Security National Financial Corporation: Balance leads to 1Q 2023 profitability

May 24, 2023/Finance/

Security National Financial Corporation (SNFC) issued their report on their results for the 1st Quarter of 2023 last week and in doing so credited their “balanced nature of their businesses” for the performance.

We follow SNFC because of their involvement in what they term their “Memorial Segment” — a portion of their operations that own and operate funeral homes and cemeteries. But, they also have two other legs to their business stool — those legs being “Life Insurance” which includeds Preneed insurance, and a “Mortgage” business division.

Overall, SNFC brought in 1Q 2023 revenues that were 22.4% behind their revenues for the corresponding 1st Quarter in 2022. Their “Earnings before Taxes” also dropped 64.3% in 1Q 2023 to a total of $1.585 million as compared to a total earnings before taxes in 1Q 2022 of $4.44 million.

It’s interesting how their individual segments performed and in that performance you can somewhat see the historical low-risk aspect of Death Care. It’s no secret that interest rates continued to rise in the American landscape and you can see that in the performance of their Life Insurance segment. About that segment Scott M. Quist, President of SNFC made this comment in the 1Q 2023 press release, “For our Life Insurance Segment this is the best Q1 performance in our history. That excellent performance is based upon two factors; increased investment income and improved efficiency. The increased investment income is due to both the much-publicized increase in interest rates and good execution of our longer-term investment strategies, such as our construction lending and portfolio lending products. The improved efficiency is evidenced by our good cost containment in an inflationary environment. “

It should be noted, that according to the press release which you can access here, SNFC saw a 350.9% improvement in the Earnings Before Taxes of its Life Insurance segment for the quarter.

However, Mr. Quist made this comment about the company’s Mortgage segment, “Our Mortgage Segment business continues to be negatively affected by the increase in interest rates. Compared to Q1 2022 our loan origination volume declined 50%.”

We will note the profitability because of that loan origination drop, as it relates to Earnings Before Taxes, dropped 341.6% in the Mortgage segment as compared to the same quarter of 2022.

What about the 3rd leg of the stool — the Mortuary segment? Well, in an environment where American deaths dropped 14.4% in comparison to the 1st Quarter of 2022, SNFC saw their Mortuary segment come in with a drop of 3.5% in Revenue and 11.7% in profitability. Any way that you look at it. . . much less volatility than either the Life Insurance or Mortgage segments.

Finally, that led President Quist to make this comment, “. . . I would note that the fact we are profitable in this environment, albeit at a lower level than desired, reflects the balanced nature of our businesses. Increased interest rates have, without question, decimated our Mortgage Segment, but they have also provided an earnings boost to our Life Insurance Segment. In my opinion, despite the quarterly drop in death rates, our Memorial Segment provides a consistent growing and balancing factor in most economic environments. Thus, while I cannot say that I am pleased when our income goes down, I can say that I am very pleased with our team’s performance in some tough business environments. The increased market share in our Mortgage Segment, better than peer group performance in our Memorial Segment, and best-ever financial performance in our Life Insurance Segment are not insignificant achievements.”

Disclaimer — The author of this article for Funeral Director Daily is a shareholder in Security National Financial Corporation

Funeral Director Daily take: I think that last statement where it is said that “our Memorial Segment provides a consistent growing and balancing factor in most economic environments” is one reason why investors and funeral home owners like the death care business.

There are certainly challenges to the death care business, but the changes happen, at least in my opinion, at a much slower pace than they do in other business segments — such as mortgages which have a demand element that is almost totally dependent on the interest rate environment.

And while cremation and direct cremation may be pressuring the revenues of existing funeral homes, I think the long-term prospects for funeral homes, especially when you think of the higher number of aged people living in the USA today, are generally good today. Of course that is a blanket statement and the demographics of your area will play a major role in that equation too.

That thought process probably lends some credence to the fact that while we can compare some funeral businesses to other funeral businesses, it is probably more correct than not to state that all funeral businesses are truly local and unique in nature.

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