Finance of America Companies Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Discontinued Operations

Discontinued Operations

12 Months Ended

Dec. 31, 2023

Discontinued Operations and Disposal Groups [Abstract]

4. Discontinued Operations

During the fourth quarter of 2022 and calendar year 2023, the Company entered into a series of transactions, discontinuing certain business lines while enhancing our reverse mortgage loan business, as described in further detail below, in order to transform our business from a vertically integrated, diversified lending and complementary services platform to a modern retirement solutions platform. This transformation included the wind-down of the previously reported Mortgage Originations segment and sale of the previously reported Commercial Originations and Lender Services segments. This constitutes a strategic shift that has or will have a major effect on our operations and financial results. As such, the results of our previously reported Mortgage Originations, Commercial Originations, and Lender Services segments, as described below, are reported as discontinued operations for all periods presented.

Mortgage Originations Segment

On October 20, 2022, the Board of the Company authorized a plan to discontinue the operations of the Company’s previously reported Mortgage Originations segment, other than its home improvement lending business, which commenced in the fourth quarter of 2022 and was completed on February 28, 2023. On August 31, 2023, FAM entered into an agreement to sell certain operational assets of the home improvement lending business. This transaction closed on September 15, 2023 for cash consideration of $0.3 million. In connection with such transaction, the Company began the process of winding down the operations of the home improvement lending business, which is expected to be substantially complete by the end of March 2024. The wind-down of the home improvement lending business is not considered by the Company to be a strategic shift that has or will have a major effect on our operations and financial results. Therefore, the operations of the home improvement lending business are reported as part of the Company’s Retirement Solutions segment rather than as discontinued operations.

Lender Services Segment

On February 1, 2023, Incenter entered into an agreement to sell one hundred percent of (i) the issued and outstanding shares of capital stock of ANTIC, a direct subsidiary of Incenter and an indirect subsidiary of the Company, and (ii) the issued and outstanding membership interests of BNT, a direct subsidiary of Incenter and an indirect subsidiary of the Company. The closing of the ANTIC and BNT sale was completed on July 3, 2023. Incenter received $92.6 million in cash, which is the base purchase price of $100.0 million adjusted at closing in accordance with the provisions of the agreement, and transferred $27.0 million of cash to the purchaser. The consideration is subject to subsequent certain contractual purchase price adjustments. The Company has historically included the operations of ANTIC and BNT in its previously reported Lender Services segment.

On March 30, 2023, the FoA Equity Board authorized a plan to sell assets making up the remainder of the Company’s previously reported Lender Services segment, with the exception of its Incenter Solutions LLC operating service subsidiary. The Company sold such assets on June 30, 2023 in two separate transactions for an aggregate consideration of $17.5 million, which includes $4.8 million in cash and a $12.7 million note receivable, subject to subsequent certain contractual purchase price adjustments. The note receivable is included in the Consolidated Statements of Cash Flows as a non-cash investing activity. During the quarter ended September 30, 2023, the Company ceased the operations of the Company’s Incenter Solutions LLC operating service subsidiary. The wind-down of Incenter Solutions LLC was substantially complete as of December 31, 2023. The wind-down of Incenter Solutions LLC is not considered by the Company to be a strategic shift that has or will have a major effect on our operations and financial results. The operations of Incenter Solutions LLC are reported within Corporate and Other in Note 27 - Business Segment Reporting, rather than as discontinued operations.

Commercial Originations Segment

On February 19, 2023, FAH entered into an agreement to sell certain commercial originations operational assets of FAM, operating under the brand FACo. This transaction closed on March 14, 2023 for consideration of $2.5 million, of which $0.5 million is cash consideration. The Company has historically included the commercial originations operations of FACo in its previously reported Commercial Originations segment. In connection with the transaction, the Company discontinued the operations of and wound-down its Commercial Originations segment.

The following table summarizes the major classes of assets and liabilities classified as discontinued operations as of December 31, 2023 and December 31, 2022 (in thousands):


	December 31, 2023		December 31, 2022
Assets
Cash and cash equivalents	$	—	$	36,212
Restricted cash	—		311
Loans held for sale, at fair value	—		141,994


Intangible assets, net	—		77,436
Other assets, net	6,721		57,407
Assets of discontinued operations	$	6,721	$	313,360
Liabilities
Other financing lines of credit	$	—	$	127,735
Payables and other liabilities	18,304		99,379
Liabilities of discontinued operations	$	18,304	$	227,114

The following table summarizes the major components of net loss from discontinued operations (in thousands):


	For the year ended December 31, 2023		For the year ended December 31, 2022
Revenues
Net fair value gains on loans and related obligations	$	308	$	14,705
Fee income	68,138		280,315
Gain (loss) on sale and other income from loans held for sale, net	(2,222)		216,949
Net interest income:
Interest income	824		41,598
Interest expense	(966)		(33,088)
Net interest income (expense)	(142)		8,510
Total revenues	66,082		520,479

Expenses
Salaries, benefits, and related expenses	51,780		456,382
Loan production and portfolio related expenses	1,224		42,957

Marketing and advertising expenses	1,042		21,144
Depreciation and amortization	5,176		22,963
General and administrative expenses	54,070		186,943
Total expenses	113,292		730,389
Impairment of intangibles and other assets(1)	(4,455)		(182,981)
Other, net(2)	(1,444)		3,839
Net loss from discontinued operations before income taxes	(53,109)		(389,052)
Provision (benefit) for income taxes from discontinued operations	(1,200)		608
Net loss from discontinued operations	(51,909)		(389,660)
Net loss from discontinued operations attributable to noncontrolling interest	(33,108)		(263,396)
Net loss from discontinued operations attributable to controlling interest	$	(18,801)	$	(126,264)

(1) The Company evaluates the carrying value of long-lived assets, including intangible assets, fixed assets, leasehold improvements as well as ROU assets in operating leases when indicators of impairment exist in accordance with ASC 360. Based on the analyses, the Company recognized impairment charges for the year ended December 31, 2023 related to the sales of the previously reported Lender Services and Commercial Originations segments.

For the year ended December 31, 2022, the Company recognized impairment of intangibles and other assets in the previously reported Mortgage Originations, Commercial Originations, and Lender Services segments due to the length and magnitude of the downturn in mortgage demand.

(2) Amount includes gains on disposals of $0.3 million for the year ended December 31, 2023. The gains on disposals consist of a $12.8 million gain on the sale of the remaining assets of the Lender Services segment, a $11.7 million loss on the sale of our commercial originations operational assets, and a $0.8 million loss on the sale of ANTIC and BNT.

The Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 included the following material activities related to discontinued operations (in thousands):


	For the year ended December 31, 2023		For the year ended December 31, 2022
Gain (loss) on sale and other income from loans held for sale, net	$	(2,222)	$	221,121
Unrealized fair value changes on loans, related obligations, and derivatives	308		14,705
Impairment of intangibles and other assets	4,455		182,981

Depreciation and amortization	5,176		22,963
Acquisition of fixed assets	1,815		5,787