives and selective acquisitions. This approach has enabled SNFCA to expand its footprint and diversify its revenue streams while maintaining a focus on its core competencies.

Diversified Business Model

One of SNFCA's key strengths lies in its diversified business model. The company operates three primary business segments: life insurance, cemetery and mortuary, and mortgage. This diversification has proven to be a crucial asset, enabling SNFCA to navigate the challenges of the market with greater resilience.

Life Insurance Segment

In the life insurance segment, SNFCA has established a strong presence, offering a range of products, including traditional whole life, interest-sensitive life, and funeral plan policies. The company's focus on niche insurance products, such as funeral plans, has allowed it to carve out a unique market position and cater to the specific needs of its customer base.

SNFCA 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.

For the nine-month period ended September 30, 2024, the insurance operations segment saw an increase in profitability compared to the same period in the prior year. Revenues from external customers increased by 4% to $146.06 million, driven by a $4.14 million increase in insurance premiums and other considerations, a $3.56 million decrease in death, surrenders and other policy benefits, a $2.51 million decrease in amortization of deferred policy acquisition costs, and a $2.20 million increase in gains on investments and other assets. These increases were partially offset by a $1.79 million increase in selling, general and administrative expenses, a $1.12 million increase in future policy benefits, and a $707,000 decrease in net investment income.

The company's lapse rate, which measures the amount of insurance terminated during a particular period, was 4.4% in 2023, compared to 4.3% in 2022. The 2024 lapse rate to date has been approximately the same as 2023. The combined statutory capital and surplus of the company's life insurance subsidiaries was approximately $121.5 million and $107.39 million as of September 30, 2024 and December 31, 2023, respectively.

Cemetery and Mortuary Segment

The cemetery and mortuary segment has also been a consistent contributor to SNFCA's financial performance. The company owns and operates cemeteries and mortuaries across several states, providing a comprehensive suite of end-of-life services and products. This segment has demonstrated steady growth, leveraging SNFCA's strategic acquisitions and the consistent demand for these services.

SNFCA sells mortuary services and products through its nine mortuaries in Utah and three mortuaries in New Mexico. The company also sells cemetery products and services through its five cemeteries in Utah, one cemetery in San Diego County, California, and one cemetery in Santa Fe, New Mexico. At-need product sales and services are recognized as revenue when the services are performed or when the products are delivered. Pre-need cemetery product sales are deferred until the merchandise is delivered and services performed. Recognition of revenue for cemetery land sales occurs when 10% of the purchase price is received.

For the nine-month period ended September 30, 2024, the cemetery and mortuary operations segment saw a 9% increase in revenues from external customers to $25.61 million, primarily due to a $1.70 million increase in gains on investments and other assets, a $445,000 increase in mortuary at-need sales, a $344,000 increase in cemetery pre-need sales, and a $143,000 increase in other revenues. These increases were partially offset by a $324,000 decrease in net investment income, a $224,000 increase in amortization of deferred policy acquisition costs, a $132,000 decrease in cemetery at-need sales, and a $62,000 increase in selling, general and administrative expenses.

Mortgage Segment

The mortgage segment, operated through the company's subsidiary SecurityNational Mortgage Company, has been a crucial component of SNFCA's diversified business model. As a mortgage lender, SecurityNational Mortgage Company has navigated the ebb and flow of the housing market, adapting its strategies to capitalize on market opportunities and maintain its competitive edge.

SecurityNational Mortgage is a mortgage lender that originates and refinances mortgage loans on a retail basis. It 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 originated or refinanced by SecurityNational Mortgage are funded through loan purchase agreements with Security National Life, Kilpatrick Life and unaffiliated financial institutions.

For the nine-month period ended September 30, 2024, the mortgage operations segment saw an 84% decrease in earnings before income taxes to $1.81 million, despite a 5% increase in revenues from external customers to $83.58 million. The decrease in profitability was primarily due to a $4.32 million increase in commissions, a $3.42 million decrease in secondary gains from investors, a $1.26 million decrease in gains on investments and other assets, and a $374,000 decrease in net investment income. These decreases were partially offset by a $4.83 million increase in the fair value of loans held for sale, a $3.07 million decrease in other expenses, a $3.05 million decrease in personnel expenses, a $1.81 million increase in income from loan originations, a $1.53 million increase in the fair value of loan commitments, and a $986,000 decrease in intersegment interest expense and other expenses.

During the nine-month period ended September 30, 2024, SecurityNational Mortgage originated 5,500 loans with a total volume of $1.72 billion, compared to 5,680 loans with a total volume of $1.71 billion in the same period of the prior year. The decrease in loan originations was primarily due to the rise in mortgage rates, which negatively impacted both the refinance and purchase loan categories.

Financials

SNFCA's financial performance has been noteworthy, with the company reporting strong results in recent years. In the 2023 fiscal year, the company generated revenues of $318.52 million and net income of $14.50 million. The company's annual operating cash flow for 2023 was $53.88 million, with an annual free cash flow of $52.77 million.

For the most recent quarter (Q3 2024), SNFCA reported revenue of $88.27 million, representing a 10% year-over-year growth. Net income for the quarter stood at $11.83 million, showcasing an impressive 192.82% year-over-year growth. The company's diversified business model has enabled it to weather market fluctuations, with the life insurance and cemetery/mortuary segments providing a stable foundation for the company's operations.

Liquidity

SNFCA maintains a solid liquidity position, with cash and cash equivalents of $126.94 million as of December 31, 2023. The company's debt-to-equity ratio stands at 0.3089, indicating a conservative approach to leverage. SNFCA has access to credit facilities, including a $15 million line of credit with U.S. Bank and a $25 million line of credit with Western Alliance Bank. The company's current ratio and quick ratio are both 0.01055, suggesting a tight but manageable liquidity position.

Future Outlook

Looking ahead, SNFCA's management team has demonstrated a clear vision for the company's future. The company has continued to invest in strategic acquisitions, technological advancements, and operational efficiency, positioning itself for sustained growth and profitability. SNFCA's emphasis on risk management, prudent underwriting, and customer-centric approach has been instrumental in maintaining the company's financial strength and resilience.

Adaptation to Challenges

Despite the challenges posed by the COVID-19 pandemic, SNFCA has demonstrated its ability to adapt and overcome. The company has implemented robust safety protocols, leveraged remote work capabilities, and maintained its service levels, ensuring that its customers continue to receive the high-quality products and services they have come to expect.

Corporate Social Responsibility

Moreover, SNFCA has remained committed to its corporate social responsibility initiatives, supporting various charitable organizations and community-based programs. This commitment to social good has helped to strengthen the company's reputation and solidify its position as a trusted financial services provider.

Conclusion

In conclusion, Security National Financial Corporation (SNFCA) is a diversified financial powerhouse that has navigated the complexities of the market with remarkable resilience. The company's strategic vision, diversified business model, and dedication to operational excellence have positioned it for continued success in the years ahead. As SNFCA continues to evolve and adapt to the changing landscape, investors and stakeholders can take comfort in the company's proven track record of delivering value and maintaining a steadfast commitment to its customers and communities.