Q1 2021 Finance of America Companies Inc Earnings Call

May 13, 2021

Good afternoon, ladies and gentlemen, and welcome to the Finance of America first quarter 2021 earnings conference call. At this time all participants are in a listen only mode. Later, we will conduct the question answer session and instructions will follow at that time as a reminder of this call will be recorded I would now like to turn the conference over to Michael Fendt Senior.

Vice President of Finance at Finance of America. Please go ahead Michael.

Thank you and good afternoon, everyone and welcome to finance from Americas first quarter earnings call.

Michael Fant: Thank you, and good afternoon, everyone, and welcome to Finance of America's Q4 earnings call. With me today are Patti Cook, Chief Executive Officer; Johan Gericke, Chief Financial Officer; and Graham Fleming, President. As a quick reminder, this call is being recorded, and you can find the earnings release on our Investor Relations website at www.financeofamerica.com. In addition, we will refer to certain non-GAAP financial measures on this call. You can find reconciliations of non-GAAP to GAAP financial measures discussed in today's call in our earnings press release and on the Investor Relations page of our website. Also, I would like to remind everyone that comments on this conference call may be forward-looking statements regarding the company's expected operating and financial performance for future periods.

With me today are Patty Cook, Chief Executive Officer of.

The Hong Garrett Chief Financial Officer, and Graham Fleming President.

As a quick reminder, this call is being recorded and you can find the earnings release on our Investor Relations website at Www Dot Finance of America Dot com.

In addition, we will refer to certain non-GAAP financial measures on this call.

You can find reconciliations of non-GAAP to GAAP financial measures discussed on today's call in our earnings press release and on the Investor Relations page of our website.

Also I would like to remind everyone. The comments on this conference call may be forward looking statements regarding the company's expected operating and financial performance for future periods.

These statements are based on the company's current expectations and are subject to the safe Harbor statement for forward looking statements that you will find in todays news release.

Michael Fant: These statements are based on the company's current expectations and are subject to the safe harbor statement for forward-looking statements that you will find in today's news release. Actual results for future periods may differ materially from those expressed or implied by these forward-looking statements due to a number of risks or other factors, including those that are described in the risk factors section of Finance of America's Form 8-K, originally filed with the SEC on 7 April 2021. We are not undertaking any commitment to update these statements if conditions change. Please note these are interim period financials and are unaudited. Now, I'd like to turn the call over to Finance of America's Chief Executive Officer, Patti Cook. Patti?

These statements are based on the company's current expectations and are subject to the safe harbor statement for forward-looking statements that you will find in today's news release. Actual results for future periods may differ materially from those expressed or implied by these forward-looking statements due to a number of risks or other factors, including those that are described in the risk factors section of Finance of America's Form 8-K, originally filed with the SEC on 7 April 2021. We are not undertaking any commitment to update these statements if conditions change. Please note these are interim period financials and are unaudited. Now, I'd like to turn the call over to Finance of America's Chief Executive Officer, Patti Cook. Patti?

Actual results for future periods may differ materially from those expressed or implied by these forward looking statements due to a number of risks or other factors, including those that are described in the risk factors section of finance for the Americas form 8-K, originally filed with the SEC on April seven 2021.

We are not undertaking any commitment to update these statements if conditions change.

Please note. These are interim period financials and are unaudited.

Now I'd like to turn the call over the finances of Americas, Chief Executive Officer, Patty Cook Patty.

Thanks, Michael and good afternoon, everyone.

Stephen Laws: Thanks, Michael, and good afternoon, everyone. Before we cover our Q4 results, I want to mention a very important milestone for Finance of America. On 1 April, we completed our business combination with Replay Acquisition Corporation, and Finance of America officially started trading on the New York Stock Exchange on 5 April. We are excited for the next stage of Finance of America's evolution, and I would like to express my gratitude to the entire team, Replay, and all of our clients who made this accomplishment possible. Besides closing the transaction, the Q4 was a busy time for our company. We recently launched a new vertical, Finance of America Home Improvement, via the acquisition of Renovate America's industry-leading home improvement financing product.

Patti Cook: Thanks, Michael, and good afternoon, everyone. Before we cover our Q4 results, I want to mention a very important milestone for Finance of America. On 1 April, we completed our business combination with Replay Acquisition Corporation, and Finance of America officially started trading on the New York Stock Exchange on 5 April. We are excited for the next stage of Finance of America's evolution, and I would like to express my gratitude to the entire team, Replay, and all of our clients who made this accomplishment possible. Besides closing the transaction, the Q4 was a busy time for our company. We recently launched a new vertical, Finance of America Home Improvement, via the acquisition of Renovate America's industry-leading home improvement financing product.

Before we cover our third quarter results I want to mention of very important milestone for finance the America on.

On April 1st we completed our business kind of combination with reply replay acquisition Corporation and Finance of America officially started trading on the New York Stock Exchange on April 5th we are excited.

Guidance for the next stage of finance of the Americas evolution, and I would like to express my gratitude to the entire team replay and all of our clients who made this accomplishment possible.

The sign of closing the transaction the first quarter with the busy time for our company. We recently launched a new vertical financing of America home improvement via the acquisition of renovated Americas industry, leading home improvement financing product.

Finance from America home improvement the proprietary technology platform that helps consumers improve their homes, while giving contractors the tools they need to grow their businesses from.

Stephen Laws: Finance of America Home Improvement's proprietary technology platform that helps consumers improve their homes while giving contractors the tools they need to grow their businesses provides us access to the large and growing home renovation market. Finance of America Reverse also launched Equity Avail, a groundbreaking new mortgage product designed to provide greater financial flexibility for homeowners at or near retirement. This product will combine elements of a traditional mortgage with a reverse mortgage to improve cash flow and help retirees accomplish their retirement goals. Finance of America Home Improvement and Equity Avail are the latest examples of our proven ability to innovate and create products that meet the evolving needs of our customers. It is the proprietary insights gleaned from our powerful end-to-end platform that enable us to identify gaps in the market, providing us with a sustainable competitive advantage.

Finance of America Home Improvement's proprietary technology platform that helps consumers improve their homes while giving contractors the tools they need to grow their businesses provides us access to the large and growing home renovation market. Finance of America Reverse also launched Equity Avail, a groundbreaking new mortgage product designed to provide greater financial flexibility for homeowners at or near retirement. This product will combine elements of a traditional mortgage with a reverse mortgage to improve cash flow and help retirees accomplish their retirement goals. Finance of America Home Improvement and Equity Avail are the latest examples of our proven ability to innovate and create products that meet the evolving needs of our customers. It is the proprietary insights gleaned from our powerful end-to-end platform that enable us to identify gaps in the market, providing us with a sustainable competitive advantage.

The attacks it to the large and growing home renovation market.

Finance of America reverse also launched equity of Bell, a groundbreaking new mortgage product designed to provide greater financial flexibility for homeowners at or near retirement.

This product will combine elements of the traditional mortgage with the reverse mortgage to improve cash flow and help retirees accomplish their retirement goals.

Finance of America home improvement and equity of Vale on them.

Latest examples of our proven ability to innovate and create products that meet the evolving needs of our customers.

It is the proprietary insights gleaned from our powerful end to end platform that enable us to identify gaps in the market, providing us with the sustainable competitive advantage.

Solving problems since what we do best and we look forward to continuing to introduce new innovations across our platform.

Stephen Laws: Solving problems is what we do best, and we look forward to continuing to introduce new innovations across our platform that serve large, addressable markets with strong tailwinds, thereby further diversifying our business model to ensure growth over time. Furthermore, capitalizing on M&A opportunities is part of our DNA. Since the company's formation in 2013, Finance of America has successfully acquired, integrated, expanded, and optimized 16 companies in industries spanning from originations and lender services to capital markets. We remain proactive in identifying accretive market opportunities that further complement our existing lines of business and will drive profitable growth. And as you may have seen, we recently announced an agreement to acquire certain assets of Parkside Lending, a wholesale and retail lender that will strategically increase our third-party origination coverage. Another key milestone was bringing on Johan Gericke as CFO to further strengthen our leadership team.

Solving problems is what we do best, and we look forward to continuing to introduce new innovations across our platform that serve large, addressable markets with strong tailwinds, thereby further diversifying our business model to ensure growth over time. Furthermore, capitalizing on M&A opportunities is part of our DNA. Since the company's formation in 2013, Finance of America has successfully acquired, integrated, expanded, and optimized 16 companies in industries spanning from originations and lender services to capital markets. We remain proactive in identifying accretive market opportunities that further complement our existing lines of business and will drive profitable growth. And as you may have seen, we recently announced an agreement to acquire certain assets of Parkside Lending, a wholesale and retail lender that will strategically increase our third-party origination coverage. Another key milestone was bringing on Johan Gericke as CFO to further strengthen our leadership team.

Serve large addressable markets with strong tailwind, thereby further diversifying our business model to ensure growth overtime.

Furthermore, capitalizing on M&A opportunities as part of our DNA since the company's formation in 2013 Finance of America has successfully acquired and integrated expanded and optimized 16 companies in the industry spanning from.

Nations in lender services the capital markets.

We remain proactive in identifying accretive market opportunities. That's further complement our existing lines of business and will drive profitable growth.

And as you may have seen.

We recently announced an agreement to acquire certain assets of Parkside lending.

Wholesale and retail lender that will strategically increased our third party origination coverage.

Another key milestone was bringing on Johan Garrick as CFO to further strengthen our leadership team Johan the seasoned executives with extensive finance experience and a proven track record with leadership positions at nature of publicly traded financial institution I look.

Stephen Laws: Johan is a seasoned executive with extensive finance experience and a proven track record, with leadership positions at major publicly traded financial institutions. I look forward to working with him as we go forward as a public company. Turning to our results for the Q4, Finance of America continued to generate strong performance, further reinforcing the strength of our diversified consumer lending platform spanning mortgages, reverse mortgages, and commercial loans offered across distributed retail, third-party brokers, and digital direct-to-consumer channels. In addition, our fee-based portfolio management and lender services businesses contributed meaningfully to this quarter. Q4 highlights included near-record volumes and strong growth for our reverse originations business, where growth drivers are less correlated with the direction of interest rates. More specifically, baby boomers are increasingly looking to age in place, and our reverse mortgage products provide the opportunity to this demographic to tap the equity accumulated in their homes.

Johan is a seasoned executive with extensive finance experience and a proven track record, with leadership positions at major publicly traded financial institutions. I look forward to working with him as we go forward as a public company. Turning to our results for the Q4, Finance of America continued to generate strong performance, further reinforcing the strength of our diversified consumer lending platform spanning mortgages, reverse mortgages, and commercial loans offered across distributed retail, third-party brokers, and digital direct-to-consumer channels. In addition, our fee-based portfolio management and lender services businesses contributed meaningfully to this quarter. Q4 highlights included near-record volumes and strong growth for our reverse originations business, where growth drivers are less correlated with the direction of interest rates. More specifically, baby boomers are increasingly looking to age in place, and our reverse mortgage products provide the opportunity to this demographic to tap the equity accumulated in their homes.

Forward to working with him as we go forward as a public company.

Turning to our results for the first quarter finance of the America continued to generate strong performance further reinforcing the strength of our diversified consumer lending platform spanning mortgages were first mortgages and commercial loans offered across district.

The retail.

Third party brokers and digital direct to consumer channel.

In addition, our fee based portfolio management, Atlanta services businesses contributed meaningfully to this quarter.

First quarter highlights included near record volumes and strong growth for our first originations business.

Our growth drivers are less correlated with the direction of interest rates.

More specifically the baby boomers are increasingly looking to age in place and our reverse mortgage products provide the opportunity to this demographic to tap the equity accumulated in their homes.

Commercial loans to residential real estate investors continued to accelerate in the first quarter and.

Stephen Laws: Commercial loans to residential real estate investors continued to accelerate in the Q4. Looking ahead, the aging housing stock and the market's bias for newer construction or remodeled properties bode well for ongoing demands in this segment. Turning to mortgage originations, key performance metrics remained strong on a year-over-year basis, though softened from record levels in the prior quarter. Consistent with the decline in primary/secondary spreads, our mortgage origination margins declined quarter over quarter, and that trend has continued into the Q2. In addition, as refinancing activity wanes, overall industry volumes are expected to decline. On the other hand, our distributed retail channel is ideally positioned to capitalize on what we expect to be a strong purchase market. Aside from our lending segments, our lender services segment provides a broad offering of services, including title and appraisal management.

Commercial loans to residential real estate investors continued to accelerate in the Q4. Looking ahead, the aging housing stock and the market's bias for newer construction or remodeled properties bode well for ongoing demands in this segment. Turning to mortgage originations, key performance metrics remained strong on a year-over-year basis, though softened from record levels in the prior quarter. Consistent with the decline in primary/secondary spreads, our mortgage origination margins declined quarter over quarter, and that trend has continued into the Q2. In addition, as refinancing activity wanes, overall industry volumes are expected to decline. On the other hand, our distributed retail channel is ideally positioned to capitalize on what we expect to be a strong purchase market. Aside from our lending segments, our lender services segment provides a broad offering of services, including title and appraisal management.

And looking ahead, the aging housing stock and the margin bias for newer construction or remodeled properties bode well for ongoing demand in this segment.

Turning to mortgage originations key performance metrics remained strong on a year over year basis, those softened from record levels from the prior quarter.

Consistent with the decline in primary secondary spreads on mortgage origination margins declined quarter on quarter and that trend has continued into the second quarter.

In addition, as refinancing activity wanes overall industry volumes are expected to decline.

On the other hand, our distributed retail channel is ideally positioned to capitalize on what we expect to be a strong purchase market.

Aside from our lending segment, our lender services segment provides a broad offering of services, including title and appraisal management.

The increase in business per client and the growth in new clients continues to drive differentiated and uncorrelated fee income as the channel experienced its best quarter ever.

Stephen Laws: The increase in business per client and the growth in new clients continues to drive differentiated and uncorrelated fee income as the channel experienced its best quarter ever. Turning to portfolio management, our strong relationship with investors allows us to respond to opportunities in the market through each cycle. Over time, we expect to continue to invest in assets such as MSR and residuals as we did in the Q4, which will provide stable and consistent revenue. Looking ahead, we believe macro tailwinds from growing consumer wealth will fuel expanding consumer credit and will continue to support the long-term growth prospects of our businesses. One of our key differentiating factors is our diversified model, both within lending and across our platform, that generates sustainable returns across economic cycles and capitalizes on market tailwinds.

The increase in business per client and the growth in new clients continues to drive differentiated and uncorrelated fee income as the channel experienced its best quarter ever. Turning to portfolio management, our strong relationship with investors allows us to respond to opportunities in the market through each cycle. Over time, we expect to continue to invest in assets such as MSR and residuals as we did in the Q4, which will provide stable and consistent revenue. Looking ahead, we believe macro tailwinds from growing consumer wealth will fuel expanding consumer credit and will continue to support the long-term growth prospects of our businesses. One of our key differentiating factors is our diversified model, both within lending and across our platform, that generates sustainable returns across economic cycles and capitalizes on market tailwinds.

Turning to portfolio management, our strong relationship with investors allows us to respond to opportunities in the market through each cycle.

Over time, we expect to continue to invest in assets such as MSR on residuals as we did in the first quarter, which will provide stable and consistent revenue.

Looking ahead, we believe macro tailwind from growing consumer wealth will fuel expanding consumer credit.

We'll continue to support the long term growth prospects of our businesses.

One of our key differentiating factors is our diversified model, both within lending and across our platform that generates the stable sustainable returns across economic cycles and capitalize on market tailwind.

In fact, we expect contributions from our non mortgage segments to continue to increase during the remainder of the year.

Stephen Laws: In fact, we expect contributions from our non-mortgage segments to continue to increase during the remainder of the year, while the mortgage origination segment declines year over year. We estimate, based on the current market, the net effect could be a reduction in Adjusted EBITDA for full year 2021 of roughly 20% year over year, which would indicate a continuation of return on pro forma equity north of 20%. We remain focused on the multitude of opportunities presented to us by maximizing the potential of our existing platform as we look to strategically add the right new products, businesses, or distribution channels. So with that, I will now turn the call over to Johan to discuss our financials in more detail. Johan?

In fact, we expect contributions from our non-mortgage segments to continue to increase during the remainder of the year, while the mortgage origination segment declines year over year. We estimate, based on the current market, the net effect could be a reduction in Adjusted EBITDA for full year 2021 of roughly 20% year over year, which would indicate a continuation of return on pro forma equity north of 20%. We remain focused on the multitude of opportunities presented to us by maximizing the potential of our existing platform as we look to strategically add the right new products, businesses, or distribution channels. So with that, I will now turn the call over to Johan to discuss our financials in more detail. Johan?

While the mortgage origination segment declined year over year.

We estimate based on the current market the net effect could be a reduction in adjusted EBITDA for full year 2021 of roughly 20% year over year.

Which would indicate a continuation of return on pro form of equity north of 20%.

We remain focused on the multitude of opportunities presented to us.

The maximizing the potential of our of our existing platform as we look to strategically at the right new product businesses.

Or distribution channel.

So with that I will now turn the call over to Johan to discuss our financials in more detail.

Johan.

Thank you Patty as.

Michael Fant: Thank you, Patti. As mentioned earlier, we generated strong results for the Q1 of 2021. Total funded volume grew 78% to $9.5 billion, compared to $5.3 billion in the prior year quarter. On a sequential quarter basis, funded volume declined by just 3%, while net rate lock volume increased by 7% versus the prior quarter. Total revenues of $499 million were up 165% year over year and were down 7% versus the Q4 of 2020, even as our mortgage origination margin compressed by 21% on a sequential quarter basis, thereby reinforcing our diversified cycle-resistant model. Following through, we reported pre-tax net income of $125 million for the quarter, compared to $153 million in the Q4 and a loss in the prior year quarter.

Johan Gericke: Thank you, Patti. As mentioned earlier, we generated strong results for the Q1 of 2021. Total funded volume grew 78% to $9.5 billion, compared to $5.3 billion in the prior year quarter. On a sequential quarter basis, funded volume declined by just 3%, while net rate lock volume increased by 7% versus the prior quarter. Total revenues of $499 million were up 165% year over year and were down 7% versus the Q4 of 2020, even as our mortgage origination margin compressed by 21% on a sequential quarter basis, thereby reinforcing our diversified cycle-resistant model. Following through, we reported pre-tax net income of $125 million for the quarter, compared to $153 million in the Q4 and a loss in the prior year quarter.

As mentioned earlier, we generated strong results for the first quarter of 2021.

Total funded volume grew 78% to $9 5 billion compared to $5 3 billion in the prior year quarter.

On a sequential quarter basis funded volume declined by just 3%.

While net rate lock volume increased by 7% versus the prior quarter.

Total revenues of $499 million were up 165% year over year.

And were down 7% versus the fourth quarter of 2020.

Even as our mortgage origination margin compressed by 21% on a sequential quarter basis.

Thereby reinforcing our diversified cycle resistant model.

Following through with <unk>.

Ported pretax net income of $125 million for the quarter compared to $153 million in the fourth quarter and the last in the prior year quarter.

Adjusted EBITDA of $154 million for the first quarter of 2021 was down 11% compared to $174 million in the fourth quarter, but up more than four times, the $75 million generated in the prior year quarter.

Michael Fant: Adjusted EBITDA of $154 million for the Q1 of 2021 was down 11% compared to $174 million in the Q4, but up more than four times the $35 million generated in the prior year quarter. Turning to our segments and starting with our mortgage originations business, we generated funded volumes of $8.4 billion, double the $4.2 billion for the Q1 of 2020, although down 5% on a linked quarter basis. Net rate lock volume of $8.4 billion was up from $7.9 billion in the prior quarter and increased substantially from $6.2 billion a year ago. Total revenue of $320 million more than doubled year over year, but was down from $367 million in the Q4. The sequential decline was largely a function of lower gain-on-sale margins, as mentioned earlier, and consistent with industry trends, partially offset by a 7% increase in net rate lock volume.

Adjusted EBITDA of $154 million for the Q1 of 2021 was down 11% compared to $174 million in the Q4, but up more than four times the $35 million generated in the prior year quarter. Turning to our segments and starting with our mortgage originations business, we generated funded volumes of $8.4 billion, double the $4.2 billion for the Q1 of 2020, although down 5% on a linked quarter basis. Net rate lock volume of $8.4 billion was up from $7.9 billion in the prior quarter and increased substantially from $6.2 billion a year ago. Total revenue of $320 million more than doubled year over year, but was down from $367 million in the Q4. The sequential decline was largely a function of lower gain-on-sale margins, as mentioned earlier, and consistent with industry trends, partially offset by a 7% increase in net rate lock volume.

Turning to our segments and starting with our mortgage originations business.

We generate the funded volumes of $8 4 billion.

Double the $4 2 billion for the first quarter of 2020, although down 5% on a linked quarter basis.

Net rate lock volume of $8 4 billion was up from $7 9 billion in the prior quarter and.

And increased substantially from $6 2 billion a year ago.

Total revenue of 320 million more than doubled year over year.

It was down from $367 million in the fourth quarter.

The sequential decline was largely a function of lower gain on sale margins.

As mentioned earlier and consistent with industry trends.

The offset by a 7% increase in net rate lock volume.

First quarter 2021, pre tax net income of $96 million.

Michael Fant: Q1 2021 pre-tax net income of $96 million compared to $129 million in the prior quarter and is consistent with the drop in revenue mentioned earlier. Reverse originations funded volumes were up 17% Q1 over Q to $769 million. This drove segment revenue to $69 million and pre-tax income to $45 million for the Q1 of 2021, up 25% and 36% respectively compared to prior quarter levels. Our business continues to benefit from the unique tailwinds present in this sector. On the commercial side, funded volumes continued to rebuild and were up 11% on a sequential quarter basis to $341 million. Turning now to portfolio management, assets under management totaled $17.3 billion as of 31 March 2021, up 10% year over year and 3% for the quarter.

Q1 2021 pre-tax net income of $96 million compared to $129 million in the prior quarter and is consistent with the drop in revenue mentioned earlier. Reverse originations funded volumes were up 17% Q1 over Q to $769 million. This drove segment revenue to $69 million and pre-tax income to $45 million for the Q1 of 2021, up 25% and 36% respectively compared to prior quarter levels. Our business continues to benefit from the unique tailwinds present in this sector. On the commercial side, funded volumes continued to rebuild and were up 11% on a sequential quarter basis to $341 million. Turning now to portfolio management, assets under management totaled $17.3 billion as of 31 March 2021, up 10% year over year and 3% for the quarter.

Theres two $129 million in the prior quarter.

And it's consistent with the drop in revenue mentioned earlier.

The reverse originations funded volumes were up 17% quarter over quarter to $769 million.

This drove segment revenue to 69 million on pretax income to $45 million for the first quarter of 2021.

Up 25, and 36% respectively compared to prior quarter levels all.

Our business continues to benefit from the unique tailwind presence in the sector.

On the commercial side funded volumes continued to rebuild and were up 11% on a sequential quarter basis to 341 million.

Turning now to portfolio management efforts.

Assets under management totaled $17 3 billion as of March 31st 2021.

Up 10% year over year and three per cent for the quarter.

Assets under management, excluding H M P S and non recourse obligations totaled $2 2 billion.

Michael Fant: Assets under management, excluding HMBS and non-recourse obligations, totaled $2.2 billion, up from $1.8 billion at the end of 2020, with growth coming from loans held for investment not yet securitized of $370 million and MSR growth of $87 million. As of 31 March 2021, our MSR totaled $267 million. Segment revenue of $30 million decreased 21% on a linked quarter basis, predominantly related to the impact of fair value adjustments period over period. Accordingly, pre-tax income was down 25% from prior quarter to $6 million, but rebounded since the COVID-related net loss in the prior year quarter. Lender services delivered another record quarter, with total revenue of $76 million and pre-tax net income of $13 million, up considerably compared to prior quarter and year ago levels. Segment growth drivers include the continued expansion of third-party clients, as well as increased adoption by FOA companies.

Assets under management, excluding HMBS and non-recourse obligations, totaled $2.2 billion, up from $1.8 billion at the end of 2020, with growth coming from loans held for investment not yet securitized of $370 million and MSR growth of $87 million. As of 31 March 2021, our MSR totaled $267 million. Segment revenue of $30 million decreased 21% on a linked quarter basis, predominantly related to the impact of fair value adjustments period over period. Accordingly, pre-tax income was down 25% from prior quarter to $6 million, but rebounded since the COVID-related net loss in the prior year quarter. Lender services delivered another record quarter, with total revenue of $76 million and pre-tax net income of $13 million, up considerably compared to prior quarter and year ago levels. Segment growth drivers include the continued expansion of third-party clients, as well as increased adoption by FOA companies.

Up from 1.8 billion at the end of 2020 with growth coming from loans held for investment not yet securitized of.

$370 million and MSR growth of 87 million net.

As of March 31st 2021, our MSR of totaled 267 million.

Segment revenue of $30 million decreased 21% on a linked quarter basis predominantly related to the impact of fair value adjustments period over period occur.

Accordingly, pretax income was down 25% from prior quarter to $6 million, but rebounded since the COVID-19 related net loss in the prior year quarter.

Lender services delivered another record quarter with total revenue of $76 million and pretax net income of 13 million.

Up considerably compared to prior quarter and year ago levels.

Growth drivers include the continued expansion of third party clients.

As well as increased adoption by F O eight companies.

Finally, with regards to our balance sheet cash and cash equivalents were up 49% on a sequential quarter basis to $348 million.

Michael Fant: Finally, with regards to our balance sheet, cash and cash equivalents were up 49% on a sequential quarter basis to $348 million. We maintain plenty of capacity to continue to invest in the business organically or via strategic M&A opportunities. And with that, we'll open up for questions. Operator, back to you.

Finally, with regards to our balance sheet, cash and cash equivalents were up 49% on a sequential quarter basis to $348 million. We maintain plenty of capacity to continue to invest in the business organically or via strategic M&A opportunities. And with that, we'll open up for questions. Operator, back to you.

We maintain plenty of capacity to continue to invest in the business organically or via strategic M&A opportunities.

And with that we'll open up for questions operator back to you.

Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask the question. Please press star one on your telephone keypad of confirmation tone will indicate your line is on the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star.

Operator: Thank you. At this time, we will be conducting a question-and-answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tonal indicator line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Steven Laws with Raymond James. Please proceed with your question.

Our first question is from Stephen laws with Raymond James. Please proceed with your question.

Hi, good afternoon, and congratulations on your first quarter as the public company and completion of your of transaction in early April.

Stephen Laws: Hi, good afternoon, and congratulations on your first quarter as a public company and completion of your transaction in early April. It's a great first step.

For the first step.

Thank you.

Operator: Thank you, Steven.

Patti Cook: Thank you, Steven.

You bet part of you know a lots of cover given the different business lines, but I guess first to start with the forward origination business.

Stephen Laws: Thank you, Steven. You bet. Patti, a lot to cover given the different business lines, but I guess first to start with the forward origination business margins. Can you maybe go in depth in that a little more detail, margins across different channels, and maybe how your mix compares to where the industry is seeing the most margin compression and how we should think about that as we move through the year?

Michael Fant: Thank you, Steven.

Stephen Laws: You bet. Patti, a lot to cover given the different business lines, but I guess first to start with the forward origination business margins. Can you maybe go in depth in that a little more detail, margins across different channels, and maybe how your mix compares to where the industry is seeing the most margin compression and how we should think about that as we move through the year?

You know margins can you maybe go in depth in that a little more detail of margins across.

The different channels and maybe how your mix.

Compares to where the industry is seeing the most margin compression on how we should think about that as we move through the year.

Sure I mean as you can see the margins of mortgages went from roughly 430 to $3 40 in the first quarter.

Patti Cook: Sure. I mean, as you can see, the margins in mortgages went from roughly 430 to 340 in Q1. What I would say about margins, and I think you're hearing it from all of our competitors, is that margins are tighter across the board, but led by, I'd say, correspondent and wholesale. The percent decline in those margins is greater than we're seeing in retail.

And the what I would say about margin and I think you're hearing it from all of our competitors is that margin through tighter across the board, but land by I'd say correspondent in wholesale.

So the percentage decline in those margin is greater than we're seeing in retail.

Great and then Oh.

Stephen Laws: Great. Then on the other two sides, the reverse and the CRE, I think about it maybe a little differently. Correct me if I'm looking this wrong, but on the reverse, it's really more of a penetration story, and it seems like your margins there are probably pretty well protected.

On the other two.

Sides of the reverse in the CRE I think about it maybe a little differently.

Correct me if I'm looking at the strong but you know on the the reverse is really more of a penetration story and it seems like your margin. So you are probably pretty well protected all of them yet.

Yet the three.

The growth consistent with what you expect to see going forward in the non commercial.

Patti Cook: Yes.

Stephen Laws: Was just recent growth consistent with what you expect to see going forward? And on commercial, certainly much more competitive landscape there. So how do we think about your pipeline of loans there and your ability to protect margins on those production?

Patti Cook: Yes.

Certainly much more competitive landscape there so how do we think about.

Your pipeline of loans, there and your ability to protect margins on on those production.

Okay. So referred first you're spot on.

Patti Cook: Okay. So reverse first, you're spot on in that that is more a segment expansion. And I think the growth that we see there is very encouraging because I think it reflects the tailwinds that we've been expecting, right? You've got house price appreciation, you've got the aging baby boomers, and they are anxious to tap into the equity of their home. So I think there, it's more about, I'm going to say, on average, stable margins, but definitely continued growth. I think when you look at the commercial business, there are two products there that are important. One is fix and flip, and the other is the single-family rental. And there's probably, I don't know, I guess I'd say more margin competitiveness in fix and flip, but we feel good about where that market is and where it'll continue to go.

And that that is more of segment expansion and I think the growth that we see there is very encouraging because I think it reflects the tailwind that we've been expecting right you've got house price appreciation, you've got the aging baby boomers and they are anxious to tap into the equity in there of how.

So I think there it's more about I'm kind of the say on average stable margin, but definitely continued growth.

I think when you look at the commercial business.

You know there are two products there that are important one is fix and flip and the other is the single family rental.

There's probably I don't know I guess, I'd say more margin competitiveness in fix and flip them.

We feel good about where that market is and where it will continue to go.

The real opportunity for US is when you look at the S. R. L. A market and if you couple that with the recent GSE announcement to put a cap on non owner occupied we think we're on a great position to grow our market share of that combined segment and leverage the IND.

Patti Cook: I think the real opportunity for us is when you look at the SFR market. And if you couple that with the recent GSE announcement to put a cap on non-owner-occupied, we think we're in a great position to grow our market share of that combined segment and leverage the investors we've already identified on the back end for SFR. So I think we're unique in SFR, and I'd like to speak for fix and flip. I think there's going to be great demand there.

I think the real opportunity for us is when you look at the SFR market. And if you couple that with the recent GSE announcement to put a cap on non-owner-occupied, we think we're in a great position to grow our market share of that combined segment and leverage the investors we've already identified on the back end for SFR. So I think we're unique in SFR, and I'd like to speak for fix and flip. I think there's going to be great demand there.

That's true we've already identified on the backend per S. R. L.

So I think we're unique in S. R. L and you know I'd like to the state for fixed and flip I think theres going to be great demand there.

Fantastic on one last question if on a.

Stephen Laws: Fantastic. And one last question, if I may. Lender services, solid margin, very strong margin improvement there. And I think the press release cited some cross-sell opportunities, maybe another thing or two. But can you talk a little bit about the opportunity to keep expanding, not only grow revenue, but keep expanding margin in some of these other segments to provide growth to offset fading refis that will happen?

Lender services, the solid margin very strong margin improvement there and I think the press release cited some cross sell opportunities.

Maybe another thing or two but can you talk a little bit about the opportunity to keep expanding.

The only grow revenue, but keep expanding margin.

In some of these other segments to provide growth to offset.

Finding refined the will happen.

Yeah, the great thing about the lender services business.

Patti Cook: Yeah. The great thing about the lender services business is the growth is coming from two, well, really three areas. One is obviously increased adoption from Finance of America, but more exciting and more important is the fact that we're adding new customers, and we're doing more business with existing customers. So that's particularly true of title. And I also love the insurance. Title insurance business is growing consistently with that. I think margins have stayed healthy. I don't see any reason for that to change.

Is the growth is coming from two well really three areas. One is obviously increased adoption from finance of America, but more exciting and more important is the fact that we're adding new customers and we're doing more business with existing customers. So that's particularly true of type of.

Title and I also love the insurance title insurance business is growing consistently with that.

I think.

Margins.

You know margins have stayed healthy I don't see any reason for that to change.

Alright, well I appreciate the comments this afternoon Paddy and thanks very much for me I'll be on the call, particularly absolutely.

Stephen Laws: Great. Well, I appreciate the comments this afternoon, Patti, and thanks very much for letting me be on the call. Take care.

Patti Cook: Absolutely.

Thank you. Our final question comes from Eric Hagen with B T. I G. Please proceed with your question.

Operator: Thank you. Our final question comes from Eric Hagan with BTIG. Please proceed with your question.

Oh, Hey, good afternoon Hope you guys are well I've got a couple of questions the home improvement trends.

Eric Hagan: Hey, good afternoon. Hope you guys are well. I got a couple of questions. The home improvement financing you announced earlier this week, can you talk about the, I guess, types and structure of the products you're offering and how you plan to source those loans? And then how are you guys thinking about the growth of the MSR portfolio too? I mean, in addition to just creating the asset through your own production, are you guys seeing any opportunities to acquire bulk or mini bulk MSR there? Thanks.

Eric Hagen: Hey, good afternoon. Hope you guys are well. I got a couple of questions. The home improvement financing you announced earlier this week, can you talk about the, I guess, types and structure of the products you're offering and how you plan to source those loans? And then how are you guys thinking about the growth of the MSR portfolio too? I mean, in addition to just creating the asset through your own production, are you guys seeing any opportunities to acquire bulk or mini bulk MSR there? Thanks.

It's early in the state can you talk about the.

I guess types and the structure of the products, you're offering and how you plan to source of those loans.

Then how are you guys thinking about the growth of the how're.

How are you guys thinking about the growth of the MSR portfolio to I mean.

And to just creating the asset on your.

Some of your own production how are you guys seeing any opportunities to acquire ball from mini bulk.

And then sort of there.

Okay. So on the home improvement side.

Patti Cook: Okay. So on the home improvement side, this is also an exciting new vertical for us, right? The point of sale technology it brings us not only puts us into the home improvement business, but gives us a great opportunity to expand. I think right off the bat, they're already set up. We're doing business as we speak in their sort of traditional product, which is contractors with homeowners that are doing home improvement. But I think what you'll see there is we can leverage through our distribution volume, and I think we can also improve the back-end execution. So that by itself will provide growth to that vertical. But then excitingly, we can put new products on that platform. We're looking at solar as one example.

This is also an exciting new vertical for US right. The point of sale of technology. It brings us not only puts us into the home improvement business, but gives us a great opportunity to expand.

Right off the bat, they're already set up where doing business as we speak and they're sort of traditional product, which is contractors with.

Homeowner et cetera doing home improvement, but I think what you'll see there is we can leverage through our distribution volume and I think we can also improve the backend of execution. So that by itself will provide growth to that vertical, but then excitingly we can put.

New products on that platform.

We may look we're looking at solar as one example, so I think the products will expand and we can also expand the growth as we plug it into our distribution channel.

Patti Cook: So I think the products will expand, and we can also expand the growth as we plug it into our distribution channel. On the MSR side, we'll continue to retain our retail MSR within Finance of America, and we will continue to sell our TPO MSR to the fund. The fund could be looking at bulk, less important to Finance of America to be looking at bulk acquisitions.

So I think the products will expand, and we can also expand the growth as we plug it into our distribution channel. On the MSR side, we'll continue to retain our retail MSR within Finance of America, and we will continue to sell our TPO MSR to the fund. The fund could be looking at bulk, less important to Finance of America to be looking at bulk acquisitions.

On the MSR side, we will continue to retain our retail MSR within finance of America, and we will continue to sell our T. P O witness the light to the fund.

On the fund could be looking at bulk less important to finance from America to be looking at bulk acquisition.

That's helpful detail. Thank you very much.

Eric Hagan: That's helpful detail. Thank you very much.

Eric Hagen: That's helpful detail. Thank you very much.

You're welcome.

Patti Cook: You're welcome.

Thank you ladies and gentlemen, we have reached the end of the question and answer session. I will now turn the call over to Patty Cook for closing remarks.

Operator: Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. I will now turn the call over to Patti Cook for closing remarks.

Well that was quick I didn't expect that to be the answer.

Patti Cook: Wow, that was quick. I didn't expect that to be the answer. So thank you for all of you that are on the call. As mentioned earlier, we believe our results this quarter reinforce two key differentiating factors. First, our diversified platform with market-leading businesses that are less correlated to refinance volumes or interest rates continues to drive more sustainable origination volume, margins, revenue, and earnings. Second, we remain proactive and increasingly leveraging our strong balance sheet to further develop our footprint via strategically complementary and financially accretive acquisitions. As a public company, we remain focused on continuing to build shareholder value, and we look forward to discussing our progress on future calls. Thank you all, and have a great evening.

So thank you for all of you that are on the call.

As mentioned earlier, we believe our results this quarter reinforced two key differentiating factors.

First our diversified platform with market, leading businesses that are less correlated to refinance volumes are of interest rate continues to drive more sustainable origination volume margin revenue and earnings second we remain proactive and.

And increasingly leveraging our strong balance sheet to further develop our footprint via strategically complementary and financially accretive acquisitions.

As a public company, we remain focused on continuing to build shareholder value and we look forward to discussing our progress on future calls. Thank you all and have a great evening.

This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation of all have a great day.

Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation, and have a great day.

Okay.

Q1 2021 Finance of America Companies Inc Earnings Call

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