Finance Of America Companies Inc. (FOA) Q2 2026 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. My name is Leah, and I will be your conference moderator today. At this time, I'd like to welcome you to the Finance of America Second Quarter 2026 Earnings Call. [Operator Instructions] I will now turn the call over to Michael Fant, Senior Vice President of Finance. You may now begin.

Thank you, and good afternoon, everyone, and welcome to Finance of America's Second Quarter 2026 Earnings Call. With me today are Graham Fleming, Chief Executive Officer; Kristen Sieffert, President; and Matt Engel, Chief Financial Officer. As a reminder, this call is being recorded, and you can find the earnings release and related presentation on our Investor Relations website at ir.financeofamericacompanies.com. Also, I would like to remind everyone that comments on this conference call may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 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 today's earnings release and related presentation. 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 annual report on Form 10-K for the year ended December 31, 2025 filed with the SEC on March 13, 2026. Such risk factors may be amended and updated in our subsequent filings with the SEC. We are not undertaking any commitment to update these statements if conditions change. Please note, today, we will be discussing interim period financials for our continuing operations, which are unaudited. 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 to the extent available without unreasonable efforts in our earnings press release and presentation on the Investor Relations page of our website. Now I will turn the call over to our Chief Executive Officer, Graham Fleming. Graham?

Thank you, Michael. Good afternoon, everyone, and thank you for joining us. The second quarter reinforced what we've been communicating over the past several quarters that the operational improvements and investments we have made are now translating into a stronger, more scalable business. While market movements can create volatility in fair value adjustments and gain on sale margins, we remain focused on areas we directly control, production, operating efficiency, expense management, capital allocation and cash generation. During the second quarter, our team delivered strong execution across each of those areas. To start, if you turn to Slide 5 of the accompanying presentation, Finance of America recognized adjusted net income of $19 million or $0.84 per share during the second quarter. For the first half of 2026, we have generated $45 million in adjusted net income or $1.94 per share, an 81% improvement over the first half of 2025. This stems from the 14% increase in originations so far in 2026 compared to the first half of 2025, including $730 million in reverse mortgages funded in the second quarter. This represents a 21% increase over the second quarter of last year and leaves us confident in our ability to achieve our full year guidance range. Perhaps the clearest demonstration of our execution this quarter was the strength of our cash generation, allowing us to invest in strategic growth and strengthen the balance sheet. During the quarter, we generated $58 million in cash through our originations and capital markets activities. We used those proceeds to complete the acquisition of the mortgage servicing rights with respect to a $5.2 billion HECM MSR from Onity, make the semiannual interest payment towards our nonfunding corporate notes, and still maintain strong cash balances at quarter end. As discussed previously, the Onity transaction, which closed on June 30, represents more than the acquisition of servicing assets. It diversifies our servicing footprint, broadens the population of homeowners we can serve and creates additional opportunities to introduce our proprietary solutions to customers who may benefit from them, further strengthening our position as the leading reverse mortgage company in the industry. Before turning the call over to Kristen, I'd like to spend a moment on why we remain so optimistic about the long-term opportunity. As shown on Slide 6, older homeowners hold substantial wealth in their homes, while rising costs are placing greater pressure on retirement cash flow. In today's rate environment, many traditional options for accessing that equity are less attractive. Together, these dynamics create a durable need for responsible home equity solutions and reinforce the long-term relevance of our platform. We believe Finance of America is well positioned to serve that need, given our specialized platform, broad product capabilities and focus on helping homeowners thoughtfully incorporate home equity into their retirement planning. The macroeconomic and demographic need is clear. Kristen will now discuss how the investments we have made across distribution, technology and proprietary products are strengthening our ability to capture that opportunity.

Thank you, Graham, and good afternoon, everyone. Last quarter, I said we were reaching an inflection point in the platform. The second quarter gives us greater confidence in that view. The investments we've made over the past 2 years across distribution, technology and product are beginning to compound. The results are stronger demand, a more productive operating model and a platform with increasing long-term earnings power. First, demand is strengthening. Turning to Slide 8. Submissions exceeded $1 billion during the quarter, even in a rising rate environment, increasing approximately 11% sequentially and 19% year-over-year, while funded volume increased approximately 21% year-over-year to $730 million. Second, we're converting demand more efficiently. The clearest proof point shown on Slide 9 is retail. Retail opportunities increased 9%, submissions increased 19% and funded loans increased 33%. Importantly, we achieved that growth with stable sales capacity, resulting in meaningful productivity improvements. Funded loans per call center loan officer increased nearly 30% from the first quarter. These results reflect structural improvements in how we engage customers, convert demand and move borrowers through the origination process. Historically, growth depended more heavily on generating additional top-of-funnel opportunities. Now we're demonstrating our ability to generate more production from the pipeline we already have. Our proprietary technology platform and AI-enabled capabilities are also supporting these improvements, helping us better understand customer needs, match homeowners with appropriate solutions and improve efficiency throughout the origination process. Our digital experience is showing similar progress. In June, approximately 10,000 site visitors engaged with our prequalification engine, achieving our year-end monthly target 6 months ahead of schedule. More importantly, monthly prequalification offers increased nearly 90% from the first quarter and time to application improved approximately 57%. These metrics demonstrate that we're creating a larger pool of engaged borrowers while making it easier and faster for customers to move through the application process. Third, our platform is becoming more valuable and scalable. Our proprietary products continue expanding the addressable market by providing customers greater flexibility and additional ways to access home equity. During the quarter, proprietary submissions increased approximately 20% and proprietary fundings increased approximately 25%. As shown on Slide 10, our retail and wholesale channels continue to reinforce one another. Retail provides direct consumer engagement and greater visibility into the customer journey, while wholesale extends our reach through trusted partners and brings our proprietary solutions to more borrowers across more markets. Together, they create multiple avenues for profitable growth while leveraging the same product platform and operating infrastructure. Stepping back, 3 things stood out this quarter. Demand is strengthening, conversion is improving, and our investments are compounding into a more scalable platform with durable earnings power. The market opportunity ahead of us is still large and underpenetrated, but the real story this quarter is conviction. We're building a stronger, more valuable business, not simply a bigger one. With that, I'll turn it over to Matt.

Thank you, Kristen, and good afternoon, everyone. As Graham mentioned, the second quarter demonstrated continued strength in the underlying business, while reported earnings reflected several market-driven and nonoperating items. I'll provide additional color on the quarter, which is summarized by segment on Slide 11 and in today's earnings release. We recognized a GAAP net loss of $29 million for the quarter, while adjusted net income totaled $19 million or $0.84 per share. The difference primarily reflects noncash fair value adjustments on our portfolio, combined with certain one-time impacts during the quarter, which negatively impacted our GAAP results. We recorded $84 million of negative fair value adjustments during the quarter. In addition to those impacting our portfolio related to higher interest rates, this also includes a $24 million adjustment related to our convertible notes as our stock price increased nearly $11 per share during the quarter. Because the convertible notes are carried at fair value indexed to our stock price, an increase in our stock price increases the value of the associated liability, creating a noncash expense under GAAP. We also released our deferred tax asset valuation allowance, creating a tax benefit in the quarter of $42 million. This noncash accounting adjustment reflects our expectation that future taxable income will support realization of these tax assets and investors should expect a more normalized effective tax rate going forward. While these accounting adjustments can create meaningful quarter-to-quarter volatility in our GAAP earnings, they do not affect the underlying operating performance or cash generation of the business. We believe that adjusted net income continues to provide the clearest picture of the underlying earnings power of FOA. Adjusted earnings per share of $0.84 is a 53% improvement over the second quarter of 2025, and first half 2026 adjusted EPS of $1.94 improved 81% over the first half of 2025. Beginning with Retirement Solutions, continued demand as evidenced by the 21% increase in funded volume compared to the second quarter of 2025 allowed the business to contribute relatively stable adjusted earnings for the sequential quarter, even while we continued investing in the business with higher personnel and marketing expenses to support future production. For the first half of 2026, Retirement Solutions generated a 21% increase in adjusted net income on 14% higher funded volume compared to the first half of '25. And we believe these investments will continue to support higher production, stronger operating leverage and increased earnings power over time. Portfolio management completed a securitization of over $1 billion during June, which contributed to FOA's strong cash flow from originations and capital markets activity for the quarter. For the first half of the year, this segment has recognized $46 million in adjusted net income, a 24% improvement over the first half of 2025. Based on our first half performance and continued momentum across submissions and funded production, we are reaffirming our full year guidance of funded volume between $2.8 billion and $3.1 billion and adjusted EPS between $4.50 and $5 per share. Turning to our balance sheet and cash flows. As shown on Slide 12, cash generation from originations and capital markets activities remained strong at $58 million in the quarter and approximately $116 million for the first half of 2026. This enabled us to complete the Onity portfolio acquisition, make the semiannual interest payment on our nonfunding corporate debt and maintain strong quarter end cash balances. As we have said before, strengthening the balance sheet remains foundational to unlocking the full value of the operating franchise we have built over the past several years. We are very pleased with the progress we have made. When we think about our balance sheet, we identify 3 key components: inventory loans, HECM MSR and the residual fair value of our proprietary securitizations. The first category is inventory loans held at fair value that are yet to be sold or securitized. This is represented by loans held for investment and loans held for sale on our balance sheet. At the time of sale or securitization, we will recognize a cash premium and depending on the securitization type, we record a HECM MSR or residual interest at fair value. These loans are financed via warehouse facilities, and we hold a small balance of haircut equity in them. When loans are securitized, in most cases, the assets will remain on our balance sheet with a corresponding liability in accordance with GAAP. For HECM loans, these are HMBS obligations and for proprietary loans, these are nonrecourse securitizations. For both categories, FOA recognizes an accretive yield on the adjusted net asset value we hold. Regarding the HECM MSR, the adjusted net asset value, or the delta between the loans held for investment subject to HMBS obligations and the corresponding HMBS obligations, totals $326 million as of June 30, with financing of only $46 million or roughly 14% leverage. We continue to pursue increased financing secured by this asset at a more appropriate attachment point. With respect to our residuals and proprietary securitizations, we have the ability over time to monetize the equity held in these assets through the call and reissue of the nonrecourse securitizations. Proceeds from the monetization of the HECM MSR and proprietary residuals provides financial flexibility to our business. Our first priority is retiring the remaining $150 million of senior secured notes this November, which will materially reduce our nonfunding debt, lower our financing costs and improve recurring earnings. Looking ahead, once that debt is retired, the company will have greater options for a broad range of potential actions such as further deleveraging, stock repurchases, dividends or business investment. Before wrapping up, I want to call your attention to an amendment effective July 31, on the reporting structure of our Class B shares, which establishes a one-to-one alignment of the reported Class B shares with the underlying LLC ownership. This amendment does not change economic ownership or voting power, but provides a clearer view of fully diluted shares and market capitalization. With that, I'll turn the call back to Graham.

Thank you, Matt. The second quarter demonstrated continued progress across the business. We delivered strong growth in funded volume, expanded adjusted earnings, generated significant cash, completed the Onity transaction and continued strengthening our balance sheet. The long-term opportunity in reverse mortgages continues to expand, and we believe Finance of America remains strategically positioned to capitalize on that opportunity. Just as importantly, the operational improvements we have discussed over the past several quarters are producing measurable results. Demand is strengthening, conversion and sales productivity are improving, and our proprietary products are expanding the ways we can serve older homeowners. We remain confident in our full year outlook and focused on disciplined execution. As we continue reducing debt and improving the efficiency and scalability of the platform, we believe Finance of America is well positioned to capture the long-term opportunity in home equity and create durable shareholder value. Thank you for joining us today. We'll now open the line for questions.

[Operator Instructions] Your first question comes from the line of Gaurav Mehta with Alliance Global Partners.

I wanted to ask you on some of your comments around demand and submissions volume. I was wondering if you're seeing any difference between the demand for your proprietary products and HECM products?

Yes. We've seen growing demand for proprietary products recently, mostly as a function of the proprietary products offering better cash flow to the consumer. So those products, the amount available changes as interest rates change. So it's typically whatever is best suited for the customer is where that demand lands. And right now, that's with the proprietary channel.

Okay. As a follow-up, I wanted to ask you on your tangible equity value per share. It seems like it was slightly lower than 1Q. Can you help us understand why the tangible equity value went lower this quarter?

Yes. Part of it is just the reported loss for the quarter. The GAAP loss is the number we quoted, which includes the fair value adjustment. So that book number is what's driving it primarily.

Your next question comes from the line of Timothy D'Agostino with B. Riley Securities.

Just in mind, it'd be great to get an update if there's anything meaningful on the [Helix] platform and then the [Joy AI]. Is that -- there was a slide in the last deck last quarter. And I was just wondering if there's any meaningful updates there and kind of what you're seeing in the accelerating operating leverage through more production, if that's what's driving it?

Yes, it's definitely the foundational platform that's driving those improvements. When we talk about the productivity gains from our loan officers as well as the improvements in the digital funnel with the metrics that I shared earlier, all of that is being driven through these AI platforms.

Okay. Great. And then if I could ask a second one. Just to clarify, on capital allocation, with the Onity MSR portfolio acquisition behind us and looking forward to the $150 million of potential debt repurchase, it kind of sounds like share buybacks might be on hold until that event. Is that the right way to think about it? Or can you just provide a little more color on how you're thinking about capital allocation before the potential repurchase of $150 million?

Tim, I think that's fair. I do think that our primary focus is the retirement of the $150 million here in just a few months from now, right? Past that, I think at our next quarterly earnings release, we have a better sense of how we wrap up '26 and looking forward to '27, where our stock is trading at the time, how the balance sheet looks and we'll make some of those decisions going forward. But between now and then, our primary focus is just retiring that $150 million.

Your next question comes from the line of Gabe Poggi with Raymond James.

I've got a couple, if it's okay. Can you talk about gain on sale margin in the quarter for HECM product and HomeSafe products and how that trended relative to the first quarter?

Yes. The interest rate volatility did create a little volatility in the gain on sale margins as well during the quarter. I think HECM spreads remain tight, but not a lot of change there. I think on the proprietary side, we did see a little bit of impact there in terms of the executed securitization price we expect on those assets. I think Graham has talked in the past that when interest rates move suddenly, we don't always choose to reprice our pipeline, right? We have the ability to, but sometimes we choose not to from a customer disruption standpoint, and that will create some volatility in our margins going forward. But over the long term, we can kind of manage that a little better.

Do you have a specific number you can provide for the quarter for each of those?

I don't think we break that number out right off the top, but let me see if we can get you something on the follow-up on that one.

Okay. Rates have obviously moved a lot since June 30. Do you have any update on kind of -- I know it's a GAAP mark and it's subject to a lot of volatility, but any update on where book value is today on a tangible basis?

So I think it's funny. I think you're absolutely right. I think -- and it's even reversed itself a little bit in the last 2 days. Certainly, but if generally, portfolio markdowns are tied to higher interest rates, rates moved up considerably in July, and one would expect we would have a fair value write-down in July. Now the first 4 days of August, that's kind of gone the other way a little bit. I think we would have recouped some of that. So I can't give you the exact numbers. We haven't closed our books for July or for the third quarter yet. But directionally, you're correct in that assessment.

Also Gabe, just to add to that, right? Some other components that go into fair value are home price appreciation, which has continued to remain strong and ultimately, credit spreads, and we'll give an update on credit spreads in our September transaction. So it's not just driven by the movement in rates. There's kind of -- it's a 3-legged stool.

On the Onity acquisition, can you talk about the kind of the impact to the bottom line? I know there's 2 parts to it, but what's closed? How do you think about that just beyond diversification of servicers?

Yes. So we acquired the asset, roughly had a book value of around $70 million. So we'll expect to earn a yield in the mid-teens, and that will flow through the P&L here in the second half of the year.

Do you intend to add that to guidance as you think about guidance in the back half? Or I say it another way, is that incorporated in current guidance?

Yes, it's incorporated into the current guidance.

Okay. Okay. That's helpful. And then lastly, just if you can, and maybe we take this offline, can you help tie the $58 million of cash flows you guys are referring to in 2Q to the $19 million of ANI?

So I think probably the best way to do that is let's -- we'll get our 10-Q filed later this week, right? And we have additional information in there with earnings by segment, which help you kind of bridge some of that. I think we can kind of help you walk through that 10-Q and the related disclosures just so we can build you back to that number.

There are no further questions at this time. I will now turn the call back to Graham Fleming for closing remarks.

Yes. Thank you, everybody, for participating in the Q2 call, and we will look forward to updating our Q3 results in November. So thank you very much.

This concludes today's call. Thank you for attending. You may now disconnect.