Finance of America panies (FOA) - 2025 Q1 - Quarterly Report

PART I - Financial Information Financial Statements The company reported a $75.0 million net income in Q1 2025, reversing a $20.3 million net loss in Q1 2024, with total assets and equity increasing Condensed Consolidated Statements of Financial Condition (in thousands) | | March 31, 2025 (unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $29,688,856 | $29,156,490 | | Cash and cash equivalents | $52,016 | $47,383 | | Loans held for investment, subject to HMBS related obligations | $18,809,023 | $18,669,962 | | Loans held for investment, subject to nonrecourse debt | $9,630,150 | $9,288,403 | | Total Liabilities | $29,293,970 | $28,840,826 | | HMBS related obligations | $18,590,357 | $18,444,370 | | Nonrecourse debt | $9,163,399 | $8,954,068 | | Total Equity | $394,886 | $315,664 | Condensed Consolidated Statements of Operations (in thousands) | | For the three months ended March 31, 2025 | For the three months ended March 31, 2024 | | :--- | :--- | :--- | | Total Revenues | $165,695 | $74,682 | | Net Portfolio Interest Income | $70,435 | $70,175 | | Net Other Income (Expense) | $95,260 | $4,507 | | Total Expenses | $86,369 | $91,315 | | Net Income (Loss) from Continuing Operations | $79,750 | ($15,780) | | Net Loss from Discontinued Operations | ($4,750) | ($4,524) | | Net Income (Loss) | $75,000 | ($20,304) | | Diluted Earnings (Loss) Per Share | $2.43 | ($0.78) | - The financial statements for the three months ended March 31, 2024, were restated due to errors in the classification and presentation of cash flows from certain nonrecourse securitization transactions, which were incorrectly reported on a net basis instead of a gross basis[27][29] Notes to Condensed Consolidated Financial Statements The notes detail the company's home equity financing focus, a 1-for-10 reverse stock split, and remediation of a material weakness in cash flow reporting - The company is a financial services holding company focused on providing home equity-based financing solutions for modern retirement, operating through its main lending subsidiary, Finance of America Reverse LLC (FAR)[24][26] - On July 25, 2024, the company completed a 1-for-10 reverse stock split of its Class A Common Stock. All share and per-share amounts in the report have been retroactively adjusted[37] - The company has outstanding unfunded commitments available to borrowers related to reverse mortgage loans totaling $4.4 billion as of March 31, 2025[95] - As an issuer of HMBS, subsidiary FAR is subject to minimum net worth, liquidity, and leverage requirements by Ginnie Mae. As of March 31, 2025, FAR was in compliance with these requirements, having received a waiver for the minimum outstanding capital requirements related to its accounting treatment of securitizations[106][107][109] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q1 2025's improved results to higher net origination gains and favorable fair value changes, driving pre-tax income from continuing operations to $81.7 million - The company's strategy focuses on growing its core retirement solutions business, utilizing multiple distribution channels, and connecting borrowers with investors through its Portfolio Management segment to efficiently monetize loans[136] Consolidated Results from Continuing Operations (in thousands) | | For the three months ended March 31, 2025 | For the three months ended March 31, 2024 | | :--- | :--- | :--- | | Total Revenues | $165,695 | $74,682 | | Net portfolio interest income | $70,435 | $70,175 | | Net fair value changes on loans and related obligations | $103,826 | $6,337 | | Total Expenses | $86,369 | $91,315 | | Net Income (Loss) from Continuing Operations Before Income Taxes | $81,693 | ($15,780) | - The $97.5 million improvement in pre-tax income from continuing operations was primarily driven by a $74.7 million increase in fair value changes from market inputs/model assumptions and a $6.4 million increase in net origination gains from higher loan volumes[156] Non-GAAP Reconciliation Summary (in thousands) | | For the three months ended March 31, 2025 | For the three months ended March 31, 2024 | | :--- | :--- | :--- | | Net income (loss) from continuing operations | $79,750 | ($15,780) | | Adjusted net income (loss) | $12,930 | ($6,707) | | Adjusted EBITDA | $28,967 | $7 | | Adjusted earnings (loss) per share | $0.52 | ($0.29) | Segment Results Retirement Solutions revenues increased to $51.7 million with higher loan origination, and Portfolio Management pre-tax income surged to $105.3 million due to fair value changes Retirement Solutions Segment Results (in thousands) | | For the three months ended March 31, 2025 | For the three months ended March 31, 2024 | | :--- | :--- | :--- | | Total revenues | $51,721 | $45,708 | | Total expenses | $48,462 | $49,410 | | Net Income (Loss) Before Income Taxes | $3,259 | ($3,876) | | Loan origination volume | $560,678 | $423,453 | Portfolio Management Segment Results (in thousands) | | For the three months ended March 31, 2025 | For the three months ended March 31, 2024 | | :--- | :--- | :--- | | Total revenues | $129,009 | $37,249 | | Total expenses | $23,731 | $22,753 | | Net Income Before Income Taxes | $105,278 | $14,496 | | Net carrying value of earning assets | $597,594 | N/A | Liquidity and Capital Resources Primary liquidity sources include loan sales and borrowings; cash decreased by $50.1 million in Q1 2025, with $29.1 billion in total debt obligations - Primary sources of liquidity include payments from the sale or securitization of loans, proceeds from participating interests in loans, and advances on various credit facilities[202] Cash Flow Summary (in thousands) | | For the three months ended March 31, 2025 | For the three months ended March 31, 2024 (As Restated) | | :--- | :--- | :--- | | Net cash used in operating activities | ($92,082) | ($132,243) | | Net cash provided by investing activities | $45,475 | $85,153 | | Net cash provided by (used in) financing activities | ($3,500) | $65,884 | | Net (decrease) increase in cash and cash equivalents and restricted cash | ($50,116) | $18,777 | Contractual Cash Obligations as of March 31, 2025 (in thousands) | Contractual cash obligations: | Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Nonrecourse debt | $9,548,811 | $2,567,083 | $4,710,853 | $874,476 | $1,396,399 | | Warehouse lines of credit | $513,357 | $482,412 | $30,945 | — | — | | Other secured lines of credit | $495,537 | $37,036 | $69,231 | — | $389,270 | | Notes payable | $434,955 | $137,408 | $150,754 | $146,793 | — | | Total | $11,028,332 | $3,229,283 | $4,971,341 | $1,028,016 | $1,799,692 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations; a 25 basis point rate increase could result in a $70 million net decrease in fair value - The company's primary market risk is interest rate risk. An increase in rates could adversely affect loan origination volume, increase servicing costs, and reduce the fair value of long-term assets. A decrease in rates could increase prepayment speeds, also reducing the fair value of long-term assets[248][249][253] Interest Rate Sensitivity Analysis as of March 31, 2025 (in thousands) | | Down 25 bps | Up 25 bps | | :--- | :--- | :--- | | Increase (decrease) in assets | | | | Loans held for investment, subject to HMBS related obligations | $31,369 | ($31,197) | | Loans held for investment, subject to nonrecourse debt | $123,475 | ($120,653) | | Loans held for investment | $5,965 | ($5,842) | | Total assets | $160,809 | ($157,692) | | Increase (decrease) in liabilities | | | | HMBS related obligations | $27,120 | ($26,887) | | Nonrecourse debt | $59,651 | ($60,980) | | Total liabilities | $86,771 | ($87,867) | Controls and Procedures Management concluded disclosure controls were ineffective due to a material weakness in cash flow statement preparation, with a remediation plan underway - Management concluded that disclosure controls and procedures were not effective as of March 31, 2025, due to a material weakness in internal control over financial reporting[259] - The material weakness relates to ineffective controls over the preparation and review of the consolidated cash flow statements, specifically regarding the classification of cash flows from nonrecourse securitization transactions[261][262] - A remediation plan is in place, focusing on enhancing control documentation for cash flow statement presentation and providing additional training to accounting and financial reporting personnel on ASC 230, Cash Flows[264][266] PART II - Other Information Legal Proceedings The company is defending three coordinated representative lawsuits under PAGA for alleged labor code violations, with individual claims settled and representative claims pending - The company is defending three coordinated representative lawsuits under the California Private Attorneys General Act (PAGA) for alleged labor code violations. Individual claims have been settled, but the representative claims remain pending[88][89] Risk Factors The company is not aware of any material changes from the risk factors previously disclosed in its Form 10-K/A filed with the SEC on May 20, 2025 - There are no material changes from the risk factors previously disclosed in the company's Annual Report on Form 10-K/A[269] Unregistered Sales of Equity Securities and Use of Proceeds None - There were no unregistered sales of equity securities during the period[271] Defaults Upon Senior Securities None - There were no defaults upon senior securities during the period[272] Other Information No directors or Section 16 officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter - No directors or Section 16 officers reported any new, modified, or terminated Rule 10b5-1 trading plans during the quarter[274] Exhibits This section lists the exhibits filed with the report, including transaction agreements, corporate governance documents, and CEO/CFO certifications