SNFCA 10-K & 10-Q changes, risk factors and insider trading

The following table shows the condensed financial results for the Company’s insurance operations for 20242025, and 2023.2024. See Note 1520 of the Notes to Consolidated Financial Statements. See Note 1 of the Notes to Consolidated Financial Statements regarding the adoption of ASU 2018-12.

Profitability in 20242025 increaseddecreased due to (a) a $1,140,000$888,000 increasedecrease in cemetery pre-need sales, (b) a $260,000$570,000 increase in mortuaryselling, at-needgeneral sales,and administrative expenses, (c) a $156,000$223,000 decrease in net investment income, (d) an $8,000 increase in gainsincome ontax investments and other assets, (d) a $139,000 increase in other revenues,expense, and (e) a $26,000$2,000 decreaseincrease in intersegment interest expense and other expenses,expense, which were partially offset by (i) a $458,000$526,000 increase in selling,mortuary generalat-need and administrative expenses,sales, (ii) a $383,000$474,000 decreaseincrease in netgains on investmentinvestments income,and other assets, (iii) a $239,000$377,000 increase in other revenues, (iv) a $143,000 decrease in costs of goods and services sold, (v) a $63,000 decrease in amortization of deferred policy acquisition costs, (ivvi) a $228,000$29,000 decreaseincrease in cemetery at-need sales, and (vvii) a $96,000$29,000 increasedecrease in incomeintersegment tax expense.expenses.

Mortgage rates have followed the US Treasury ratesyields continuein response to remaininflation elevatedand despiteslowing new home sales. As expected, the downwardlack trendof inmortgage inflation data and the Federal Reserve’s action to reducerate rates. Thisreductions has resulted in higher-than-expecteda mortgage rates, whichdecrease in turn has further decreased the demand for loan originations classified as refinance.‘refinance.’ TheHigher higher-than-expectedthan anticipated mortgage rates have also continued to havehad a negative effect on loan originations classified as purchases.‘purchases’ although not as significant as those in the refinance classification.

Five Two of these policies, discussed below, relate to critical estimates because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. Actual results could differ from those estimates.

Value of business acquired (“VOBA”) is the present value of estimated future profits of the acquired business and is amortized likethe deferredsame acquisitionway costs.as The critical issues explained for deferred acquisition costs would also apply for value of business acquired.DAC.

Total revenues increased by $16,025,000,$10,065,000, or 5.0%,3.0%, to $334,522,000$344,588,000 for 20242025 from $318,497,000$334,523,000 for 2023.2024. Contributing to this increase in total revenues was primarily a $9,411,000$7,613,000 increase in net investment income, a $2,695,000 increase in gains on investments and other assets, a $651,000 increase in mortgage fee income, and a $4,997,000$101,000 increase in insurance premiums and other considerations, a $1,172,000 increase in net cemetery and mortuary sales, a $958,000 increase in other revenues, and a $105,000 increase in gains on investments and other assets.considerations. This increase in total revenues was offset by a $618,000$662,000 decrease in other revenues and a $333,000 decrease in net investmentcemetery income.and mortuary sales.

Mortgage fee income increased by $9,411,000,$651,000, or 9.6%,0.6%, to $107,559,000$108,209,000 for 2024,2025, from $98,148,000$107,558,000 for 2023.2024. This increase was primarily due to a $5,202,000 increase in the fair value of loans held for sale and loan commitments, a $3,264,000 increase in loan fees and interest income, a $1,850,000$5,462,000 increase in secondary gains from mortgage loans sold to third-party investors into the secondary market. This increase in in mortgage fee income was partially offset by a $905,000$3,817,000 increasedecrease in the fair value of loans held for sale and loan commitments and a $994,000 decrease in loan fees and interest income net of the provision for loan loss reserve.

Insurance premiums and other considerations increased by $4,997,000,$101,000, or 4.4%,0.1%, to $119,757,000 for 2025, from $119,656,000 for 2024, from $114,659,000 for 2023.2024. This increase was primarily due to an increase of $2,555,000$2,564,000 in first year premiums because of increased preneed insurance sales and an increase of $2,442,000 in renewal premiums due to the growth of the Company in recent years, particularly in whole life products, which resulted in more premium paying policies in force. This increase was partially offset by a decrease of $2,463,000 in first year premiums because of decreased preneed insurance sales.

GainsNet oninvestment investments and other assetsincome increased by $105,000,$7,613,000, or 5.7%,10.6%, to $1,942,000$79,338,000 for 2024,2025, from $1,837,000$71,725,000 for 2023.2024. This increase in gains on investments and other assets was primarily due attributable to a $614,000$9,875,000 increase in gainsmortgage onloan interest, a $1,603,000 increase in fixed maturity securities income, a $928,000 increase in insurance assignment income, $258,000 increase in rental income from real estate held for investment, a $234,000$189,000 increase in gainsincome onin other assets,investments, a $210,000$156,000 increase in gains on equity securities mostly attributable to increases in the fair value of these equity securities,income, and a $208,000$12,000 increase in gainspolicy onloan fixed maturity securities.income. This increase was partially offset by a $1,161,000 $2,773,000 increase in investment expenses and a $2,635,000 decrease in gainsinterest on mortgagecash loansand heldcash for investment.equivalents.

OtherNet revenuesmortuary increasedand cemetery sales decreased by $958,000,$333,000, or 26.3%,1.1%, to $4,604,000$28,704,000 for 20242025, from $3,646,000$29,037,000 for 2023.2024. This increasedecrease was primarily attributable due to a $1,350,000an legal$888,000 settlement,decrease whichin cemetery pre-need sales. This decrease was partially offset by a decrease$526,000 of $392,000increase in othermortuary miscellaneousat-need sales revenues.and a $29,000 increase in cemetery at-need sales.

DeathPolicyholder benefits, surrendersbenefits and otherclaims policy benefits, and future policy benefits decreasedincreased by an aggregate of $1,056,000,$205,000, or 1.1%,0.2%, to $98,956,000 $100,818,000 for 2024,2025, from $100,012,000$100,613,000 for 2023.2024. This decrease increase was primarily the result of a $3,274,000$2,306,000 decreaseincrease in death benefits and a $27,000 decrease$485,000 increase in surrender and other policy benefits. This decrease increase was partially offset by a $2,245,000$2,586,000 increasedecrease in future policy benefits.

Selling, general and administrative expenses increased by an aggregate of $1,975,000,$5,055,000, or 1.1%,2.9%, to $181,520,000 for 2025, from $176,465,000 for 2024, from $174,490,000 for 2023.2024. This increase was primarily the result of a $7,043,000$3,370,000 increase in commissions,other expenses, a $1,943,000$2,067,000 increase in personnel expenses, and a $32,000$488,000 increase in costs related to funding mortgage loans, a $400,000 increase in advertising expenses, a $76,000 increase in commissions, and a $42,000 increase in depreciation on property and equipment. This increase was partially offset by a $4,432,000 decrease in other expenses, a $1,710,000$1,386,000 decrease in rent and rent related expenses, a $595,000 decrease in advertising expenses, and a $306,000 decrease in costs related to funding mortgage loans.expenses.

Interest expense decreasedincreased by $611,000,$265,000, or 12.6%,6.2%, to $4,519,000 for 2025, from $4,254,000 for 2024, from $4,865,000 for 2023.2024. This decreaseincrease was primarily due to aan decreaseincrease of $354,000 in interest expense on bank loans and a decrease of $257,000$256,000 in interest expense on mortgage warehouse lines of credit for loans held for sale.sale and an increase of $9,000 in interest expense on bank loans.

Income tax expense increased by $5,763,000,$1,002,000, or 319.2%,12.1%, to $7,568,000$9,257,000 for 2024,2025, from $1,805,000$8,255,000 for 2023.2024. This increase was primarily due to an an increase in earnings before income taxes for 20242025 compared to 2023.2024. The Company’s overall effective tax rate increased from 22.1% 11.1% for 20232024 to 22.2%22.4% in 2024,2025, a 11.1%0.3% increase in the effective tax rate or a 100.6%1.4% change. This increase was partially due to thean increase prior period reducing the valuation allowance to zero and no valuation allowance adjustment in thenon-deductible current period.items.

During 20242025 and 20232024 the Company decreased its loan loss reserve by $312,000 and increased its loan loss reserve by $150,000 and decreased its loan loss reserve by $1,178,000,$150,000, respectively, for loan originations, and the charges have been included in mortgage fee income. The estimated liability for indemnification losses is included in other liabilities and accrued expenses and, as of December 31, 20242025 and 2023,2024, the balances were $697,000$384,000 and $547,000,$697,000, respectively. The Company believes the loan loss reserve represents probable loan losses incurred as of December 31, 2024.2025. There is a risk, however, that future loan losses may exceed the loan loss reserve.

As of December 31, 2024,2025, the Company’s mortgage loans held for investment portfolio consisted of mortgage loans in an aggregate principal amount of $11,400,000$6,516,000 with delinquencies exceeding 90 days. Of this amount, loans with an aggregate principal amount of $4,134,000$1,204,000 were in foreclosure proceedings. The Company has not received or recognized any interest income on the $11,400,000$6,516,000 in mortgage loans with delinquencies delinquencies exceeding 90 days. During 20242025 and 2023,2024, the Company decreasedincreased its allowance for credit losses by $1,934,000$704,000 and increased decreased it by $1,184,000, $1,934,000, respectively, which was charged to bad debt expense and included in selling, general and administrative expenses for the period. The main reasons for the decreaseincrease in 20242025 when compared to 20232024 were due to aan decreaseincrease in the commercial loan held for investment portfolio portfolio, further refinement of the Company’s quantitative loss analysis and general market improvements related toin the residential mortgage construction loan held for investment single family portfolio. The allowances for credit losses on the Company’s mortgage loans held for investment portfolio as of December 31, 20242025 and 20232024 were $1,885,000$2,589,000 and $3,819,000,$1,885,000, respectively.

As of December 31, 2024, the Company’s subsidiary2025, SecurityNational Mortgage was not in compliance with the net income covenantscovenant underof the US Bank, Western Alliance itsBank and JP Morgan Chase Bank warehouse lines of credit and its operating cash flow covenant for its standby letter of credit with its primary bank.credit. SecurityNational Mortgage has since received or is in the process of receiving waivers from theeach warehouseof banks.these lenders with respect to this covenant. In the unlikely event SecurityNationalthe Mortgage Company is required to repay the outstanding advances of approximately $10,587,449 on the warehouse line of credit that has not provided a covenant waiver, SecurityNational Mortgage has sufficient cash and borrowing capacity$4,173,449 on the warehouse lines of creditcredit, thatthe haveCompany providedhas covenant waiverssufficient cash to funddo its origination activities.so. The Company has donealso performed an internal analysis of theits funding capacities offrom 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.

During 20242025 and 2023,2024, the Company’s operations provided cash of $57,320,000$45,540,000 and of $53,875,000,$57,320,000, respectively. The increasedecrease in cash provided by operations was due primarily to thea increasedecrease in netproceeds earnings.from loans held for sale.

The Company’s investment policy is also to invest predominantly in fixed maturity securities, real estate, mortgage loans, and warehousing of mortgage loans held for sale. 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 $348,774,000$365,986,000 (at estimated fair value) and $362,663,000$348,774,000 (at estimated fair value) as of December 31, 20242025, and 2023,2024, respectively. This represented 38.0%35.2% and 38.7%38.0% of the total investments of the Company as of December 31, 2024,2025, and 2023,2024, 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 December 31, 2025, 1.6% (or $5,825,000) and as of December 31, 2024, 2.4% (or $8,431,000) and as of December 31, 2023, 1.8% (or $6,954,000) of the insurance subsidiaries’ total bond investments were invested in bonds in rating categories categories three through six, which are considered non-investment grade.

The Company’s total capitalization of stockholders’ equity, and bank loans and other loans payable waswere $445,758,000$508,757,000 asand of December$488,639,000 31, 2024, as compared to $418,450,000 as of December 31, 2023.2025 and 2024, respectively. This increase was primarily due to a $26,122,000$28,470,000 increase in stockholders’ equity, equitywhich andwas anpartially increaseoffset by a decrease of $1,185,000$8,352,000 in bank loans and other loans payable. Stockholders’ equity as a percentage of total capitalization was 76.1%80.7% and 74.8%78.2% as of December 31, 20242025 and 2023,2024, respectively.

The Company has commitments to fund existing construction and land development loans pursuant to the various loan agreements. As of December 31, 2024,2025, the Company’s commitments were approximately $216,368,000$201,220,000 for these loans, of which $152,361,000$158,908,000 had been funded.drawn. The Company advances funds in accordance with the loan agreements once the work has been completed and an independent inspection is made. The maximum loan commitment ranges between 50% and 80% of appraised value. The Company receives fees and interest for these loans and the interest rate is generally fixed at 5.25% to 8.50% per annum. Maturities range between six and eighteen months.

In the ordinary course of the Company’s operations, the Company enters certain contractual obligations. Such obligations include operating leases for office space, agreements with respect to borrowed funds and future policy benefits. See Notes 7,15, 22,16, and 24 of the Notes to Consolidated Financial Statements for more information about these obligations.

The Company has a limited equity interest in a captive insurance entity (the “Captive’) that provides workers compensation, general liability and automobile insurance . This program permits the Company to pool insurance risks and resources with like-minded companies in order to obtain more competitive pricing for claims administration, stop loss insurance premiums and to limit its risk of loss in any particular year. The Captive also provides access to a wide array of safety-related services and regular safety training to help the Company control claims. The maximum exposure to a loss related to the Company’s involvement in the Captive is limited to approximately $443,758, which is collateralized under a standby letter of credit issued on the insurance entity’s behalf. See Note 10,24 “Reinsurance,of the CommitmentsNotes andto Contingencies,”Consolidated Financial Statements for additional discussion of commitments associated with the insurance program. The Company has has been a member of the Captive since 2006 and does not expect any material losses to result from the issuance of the standby letter of of credit given the Company’s past performance.

The following table shows the condensed financial results of the insurance operations for the three-monththree and six month periods ended MarchJune 31, 30, 2026, and 2025. See Note 16 to the condensed consolidated financial statements.

Profitability for the three-monthsix-month period ended MarchJune 31,30, 2026 decreased due to (a) a $924,000 decrease in insurance premiums and other considerations, (b) a $914,000$5,221,000 decrease in net investment income, (b) a $2,405,000 decrease in insurance premiums and other considerations, (c) a $211,000$283,000 decrease in other revenues, and (d) a $66,000$62,000 increase in amortization of deferred policy acquisition costs, which were partially offset by (i) a $916,000$2,266,000 increase in gains on investments and other assets, (ii) a $2,114,000 decrease in policyholder benefits and claims, (iiiii) a $435,000$892,000 decrease in selling, general and administrative expenses, (iii) a $203,000 increase in intersegment revenue, (iv) a $122,000 $571,000 decrease in income tax expense, (v) a $92,000$113,000 increasedecrease in gainsinterest on investments and other assets,expense, (vi) a $49,000$57,000 decrease in intersegment expenses, and (vii) a $14,000$54,000 decreaseincrease in interestintersegment expense.revenue.

The following table shows the condensed financial results of the funeral home and cemetery operations for the three-monththree and six month periods ended March 31,June 30, 2026, and 2025. See Note 16 to the condensed consolidated financial statements.

For the three-monththree and six month periods ended MarchJune 31,30, 2026, and 2025, SecurityNational Mortgage originated 1,4153,011 loans ($488,560,000$1,036,088,000 total loan volume principal amount) and 1,5083,375 loans ($517,886,000$1,134,783,000 total loan volume principal amount), respectively.

The following table shows the condensed financial results of the mortgage operations for the three-monththree and six month periods ended MarchJune 31,30, 2026, and and 2025. See Note 16 to the condensed consolidated financial statements.

Losses for the three-monthsix-month period ended MarchJune 31,30, 2026 decreased due to (a) a $1,988,000$4,189,000 decrease in personnel expenses, (b) a $1,285,000$3,579,000 decrease in commissions, (c) a $910,000$412,000 increase in the fair value of loan commitments, (d) a $556,000 increase in income from loan originations, (e) a $161,000$332,000 decrease in rent and rent related expenses, (e) a $254,000 decrease in advertising expenses, (f) a $110,000$201,000 decrease in interest expense, (g) a $35,000$63,000 decrease in depreciation on property and equipment, and (h) a $28,000$61,000 increase in net investment income, and (i) a $23,000 decrease in advertisingcosts expenses,related to funding mortgage loans, which were partially offset by (i) a $2,245,000$3,830,000 decrease in secondary gains from investors, (ii) a $1,507,000 decrease in the fair value of loans held for sale, (ii) a $540,000 decrease in secondary gains from investors, (iii) a $352,000$788,000 decrease in income tax benefit, (iv) a $259,000$291,000 increase in costsdata processing and IT related to funding mortgage loans,expenses, (v) a $231,000$161,000 increase in other expenses, (vi) an $82,000 decrease in income from loan originations, (vii) a $210,000$69,000 increase in intersegment expenses, (vii) a $153,000 increase in data processing and IT related expenses, (viii) a $50,000$57,000 decrease in intersegment revenues, (ix) a $43,000$42,000 decrease in gains on investments and other assets, and (x) a $26,000$36,000 decrease in other revenues, and (xi) a $19,000 decrease in net investment income.revenues.

Three-month period ended MarchJune 31,30, 2026, Compared to Three-month period ended MarchJune 31,30, 2025

Total revenues decreased by $3,011,000,$5,615,000, or 3.6%,6.3%, to $79,729,000$83,926,000 for the three-month period ended MarchJune 31,30, 2026, from $82,740,000$89,541,000 for the comparable period in 2025. Contributing to this decrease in total revenues was a $1,319,000 decrease in mortgage fee income, a $924,000 decrease in insurance premiums and other considerations, a $701,000$4,152,000 decrease in net investment income, a $264,000$3,688,000 decrease in mortgage fee income, a $1,481,000 decrease in insurance premiums and other considerations, and a $74,000 decrease in other revenues, andwhich were partially offset by a $235,000$3,438,000 decreaseincrease in gains on investments and other assets,assets which were partially offset byand a $434,000$342,000 increase in net funeral home home and cemetery sales.

Mortgage fee income decreased by $1,319,000,$3,688,000, or 5.3%,12.5%, to $23,490,000,$25,797,000, for the three-month period ended MarchJune 31,30, 2026, from $24,809,000$29,485,000 for the comparable period in 2025. This decrease was primarily due to a $2,245,000$3,290,000 decrease in the fair value of loans held for sale and a $540,000 decrease in secondary gains from mortgage loans sold to third-party investors into the secondary market,market whichreflecting werelower partiallyoverall offset byloan volume and less favorable pricing conditions, and a $910,000$638,000 increasedecrease in income from loan originations, and a $498,000 decrease in the fair value of loan commitmentscommitments, andwhich were partially offset by a $556,000 $738,000 increase in incomethe fromfair loanvalue originations.of loans held for sale.

Insurance premiums and other considerations decreased by $924,000,$1,481,000, or 3.1%,4.9%, to $28,855,000$28,705,000 for the three-month period ended MarchJune 31,30, 2026, from $29,779,000$30,186,000 for the comparable period in 2025. This decrease was primarily due to a decrease of $966,000$1,820,000 in first year premiums,premiums because of a decrease in sales, which was partially offset by an increase of $42,000$339,000 in renewal premiums.

Selling,Net generalinvestment and administrative expensesincome decreased by $2,936,000,$4,152,000, or 6.7%,20.2%, to $40,928,000$16,429,000 for the three-month period ended MarchJune 31,30, 2026, from $43,864,000 $20,581,000 for the comparable period in 2025. This decrease was primarily theattributable result ofto a $1,645,000$6,116,000 decrease in commissions,mortgage loan interest resulting from a $1,581,000 decline in the average balance of the mortgage loan portfolio held for investment, a $260,000 decrease in personnelinsurance expenses,assignment income, a $166,000$59,000 decrease in rentfixed andmaturity rentsecurities relatedincome, expenses,a an $87,000$26,000 decrease in advertising expense,policy loan interest, and a $35,000$14,000 decrease in equity depreciationsecurities on property and equipment,income, which were partially offset by a $319,000$1,923,000 decrease in investment expenses, a $242,000 increase in interest on cash and cash equivalents, a $115,000 increase in other expenses investment income, and a $259,000$41,000 increase in costsreal relatedestate to funding mortgage loans.income.

FuneralNet funeral home and cemetery costsales of goods and services sold decreasedincreased by $20,000,$342,000, or 1.6%,4.7%, to $1,233,000$7,600,000 for the three-month period ended March 31,June 30, 2026, from $1,253,000 $7,258,000 for the comparable period in 2025. This decreaseincrease was primarily due to a decrease$216,000 of $18,000increase in funeral home at-need salessales, a $104,000 increase in cemetery pre-need sales, and decreasea of$22,000 $2,000increase in pre-needcemetery at-need sales.

Income tax expense increased by $214,000,$309,000, or 11.7%,13.1%, to $2,051,000$2,677,000 for the three-month period ended MarchJune 31,30, 2026, from $1,837,000$2,368,000 for the comparable period in 2025. This increase was primarily due to an increase in earnings before income taxes for 2026 compared to 2025. The Company’s overall effective tax rate increased from 22.3%22.1% for 2025 to 22.7%23.0% in 2026, a 0.4%0.9% increase in the effective tax rate or a 1.8%4.1% change. This increase was primarily due to certain permanent tax adjustments that are higher when compared to the prior year.

During the three-monthsix-month periods ended MarchJune 31,30, 2026, and 2025, the Company’s operations provided cash of approximately $32,940,000$36,934,000 and of of approximately $9,586,000,$1,905,000, respectively. The increase in cash provided by operations was due primarily to a decrease in originations of of loans held for sale and an increase in net earnings.

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 $350,683,000$363,471,000 (at estimated fair value) and $365,986,000 (at estimated fair value) as of MarchJune 31,30, 2026, and December December 31, 2025, respectively. This represented 34.2%40.1% and 35.2% of the total investments of the Company as of MarchJune 31,30, 2026, and December 31, 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 MarchJune 31,30, 2026, 1.7%1.6% (or $5,945,000$5,966,000) 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 MarchJune 31,30, 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 $534,276,000$555,266,000 as of MarchJune 31,30, 2026, as compared to $508,757,000 as of December 31, 2025. This increase was primarily due to an increase of $15,147,000$22,667,000 in stockholders’ equity and an increase of $10,372,000$23,842,000 in bank loans and other loans payable. Stockholders’ equity as a percentage of total capitalization was 79.6%78.0% and 80.7% as of MarchJune 31,30, 2026, and December 31, 2025, respectively.

The combined statutory capital and surplus of the Company’s life insurance subsidiaries was approximately $140,204,000$144,894,000 and $139,068,000 as of MarchJune 31,30, 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.