Finance of America Reports Preliminary Third Quarter 2020 Results

IRVING, Texas--(BUSINESS WIRE)--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 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 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 originations. Compared to prior year, the Reverse Originations segment benefited from higher originations 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.

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