Finance of America panies (FOA) - 2025 Q2 - Quarterly Report

FORM 10-Q Filing Information This section provides essential details about the company's Form 10-Q filing, including registrant information and classification Registrant Information Finance of America Companies Inc. (FOA) filed its Quarterly Report on Form 10-Q for the period ended June 30, 2025, incorporated in Delaware, with Class A Common Stock traded on the NYSE under FOA, classified as a non-accelerated filer and smaller reporting company - Finance of America Companies Inc. (FOA) filed its Quarterly Report on Form 10-Q for the period ended June 30, 2025[2] Trading Information | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :------------------ | :---------------- | :---------------------------------------- | | Class A Common Stock, par value $0.0001 per share | FOA | New York Stock Exchange | Filer Classification | | | | | | :-------------------- | :-- | :---------------- | :-- | | Large accelerated filer | ☐ | Accelerated filer | ☐ | | Non-accelerated filer | x | Smaller reporting company | x | | | | Emerging growth company | ☐ | Table of Contents This section outlines the Form 10-Q's structure, detailing its two main parts: Financial Information and Other Information Report Structure The Form 10-Q is structured into two main parts: Part I - Financial Information, covering financial statements, management's discussion and analysis, market risk, and controls, and Part II - Other Information, which includes legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits Form 10-Q Structure | | | Page | | :--- | :--- | :--- | | | PART I - Financial Information | | | Item 1. | Financial Statements | 6 | | Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 45 | | Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 71 | | Item 4. | Controls and Procedures | 72 | | | PART II - Other Information | | | Item 1. | Legal Proceedings | 74 | | Item 1A. | Risk Factors | 74 | | Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 75 | | Item 3. | Defaults Upon Senior Securities | 75 | | Item 4. | Mine Safety Disclosures | 75 | | Item 5. | Other Information | 75 | | Item 6. | Exhibits | 75 | | Signatures | | 77 | Forward-Looking Statements This section cautions that the report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially Nature and Risks of Forward-Looking Statements This section highlights that the report contains forward-looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially. Key risks include the ability to expand the customer base, finance and monetize reverse mortgage portfolios, respond to interest rate changes, manage market concentration, prevent cyber intrusions, and comply with extensive regulations - Forward-looking statements are subject to various risks and uncertainties that could cause actual outcomes or results to differ materially from those indicated[8] - Key risks include expanding the customer base, efficiently originating reverse mortgage loans, financing and profitably securitizing the reverse mortgage portfolio, managing interest rate changes, and preventing cyber intrusions[10] - Other significant risks involve managing secondary home loan market disruptions, financing and recovering reverse mortgage servicing costs, maintaining compliance with complex regulations, competing with national banks, and managing legal proceedings[13] Additional Information The company provides investor and consumer-oriented websites for additional information, making SEC filings available free of charge Company Resources and SEC Filings The company provides investor and consumer-oriented websites for additional information. Annual, quarterly, and current reports filed with the SEC are made available free of charge on its investor relations website and can also be accessed via the SEC's website - Investors can find more information on the company's investor-oriented website (www.financeofamericacompanies.com) and consumer-oriented website (**www.financeofamerica.com**)[12](index=12&type=chunk) - Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments are available free of charge on the investor-oriented website and the SEC's website (**www.sec.gov**)[12](index=12&type=chunk) Item 1. Financial Statements This section presents the company's condensed consolidated financial statements, including statements of financial condition, operations, comprehensive income, equity, and cash flows Condensed Consolidated Statements of Financial Condition The company's total assets increased to $30.15 billion as of June 30, 2025, from $29.16 billion at December 31, 2024, primarily driven by an increase in loans held for investment. Total liabilities also increased to $29.67 billion from $28.84 billion, mainly due to higher HMBS related obligations and nonrecourse debt. Total equity saw a significant increase to $473.4 million from $315.7 million Condensed Consolidated Statements of Financial Condition (in thousands) | ASSETS | June 30, 2025 | December 31, 2024 | | :-------------------------------------------------------------------------------- | :------------ | :------------------ | | Cash and cash equivalents | $ 46,476 | $ 47,383 | | Restricted cash | 190,176 | 254,585 | | Loans held for investment, subject to HMBS related obligations, at fair value | 18,858,220 | 18,669,962 | | Loans held for investment, subject to nonrecourse debt, at fair value | 9,888,492 | 9,288,403 | | Loans held for investment, at fair value | 634,935 | 520,103 | | Intangible assets, net | 198,209 | 216,342 | | Other assets, net | 329,677 | 157,261 | | Assets of discontinued operations | 1,264 | 2,451 | | TOTAL ASSETS | $ 30,147,449 | $ 29,156,490 | | LIABILITIES AND EQUITY | | | | HMBS related obligations, at fair value | $ 18,643,094 | $ 18,444,370 | | Nonrecourse debt, at fair value | 9,426,194 | 8,954,068 | | Other financing lines of credit | 1,076,434 | 918,247 | | Notes payable, net | 383,941 | 374,511 | | Payables and other liabilities | 139,350 | 137,953 | | Liabilities of discontinued operations | 5,011 | 11,677 | | TOTAL LIABILITIES | 29,674,024 | 28,840,826 | | TOTAL EQUITY | 473,425 | 315,664 | | TOTAL LIABILITIES AND EQUITY | $ 30,147,449 | $ 29,156,490 | - Total assets increased by approximately $991 million, and total liabilities increased by approximately $833 million from December 31, 2024, to June 30, 2025[15] - Total equity increased significantly from $315.7 million to $473.4 million, primarily driven by net income and noncontrolling interest changes[15] Condensed Consolidated Statements of Operations The company reported a significant turnaround in profitability, with net income attributable to controlling interest of $34.9 million for Q2 2025, compared to a net loss of $2.1 million in Q2 2024. Total revenues for Q2 2025 surged to $177.4 million from $79.0 million in Q2 2024, primarily due to substantial net fair value changes on loans and related obligations Condensed Consolidated Statements of Operations (in thousands) | | For the three months ended June 30, 2025 | For the three months ended June 30, 2024 | For the six months ended June 30, 2025 | For the six months ended June 30, 2024 | | :-------------------------------------------------------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------------------- | :------------------------------------- | | NET PORTFOLIO INTEREST INCOME | $ 59,464 | $ 65,473 | $ 129,899 | $ 135,648 | | NET OTHER INCOME (EXPENSE) | 117,912 | 13,566 | 213,172 | 18,073 | | TOTAL REVENUES | 177,376 | 79,039 | 343,071 | 153,721 | | TOTAL EXPENSES | 89,060 | 85,047 | 175,429 | 176,362 | | NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | 81,955 | (3,768) | 163,648 | (19,548) | | NET INCOME (LOSS) ATTRIBUTABLE TO CONTROLLING INTEREST | $ 34,923 | $ (2,089) | $ 65,132 | $ (9,627) | | Basic earnings (loss) per share | $ 3.16 | $ (0.21) | $ 6.14 | $ (0.99) | | Diluted earnings (loss) per share | $ 2.13 | $ (0.30) | $ 4.56 | $ (1.06) | - Net income attributable to controlling interest significantly improved to $34.9 million for the three months ended June 30, 2025, from a loss of $2.1 million in the prior year period[18] - Total revenues for the three months ended June 30, 2025, increased by $98.3 million (124.4%) year-over-year, primarily driven by a $111.7 million increase in net fair value changes on loans and related obligations[18] Condensed Consolidated Statements of Comprehensive Income Total comprehensive income attributable to controlling interest for the three months ended June 30, 2025, was $34.9 million, a substantial improvement from a loss of $2.1 million in the same period last year. For the six months ended June 30, 2025, it was $65.1 million, compared to a loss of $9.6 million in the prior year Condensed Consolidated Statements of Comprehensive Income (in thousands) | | For the three months ended June 30, 2025 | For the three months ended June 30, 2024 | For the six months ended June 30, 2025 | For the six months ended June 30, 2024 | | :-------------------------------------------------------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------------------- | :------------------------------------- | | NET INCOME (LOSS) | $ 79,823 | $ (5,124) | $ 154,823 | $ (25,428) | | Impact of foreign currency translation adjustment | 2 | (30) | (7) | (47) | | TOTAL COMPREHENSIVE INCOME (LOSS) | 79,825 | (5,154) | 154,816 | (25,475) | | Less: Comprehensive income (loss) attributable to noncontrolling interest | 44,901 | (3,052) | 89,687 | (15,828) | | COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CONTROLLING INTEREST | $ 34,924 | $ (2,102) | $ 65,129 | $ (9,647) | - Comprehensive income attributable to controlling interest improved from a loss of $2.1 million in Q2 2024 to an income of $34.9 million in Q2 2025[21] Condensed Consolidated Statements of Equity Total equity increased from $315.7 million at December 31, 2024, to $473.4 million at June 30, 2025, primarily driven by net income of $154.8 million and equity-based compensation, partially offset by noncontrolling interest distributions and share cancellations for employee tax withholdings Changes in Total Equity (in thousands) | | December 31, 2024 | June 30, 2025 | | :-------------------------------------------------------------------------------- | :---------------- | :------------ | | Balance at period start | $ 315,664 | $ 315,664 | | Net income | 154,823 | 154,823 | | Noncontrolling interest distributions | (288) | (288) | | Equity-based compensation, net | 4,804 | 4,804 | | Conversion of Class A LLC Units for Class A Common Stock | — | — | | Settlement of RSUs | — | — | | Cancellation of shares to fund employee tax withholdings | (3,767) | (3,767) | | Issuance of Class A LLC Units | 2,196 | 2,196 | | Class B share retirement | — | — | | Foreign currency translation adjustment | (7) | (7) | | Balance at period end | $ 473,425 | $ 473,425 | - Total equity increased by $157.8 million from December 31, 2024, to June 30, 2025, primarily due to net income[25] Condensed Consolidated Statements of Cash Flows Net cash used in operating activities decreased by $47.7 million for the six months ended June 30, 2025, compared to the prior year, indicating improved operational cash generation. However, net cash provided by investing activities decreased by $68.3 million, and net cash used in financing activities increased by $66.5 million, leading to an overall decrease in cash and cash equivalents and restricted cash Condensed Consolidated Statements of Cash Flows (in thousands) | | For the six months ended June 30, 2025 | For the six months ended June 30, 2024 | | :-------------------------------------------------------------------------------- | :------------------------------------- | :------------------------------------- | | Net cash used in operating activities | $ (188,555) | $ (236,241) | | Net cash provided by investing activities | 183,472 | 251,797 | | Net cash provided by (used in) financing activities | (60,226) | 6,303 | | Effect of exchange rate changes on cash and cash equivalents | (7) | (47) | | Net increase (decrease) in cash and cash equivalents and restricted cash | $ (65,316) | $ 21,812 | | Cash and cash equivalents and restricted cash, end of period | $ 236,652 | $ 246,613 | - Net cash used in operating activities improved by $47.7 million for the six months ended June 30, 2025, compared to the corresponding 2024 period[27] - Overall cash and cash equivalents and restricted cash decreased by $65.3 million for the six months ended June 30, 2025, compared to an increase of $21.8 million in the prior year, primarily due to changes in investing and financing activities[27] Note 1. Organization and Description of Business Finance of America Companies Inc. (FOA) is a financial services holding company specializing in home equity-based financing solutions for retirement, operating through subsidiaries offering HECM and non-agency reverse mortgage loans, along with capital markets and portfolio management services - FOA is a financial services holding company providing home equity-based financing solutions for modern retirement, with capital markets and portfolio management capabilities[28] - The company originates, purchases, sells, securitizes, and services HECM loans (FHA-insured) and non-agency reverse mortgage loans through its subsidiary Finance of America Reverse LLC (FAR)[30] Note 2. Summary of Significant Accounting Policies The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim reporting, including normal recurring adjustments, with significant estimates for fair value measurements and recently adopted accounting guidance - The financial statements are prepared in accordance with U.S. GAAP for interim periods, with all necessary normal recurring adjustments[31] - Estimates for loans held for investment and related obligations are particularly subject to change due to factors like economy, interest rates, and home prices[33] Recently Adopted Accounting Guidance | Standard | Description | Effective Date | Effect on Consolidated Financial Statements | | :------- | :---------- | :------------- | :------------------------------------------ | | ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures | Enhances annual income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation, and by requiring disclosure of the amount of income taxes paid disaggregated by federal, state, and foreign taxes, as well as disaggregated by material individual jurisdictions. | January 1, 2025 | This ASU will result in additional income tax disclosures in our Form 10-K, but the Company does not expect it will have a material impact on our consolidated financial statements. | Note 3. Discontinued Operations The company discontinued certain business lines in late 2022 and 2023 to transition to a unified modern retirement solutions platform, resulting in decreased assets and liabilities of discontinued operations and a net loss of zero for Q2 2025 - The Company discontinued certain business lines in 2022 and 2023 to transform into a unified modern retirement solutions platform[36] Assets and Liabilities of Discontinued Operations (in thousands) | | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :------------------ | | Assets: Other assets, net | $ 1,264 | $ 2,451 | | Liabilities: Payables and other liabilities | 5,011 | 11,677 | Net Loss from Discontinued Operations (in thousands) | | For the three months ended June 30, 2025 | For the three months ended June 30, 2024 | For the six months ended June 30, 2025 | For the six months ended June 30, 2024 | | :-------------------------------------------------------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------------------- | :------------------------------------- | | Net loss from discontinued operations before and after income taxes | $ — | $ (203) | $ (4,750) | $ (4,727) | Note 4. Variable Interest Entities and Securitizations The company consolidates special purpose entities (VIEs) created for securitizations where it is the primary beneficiary, holding both power to direct activities and exposure to significant gains/losses. Consolidated VIE assets totaled $10.14 billion at June 30, 2025, up from $9.38 billion at December 31, 2024. The company also has variable interests in unconsolidated VIEs, with a maximum exposure to loss of $64.6 million at June 30, 2025 - The Company consolidates special purpose entities (VIEs) in its securitizations where it is deemed the primary beneficiary[38] Consolidated VIEs Assets and Liabilities (in thousands) | ASSETS | June 30, 2025 | December 31, 2024 | | :---------------------------------------------------- | :------------ | :------------------ | | Restricted cash | $ 183,849 | $ 248,905 | | Loans held for investment, subject to nonrecourse debt, at fair value | 9,499,796 | 8,904,303 | | Loans held for investment, at fair value | 276,450 | 168,641 | | Other assets, net | 184,455 | 53,400 | | TOTAL ASSETS | $ 10,144,550 | $ 9,375,249 | | LIABILITIES | | | | Nonrecourse debt, at fair value | $ 9,464,406 | $ 8,947,378 | | Other financing lines of credit | 211,808 | 136,157 | | Payables and other liabilities | 1,314 | 1,277 | | TOTAL VIE LIABILITIES | $ 9,677,528 | $ 9,084,812 | Unconsolidated VIEs Summary (in thousands) | | June 30, 2025 | December 31, 2024 | | :---------------------------------------------------- | :------------ | :------------------ | | Carrying value of Retained interests (Assets) | $ 45,669 | $ 47,568 | | Carrying value of Loans and nonrecourse liability (Assets) | 400,833 | 393,405 | | Maximum exposure to loss | $ 64,614 | $ 66,902 | | Total assets in VIEs | $ 1,312,906 | $ 1,341,769 | Note 5. Fair Value The company measures a significant portion of its assets and liabilities at fair value, primarily using Level 3 inputs due to unobservable inputs. Total assets measured at fair value were $29.60 billion at June 30, 2025, and total liabilities were $28.08 billion. Key unobservable inputs for valuation include weighted average life (WAL), conditional prepayment rate (CPR), loss frequency/severity, home price appreciation (HPA), and discount rates. There were no transfers into or out of Level 3 during the reporting periods - Fair value measurements are based on a hierarchy, with most significant assets and liabilities classified as Level 3 due to unobservable inputs[52][54][55] Fair Value of Assets and Liabilities (in thousands) | | June 30, 2025 | December 31, 2024 | | :-------------------------------------------------------------------------------- | :------------ | :------------------ | | Total Fair Value Assets | $ 29,602,789 | $ 28,522,329 | | Loans held for investment, subject to HMBS related obligations | 18,858,220 | 18,669,962 | | Loans held for investment, subject to nonrecourse debt | 9,888,492 | 9,288,403 | | Loans held for investment | 634,935 | 520,103 | | Loans held for sale - reverse mortgage loans | 180,899 | — | | Retained bonds | 39,720 | 40,407 | | Total Fair Value Liabilities | $ 28,082,727 | $ 27,415,122 | | HMBS related obligations | 18,643,094 | 18,444,370 | | Nonrecourse debt | 9,426,194 | 8,954,068 | | Deferred purchase price liabilities | 8,328 | 13,370 | | TRA obligation | 5,111 | 3,314 | - The fair value of notes payable, net, was $449.6 million at June 30, 2025, compared to a carrying value of $383.9 million, determined using Level 2 inputs[67][68] Note 6. Reverse Mortgage Loan Portfolio The total serviced reverse mortgage loan portfolio increased to $28.21 billion at June 30, 2025, from $27.48 billion at December 31, 2024. This portfolio is predominantly composed of adjustable rate loans ($20.38 billion) and fixed rate loans ($7.69 billion). Loans 90 days or more past due and on non-accrual status decreased from $33.89 million (UPB) at December 31, 2024, to $24.42 million at June 30, 2025 Reverse Mortgage Loan Portfolio (in thousands) | | June 30, 2025 | December 31, 2024 | | :-------------------------------------------------------------------------------- | :------------ | :------------------ | | Reverse mortgage loans held for investment, subject to HMBS related obligations | $ 17,817,676 | $ 17,652,495 | | Reverse mortgage loans held for investment, subject to nonrecourse debt | 9,516,324 | 9,186,447 | | Reverse mortgage loans held for investment | 577,117 | 503,727 | | Loans held for sale - reverse mortgage loans | 162,349 | — | | Total owned reverse mortgage loan portfolio | 28,073,466 | 27,342,669 | | Loans serviced for others | 87,104 | 88,125 | | Total serviced reverse mortgage loan portfolio | $ 28,209,458 | $ 27,476,567 | Owned Reverse Mortgage Loan Portfolio by Product Type (in thousands) | | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :------------------ | | Adjustable rate loans | $ 20,379,928 | $ 19,966,185 | | Fixed rate loans | 7,693,538 | 7,376,484 | | Total owned reverse mortgage loan portfolio | $ 28,073,466 | $ 27,342,669 | - Loans 90 days or more past due and on non-accrual status decreased from $33.89 million (UPB) at December 31, 2024, to $24.42 million at June 30, 2025[66] Note 7. Other Assets, Net Other assets, net, related to continuing operations significantly increased to $329.68 million at June 30, 2025, from $157.26 million at December 31, 2024. This rise was primarily driven by a substantial increase in loans held for sale, at fair value, from $3.45 million to $181.42 million Other Assets, Net (in thousands) | | June 30, 2025 | December 31, 2024 | | :-------------------------------------------------------------------------------- | :------------ | :------------------ | | Loans held for sale, at fair value | $ 181,422 | $ 3,454 | | Government guaranteed receivables | 45,104 | 41,948 | | Retained bonds, at fair value | 39,720 | 40,407 | | Right-of-use assets | 19,074 | 20,533 | | Receivables, net of allowance | 13,166 | 20,935 | | Prepaid expenses | 11,375 | 11,998 | | Fixed assets, net | 3,326 | 3,824 | | Other | 16,490 | 14,162 | | Total other assets, net | $ 329,677 | $ 157,261 | - Other assets, net, more than doubled from $157.26 million to $329.68 million, largely due to an increase in loans held for sale[72] Note 8. Nonrecourse Debt, at Fair Value Total nonrecourse debt, at fair value, increased to $9.43 billion at June 30, 2025, from $8.95 billion at December 31, 2024. This includes securitizations of non-agency reverse mortgage loans and performing/nonperforming HECM loans. The nonrecourse debt associated with commercial loan securitization was fully paid off during Q2 2025 Nonrecourse Debt, at Fair Value (in thousands) | Issue Date | Final Maturity Date | Interest Rate | Original Issue Amount | June 30, 2025 | December 31, 2024 | | :--------- | :------------------ | :------------ | :-------------------- | :------------ | :------------------ | | Securitization of non-agency reverse mortgage loans | April 2051 - May 2075 | 1.25% - 7.00% | $ 10,340,442 | $ 8,736,119 | $ 8,304,568 | | Securitization of performing/nonperforming HECM loans | October 2034 | 4.00% - 6.00% | 705,400 | 620,991 | 677,035 | | Securitization of commercial loans | N/A | N/A | N/A | — | 8,245 | | Total consolidated VIE nonrecourse debt UPB | | | | 9,357,110 | 8,989,848 | | Nonrecourse loan financing liability | | | | 381,888 | 374,071 | | Fair value adjustments | | | | (312,804) | (409,851) | | Total nonrecourse debt, at fair value | | | | $ 9,426,194 | $ 8,954,068 | - The nonrecourse debt associated with the securitization of commercial loans was fully paid off during the three months ended June 30, 2025[73] Estimated Maturities for Nonrecourse Debt (in thousands) | Year Ending December 31, | Estimated Maturities | | :----------------------- | :------------------- | | Remainder of 2025 | $ 1,451,705 | | 2026 | 3,528,625 | | 2027 | 1,928,454 | | 2028 | 1,003,506 | | 2029 | 189,354 | | Thereafter | 1,637,354 | | Total payments on nonrecourse debt | $ 9,738,998 | Note 9. Other Financing Lines of Credit Total other financing lines of credit increased to $1.08 billion at June 30, 2025, from $918.25 million at December 31, 2024. The weighted average interest rate on these outstanding lines increased slightly to 7.23% from 7.14%. The company was in compliance with all financial covenants, including adjusted tangible net worth, liquidity, and leverage ratios, for both FAR and FAH Other Financing Lines of Credit (in thousands) | Maturity Date | Interest Rate | Collateral Pledged | Total Capacity | June 30, 2025 | December 31, 2024 | | :------------ | :------------ | :----------------- | :------------- | :------------ | :------------------ | | Reverse Lines: | | | | | | | September 2025 - October 2026 | SOFR + applicable margin | First and Second Lien Mortgages | $ 1,165,000 | $ 572,470 | $ 438,328 | | Various | Bond accrual rate/SOFR + applicable margin | Mortgage Related Assets | 398,097 | 379,726 | 356,915 | | October 2027 | SOFR + applicable margin | HECM MSR | 70,000 | 69,231 | 69,231 | | October 2025 | SOFR + applicable margin | Unsecuritized Tails | 40,000 | 22,596 | 19,947 | | Mortgage Line: | | | | | | | Various | Bond accrual rate + applicable margin | Mortgage Related Assets | 32,411 | 32,411 | 33,826 | | Total other financing lines of credit | | | $ 1,705,508 | $ 1,076,434 | $ 918,247 | - The weighted average interest rate on outstanding financing lines of credit increased from 7.14% at December 31, 2024, to 7.23% at June 30, 2025[75] Financial Covenants and Maximum Allowable Distribution (in thousands, except for ratios) | Financial Covenants | Requirement | June 30, 2025 | Maximum Allowable Distribution | | :------------------ | :---------- | :------------ | :----------------------------- | | FAR: Adjusted Tangible Net Worth | $ 250,000 | $ 697,057 | $ 447,057 | | FAR: Liquidity | 40,815 | 44,259 | 3,444 | | FAR: Leverage Ratio | 6:1 | 2.1:1 | 457,753 | | FAH: Adjusted Tangible Net Worth | $ 200,000 | $ 684,705 | $ 484,705 | | FAH: Liquidity | 40,000 | 46,595 | 6,595 | | FAH: Leverage Ratio | 10:1 | 2.4:1 | 522,301 | Note 10. Litigation The company is subject to various legal proceedings, examinations, and investigations. While the outcome of these matters is unpredictable, management does not believe any, individually or in aggregate, will have a material adverse effect on its financial position, results of operations, or cash flows. Legal expenses decreased to $0.8 million for Q2 2025 from $1.8 million in Q2 2024 - The Company is subject to legal proceedings, examinations, investigations, and lawsuits, including PAGA claims in California[80][83] - Management believes that current legal matters will not have a material adverse effect on the company's financial position, results of operations, or cash flows[82] Legal Expenses (in thousands) | | For the three months ended June 30, 2025 | For the three months ended June 30, 2024 | For the six months ended June 30, 2025 | For the six months ended June 30, 2024 | | :-------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------------------- | :------------------------------------- | | Legal expenses | $ 800 | $ 1,800 | $ 1,100 | $ 2,100 | Note 11. Commitments and Contingencies The company has unfunded commitments of $4.5 billion for borrower advances on reverse mortgage loans as of June 30, 2025, consistent with December 31, 2024. It also has mandatory repurchase obligations for HECM loans from Ginnie Mae securitization pools once they reach 98% of their maximum claim amount, and is subject to representations and warranties on sold loans - The Company has unfunded commitments of $4.5 billion for borrower advances on agency and non-agency reverse mortgage loans as of June 30, 2025 and December 31, 2024[89] - The Company is required to repurchase reverse mortgage loans from Ginnie Mae securitization pools once the outstanding principal balance reaches 98% of the Maximum Claim Amount (MCA)[90] - The Company provides covenants and warranties to Ginnie Mae and third-party purchasers, which, if breached, may require loan repurchases or indemnification for losses[92] Note 12. Income Taxes The company's effective tax rate differs from the U.S. federal statutory rate due to the mix of earnings/loss attributable to noncontrolling interest, state tax rates, and discrete tax items. A valuation allowance for deferred tax assets has been maintained due to the assessment that sufficient taxable income may not be generated to utilize current attributes. The recently signed One Big Beautiful Bill Act is not anticipated to have a significant impact on overall tax expense - The Company's effective tax rate differs from the U.S. federal statutory rate due to noncontrolling interest, state tax rates, and discrete tax items[93] - A valuation allowance for deferred tax assets has been maintained as it is not more likely than not that a portion or all of the deferred tax asset will be realized[96][97] - The One Big Beautiful Bill Act, signed on July 4, 2025, is not anticipated to have a significant impact on overall tax expense, with changes to be implemented in Q3 2025[99] Note 13. Business Segment Reporting The company operates through two reportable segments: Retirement Solutions and Portfolio Management. For the three months ended June 30, 2025, Retirement Solutions reported $10.37 million in net income before taxes, while Portfolio Management reported $108.10 million. For the six months ended June 30, 2025, Retirement Solutions had $13.63 million and Portfolio Management had $213.38 million in net income before taxes, demonstrating strong performance in both segments Net Income (Loss) Before Taxes by Segment (in thousands) | Segment | For the three months ended June 30, 2025 | For the three months ended June 30, 2024 | For the six months ended June 30, 2025 | For the six months ended June 30, 2024 | | :-------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------------------- | :------------------------------------- | | Retirement Solutions | $ 10,373 | $ (1,681) | $ 13,632 | $ (5,556) | | Portfolio Management | 108,104 | 21,514 | 213,382 | 36,009 | | Corporate and Other | (36,522) | (23,601) | (63,366) | (50,001) | | Total | $ 81,955 | $ (3,768) | $ 163,648 | $ (19,548) | - Retirement Solutions segment's net income before taxes improved significantly from a loss of $1.68 million in Q2 2024 to an income of $10.37 million in Q2 2025[101] - Portfolio Management segment's net income before taxes increased substantially from $21.51 million in Q2 2024 to $108.10 million in Q2 2025[101] Note 14. Liquidity and Capital Requirements Finance of America Reverse LLC (FAR) was in compliance with all Ginnie Mae minimum net worth, liquidity, capitalization, and insurance requirements as of June 30, 2025. FAR's actual net worth was $691.2 million against a required $185.5 million, and actual cash and cash equivalents were $44.3 million against a required $37.1 million. A waiver was obtained for the minimum outstanding capital requirements due to accounting treatment of HECM loans - FAR is subject to minimum net worth, liquidity, and leverage requirements, as well as minimum insurance coverage established by Ginnie Mae[105][106] FAR Ginnie Mae Compliance (as of June 30, 2025, in millions) | Requirement | Minimum | Actual | | :-------------------- | :------ | :----- | | Net Worth | $185.5 | $691.2 | | Liquidity | $37.1 | $44.3 | - FAR obtained a waiver for the minimum outstanding capital requirements from Ginnie Mae due to the accounting treatment of HECM loans as secured borrowings[108] Note 15. Related Party Transactions The company had $85.0 million outstanding on Working Capital Promissory Notes with BTO Urban Holdings L.L.C. and Libman Family Holdings, LLC (LFH) as of June 30, 2025, which were repaid and terminated subsequent to the quarter end. Additionally, $77.3 million of Secured Notes were due to LFH as of June 30, 2025. Interest paid on these related party notes totaled $5.5 million for Q2 2025 - Working Capital Promissory Notes with BTO Urban Holdings L.L.C. and LFH had $85.0 million outstanding as of June 30, 2025, and were repaid and terminated subsequent to the quarter end[112][113] - The Company had $77.3 million of Secured Notes due to LFH as of June 30, 2025[115] Interest Paid on Related Party Notes (in thousands) | | For the three months ended June 30, 2025 | For the three months ended June 30, 2024 | For the six months ended June 30, 2025 | For the six months ended June 30, 2024 | | :-------------------------------------------------------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------------------- | :------------------------------------- | | Working Capital Promissory Notes interest | $ 2,100 | $ 1,600 | $ 4,500 | $ 2,800 | | Secured Notes / 2025 Unsecured Notes interest | 3,400 | 3,000 | 3,400 | 3,000 | | Total Interest Paid | $ 5,500 | $ 4,600 | $ 7,900 | $ 5,800 | Note 16. Earnings (Loss) Per Share Basic earnings per share from continuing operations for Q2 2025 was $3.16, a significant improvement from a loss of $0.20 in Q2 2024. Diluted EPS from continuing operations also improved to $2.13 from a loss of $0.29. The calculations include adjustments for noncontrolling interest and assumed exchanges of Class A LLC Units and Exchangeable Secured Notes Basic and Diluted Earnings (Loss) Per Share (EPS) (in thousands, except share data) | | For the three months ended June 30, 2025 | For the three months ended June 30, 2024 | For the six months ended June 30, 2025 | For the six months ended June 30, 2024 | | :-------------------------------------------------------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------------------- | :------------------------------------- | | Basic earnings (loss) per share from continuing operations | $ 3.16 | $ (0.20) | $ 6.33 | $ (0.78) | | Basic earnings (loss) per share | $ 3.16 | $ (0.21) | $ 6.14 | $ (0.99) | | Diluted earnings (loss) per share from continuing operations | $ 2.13 | $ (0.29) | $ 4.69 | $ (0.88) | | Diluted earnings (loss) per share | $ 2.13 | $ (0.30) | $ 4.56 | $ (1.06) | - Basic EPS from continuing operations for Q2 2025 was $3.16, a substantial increase from a loss of $0.20 in Q2 2024[116] - Diluted weighted average shares outstanding for Q2 2025 were 30,137,247, up from 23,084,189 in Q2 2024, reflecting the effect of dilutive securities[118] Note 17. Subsequent Events Subsequent to June 30, 2025, the company entered into a Repurchase Agreement on August 4, 2025, to buy back all of Blackstone Investor's equity stake for $80.3 million, with the TRA terminated. Concurrently, $40.0 million in new unsecured convertible promissory notes were issued to institutional investors, and amendments were made to the Senior Secured Notes and Exchangeable Secured Notes to provide additional collateral and adjust maturity terms - On August 4, 2025, the Company entered into a Repurchase Agreement to purchase all of Blackstone Investor's equity stake for $80.3 million, and the TRA will be terminated[123] - The Company issued $40.0 million of new unsecured convertible promissory notes to certain existing institutional investors, maturing on August 4, 2028, with a 0% coupon rate[125] - Amendments were made to the Senior Secured Notes and Exchangeable Secured Notes, including providing liens on additional collateral and adjusting the maturity of $60 million of Senior Secured Notes to November 30, 2026[126][127] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, results of operations, and key business trends, including an overview of its strategy and segment performance Overview Finance of America Companies Inc. is a financial services holding company focused on home equity-based financing solutions for retirement, primarily through its subsidiary Finance of America Reverse LLC (FAR), with a strategy emphasizing core business growth, multi-channel distribution, and efficient loan monetization - FOA is a financial services holding company specializing in home equity-based financing solutions for modern retirement, with capital markets and portfolio management capabilities[131] - The company's strategy focuses on growing its core retirement solutions business, utilizing flexible technology platforms for efficient distribution, and programmatically monetizing loans through sale or securitization while retaining future performance-based participation[134] - Recent initiatives include streamlining marketing and originations, unifying under the 'Finance of America' brand, and launching a digital borrower experience for non-agency second lien reverse mortgage loans[135] Business Trends and Conditions Key factors influencing the company's results include prevailing interest rates, housing market trends, demographic shifts, and investor yield requirements, with higher interest rates generally leading to lower mortgage transaction volumes and increased competition - Key factors impacting revenues include prevailing interest rates, housing market trends, demographic and housing stock trends, and investor yield requirements[137] - Higher interest rates generally lead to lower mortgage transaction volumes, increased competition, and lower profit margins[139] - The company is actively monitoring economic impacts from Federal Reserve policies and tariffs, which may cause additional volatility and adversely affect future results[140] Results of Operations The company's net income before income taxes from continuing operations significantly improved to $82.0 million for Q2 2025, from a loss of $3.8 million in Q2 2024, primarily driven by increased net origination gains and fair value changes Consolidated Operating Results from Continuing Operations (in thousands) | | For the three months ended June 30, 2025 | For the three months ended June 30, 2024 | For the six months ended June 30, 2025 | For the six months ended June 30, 2024 | | :-------------------------------------------------------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------------------- | :------------------------------------- | | Net portfolio interest income | $ 59,464 | $ 65,473 | $ 129,899 | $ 135,648 | | Net other income (expense) | 117,912 | 13,566 | 213,172 | 18,073 | | Total revenues | 177,376 | 79,039 | 343,071 | 153,721 | | Total expenses | 89,060 | 85,047 | 175,429 | 176,362 | | NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | $ 81,955 | $ (3,768) | $ 163,648 | $ (19,548) | - Net income (loss) from continuing operations before income taxes improved by $85.7 million for the three months ended June 30, 2025, compared to the prior year[147] - This improvement was primarily driven by a $15.8 million increase in net origination gains and an $83.7 million increase in fair value changes from market inputs or model assumptions[147] Net interest income Net portfolio interest income decreased by $6.0 million for Q2 2025 compared to Q2 2024, primarily due to higher cost of funds within the securitized financing portfolio, partially offset by gains on debt extinguishment. Non-funding interest expense, net, increased by $6.0 million, leading to an overall decrease in net interest income Net Interest Income Components (in thousands) | | For the three months ended June 30, 2025 | For the three months ended June 30, 2024 | For the six months ended June 30, 2025 | For the six months ended June 30, 2024 | | :-------------------------------------------------------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------------------- | :------------------------------------- | | Interest income on mortgage loans | $ 478,321 | $ 474,251 | $ 955,923 | $ 934,285 | | Total portfolio interest income | 481,800 | 478,091 | 962,402 | 942,070 | | Interest expense on HMBS and nonrecourse obligations | (400,468) | (393,504) | (793,371) | (767,240) | | Total portfolio interest expense | (422,336) | (412,618) | (832,503) | (806,422) | | Net portfolio interest income | 59,464 | 65,473 | 129,899 | 135,648 | | Non-funding interest expense, net | (15,223) | (9,268) | (30,135) | (17,420) | | Net interest income | $ 44,241 | $ 56,205 | $ 99,764 | $ 118,228 | - Net portfolio interest income decreased by $6.0 million for the three months ended June 30, 2025, compared to the 2024 period, due to higher cost of funds[147] - Non-funding interest expense, net, increased by $6.0 million in Q2 2025, primarily due to discount amortization expense from senior notes exchange and increased cost of funds on working capital promissory notes[147] Our Segments The company's two reportable segments, Retirement Solutions and Portfolio Management, both showed improved profitability, with Retirement Solutions seeing a 32.2% revenue increase and Portfolio Management's revenues surging by 216% in Q2 2025 - The Retirement Solutions segment conducts all loan origination activity, generating revenue from fees and net origination gains[149] - The Portfolio Management segment provides product development, securitization, sales, risk management, and asset management, generating revenue from net interest income and fair value changes on portfolio assets[150][152] - Corporate and Other consists of corporate services groups, with enterprise-focused expenses kept unallocated[170] Retirement Solutions Segment The Retirement Solutions segment's total revenues increased by 32.2% to $62.3 million in Q2 2025, driven by a 39.2% increase in net origination gains due to higher reverse mortgage loan origination volumes ($602.3 million, up 34.9%) and improved margins (9.31%). Total expenses increased by 6.4% due to higher variable compensation and marketing, partially offset by cost-cutting in general and administrative expenses Retirement Solutions Segment Results (in thousands) | | For the three months ended June 30, 2025 | For the three months ended June 30, 2024 | For the six months ended June 30, 2025 | For the six months ended June 30, 2024 | | :-------------------------------------------------------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------------------- | :------------------------------------- | | Net origination gains | $ 56,058 | $ 40,260 | $ 102,096 | $ 79,917 | | Fee income | 6,289 | 6,894 | 11,972 | 12,946 | | Total revenues | 62,347 | 47,154 | 114,068 | 92,863 | | Total expenses | 51,974 | 48,835 | 100,436 | 98,245 | | NET INCOME (LOSS) BEFORE INCOME TAXES | $ 10,373 | $ (1,681) | $ 13,632 | $ (5,556) | - Reverse mortgage loan origination volume increased by 34.9% to $602.3 million for Q2 2025, compared to $446.6 million in Q2 2024[157] - Weighted average margin on reverse mortgage loan production increased to 9.31% in Q2 2025 from 9.02% in Q2 2024[157] Portfolio Management Segment The Portfolio Management segment's total revenues increased by $89.1 million (216%) to $130.4 million in Q2 2025, primarily due to an $83.7 million increase in fair value changes from market inputs or model assumptions. Net income before taxes for the segment was $108.1 million in Q2 2025, up from $21.5 million in Q2 2024. Total expenses increased by 12.7% due to higher securitization expenses, partially offset by reduced general and administrative costs Portfolio Management Segment Results (in thousands) | | For the three months ended June 30, 2025 | For the three months ended June 30, 2024 | For the six months ended June 30, 2025 | For the six months ended June 30, 2024 | | :-------------------------------------------------------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------------------- | :------------------------------------- | | Net portfolio interest income | $ 59,464 | $ 65,473 | $ 129,899 | $ 135,648 | | Net fair value changes on loans and related obligations | 70,338 | (25,522) | 128,126 | (58,842) | | Total revenues | 130,375 | 41,276 | 259,384 | 78,524 | | Total expenses | 22,271 | 19,762 | 46,002 | 42,515 | | NET INCOME BEFORE INCOME TAXES | $ 108,104 | $ 21,514 | $ 213,382 | $ 36,009 | - Fair value changes from market inputs or model assumptions increased by $83.7 million in Q2 2025, primarily due to lower market interest rates and yield volatility[168] - Loan portfolio related expenses increased by $3.6 million in Q2 2025 due to increased securitization expenses[167] Corporate and Other The Corporate and Other segment reported a net loss before income taxes of $36.5 million in Q2 2025, worsening from a loss of $23.6 million in Q2 2024. This was primarily due to a $6.0 million increase in non-funding interest expense, net, and a $8.6 million change in other, net, partially offset by a $1.6 million decrease in total expenses driven by cost-cutting initiatives Corporate and Other Results (in thousands) | | For the three months ended June 30, 2025 | For the three months ended June 30, 2024 | For the six months ended June 30, 2025 | For the six months ended June 30, 2024 | | :-------------------------------------------------------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------------------- | :------------------------------------- | | Non-funding interest expense, net | $ (15,223) | $ (9,268) | $ (30,135) | $ (17,420) | | Total revenues | (15,223) | (9,268) | (30,135) | (17,420) | | Total expenses | 14,938 | 16,573 | 29,237 | 35,848 | | Other, net | (6,361) | 2,240 | (3,994) | 3,867 | | NET LOSS BEFORE INCOME TAXES | $ (36,522) | $ (23,601) | $ (63,366) | $ (50,001) | - Non-funding interest expense, net, increased by $6.0 million in Q2 2025, primarily due to discount amortization from senior notes exchange and increased cost of funds on working capital promissory notes[174] - Total expenses decreased by $1.6 million (9.9%) in Q2 2025, mainly due to a $1.4 million decrease in general and administrative expenses from cost-cutting initiatives[174] Non-GAAP Financial Measures The company uses non-GAAP financial measures, including adjusted net income (loss), adjusted EBITDA, adjusted earnings (loss) per share, and tangible equity, to provide additional insight into its financial performance and capital strength, with definitions revised in Q3 2024 - Management uses non-GAAP measures like adjusted net income (loss), adjusted EBITDA, adjusted EPS, and tangible equity to evaluate performance and capital strength[177][178] - These non-GAAP measures exclude items such as fair value changes from market inputs, amortization of intangibles, equity-based compensation, and certain non-recurring costs[183][186] - The definitions of adjusted net income (loss), adjusted EBITDA, and adjusted EPS were revised in Q3 2024 to adjust for all equity-based compensation[181] Reconciliation to GAAP For Q2 2025, adjusted net income was $14.0 million, a significant improvement from $0.07 million in Q2 2024, with adjusted EBITDA at $30.3 million and adjusted earnings per share at $0.55, while tangible equity increased to $275.2 million Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss) and Adjusted EBITDA (in thousands) | | For the three months ended June 30, 2025 | For the three months ended June 30, 2024 | For the six months ended June 30, 2025 | For the six months ended June 30, 2024 | | :-------------------------------------------------------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------------------- | :------------------------------------- | | Net income (loss) from continuing operations | $ 79,823 | $ (4,921) | $ 159,573 | $ (20,701) | | Adjusted net income (loss) | 14,036 | 73 | 26,966 | (6,634) | | Adjusted EBITDA | $ 30,337 | $ 10,276 | $ 59,304 | $ 10,285 | | Adjusted earnings (loss) per share | $ 0.55 | $ — | $ 1.07 | $ (0.29) | | Tangible equity | $ 275,216 | $ 99,322 | $ 275,216 | $ 99,322 | - Adjusted net income for Q2 2025 was $14.0 million, a significant improvement from $0.07 million in Q2 2024[194] - Tangible equity increased by $175.9 million from December 31, 2024, to June 30, 2025, reaching $275.2 million[194] Liquidity and Capital Resources The company's liquidity is primarily sourced from loan sales/securitizations, payments on participating interests, and advances on financing facilities. Cash flows from operating activities improved by $47.7 million for the six months ended June 30, 2025. Total debt obligations were $29.5 billion as of June 30, 2025, including $18.6 billion in HMBS related obligations and $9.4 billion in nonrecourse debt. The company was in compliance with all financial covenants and Ginnie Mae requirements - Primary liquidity sources include payments from loan sales/securitizations, proceeds from participating interests, and advances on warehouse facilities and other borrowings[205] - Cash flows from operating activities improved by $47.7 million for the six months ended June 30, 2025, compared to the prior year[209] - Total debt obligations were $29.5 billion as of June 30, 2025, comprising $18.6 billion in HMBS related obligations and $9.4 billion in nonrecourse debt[217][220][222] Summary of Certain Indebtedness As of June 30, 2025, the company had $18.6 billion in HMBS related obligations and $9.4 billion in nonrecourse debt, both carried at fair value. Other financing lines of credit totaled $1.08 billion, including $572.5 million in reverse mortgage warehouse facilities and $504.0 million in other secured lines. Notes payable, net, were $383.9 million, including Senior Secured Notes and Exchangeable Secured Notes - HMBS related obligations were $18.6 billion, with HECM loans pledged as collateral of $18.9 billion, both at fair value, as of June 30, 2025[220] - Nonrecourse debt-related borrowings were $9.4 billion, with loans pledged as collateral of $10.0 billion, both at fair value, as of June 30, 2025[222] Contractual Obligations as of June 30, 2025 (in thousands) | | Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years | | :-------------------------- | :---------- | :--------------- | :---------- | :---------- | :---------------- | | Nonrecourse debt | $ 9,738,998 | $ 3,216,018 | $ 4,194,520 | $ 1,100,446 | $ 1,228,014 | | Warehouse lines of credit | 572,470 | 261,184 | 311,286 | — | — | | Other secured lines of credit | 503,964 | 25,996 | 77,460 | — | 400,508 | | Notes payable | 434,955 | 137,408 | 150,754 | 146,793 | — | | Operating leases | 34,718 | 5,381 | 9,401 | 6,753 | 13,183 | | Total | $ 11,285,105 | $ 3,645,987 | $ 4,743,421 | $ 1,253,992 | $ 1,641,705 | Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, primarily interest rate risk, and provides a sensitivity analysis of its financial instruments to hypothetical changes in interest rates Interest Rate Risk The company's primary market risk is interest rate risk, affecting both its Retirement Solutions and Portfolio Management segments, where an increase in rates could negatively impact loan origination, increase costs, and reduce asset fair value, while a decrease may increase prepayment speeds - The principal market risk is interest rate risk, primarily from changes in long-term U.S. Treasury rates and mortgage interest rates[249] - An increase in interest rates could adversely affect loan origination volume, increase delinquency/default rates, raise servicing costs and interest expense, and reduce the fair value of long-term assets[250][256] - A decrease in interest rates may increase prepayment speeds of long-term assets, potentially leading to a reduction in their fair value[256] Sensitivity Analysis A sensitivity analysis indicates that a hypothetical 25 basis point decrease in interest rates would increase the fair value of total assets by $177.16 million and total liabilities by $89.41 million. Conversely, a 25 basis point increase would decrease total assets by $173.71 million and total liabilities by $88.33 million. These analyses are hypothetical and have limitations, as changes in one factor may affect others non-linearly - The company uses sensitivity analysis to assess market risk from hypothetical changes in interest rates, estimating fair value of mortgage loans and related liabilities using a DCF model[252][253] Estimated Change in Fair Value (in thousands) as of June 30, 2025 | | Down 25 bps | Up 25 bps | | :-------------------------------------------------------------------------------- | :---------- | :-------- | | Increase (decrease) in assets: | | | | Loans held for investment, subject to HMBS related obligations | $ 30,375 | $ (30,494) | | Loans held for investment, subject to nonrecourse debt | 141,113 | (137,641) | | Loans held for investment | 5,676 | (5,571) | | Total assets | $ 177,164 | $ (173,706) | | Increase (decrease) in liabilities: | | | | HMBS related obligations | $ 26,109 | $ (26,074) | | Nonrecourse debt | 63,304 | (62,258) | | Total liabilities | $ 89,413 | $ (88,332) | - The sensitivity analysis has limitations, as the relationship between assumption changes and fair value may not be linear, and changes in one factor can impact others[255] Item 4. Controls and Procedures This section addresses the effectiveness of the company's disclosure controls and internal control over financial reporting, including the identification and remediation plan for a material weakness Evaluation of Disclosure Controls and Procedures As of June 30, 2025, the company's disclosure controls and procedures were deemed not effective due to a material weakness in internal control over financial reporting. Disclosure controls are designed to ensure timely and accurate reporting but cannot prevent all errors or fraud - As of June 30, 2025, the company's disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting[260] - Disclosure controls and procedures, no matter how well conceived, can only provide reasonable, not absolute, assurance that objectives are met[259] Material Weakness in Internal Control Over Financial Reporting A material weakness in internal control over financial reporting continued to exist as of June 30, 2025. This weakness stems from errors identified in May 2025 regarding the classification and presentation of nonrecourse securitization transactions in the Consolidated Statements of Cash Flows. Despite this, management believes the interim financial statements are fairly presented in conformity with GAAP - A material weakness in internal control over financial reporting existed as of December 31, 2024, and continued as of June 30, 2025[262][263] - The material weakness was due to errors in the classification and presentation of nonrecourse securitization transactions in the Consolidated Statements of Cash Flows[262][263] - Notwithstanding the material weakness, management believes the interim unaudited condensed consolidated financial statements are fairly presented in conformity with GAAP[264] Plan of Remediation of Material Weakness in Internal Control Over Financial Reporting The company is actively remediating the material weakness by enhancing control documentation for cash flow statement presentation related to nonrecourse debt securitization and providing additional training to accounting and financial reporting personnel. Management believes substantial progress has been made, but a period of sustained operating effectiveness is needed to demonstrate full remediation - The remediation plan includes enhancing control documentation for cash flow statement presentation related to nonrecourse debt securitization transactions[265] - Additional training for accounting and financial reporting personnel on ASC 230, Cash Flows, is part of the remediation efforts[265] - Management believes substantial progress has been made, but a period of continued operating effectiveness is required to demonstrate remediation[265] Changes in Internal Control Over Financial Reporting Other than the ongoing remediation efforts for the identified material weakness, there have been no other changes in the company's internal control over financial reporting during the quarter ended June 30, 2025, that have materially affected or are reasonably likely to materially affect it - No other changes in internal control over financial reporting materially affected or are reasonably likely to materially affect the company's controls during Q2 2025, apart from the remediation efforts[266] Part II - Other Information This section covers additional disclosures not included in the financial statements, such as legal proceedings, risk factors, equity sales,