Industry-leading reverse mortgage lender Finance of America (FOA) recorded another loss in the second quarter of 2024, but it managed to move closer to profitability while also expanding its dollar volume of loans through other business metrics that show improvement.
This is according to the company’s Q2 2024 financial results, as well as statements given to analysts, during a Q&A portion of its earnings call this week.
Overall financial performance
FOA’s funded loan volume increased to $447 million in Q2, up from $424 million in Q1 2024, a 5% quarterly improvement but roughly the same as one year ago. Year to date, FOA has recorded $871 million in loan volume compared to the $804 million during the same period in 2023.
Its total revenue of $79 million grew 5% quarter over quarter, with a significant increase in year-to-date revenues compared to the same period last year. At the end of Q2 2023, FOA had recorded $29 million in year-to-date revenue. One year later, FOA’s revenue figure stood at $154 million, according to the earnings report.
But the company still maintained pretax and net losses during the quarter of $4 million and $5 million, respectively. These losses were sharply reduced from the Q1 2024 levels of $16 million each, while year-to-date losses were also slashed significantly. Last year’s pretax and net losses during the first half of the year were $166 million and $165 million, respectively, but were only $20 million and $21 million for the same period in 2024.
“Overall, I’m pleased to share that Finance of America continues to deliver improved fundamentals across the business in the second quarter, resulting in our fourth consecutive quarter of improved [adjusted net income (ANI)],” FOA CEO Graham Fleming said on the earnings call.
Fleming said the company has been sticking closely to a strategic plan that has seen improved strength in operations and progression toward overall profitability, which has led to growth in loan volume and revenue along with a decline in expenses compared to Q1 2024.
Fleming also mentioned that the full process for completing FOA’s incorporation of American Advisors Group (AAG) into the business has helped to lead the financials in a positive direction.
“Looking back, Q2 2023 marked the first quarter of the combined businesses of [FOA] and AAG. Since that time, our revenues, excluding other fair value changes, have grown by 33% and our expenses have reduced by 26%,” he said. “Year over year, we have markedly reduced our ANI from $26 million to $1 million. Furthermore, we have made a substantial turnaround in adjusted EBITDA, improving from a negative $26 million in 2023 to a positive $9 million in 2024.”
Stock actions, warehouse lines, HMBS 2.0
Fleming also detailed the recent reverse stock split the company performed to bring its share price into compliance with the continued listing standard of the New York Stock Exchange (NYSE). He described how the move has brought the share price back into compliance and the impact that a debt exchange agreement is projected to have on the company’s financial situation.
“As of today, holders of over 99% of senior unsecured notes have indicated their intent [to participate in the exchange offer],” Fleming said. “This is a significant milestone for the company, and the transactions contemplated by the exchange offer support agreement will have later maturities, enhance our financial flexibility, and help align our cash flows with our debt obligations, thereby improving our capital structure for the future.”
Fleming also revealed on the call that the company had closed on two warehouse funding facilities with “two lending partners new to the reverse space to help minimize haircuts on our proprietary loan production.” He said was illustrative of broadening interest in the reverse mortgage space by outside parties.
Lastly, Fleming also expressed optimism regarding Ginnie Mae’s development of a new Home Equity Conversion Mortgage (HECM)-backed Securities (HMBS) program dubbed “HMBS 2.0,” saying it is anticipated to help further improve the company’s liquidity position.
“This exciting program provides a more favorable HMBS structure that will significantly reduce the capital required for buyouts and allows for the securitization of these buyouts in the pools backed by Ginnie Mae,” he explained. “This has the potential to have a positive impact on earnings, tangible net worth and liquidity.”
In the Q&A portion at the end of the call, some investors expressed opinions about the growth trajectory for the company as laid out in the earnings report. “Congrats on a nice second quarter,” one analyst said.
During trading on Wednesday, FOA stock rose as high as $7.38 per share, recovering from a low of $7.00 per share in the past five days.
While not an stock holder, one still wonders when is the company projecting that future cumulative net income after income taxes, depreciation, and amortization exceed cumulative loss after income taxes, depreciation, and amortization. So far net income seems more speculative than reliable forecast. With poor HECM case number assignment production data for the second quarter of this calendar year one has to wonder if FOA will see net income this quarter.
It was indeed pleasant to see the share price rise almost in step with the reverse 10 to 1 stock split. How much of a hit (if any) would the per share price of FOA stock take if there is a higher net loss this quarter and vice versa? Many of us are hoping that FOA starts to see net income finally arrive and grow in this and the next five quarters.