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Finance of America Reports Preliminary Third Quarter 2020 Results

IRVING, Texas----Finance of America Companies, (“Finance of America”) which is expected to complete a business combination with Replay Acquisition Corp. (NYSE: RPLA) (“Replay Acquisition”) that will result in Finance of America becoming a publicly-listed company, reported preliminary quarter ended September 30, 2020 results. Finance of America is a diversified, vertically integrated lending platform. The Company operates in three lending segments: Forward Originations, Reverse Originations, Commercial Originations, and two non-lending segments: Lender Services and Portfolio Management.

Third Quarter 2020 Highlights

  • Total funded volume grew 10% to $9.17 billion, compared to $8.35 billion in the prior quarter
  • Total net rate lock volume rose 37% to $9.29 billion, compared to $6.80 billion in the prior quarter
  • Total revenues increased 30% to $605 million, compared to $465 million in the prior quarter
  • Pre-tax net income grew 65% to $242 million, compared to $147 million in the prior quarter
  • Adjusted EBITDA* was up 54% to $235 million, compared to $153 million in the prior quarter

Year-To-Date 2020 Highlights

  • Total funded volume increased 68% to $22.86 billion, compared to $13.63 billion in 2019
  • Total net rate lock volume grew 78% to $22.3 billion, compared to $12.6 billion in 2019
  • Total revenues rose 95% to $1.25 billion, compared to $644 million in 2019
  • Pre-tax net income grew 451% to $347 million, compared to $63 million in 2019
  • Adjusted EBITDA* improved 319% to $423 million, compared to $101 million in 2019

*See reconciliation of Adjusted EBITDA to Pre-tax net income.

“Finance of America’s outstanding third quarter and year-to-date results that have more than quintupled over the prior year demonstrate the power of our diversified lending platform,” stated Patricia Cook, CEO of Finance of America. “Furthermore, our platform continues to benefit from the significant and persistently low interest rates in our forward originations segment. In addition, our other four segments are well-positioned for further growth. I want to express my immense gratitude to the team members of Finance of America for their tireless efforts and exceptional ongoing performance. Beyond our accomplishments to date, the entire organization is even more excited to build on value we are creating for all our stakeholders.”


Third Quarter Financial Summary

($ amounts in millions)

 

Q3’20

 

Q2’20

 

Variance (%)
Q3'20 vs
Q2'20

 

YTD Q3’20

 

YTD Q3’19

 

Variance (%)
YTD Q3’20 vs
YTD Q3’19

Funded volume

9,170

 

8,353

 

10%

 

22,857

 

13,633

 

68%

Net rate lock volume

9,286

 

6,801

 

37%

 

22,303

 

12,551

 

78%

Total revenue

605

 

465

 

30%

 

1,258

 

644

 

95%

Total expenses

362

 

319

 

13%

 

911

 

581

 

57%

Pre-tax net income

242

 

147

 

65%

 

347

 

63

 

451%

Net income

242

 

146

 

66%

 

345

 

61

 

466%

Adjusted EBITDA(1)

235

 

153

 

54%

 

423

 

101

 

319%

Gain on sale margin, Forward originations only

4.69%

 

4.19%

 

12%

 

4.21%

 

3.30%

 

28%

(1) Reflects updated year-to-date information. See reconciliation of Adjusted EBITDA to Pre-tax net income.

Discussion of Third Quarter 2020 Results:

  • Earned a record $242 million, an increase of 65% over the prior quarter, and $347 million year-to-date, an increase of more than five times the prior year.
  • Benefited from record origination volume of $9,170 million (funded volume) and $9,286 million (net lock volume) and continuing strong gain on sale margins.
  • Successfully resumed Commercial Originations with strong market response and growth.
  • Completed nine asset securitizations in the Portfolio Management segment for $2,650 million through October 2020, including non-agency reverse mortgage, rehab/construction commercial loans and HECM buyout loans.

Balance Sheet Highlights

($ amounts in millions)

September 30,
2020

December 31,
2019

Cash and cash equivalents

205

 

118

Total Assets

19,022

 

16,584

Total Liabilities

18,008

 

15,913

CRNCI and Member’s Equity

1,014

 

671

  • Cash and cash equivalents increased $87 million.
  • Total assets and liabilities have grown $2,438 million and $2,095 million, respectively, during 2020 primarily as a result of the growth in our mortgage loans held for sale and related interest-rate lock pipeline of $741 million and securitized mortgage loans held for investment of $1,670 million.
  • Retention of originated mortgage servicing rights (MSRs) portfolio increased by $98 million during 2020. Increases in these assets were partially offset by a reduction in unsecuritized loans held for investment of $430 million.
  • Combined CRNCI (Contingently Redeemable Noncontrolling Interest) and Member’s Equity grew $343 million through September 2020 primarily as a result of $345 million of net income for the year.

Segment Results

Forward Originations

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

($ amounts in millions)

Q3’20

Q2’20

Variance (%)
Q3'20 vs
Q2'20

YTD Q3’20

YTDQ3’19

Variance (%)
YTD Q3’20 vs
YTD Q3’19

Funded volume

8,454

 

7,582

 

12%

 

20,257

 

10,997

 

84%

Net rate lock volume

9,286

 

6,801

 

37%

 

22,303

 

12,551

 

78%

Revenue

444

 

333

 

33%

 

925

 

383

 

142%

Gain on sale margin

4.69%

 

4.19%

 

12%

 

4.21%

 

3.30%

 

28%

Pre-tax net income

204

 

117

 

74%

 

331

 

18

 

1739%

  • Produced record originations of $8,454 million (funded volume) and $9,286 million (net rate lock volume) and pre-tax net income of $204 million during the third quarter. Pre-tax earnings grew 74% sequentially over the prior quarter.
  • Year to date, funded volume has grown 84% and net rate lock volume has increased 78% compared to the prior year. Pre-tax net income of $331 million through September 30 has grown over eighteen times compared to prior year.
  • Growth in segment profitability has been a function of the overall robust mortgage market as well as increased gain on sale margins and Company productivity.

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)

Q3’20

Q2’20

Variance (%)
Q3'20 vs
Q2'20

YTD Q3’20

YTD Q3’19

Variance (%)
YTD Q3’20 vs
YTD Q3’19

Funded volume

626

 

770

 

-19%

 

2,052

 

1,801

 

14%

Revenue

49

 

55

 

-11%

 

139

 

108

 

29%

Pre-tax net income

24

 

33

 

-27%

 

74

 

52

 

42%

  • Reverse Originations earned a Pre-tax net income of $24 million during the third quarter compared to $33 million in the prior quarter.
  • Year to date, funded volume grew 14% and pre-tax net income increased 42% from the prior year.
  • The reduction in Pre-tax net income in the third quarter corresponded primarily to lower funded loan origination. Compared to the prior year, the Reverse origination segment benefited from higher origination and net origination gains.

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)

Q3’20

Q2’20

Variance (%)
Q3'20 vs
Q2'20

YTD Q3’20

YTD Q3’19

Variance (%)
YTD Q3’20 vs
YTD Q3’19

Funded volume

90

 

1

 

8900%

 

548

 

835

 

-34%

Revenue

5

 

0

 

500%

 

24

 

46

 

-48%

Pre-tax net income (loss)

-2

 

-6

 

67%

 

-5

 

10

 

-150%

  • Commercial Originations temporarily suspended loan originations in March 2020 as a result of market uncertainty during the initial stages of the COVID-19 pandemic. Loan originations resumed in June and grew steadily in the third quarter.
  • Third quarter segment results were a loss of $2 million, improving over the prior quarter when originations were deferred.

Portfolio Management

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

($ amounts in millions)

Q3’20

Q2’20

Variance (%)
Q3'20 vs
Q2'20

YTD Q3’20

YTD Q3’19

Variance (%)
YTD Q3’20 vs
YTD Q3’19

Assets under management

16,639

 

16,145

 

3%

 

16,639

 

14,626

 

14%

Revenue

42

 

39

 

8%

 

31

 

49

 

-37%

Pre-tax net income (loss)

19

 

18

 

6%

 

-30

 

5

 

-700%

  • Assets under management grew $494 million compared to the prior quarter as a result of growth in retained reverse mortgage and commercial investor loans, resulting in an 8% growth in revenue.
  • Year-to-date revenue and pre-tax net income decreased from the prior year due to fair value adjustments on loans and securities held for investment.

Lender Services

The Lender Services business generates revenue and earnings in the form of fees. Lender Services supports over 1,000 third party clients across the lending industry.

($ amounts in millions)

Q3’20

Q2’20

Variance (%)
Q3'20 vs
Q2'20

YTD Q3’20

YTD Q3’19

Variance (%)
YTD Q3’20 vs
YTD Q3’19

Revenue

53

 

44

 

20%

 

139

 

79

 

76%

Pre-tax net income

8

 

5

 

60%

 

15

 

4

 

275%

  • The Lenders Services segment earned $8 million during the third quarter primarily as a result of strong title agency and underwriting revenue and seasonal growth in student loan fulfillment earnings.
  • Year-to-date pre-tax net income increased 275% over prior year as a result of strong title agency and underwriting revenue related to the overall robust mortgage market.

Reconciliation to GAAP:

($ amounts in millions)

Q3’20

Q2’20

YTD Q3’20

YTD Q3’19

Pre-tax net income

242

 

147

 

347

 

63

Adjustments for:

 

 

 

 

 

 

 

Change in fair value of loans and securities HFI due to market/model assumption changes

-17

 

0

 

54

 

18

Interest expense on non-funding debt

0

 

2

 

3

 

2

Depreciation, amortization, and other impairments

2

 

2

 

7

 

6

Other fair value adjustments on earnouts

0

 

0

 

0

 

0

Shared based compensation

-

 

-

 

-

 

3

Change in fair value of minority investments

-

 

-

 

-

 

-1

Certain non-recurring costs

8

 

2

 

12

 

10

Adjusted EBITDA

235

 

153

 

423

 

101

2020 Outlook

Based on current business conditions, origination trends, and other factors, the Company is raising its previously provided 2020 pre-tax net income outlook to now range from $435 million to $495 million, from $393 million, and adjusted EBITDA to range from $535 million to $565 million from $478 million.

Finance of America Equity Capital LLC and Subsidiaries

Consolidated Statements of Financial Position

(Amounts in $000s)

 

 

09/30/2020

 

12/31/2019

 

(unaudited)

 

 

ASSETS

 

 

 

Cash and cash equivalents

$

205,444

 

$

118,083

Restricted cash

 

308,311

 

 

264,581

Reverse mortgage loans held for investment, subject to HMBS obligations, at fair value

 

9,811,263

 

 

9,480,504

Mortgage loans held for investment, subject to nonrecourse debt, at fair value

 

5,180,911

 

 

3,511,212

Mortgage loans held for investment, at fair value

 

984,475

 

 

1,414,073

Mortgage loans held for sale, at fair value

 

1,893,555

 

 

1,251,574

Debt securities, at fair value

 

13,368

 

 

114,701

Mortgage servicing rights, at fair value

 

100,539

 

 

2,600

Derivative assets, at fair value

 

114,563

 

 

15,553

Fixed assets and leasehold improvements, less accumulated depreciation and amortization

 

25,784

 

 

26,686

Goodwill

 

121,754

 

 

121,137

Intangible assets, net

 

16,855

 

 

18,743

Due from related parties

 

1,171

 

 

2,814

Other assets

 

244,023

 

 

241,840

Total Assets

$

19,022,016

 

$

16,584,101

 

 

 

 

LIABILITIES

 

 

 

HMBS related obligations, at fair value

$

9,662,342

 

$

9,320,209

Nonrecourse debt, at fair value

 

5,064,324

 

 

3,490,196

Other secured lines of credit

 

2,924,269

 

 

2,749,413

Payables and accrued liabilities

 

356,929

 

 

326,176

Notes payable

 

145

 

 

27,313

Total Liabilities

 

18,008,009

 

 

15,913,307

 

 

 

 

CRNCI

 

165,022

 

 

187,981

Member's equity

 

848,985

 

 

482,813

Total Liabilities, CRNCI and Member's Equity

$

19,022,016

 

$

16,584,101

Finance of America Equity Capital LLC and Subsidiaries

Consolidated Statements of Operations

(Amounts in $000s)

 

 

Three
Months

 

Three
Months

 

Nine Months

 

Nine Months

09/30/2020

 

06/30/2020

 

09/30/2020

 

09/30/2019

(unaudited)

 

(unaudited)

 

(unaudited)

 

(unaudited)

REVENUES

Gain on mortgage loans held for sale, net

$

407,926

 

$

298,291

 

$

836,901

 

$

342,514

 

Net fair value gains on mortgage loans and related obligations

 

95,955

 

 

112,303

 

 

221,638

 

 

236,891

 

Fee income

 

116,905

 

 

76,627

 

 

263,488

 

 

140,522

 

Net interest expense:
Interest income

 

9,937

 

 

11,507

 

 

29,615

 

 

27,073

 

Interest expense

 

(25,935

)

 

(33,298

)

 

(93,165

)

 

(103,072

)

Net interest expense

 

(15,998

)

 

(21,791

)

 

(63,550

)

 

(75,999

)

Total Revenues

 

604,788

 

 

465,430

 

 

1,258,477

 

 

643,928

 

 

EXPENSES

Salaries, benefits and related expenses

 

240,381

 

 

230,275

 

 

615,034

 

 

378,420

 

Occupancy, equipment rentals and other office related expenses

 

8,184

 

 

7,208

 

 

22,795

 

 

23,358

 

General and administrative expenses

 

113,804

 

 

81,214

 

 

273,584

 

 

179,630

 

Total Expenses

 

362,369

 

 

318,697

 

 

911,413

 

 

581,408

 

 
Net income before taxes

 

242,419

 

 

146,733

 

 

347,064

 

 

62,520

 

 
Provision for income taxes

 

808

 

 

448

 

 

1,574

 

 

1,206

 

Net income

 

241,611

 

 

146,285

 

 

345,490

 

 

61,314

 

 
CRNCI

 

(4,953

)

 

(2,619

)

 

(22,959

)

 

16,518

 

Noncontrolling interest

 

276

 

 

570

 

 

1,076

 

 

540

 

Net income attributable to FOA Equity Capital LLC

$

246,288

 

$

148,335

 

$

367,373

 

$

44,256

Finance of America Equity Capital LLC and Subsidiaries

Consolidated Statement of Changes in Member's Equity

(Amounts in $000s)

 

Member's Equity

NC Interests

AOCI

Total

Balance at December 31, 2019

 

$

482,719

 

$

145

 

$

(51

)

$

482,813

 

Net Income

 

367,373

 

 

1,076

 

 

-

 

 

368,449

 

Member contributions

 

502

 

 

-

 

 

-

 

 

502

 

Member distributions

 

(1,804

)

 

(1,012

)

 

-

 

 

(2,816

)

Foreign currency translation

 

-

 

 

-

 

 

37

 

 

37

 

Balance at September 30, 2020

 

$

848,790

 

$

209

 

$

(14

)

$

848,985

 

Webcast and Conference call

Management will host a webcast and conference call on Tuesday, December 1, 2020, at 5:00 pm ET to discuss the Company’s results for the third quarter ending September 30, 2020.

The conference call will be made available in the Investors section of the Company's website at https://www.financeofamerica.com/. To listen to a live broadcast, go to the site at least 15 minutes prior to the scheduled start time in order to register.

The conference call can also be accessed by the following dial-in information:

  • 1-877-407-0784 (Domestic)
  • 1-201-689-8560 (International)

Replay

A replay of the call will also be available on the Company's website approximately two hours after the live call through December 15, 2020. To access the replay, dial 1-844-512-2921 (United States) or 1-412-317-6671 (international). The replay pin number is 13713598. The replay can also be accessed on the investors section of the Company's website

Source- https://www.businesswire.com/news/home/20201201006148/en/Finance-of-America-Reports-Preliminary-Third-Quarter-2020-Results

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