Finance of America panies (FOA) - 2023 Q1 - Quarterly Report

FORM 10-Q Filing Information This section provides essential details regarding the company's quarterly report filing, including registrant identification and filing status Registrant Information Finance of America Companies Inc. (FOA) filed its Quarterly Report on Form 10-Q for the period ended March 31, 2023. The company is incorporated in Delaware, with its Class A Common Stock and Warrants traded on the New York Stock Exchange. It is classified as an accelerated filer and a smaller reporting company - Registrant: FINANCE OF AMERICA COMPANIES INC.[2] - Filing Type: Quarterly Report on Form 10-Q for the period ended March 31, 2023[2] Class of Securities | Class of Securities | Trading Symbol | Exchange | | :------------------ | :------------- | :------- | | Class A Common Stock | FOA | NYSE | | Warrants | FOA.WS | NYSE | Filer Status | Filer Status | Status | | :-------------------- | :----- | | Large accelerated filer | ☐ | | Accelerated filer | ☒ | | Non-accelerated filer | ☐ | | Smaller reporting company | ☒ | Forward-Looking Statements This section cautions readers that statements about future events are subject to significant uncertainties and risks, which may cause actual results to differ materially Disclaimer and Risk Factors This section contains forward-looking statements, which are not guarantees of future performance and are subject to inherent uncertainties. Actual results may differ materially due to various factors, including the company's business transformation, capital and liquidity needs, recent acquisitions and divestitures, market conditions (e.g., interest rates, banking instability), and regulatory compliance. Readers are cautioned not to place undue reliance on these statements and are directed to the 'Risk Factors' section for more details - Forward-looking statements are not historical facts but represent management's beliefs about future events, many of which are uncertain and outside the Company's control[9] - Transformation of business to a modern retirement solutions platform[10] - Ability to obtain sufficient capital and liquidity and comply with debt agreements[10] - Integration of American Advisors Group and sale of Commercial Originations business[11] - Impact of economic factors like higher interest rates and banking sector instability[11] - Ability to manage legal proceedings, compliance, and cyber risks[12] PART I - Financial Information This section presents the company's unaudited condensed consolidated financial statements, along with management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements of Finance of America Companies Inc. and its subsidiaries for the three months ended March 31, 2023 and 2022, along with the condensed consolidated statement of financial condition as of December 31, 2022. It includes the balance sheets, income statements, statements of comprehensive income, statements of equity, and cash flow statements, accompanied by detailed notes explaining significant accounting policies, acquisitions, discontinued operations, fair value measurements, and other financial details Condensed Consolidated Statements of Financial Condition This section details the company's assets, liabilities, and equity at specific balance sheet dates Condensed Consolidated Statements of Financial Condition (In thousands) | ASSETS | March 31, 2023 (unaudited) | December 31, 2022 | | :------------------------------------------------------------------ | :------------------------- | :---------------- | | Cash and cash equivalents | $69,313 | $61,149 | | Restricted cash | 228,302 | 179,764 | | Loans held for investment, subject to HMBS related obligations, at fair value | 16,623,561 | 11,114,100 | | Loans held for investment, subject to nonrecourse debt, at fair value | 8,374,827 | 7,454,638 | | Loans held for investment, at fair value | 736,968 | 907,998 | | Loans held for sale, at fair value | 77,494 | 173,984 | | Mortgage servicing rights ("MSR"), at fair value | 13,713 | 95,096 | | Fixed assets and leasehold improvements, net | 10,610 | 9,131 | | Intangible assets, net | 287,822 | 297,119 | | Other assets, net | 251,929 | 266,316 | | Assets of discontinued operations | 151,450 | 313,360 | | TOTAL ASSETS | $26,825,989 | $20,872,655 | | LIABILITIES AND EQUITY | | | | HMBS related obligations, at fair value | $16,407,629 | $10,996,755 | | Nonrecourse debt, at fair value | 8,032,552 | 7,343,177 | | Other financing lines of credit | 1,113,367 | 1,327,634 | | Payables and other liabilities | 306,717 | 173,732 | | Notes payable, net | 408,990 | 399,402 | | Liabilities of discontinued operations | 66,302 | 227,114 | | TOTAL LIABILITIES | 26,335,557 | 20,467,814 | | TOTAL EQUITY | 490,432 | 404,841 | | TOTAL LIABILITIES AND EQUITY | $26,825,989 | $20,872,655 | - Total Assets increased by $5.95 billion (28.6%) from December 31, 2022, to March 31, 2023, primarily driven by a significant increase in 'Loans held for investment, subject to HMBS related obligations, at fair value'[17] - Total Liabilities increased by $5.87 billion (28.7%) over the same period, largely due to an increase in 'HMBS related obligations, at fair value'[17] Condensed Consolidated Statements of Operations This section presents the company's revenues, expenses, and net income (loss) for the reporting periods Condensed Consolidated Statements of Operations (In thousands, except share data) | REVENUES | For the three months ended March 31, 2023 | For the three months ended March 31, 2022 | | :---------------------------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Gain (loss) on sale and other income from loans held for sale, net | $(12,426) | $6,221 | | Net fair value gains on loans and related obligations | 176,394 | 6,960 | | Fee income | 6,352 | 55,173 | | Net interest expense | (29,465) | (22,296) | | TOTAL REVENUES | 140,855 | 46,058 | | EXPENSES | | | | Salaries, benefits, and related expenses | 40,814 | 59,099 | | Occupancy, equipment rentals, and other office related expenses | 1,909 | 2,189 | | General and administrative expenses | 41,054 | 46,115 | | TOTAL EXPENSES | 83,777 | 107,403 | | NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | 58,014 | (58,361) | | NET INCOME (LOSS) | 14,592 | (63,995) | | NET INCOME (LOSS) ATTRIBUTABLE TO CONTROLLING INTEREST | $3,054 | $(8,493) | | Basic net income (loss) per share | $0.05 | $(0.14) | | Diluted net income (loss) per share | $0.07 | $(0.30) | - Total Revenues increased significantly to $140.86 million in Q1 2023 from $46.06 million in Q1 2022, primarily driven by a substantial increase in 'Net fair value gains on loans and related obligations'[21] - The company reported a Net Income of $14.59 million in Q1 2023, a significant improvement from a Net Loss of $(63.99) million in Q1 2022[21] Condensed Consolidated Statements of Comprehensive Income (Loss) This section details the components of comprehensive income, including net income and other comprehensive income items Condensed Consolidated Statements of Comprehensive Income (Loss) (In thousands) | | For the three months ended March 31, 2023 | For the three months ended March 31, 2022 | | :------------------------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | NET INCOME (LOSS) | $14,592 | $(63,995) | | COMPREHENSIVE INCOME ITEM: | | | | Impact of foreign currency translation adjustment | 64 | 11 | | TOTAL COMPREHENSIVE INCOME (LOSS) | 14,656 | (63,984) | | Less: Comprehensive income (loss) attributable to noncontrolling interest | 11,580 | (55,495) | | COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CONTROLLING INTEREST | $3,076 | $(8,489) | - Total Comprehensive Income (Loss) improved significantly from a loss of $(63.98) million in Q1 2022 to an income of $14.66 million in Q1 2023[22] Condensed Consolidated Statements of Equity This section outlines changes in the company's equity, including net income, share issuances, and other equity adjustments - Total Equity increased from $404.84 million at December 31, 2022, to $490.43 million at March 31, 2023[24] - Key changes include a net income of $3.05 million, equity-based compensation of $8.11 million, and issuance of shares totaling $30.00 million[24] Condensed Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (In thousands) | Activity | For the three months ended March 31, 2023 | For the three months ended March 31, 2022 | | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Net cash provided by operating activities | $221,818 | $323,741 | | Net cash used in investing activities | $(226,757) | $(600,105) | | Net cash provided by financing activities | $59,193 | $355,538 | | Net increase in cash and restricted cash | $54,318 | $79,185 | - Net cash provided by operating activities decreased by $101.92 million YoY, from $323.74 million in Q1 2022 to $221.82 million in Q1 2023[26] - Net cash used in investing activities significantly decreased by $373.35 million YoY, from $(600.11) million in Q1 2022 to $(226.76) million in Q1 2023[26] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the condensed consolidated financial statements, covering accounting policies, acquisitions, and other financial specifics 1. Organization and Description of Business Finance of America Companies Inc. (FoA) is a financial services holding company focused on modern retirement solutions, including reverse mortgages and home improvement loans. The company has undergone significant restructuring, discontinuing its Mortgage Originations (excluding Home Improvement), Commercial Originations, and most Lender Services segments to streamline operations into a retirement solutions platform. Key events include the acquisition of American Advisors Group (AAG) and the planned sale of certain Incenter subsidiaries - FoA is transforming into a modern retirement solutions platform, offering reverse mortgages and home improvement loans[29][36] - Discontinued Mortgage Originations segment (excluding Home Improvement) completed on February 28, 2023[32] - Acquired assets and liabilities of American Advisors Group (AAG/Bloom) on March 31, 2023, integrating into Retirement Solutions segment[33] - Agreement to sell Agents National Title Holding Company (ANTIC) and Boston National Holdings LLC (BNT) by July 2023[34] - Sold certain operational assets of Finance of America Commercial LLC (FACo) on March 14, 2023[35] 2. Summary of Significant Accounting Policies This note outlines the basis of presentation for the unaudited condensed consolidated financial statements, prepared in accordance with GAAP and SEC regulations. It highlights the use of estimates, the company's liquidity and going concern considerations, and its accounting policies for asset acquisitions and discontinued operations. The company has adopted ASU 2021-08 for business combinations and is monitoring other issued accounting guidance - The financial statements are prepared in accordance with U.S. GAAP for interim periods and SEC rules, with all normal recurring adjustments included[37] - The Company incurred significant net losses in 2022 and faced covenant violations on warehouse lending facilities, but has obtained waivers or paid off lines of credit[40] - Management believes its plans, including the sale of BNT and ANTIC for $100.00 million and renewal of credit lines, will provide sufficient liquidity for at least the next twelve months[43][44] - Acquisitions are evaluated as either business combinations or asset acquisitions, with the AAG Transaction accounted for as an asset acquisition[45][46] 3. Acquisitions On March 31, 2023, the Company completed the acquisition of assets and liabilities from American Advisors Group (AAG/Bloom) for a total purchase consideration of $215.4 million. This was accounted for as an asset acquisition, with the cost allocated to acquired assets and assumed liabilities based on fair value, resulting in no goodwill recognition - Acquisition of AAG/Bloom assets and liabilities completed on March 31, 2023, for $215.37 million[53] - The transaction was accounted for as an asset acquisition, not a business combination, meaning no goodwill was recognized[54][55] AAG Acquisition Consideration and Net Assets (In thousands) | Item | Amount ($) | | :------------------------------------------ | :--------- | | Consideration transferred: | | | Cash consideration | 3,100 | | Pay off indebtedness | 136,984 | | Initial equity consideration – Class A LLC Units | 24,419 | | Deferred equity consideration – Class A LLC Units | 13,137 | | Forgiveness of bridge working capital notes payable | 24,034 | | Other | 13,699 | | Total cost | 215,373| | Assets acquired: | | | Loans held for investment, subject to HMBS related obligations | 5,448,712 | | Loans held for investment | 138,270 | | Fixed assets and leasehold improvements | 2,400 | | Lease asset | 491 | | Other assets | 6,270 | | Total assets acquired | 5,596,143| | Liabilities assumed: | | | HMBS related obligations | 5,354,372 | | Lease liabilities | 492 | | Payables and other liabilities | 25,906 | | Total liabilities assumed | 5,380,770| | Net identifiable assets acquired | $215,373| 4. Discontinued Operations The Company has reclassified its Mortgage Originations (excluding Home Improvement), Commercial Originations, and most Lender Services segments as discontinued operations due to a strategic shift towards a modern retirement solutions platform. This reclassification impacts all periods presented. The Mortgage Originations segment wind-down was completed in February 2023, the Commercial Originations segment was sold in March 2023, and the Lender Services segment is in the process of being sold - Mortgage Originations, Commercial Originations, and Lender Services segments (with exceptions) are reported as discontinued operations[58] - Mortgage Originations segment wind-down completed on February 28, 2023[59] - Commercial Originations segment assets sold on March 14, 2023[60] - Lender Services segment (ANTIC and BNT) expected to close sale in July 2023, with remaining assets also planned for sale[61][62] Net Loss from Discontinued Operations (In thousands) | Item | For the three months ended March 31, 2023 | For the three months ended March 31, 2022 | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Total revenues | $33,029 | $221,376 | | Total expenses | 60,356 | 242,133 | | Impairment of other assets | (1,055) | — | | Other, net | (9,089) | 1,788 | | Net loss from discontinued operations before income taxes | $(37,471) | $(18,969) | | Provision (benefit) for income taxes | 3,419 | (5,613) | | Net loss from discontinued operations | $(40,890) | $(13,356) | 5. Variable Interest Entities and Securitizations The Company consolidates certain Variable Interest Entities (VIEs) related to its securitization activities, primarily through Finance of America Reverse (FAR) and Finance of America Mortgage (FAM), where it acts as the primary beneficiary. It also has unconsolidated VIEs where its beneficial interest is limited, and the transfer of loans is treated as a sale. For some unconsolidated VIEs, such as Cavatica Asset Participation Trust (CAPT), the transfer of loans is not considered a sale, and the Company continues to recognize and consolidate the loans and related nonrecourse liability - The Company consolidates VIEs where it has both the power to direct activities and the obligation to absorb losses or right to receive significant benefits[65][68] - For unconsolidated VIEs like Hundred Acre Wood Trust, the Company's beneficial interest is limited, and the transfer of loans is treated as a sale[71] - For CAPT and other non-agency securitizations, the Company does not consolidate the VIEs but continues to recognize and consolidate the loans and related nonrecourse liability as the transfer was not a sale[75] 6. Fair Value This note details the Company's fair value measurements, categorizing assets and liabilities into a three-level hierarchy based on input observability. Most financial instruments are measured at fair value on a recurring basis, primarily using Level 3 inputs due to the use of unobservable inputs in valuation models. The Company's net fair value gains on loans and related obligations significantly increased to $176.39 million in Q1 2023 from $6.96 million in Q1 2022, driven by changes in fair value of loans and related obligations - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[78][79] - The majority of the Company's assets and liabilities measured at fair value, including various loan categories and HMBS obligations, are classified as Level 3[87] Net Fair Value Gains on Loans and Related Obligations (In thousands) | Component | For the three months ended March 31, 2023 | For the three months ended March 31, 2022 | | :-------------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Interest income on reverse and commercial loans | $301,046 | $163,694 | | Change in fair value of loans | 266,821 | (510,802) | | Net fair value gains (losses) on loans | 567,867 | (347,108) | | Interest expense on HMBS and nonrecourse obligations | (203,050) | (106,643) | | Change in fair value of derivatives | (4,589) | 165,579 | | Change in fair value of related obligations | (183,834) | 295,132 | | Net fair value gains (losses) on related obligations | (391,473) | 354,068 | | Net fair value gains on loans and related obligations | $176,394 | $6,960 | 7. Reverse Mortgage Portfolio Composition The Company's total serviced reverse mortgage loan portfolio significantly increased to $24.81 billion as of March 31, 2023, from $18.84 billion at December 31, 2022. This growth was primarily driven by an increase in reverse mortgage loans held for investment subject to HMBS related obligations and nonrecourse debt. The portfolio is predominantly composed of adjustable rate loans Total Serviced Reverse Mortgage Loan Portfolio (In thousands) | Category | March 31, 2023 | December 31, 2022 | | :---------------------------------------------------------- | :------------- | :---------------- | | Reverse mortgage loans held for investment, subject to HMBS related obligations | $15,850,053 | $10,719,000 | | Total reverse mortgage loans held for investment | 685,924 | 724,800 | | Total reverse mortgage loans held for investment, subject to nonrecourse debt | 7,974,381 | 7,240,125 | | Total owned reverse mortgage portfolio | 24,510,358 | 18,683,925 | | Loans reclassified as government guaranteed receivable | 92,905 | 76,033 | | Loans serviced for others | 209,243 | 81,436 | | Total serviced reverse mortgage loan portfolio | $24,812,506| $18,841,394 | - The total serviced reverse mortgage loan portfolio increased by $5.97 billion (31.7%) from December 31, 2022, to March 31, 2023[97] Reverse Mortgage Portfolio by Product Type (In thousands) | Product Type | March 31, 2023 | December 31, 2022 | | :---------------- | :------------- | :---------------- | | Fixed rate loans | $6,776,128 | $6,548,902 | | Adjustable rate loans | 17,734,230 | 12,135,023 | | Total owned reverse mortgage portfolio | $24,510,358| $18,683,925 | 8. Loans Held for Investment, Subject to HMBS Related Obligations, at Fair Value Loans held for investment, subject to HMBS related obligations, at fair value, increased significantly to $16.62 billion as of March 31, 2023, from $11.11 billion at December 31, 2022. This increase reflects both higher unpaid principal balance (UPB) and fair value adjustments Loans Held for Investment, Subject to HMBS Related Obligations (In thousands) | Item | March 31, 2023 | December 31, 2022 | | :---------------------------------------------------------------- | :------------- | :---------------- | | Loans held for investment, subject to HMBS related obligations - UPB | $15,850,053 | $10,719,000 | | Fair value adjustments | 773,508 | 395,100 | | Total loans held for investment, subject to HMBS related obligations, at fair value | $16,623,561| $11,114,100 | - Total loans held for investment, subject to HMBS related obligations, at fair value, increased by $5.51 billion (49.6%) from December 31, 2022, to March 31, 2023[99] 9. Loans Held for Investment, Subject to Nonrecourse Debt, at Fair Value Loans held for investment, subject to nonrecourse debt, at fair value, increased to $8.37 billion as of March 31, 2023, from $7.45 billion at December 31, 2022. This category includes reverse mortgage loans and commercial mortgage loans, with a notable portion of commercial mortgage loans being 90 days or more past due Loans Held for Investment, Subject to Nonrecourse Debt (In thousands) | Item | March 31, 2023 | December 31, 2022 | | :---------------------------------------------------------------- | :------------- | :---------------- | | Reverse mortgage loans UPB | $7,974,381 | $7,240,125 | | Commercial mortgage loans UPB | 373,052 | 405,970 | | Fair value adjustments | 27,394 | (191,457) | | Total loans held for investment, subject to nonrecourse debt, at fair value | $8,374,827 | $7,454,638 | - Total loans held for investment, subject to nonrecourse debt, at fair value, increased by $920.19 million (12.3%) from December 31, 2022, to March 31, 2023[100] - Commercial mortgage loans 90 days or more past due and on non-accrual status had a fair value of $23.16 million as of March 31, 2023[100] 10. Loans Held for Investment, at Fair Value Loans held for investment, at fair value, decreased to $736.97 million as of March 31, 2023, from $908.00 million at December 31, 2022. This decline was primarily due to a significant reduction in commercial mortgage loans held for investment Loans Held for Investment, at Fair Value (In thousands) | Item | March 31, 2023 | December 31, 2022 | | :---------------------------------- | :------------- | :---------------- | | Reverse mortgage loans UPB | $685,924 | $724,800 | | Commercial mortgage loans UPB | 12,946 | 143,373 | | Fair value adjustments | 38,098 | 39,825 | | Total loans held for investment, at fair value | $736,968 | $907,998 | - Total loans held for investment, at fair value, decreased by $171.03 million (18.8%) from December 31, 2022, to March 31, 2023[101] - Commercial loans greater than 90 days past due were $2.30 million as of March 31, 2023[101] 11. Loans Held for Sale, at Fair Value Loans held for sale, at fair value, decreased to $77.49 million as of March 31, 2023, from $173.98 million at December 31, 2022. This reduction was primarily driven by a significant decrease in commercial mortgage loans held for sale, partially offset by an increase in residential mortgage and home improvement loans Loans Held for Sale, at Fair Value (In thousands) | Item | March 31, 2023 | December 31, 2022 | | :------------------------------------------ | :------------- | :---------------- | | Residential mortgage and home improvement loans UPB | $67,794 | $15,529 | | Commercial mortgage loans UPB | 19,747 | 173,112 | | Fair value adjustments | (10,047) | (14,657) | | Total loans held for sale, at fair value| $77,494 | $173,984 | - Total loans held for sale, at fair value, decreased by $96.49 million (55.5%) from December 31, 2022, to March 31, 2023[104] - Net transfers from discontinued operations contributed $12.53 million to loans held for sale in Q1 2023[105] 12. Mortgage Servicing Rights, at Fair Value The Mortgage Servicing Rights (MSR) portfolio, at fair value, significantly decreased to $13.71 million as of March 31, 2023, from $95.10 million at December 31, 2022. This substantial decline was primarily due to sales of MSRs totaling $80.42 million during the three months ended March 31, 2023 Mortgage Servicing Rights (MSR) Portfolio (In thousands) | Item | March 31, 2023 | December 31, 2022 | | :---------------------------------- | :------------- | :---------------- | | Fannie Mae/Freddie Mac UPB | $166,471 | $7,051,851 | | Ginnie Mae UPB | 527,286 | 532,328 | | Private investors UPB | 1,008,263 | 1,018,159 | | Total UPB | $1,702,020 | $8,602,338 | | Weighted average interest rate | 3.53 % | 3.59 % | Activity in MSR Asset (In thousands) | Item | For the three months ended March 31, 2023 | For the three months ended March 31, 2022 | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Beginning balance | $95,096 | $427,942 | | Originations | 405 | 53,444 | | Sales | (80,419) | (107,652) | | Changes in fair value due to market inputs or assumptions | (359) | 63,890 | | Changes in fair value due to portfolio runoff and other | (1,010) | (11,522) | | Ending balance | $13,713 | $426,102 | - The MSR asset decreased by $81.38 million (85.6%) from December 31, 2022, to March 31, 2023[107] 13. Intangible Assets, Net Intangible assets, net, related to continuing operations decreased slightly to $287.82 million as of March 31, 2023, from $297.12 million at December 31, 2022. The majority of these assets consist of amortizing broker/customer relationships, with a trade name as a non-amortizing intangible Intangible Assets, Net (In thousands) | Item | March 31, 2023 | December 31, 2022 | | :---------------------------------- | :------------- | :---------------- | | Trade name | $27,500 | $27,500 | | Broker/customer relationships, net | 260,322 | 269,619 | | Total intangibles, net | $287,822 | $297,119 | - Amortization expense was $9.30 million for both the three months ended March 31, 2023, and 2022[108] - Estimated future amortization expense for the remainder of 2023 is $27.89 million, with $37.19 million annually from 2024 to 2027[109] 14. Other Assets, Net Other assets, net, related to continuing operations decreased to $251.93 million as of March 31, 2023, from $266.32 million at December 31, 2022. Notable changes include an increase in government guaranteed receivables and prepaid expenses, offset by a decrease in receivables, net, and other assets Other Assets, Net (In thousands) | Item | March 31, 2023 | December 31, 2022 | | :------------------------------------------ | :------------- | :---------------- | | Government guaranteed receivables | $82,980 | $66,947 | | Retained bonds, at fair value | 47,048 | 46,437 | | Receivables, net | 28,612 | 53,008 | | Right-of-use assets | 27,933 | 27,933 | | Prepaid expenses | 16,788 | 10,522 | | Loans subject to repurchase from Ginnie Mae | 16,378 | 15,631 | | Servicer advances, net | 5,894 | 7,230 | | Deposits | 1,396 | 1,191 | | Margin deposits | 540 | 4,318 | | Other | 24,360 | 33,099 | | Total other assets, net | $251,929 | $266,316 | - Receivables, net, decreased by $24.39 million, partly due to the forgiveness of a $20.00 million note receivable with AAG/Bloom as part of the acquisition[110] 15. HMBS Related Obligations, at Fair Value HMBS related obligations, at fair value, increased substantially to $16.41 billion as of March 31, 2023, from $11.00 billion at December 31, 2022. This reflects a significant increase in Ginnie Mae loan pools and associated fair value adjustments, with a weighted average remaining life of 4.4 years and an interest rate of 5.7% HMBS Related Obligations, at Fair Value (In thousands) | Item | March 31, 2023 | December 31, 2022 | | :------------------------------------------ | :------------- | :---------------- | | Ginnie Mae loan pools - UPB | $15,850,053 | $10,719,000 | | Fair value adjustments | 557,576 | 277,755 | | Total HMBS related obligations, at fair value | $16,407,629| $10,996,755 | | Weighted average remaining life (in years) | 4.4 | 4.0 | | Weighted average interest rate | 5.7 % | 5.0 % | - Total HMBS related obligations, at fair value, increased by $5.41 billion (49.2%) from December 31, 2022, to March 31, 2023[111] - The Company was servicing 2,229 Ginnie Mae loan pools at March 31, 2023, up from 2,004 at December 31, 2022[112] 16. Nonrecourse Debt, at Fair Value Nonrecourse debt, at fair value, increased to $8.03 billion as of March 31, 2023, from $7.34 billion at December 31, 2022. This includes securitizations of performing/nonperforming HECM loans, non-agency reverse loans, and Fix & Flip loans, with a significant portion maturing in 2023 and 2024 Nonrecourse Debt, at Fair Value (In thousands) | Item | March 31, 2023 | December 31, 2022 | | :------------------------------------------ | :------------- | :---------------- | | Total consolidated VIE nonrecourse debt UPB | $8,139,139 | $7,819,992 | | Nonrecourse MSR financing liability, at fair value | 988 | 60,562 | | Nonrecourse reverse loan financing liability | 321,708 | — | | Nonrecourse commercial loan financing liability | 74,604 | 105,291 | | Fair value adjustments | (503,887) | (642,668) | | Total nonrecourse debt, at fair value | $8,032,552 | $7,343,177 | - Total nonrecourse debt, at fair value, increased by $689.38 million (9.4%) from December 31, 2022, to March 31, 2023[113] Estimated Maturities for Nonrecourse Debt (In thousands) | Year Ending December 31, | Estimated Maturities | | :----------------------- | :------------------- | | 2023 | $1,717,377 | | 2024 | 2,814,270 | | 2025 | 1,026,598 | | 2026 | 590,687 | | 2027 | 2,386,519 | | Thereafter | — | | Nonrecourse MSR financing liability | 988 | | Total payments on nonrecourse debt | $8,536,439 | 17. Other Financing Lines of Credit Other financing lines of credit decreased to $1.11 billion as of March 31, 2023, from $1.33 billion at December 31, 2022. The Company maintains various mortgage, reverse, and commercial lines of credit, with a weighted average outstanding interest rate of 7.25% at March 31, 2023. The Company was in compliance with or obtained waivers/amendments for its financial covenants Other Financing Lines of Credit (In thousands) | Category | Total Capacity (March 31, 2023) | Outstanding borrowings at March 31, 2023 | Outstanding borrowings at December 31, 2022 | | :------------------------ | :------------------------------ | :--------------------------------------- | :------------------------------------------ | | Subtotal mortgage lines of credit | $138,274 | $82,204 | $139,225 | | Subtotal reverse lines of credit | 1,942,840 | 994,798 | 983,410 | | Subtotal commercial lines of credit | 112,500 | 36,365 | 204,999 | | Total other financing lines of credit | $2,193,614 | $1,113,367 | $1,327,634 | - The weighted average outstanding interest rate on financing lines of credit was 7.25% at March 31, 2023, down from 7.35% at December 31, 2022[115] - The Company was in compliance with its financial covenants related to liquidity reserves, debt service coverage ratio, and tangible net worth, and obtained waivers/amendments for profitability covenants[117] 18. Payables and Other Liabilities Payables and other liabilities related to continuing operations increased significantly to $306.72 million as of March 31, 2023, from $173.73 million at December 31, 2022. This increase was primarily driven by higher accrued liabilities and deferred purchase price liabilities, including $17.3 million related to the AAG Transaction Payables and Other Liabilities (In thousands) | Item | March 31, 2023 | December 31, 2022 | | :------------------------------------------ | :------------- | :---------------- | | Accrued liabilities | $129,360 | $54,664 | | GNMA reverse mortgage buyout payable | 59,846 | 41,768 | | Lease liabilities | 35,029 | 34,391 | | Accrued compensation expense | 25,060 | 19,333 | | Deferred purchase price liabilities | 19,653 | 3,918 | | Liability for loans eligible for repurchase from GNMA | 16,378 | 15,631 | | Repurchase reserves | 11,492 | 158 | | Deferred tax liability, net | 8,318 | 2,367 | | Warrant liability | 1,581 | 1,117 | | Derivative liabilities | — | 385 | | Total payables and other liabilities | $306,717 | $173,732 | - Total payables and other liabilities increased by $132.99 million (76.5%) from December 31, 2022, to March 31, 2023[121] - Deferred purchase price liabilities increased by $15.74 million, including $17.30 million related to the AAG Transaction[121] 19. Litigation The Company is subject to various legal proceedings, examinations, and investigations. As of March 31, 2023, there were no matters deemed probable or reasonably estimable for which losses could be quantified. However, the Company is a defendant in three representative lawsuits under the California Private Attorneys General Act (PAGA), with outcomes currently unpredictable - No matters were considered probable or reasonably estimable for loss quantification as of March 31, 2023[124] - The Company is defending against three PAGA lawsuits in California, with outcomes difficult to predict[125] - Legal expenses were $0.90 million for both the three months ended March 31, 2023, and 2022[126] 20. Commitments and Contingencies The Company has commitments related to servicing mortgage loans, including obligations for reverse mortgages where defaults can lead to foreclosures. Unfunded commitments for borrower advances on various loan types totaled approximately $4.7 billion for reverse mortgages and $74.3 million for fix & flip loans as of March 31, 2023. The Company also has mandatory repurchase obligations for HECM loans from Ginnie Mae securitization pools under certain conditions - The Company outsources servicing functions but retains responsibility for HECM loans and HMBS beneficial interests[128] Unfunded Commitments (In millions) | Loan Type | March 31, 2023 | December 31, 2022 | | :------------------ | :------------- | :---------------- | | Reverse mortgage loans | $4,700 | $3,100 | | Fix & flip loans | 74.3 | 128.9 | | Agricultural loans | 6.4 | 26.7 | - The Company is required to repurchase reverse loans from Ginnie Mae securitization pools when the outstanding principal balance reaches 98% of the maximum claim amount[134] 21. Income Taxes The Company's effective tax rate on continuing operations is influenced by state statutory rates, noncontrolling interest allocations, discrete tax items, and changes in valuation allowance. As a corporation, FoA is subject to federal, state, and local taxes on income allocated from FoA Equity and its corporate subsidiaries. A valuation allowance was established in Q3 2022 due to reduced demand for traditional mortgage products and compressed margins, indicating that deferred tax assets may not be fully realized - Effective tax rate is impacted by state rates, noncontrolling interest, discrete items, and valuation allowance[137][138] - FoA is taxed as a corporation, while FoA Equity is treated as a partnership for most tax purposes, with members liable for their share of taxable income[139] - A valuation allowance was established in Q3 2022 against deferred tax assets, as it was deemed not more likely than not that the Company would generate sufficient taxable income to utilize current attributes[142] 22. Business Segment Reporting The Company restructured its reporting segments in Q1 2023 to align with its new business strategy, now comprising Retirement Solutions, Portfolio Management, and Corporate and Other. Prior period disclosures have been restated to reflect this new structure. The Retirement Solutions segment focuses on reverse mortgage and home improvement loan originations, while Portfolio Management handles product development, securitization, risk management, and asset management. Corporate and Other includes corporate services groups - Segments restructured into Retirement Solutions, Portfolio Management, and Corporate and Other, with prior periods restated[36][216] - Retirement Solutions focuses on reverse mortgage and home improvement loan originations[148][149] - Portfolio Management provides product development, securitization, loan sales, risk management, and asset management services[150] 23. Liquidity and Capital Requirements The Company's operating subsidiaries, FAM and FAR, are subject to various regulatory capital, net worth, and liquidity requirements from HUD, Ginnie Mae, Fannie Mae, and Freddie Mac. FAM was not in compliance with Fannie Mae's adjusted tangible net worth requirements but obtained waivers. FAR was in compliance with Ginnie Mae's minimum net worth and liquidity but received a waiver for its capital ratio. Incenter's subsidiaries also have specific capital and bond requirements, which were met - FAM is subject to HUD, Ginnie Mae, Fannie Mae, and Freddie Mac regulatory capital requirements[153] - FAM's actual net worth was $82.60 million as of March 31, 2023, exceeding the minimum adjusted net worth requirement of $38.10 million, but required waivers for Fannie Mae's quarterly and two consecutive quarter tangible net worth requirements[156] - FAR was in compliance with Ginnie Mae's minimum net worth ($441.40 million vs. $164.00 million required) and liquidity ($38.20 million vs. $32.80 million required) but received a waiver for its capital ratio[159] - Incenter Securities Group LLC (ISG) met its minimum net capital requirement of $0.30 million[161] 24. Related-Party Transactions The Company has several related-party transactions, including Revolving Working Capital Promissory Notes with affiliates totaling $56.6 million as of March 31, 2023. It also had an equity investment in FarmOp Capital Holdings, LLC, from which it purchased agricultural loans, and related promissory notes receivable. Additionally, related parties purchased $135.0 million in senior notes, and in March 2023, investors affiliated with Blackstone and Libman Family Holdings purchased $30.0 million in Class A Common Stock - Working Capital Promissory Notes with affiliates totaled $56.60 million as of March 31, 2023, accruing interest at 6.5% per annum and maturing in May 2024[166] - The Company had a $4.70 million promissory note receivable outstanding with FarmOp, with an allowance for loan losses of the same amount[168] - Related parties purchased $135.00 million of senior unsecured notes issued in November 2020[169] - On March 31, 2023, 21,739,132 shares of Class A Common Stock were issued to Blackstone Investor and BL Investor for $30.00 million[172] 25. Earnings Per Share Basic net income (loss) per share is calculated based on weighted average Class A Common Stock outstanding, while diluted EPS includes the effect of dilutive common stock equivalents and share-based compensation. For Q1 2023, basic EPS was $0.05 and diluted EPS was $0.07, a significant improvement from losses in Q1 2022 Earnings Per Share Summary | Metric | For the three months ended March 31, 2023 | For the three months ended March 31, 2022 | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Basic net income (loss) per share | $0.05 | $(0.14) | | Diluted net income (loss) per share | $0.07 | $(0.30) | | Basic weighted average shares outstanding | 64,016,845 | 60,773,891 | | Diluted weighted average shares outstanding | 190,301,012 | 189,448,936 | - Basic net income per share from continuing operations was $0.29 in Q1 2023, compared to a loss of $(0.16) in Q1 2022[174] - Diluted net income per share from continuing operations was $0.22 in Q1 2023, compared to a loss of $(0.23) in Q1 2022[176] 26. Equity As of March 31, 2023, the Company had 89,838,531 shares of Class A Common Stock issued, with 85,580,031 outstanding and 4,258,500 unvested shares. There were 15 shares of Class B Common Stock outstanding, which carry no economic rights but provide voting power linked to Class A LLC Units. Total Class A LLC Units outstanding were 229,140,023, with 143,559,992 held by noncontrolling interest, including units issued in the AAG Transaction - As of March 31, 2023, 85,580,031 shares of Class A Common Stock were outstanding, representing the controlling interest[180] - Class B Common Stock has no economic rights but grants voting power proportional to Class A LLC Units held[183] - 143,559,992 Class A LLC Units were held by noncontrolling interest, including 19,692,990 units issued to the Seller in the AAG Transaction[184] 27. Subsequent Events Subsequent to March 31, 2023, on April 20, 2023, Incenter entered into an agreement to sell a 70% controlling interest in Incenter Lender Services LLC for $17.5 million, consisting of a cash payment and a note receivable. This transaction represents the balance of the Company's Lender Services operations being divested - On April 20, 2023, Incenter agreed to sell a 70% controlling interest in Incenter Lender Services LLC for $17.50 million[186] - Consideration includes a $3.50 million cash payment and a $14.00 million note receivable[186] 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 and results of operations, emphasizing its transformation into a modern retirement solutions platform. It discusses the strategic shift away from traditional mortgage and commercial lending, the impact of the AAG acquisition, and the performance of its new segments: Retirement Solutions, Portfolio Management, and Corporate and Other. The discussion also covers business trends, macroeconomic conditions, and factors affecting comparability, including discontinued operations and segment realignment Overview This section outlines the company's strategic transformation into a retirement solutions platform, emphasizing its focus on reverse mortgages and home improvement loans while exiting traditional lending - Finance of America Companies Inc. is a financial services holding company focused on retirement solutions, including reverse mortgages and home improvement loans[189] - The Company is exiting traditional mortgage lending, commercial lending, and certain lender services to streamline into a reverse mortgage origination and retirement solutions business[190] - Launched a successful non-agency reverse mortgage product for the U.S. senior population[191] - Portfolio Management segment provides product development, securitization, and risk management expertise[191] - Focus on streamlining and growing core businesses benefiting from demographic and economic tailwinds[192] - Seamlessly connects borrowers with investors, monetizing loan products through various channels to minimize capital at risk[194] - Distributes products through multiple channels, including new ones from the AAG acquisition, utilizing flexible technology platforms[194] American Advisors Group Transaction This section details the acquisition of American Advisors Group (AAG/Bloom) and the associated consideration - On March 31, 2023, Finance of America Reverse LLC (FAR) acquired a majority of assets and certain liabilities of American Advisors Group (AAG/Bloom)[195] - Consideration included $5.50 million in cash (less cash on hand), a $4.50 million promissory note, one share of Class B Common Stock, and 19,692,990 Class A Units of FoA Equity[197] - AAG/Bloom may receive up to 14,200,676 additional FoA Equity Units upon certain events, with a maximum of 33,893,666 units exchangeable for Class A Common Stock[197][198] Our Segments This section outlines the company's restructured business segments, Retirement Solutions and Portfolio Management, detailing their respective operational focuses - The Company realigned its business into two segments: Retirement Solutions and Portfolio Management, in Q1 2023[200] - Retirement Solutions originates reverse mortgage (HECM and non-agency) and home improvement loans[203][204] - Portfolio Management provides product development, loan securitization, sales, risk management, servicing oversight, and asset management services[206] Business Trends and Conditions This section analyzes the macroeconomic and industry trends, including interest rate impacts and housing market dynamics, that influence the company's business and financial results - Prevailing interest rates impact loan origination volume (declining rates increase volume, increasing rates decrease volume)[208] - Successful integration of AAG and timely completion of title business sales are crucial[208] - Housing market trends affect loan origination volume[208] - Demographic and housing stock trends influence addressable market size[208] - Movement of market yields and changes in default/prepayment speeds impact fair value of financial assets[208] - Broad economic factors like inflation, interest rates, unemployment, and real estate values are significant[208] - The Federal Reserve's shift to higher interest rates to combat inflation has caused volatility in financial markets, impacting credit availability, liquidity, and fair market value of assets[210] Factors Affecting the Comparability of our Results of Operations This section clarifies that historical financial results are not directly comparable due to the company's strategic reevaluation, including discontinued operations and segment realignment - The Company's historical results are not directly comparable due to the reevaluation of its business strategy and subsequent transformational actions[213] - Discontinued Operations: Mortgage Originations, Commercial Originations, and most Lender Services segments are now reported as discontinued operations[214] - Segment Realignment: Business segments were restructured into Retirement Solutions, Portfolio Management, and Corporate and Other, with prior periods restated[216] SEGMENT RESULTS This section presents a detailed analysis of the financial performance for each of the company's restructured operating segments Consolidated Results Consolidated operating results from continuing operations showed a significant improvement, with net income before taxes of $58.01 million in Q1 2023, compared to a loss of $(58.36) million in Q1 2022. This was primarily driven by a $169.4 million increase in net fair value gains on loans and related obligations, largely due to market discount rate assumptions, despite lower net origination gains Consolidated Operating Results from Continuing Operations (In thousands) | Item | For the three months ended March 31, 2023 | For the three months ended March 31, 2022 | | :---------------------------------------------------------- | :---------------------------------------- | :---------------------------------------- | | Total revenues | $140,855 | $46,058 | | Total expenses | 83,777 | 107,403 | | NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | $58,014 | $(58,361) | - Net fair value gains on loans and related obligations increased by $169.40 million, primarily due to changes in market discount rate assumptions[223] - Net origination gains decreased due to lower reverse mortgage loan origination volume ($311.43 million in Q1 2023 vs. $1.47 billion in Q1 2022), partially offset by higher margins[223][224] Retirement Solutions Segment The Retirement Solutions segment reported a net loss before income taxes of $(9.15) million in Q1 2023, a significant decline from a $65.34 million income in Q1 2022. Total revenue decreased by $83.2 million (76.0%), primarily due to an $81.3 million (76.9%) decrease in net origination gains, driven by lower reverse mortgage loan origination volume. Total expenses decreased by $11.9 million (25.1%) due to lower headcount and cost-cutting measures Retirement Solutions Segment Results (In thousands) | Item | For the three months ended March 31, 2023 | For the three months ended March 31, 2022 | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Total revenues | $26,343 | $109,549 | | Total expenses