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Finance of America Reports Second Quarter 2022 Results

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– Net Loss for the quarter of $168 million or $(0.65) per basic share and $(0.70) of diluted EPS primarily attributable to negative fair value marks, after model assumptions were updated to account for higher credit spreads –
– Adjusted net loss* for the quarter of $22 million or $(0.12) per fully diluted share –

PLANO, Texas, August 04, 2022--(BUSINESS WIRE)--Finance of America Companies Inc., ("Finance of America" or the "Company") (NYSE: FOA), a customer focused, consumer and specialty lending business, reported financial results for the quarter ended June 30, 2022.

Second Quarter 2022 Financial Highlights

  • For the second quarter of 2022, the Company recognized a net loss of $168 million or $0.65 per basic share and $0.70 of diluted EPS.

  • Net loss includes negative changes in fair value of long-term assets and liabilities carried at fair value* of $111 million, primarily attributable to model assumption updates to account for elevated credit spreads.

  • For the second quarter of 2022, the Company recognized an adjusted net loss* of $22 million or $0.12 per fully diluted share.

  • The combined Specialty Finance and Services (SF&S) businesses produced a pre-tax loss of $134 million inclusive of model assumption changes, and adjusted net loss* of $1 million, or $0.01 of adjusted fully diluted EPS*.

*See the sections titled "Reconciliation to GAAP" and "Non-GAAP Financial Measures" for reconciliations to the most directly comparable GAAP measures and other important disclosures.

Graham A. Fleming, President and Interim Chief Executive Officer commented, "As we saw in the first quarter of 2022, rates and credit spreads remained volatile and increased dramatically throughout the quarter. The ten year treasury yield rose 117 basis points to an intra-quarter high of 3.49% on June 14 before decreasing 51 basis points to 2.98% by quarter end. Credit spreads also continued to widen at a rapid pace during the second quarter and reached new highs. We have updated our fair value models to account for these changes, which resulted in substantial negative fair value adjustments as we marked our balance sheet to reflect the lifetime impacts on long-term assets and liabilities. In the second quarter, our Reverse and Commercial segments continued to deliver strong volumes; however, due to substantially wider credit spreads, margins were lower than expected throughout the second quarter. In response, we have undertaken decisive actions to improve and protect margins and have seen some stability return in the first part of the third quarter.

We are committed to position FOA for long-term success and utilized the cash generated from hedge gains in the first half of 2022 to pay down our lines of credit and reduce volatility of the balance sheet. In addition, we have dramatically reduced run-rate expenses across the Company, but specifically in the Mortgage Originations segment, which has seen the biggest impact to volumes.

As we move forward, we remain focused on our strategic initiatives and will continue to take the necessary actions to return the company to profitability and ensure the long-term success of Finance of America."

Second Quarter Financial Summary

($ amounts in millions, except margin and per share data)

Variance (%)

Variance (%)

Variance (%)

Q2'22

Q1'22

Q2'22 vs
Q1'22

Q2'21

Q2'22 vs
Q2'21

YTD 2022

YTD 2021

2022 vs
2021

Successor

Successor

Successor

Successor

Combined (1)

Funded volume

$

6,349

$

7,153

(11

)%

$

8,342

(24

)%

$

13,502

$

17,856

(24

)%

Total revenue

141

267

(47

)%

389

(64

)%

408

897

(55

)%

Total expenses and other, net

310

345

(10

)%

403

(23

)%

655

785

(17

)%

Pre-tax net income (loss)

(169

)

(77

)

(119

)%

(14

)

(1,107

)%

(246

)

112

(320

)%

Net income (loss)

(168

)

(64

)

(163

)%

(15

)

(1,020

)%

(232

)

109

(313

)%

Adjusted net income(1)

(22

)

37

(159

)%

57

(139

)%

15

164

(91

)%

Adjusted EBITDA(2)

(19

)

60

(132

)%

87

(122

)%

41

241

(83

)%

Basic (loss) earnings per share

$

(0.65

)

$

(0.14

)

(364

)%

$

0.04

(1,725

)%

$

(0.80

)

N/A

N/A

Diluted loss per share(3)

$

(0.70

)

$

(0.30

)

(133

)%

$

(0.05

)

(1,300

)%

$

(1.00

)

N/A

N/A

Adjusted diluted (loss) earnings per share(2)

$

(0.12

)

$

0.20

(160

)%

$

0.30

(140

)%

$

0.08

$

0.86

(91

)%

(1) Financial results of combined successor and predecessor of the business combination with Replay.

(2) See Reconciliation to GAAP section for a reconciliation of Adjusted net income (loss) and Adjusted EBITDA to Net (loss) income.

(3) Calculated on an if-converted basis. See Reconciliation to GAAP section for more detail.

Balance Sheet Highlights

($ amounts in millions)

June 30,

March 31,

Variance (%)

2022

2022

Q2 2022 vs. Q1 2022

Cash and cash equivalents

$

219

$

227

(4

)%

Securitized loans held for investment (HMBS & nonrecourse)

17,483

16,908

3

%

Mortgage servicing rights (MSRs)

359

426

(16

)%

Total assets

21,736

22,078

(2

)%

Total liabilities

20,873

21,046

(1

)%

Total equity

863

1,032

(16

)%

Total tangible equity(1)

288

443

(35

)%

(1) Total tangible equity calculated as total equity less goodwill and intangible assets, net.

  • Cash and cash equivalents ended the second quarter at $219 million. The $8 million decrease in cash was primarily attributable to repayment of debt, offset by cash receipts on hedging positions.

  • MSR balances declined 16% quarter over quarter following a strategic asset sale in the period.

  • Total assets declined 2% from prior quarter due to reduced loan and MSR balances on the balance sheet, in addition to derivative asset positions rolling off, as hedge gains were realized during the quarter.

  • Total liabilities declined $173 million on a sequential quarter basis primarily due to paying down outstanding financing lines of credit.

  • The decline in total equity is primarily due to fair value adjustments recognized during the quarter resulting from widening credit spreads. As a result, total tangible equity decreased $155 million to $288 million.

Segment Results

Mortgage Originations

The Mortgage Originations segment generates revenue through fee income from loan originations and gain on sale of mortgage loans into the secondary market.

($ amounts in millions)

Variance (%)

Variance (%)

Variance (%)

Q2'22

Q1'22

Q2'22 vs
Q1'22

Q2'21

Q2'22 vs
Q2'21

YTD 2022

YTD 2021

2022 vs
2021

Successor

Successor

Successor

Successor

Combined (1)

Funded volume (Total)

$

4,229

$

5,106

(17

)%

$

6,928

(39

)%

$

9,335

$

15,333

(39

)%

Funded volume (Purchase)

3,336

2,766

21

%

3,495

(5

)%

6,102

6,159

(1

)%

Funded volume (non-agency)

945

1,119

(16

)%

795

19

%

2,064

1,832

13

%

Net rate lock volume

3,800

5,317

(29

)%

6,669

(43

)%

9,117

15,074

(40

)%

Mortgage originations margin

2.14

%

2.11

%

1

%

2.78

%

(23

)%

2.12

%

3.13

%

(32

)%

Total revenue

103

135

(24

)%

218

(53

)%

238

538

(56

)%

Pre-tax income (loss)

$

(35

)

$

(22

)

(59

)%

$

(6

)

(483

)%

$

(57

)

$

90

(163

)%

(1) Financial results of combined successor and predecessor of the business combination with Replay.

  • Net rate lock volume totaled $3,800 million compared to $5,317 million in the prior quarter as rising interest rates continued to pressure refinance volumes industry-wide.

  • Year-to-date funded purchase volume is essentially flat compared to the same period in 2021, and up 21% quarter over quarter.

  • Year-to-date funded non-agency volume is up 13% compared to the same period in 2021, despite the dramatic increase in interest rates.

  • Total revenue of $103 million for the second quarter compared to $135 million in the prior quarter, which reflects the impact of lower net rate lock volume.

  • Pre-tax loss was $35 million for the second quarter compared to pre-tax loss of $22 million in the prior quarter. The decline in quarterly earnings was due to the decline in origination volumes, as higher interest rates dampened demand for refinances. This decline was partially offset by fixed expense reductions of nearly 15% compared to the prior quarter.

  • During the course of Q2 and in early Q3, further expense reductions were made in Mortgage Originations and the full effects of those reductions will be realized over the remainder of the year.

Reverse Originations

The Reverse Originations segment generates revenue and earnings in the form of net origination gains and origination fees earned on the origination of reverse mortgage loans.

($ amounts in millions)

Variance (%)

Variance (%)

Variance (%)

Q2'22

Q1'22

Q2'22 vs
Q1'22

Q2'21

Q2'22 vs
Q2'21

YTD 2022

YTD 2021

2022 vs
2021

Successor

Successor

Successor

Successor

Combined (1)

Funded volume

$

1,580

$

1,475

7

%

$

1,013

56

%

$

3,055

$

1,782

71

%

Total revenue

80

108

(26

)%

95

(16

)%

188

164

15

%

Pre-tax income

$

36

$

68

(47

)%

$

53

(32

)%

$

104

$

99

5

%

(1) Financial results of combined successor and predecessor of the business combination with Replay.

  • Second quarter 2022 funded reverse volume was $1,580 million, an increase of 7% from the prior quarter, which set a fifth consecutive quarterly volume record. The growth in volume is attributable primarily to market penetration with new-to-reverse customers.

  • Second quarter 2022 revenue of $80 million declined 26% from the first quarter 2022 due primarily to the impact of widening credit spreads during the quarter, which negatively affected origination margins.

  • Year-to-date 2022 revenue of $188 million represents a 15% increase compared to the same period in 2021, which was driven by strong growth in volumes period over period.

Commercial Originations

The Commercial Originations segment provides business purpose lending solutions for residential real estate investors. The Commercial Originations segment generates revenue and earnings in the form of net origination gains and origination fees earned on the origination of mortgage loans.

($ amounts in millions)

Variance (%)

Variance (%)

Variance (%)

Q2'22

Q1'22

Q2'22 vs
Q1'22

Q2'21

Q2'22 vs
Q2'21

YTD 2022

YTD 2021

2022 vs
2021

Successor

Successor

Successor

Successor

Combined (1)

Funded volume

$

540

$

573

(6

)%

$

400

35

%

$

1,113

$

741

50

%

Total revenue

13

21

(38

)%

23

(43

)%

34

37

(8

)%

Pre-tax income (loss)

$

(12

)

$

(2

)

(500

)%

$

3

(500

)%

$

(14

)

$

4

(450

)%

(1) Financial results of combined successor and predecessor of the business combination with Replay.

  • Second quarter 2022 funded volume of $540 million, which represented a 6% decline quarter over quarter, and a 35% increase compared to prior year quarter. Year to date volumes of $1,113 million represent a 50% increase over prior year.

  • Pre-tax loss of $12 million for the quarter resulted from widening credit spreads, which reduced origination margins.

Lender Services

The Lender Services business generates revenue and earnings in the form of lender service support fees. Lender Services supports over 2,600 third party clients across the lending industry.

($ amounts in millions)

Variance (%)

Variance (%)

Variance (%)

Q2'22

Q1'22

Q2'22 vs
Q1'22

Q2'21

Q2'22 vs
Q2'21

YTD 2022

YTD 2021

2022 vs
2021

Successor

Successor

Successor

Successor

Combined (1)

Total revenue

$

58

$

76

(24

)%

$

81

(28

)%

$

134

$

157

(15

)%

% of revenue from third-party clients

81

%

81

%

%

80

%

1

%

81

%

78

%

4

%

Pre-tax income (loss)

$

(5

)

$

7

(171

)%

$

8

(163

)%

$

2

$

21

(90

)%

(1) Financial results of combined successor and predecessor of the business combination with Replay.

  • Second quarter 2022 revenue was $58 million, down 24% compared to the prior quarter as the segment faced pressure from rising interest rates.

  • Second quarter 2022 pre-tax loss of $5 million, as the $18 million quarter over quarter decline in revenue due to lower mortgage refinance volume more than offset a $7 million reduction in expenses.

  • Revenue from third-party clients was 81% in the second quarter of 2022, flat from the prior quarter.

Portfolio Management

The Portfolio Management segment generates revenue and earnings in the form of gain on sale of loans, fair value gains or losses, interest income, servicing income, fees for underwriting, advisory and valuation services and other ancillary fees.

($ amounts in millions)

Variance (%)

Variance (%)

Variance (%)

Q2'22

Q1'22

Q2'22 vs
Q1'22

Q2'21

Q2'22 vs
Q2'21

YTD 2022

YTD 2021

2022 vs
2021

Successor

Successor

Successor

Successor

Combined (1)

Assets under management

$

19,881

$

19,629

1

%

$

17,967

11

%

19,881

$

17,967

11

%

Assets excluding HMBS and non-recourse obligations

2,398

2,757

(13

)%

2,372

1

%

2,398

2,372

1

%

Mortgage servicing rights (MSRs)

359

426

(16

)%

291

23

%

359

291

23

%

Total revenue

(95

)

(51

)

(86

)%

7

(1457

)%

(146

)

36

(506

)%

Pre-tax loss

$

(129

)

$

(86

)

(50

)%

$

(27

)

(378

)%

$

(215

)

$

(21

)

(924

)%

(1) Financial results of combined successor and predecessor of the business combination with Replay.

  • Second quarter 2022 mortgage servicing rights were down 16% to $359 million compared to the prior quarter, due to a strategic sale of MSR during the quarter. We continue to monitor and strategically manage our MSRs balances to take advantage of opportunities the market presents.

  • Revenue in the second quarter 2022 was negative due to fair value adjustments on long-term assets and liabilities, as we updated model assumptions to account for substantially higher credit spreads and increased interest rates.

Reconciliation to GAAP

($ amounts in millions)

Q2'22

Q1'22

Q2'21

YTD 2022

YTD 2021

Successor

Combined (1)

Reconciliation of net income (loss) to adjusted net income (loss) and adjusted EBITDA

Net income (loss)

$

(168

)

$

(64

)

$

(15

)

$

(232

)

$

109

Add back: Benefit (provision) for income taxes

1

13

(1

)

14

(2

)

Net income (loss) before taxes

(169

)

(77

)

(14

)

(246

)

111

Adjustments for:

Changes in fair value(2)

111

96

24

207

36

Amortization and impairment of goodwill and intangibles(3)

14

14

13

28

14

Share-based compensation(4)

7

9

11

16

11

Certain non-recurring costs(5)

9

8

44

17

50

Adjusted net income (loss) before taxes

(28

)

50

78

$

22

$

222

(Provision) benefit for income taxes(6)

6

(13

)

(21

)

(7

)

(58

)

Adjusted net income (loss)

(22

)