UWM (US:UWMC)2022-02-28 16:00PART I Business UWM is the largest wholesale mortgage lender, originating $226.5 billion in 2021, focusing on high-quality loans and a $319.8 billion MSR portfolio Key Financial and Operational Metrics (2021 vs. 2020) | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Residential Mortgage Originations | $226.5 billion | $182.5 billion | +24% | | Net Income | $1.57 billion | $3.38 billion | -53.6% | | Team Members (Year-End) | ~8,000 | ~7,500 | +7% | | Servicing Portfolio (UPB) | $319.8 billion | $188.3 billion | +69.9% | | Average Application to Clear-to-Close | 18 business days | 17 business days | +1 day | - UWM operates exclusively as a Wholesale Mortgage Lender, partnering with over 11,000 independent broker businesses, a strategy designed to build loyalty and avoid channel conflict212529 - The company focuses on originating high-quality loans, with 90% of 2021 originations being conventional conforming or government-insured, and a weighted average FICO score of approximately 7504253 - UWM utilizes a suite of proprietary and exclusively licensed technologies, including EASE, UClose, Blink+, and BOLT, to streamline the mortgage process72 - The servicing portfolio's 60+ day delinquency rate was 0.81% as of December 31, 2021, significantly lower than the industry average of 3.38%7882 Risk Factors The company faces significant business, financing, regulatory, and corporate structure risks, including interest rate sensitivity, reliance on warehouse facilities, and GSE dependence - Business Risks: Performance is highly dependent on U.S. residential real estate market conditions and prevailing interest rates, where rising rates can decrease mortgage demand and MSR values113118 - Financing Risks: UWM relies heavily on short-term warehouse facilities (repurchase agreements) for funding, which are subject to counterparty risk, margin calls, and renewal risk181183 - Regulatory Risks: The business is subject to extensive federal and state regulations, with significant oversight from the CFPB, where noncompliance can lead to fines and reputational damage207220 - Dependence on GSEs: The business is highly dependent on Fannie Mae, Freddie Mac, and Ginnie Mae for selling and securitizing loans, making any changes to these entities or their guidelines detrimental122125 - Corporate Structure Risks: UWM is a "controlled company" as SFS Corp. holds approximately 79% of the combined voting power, potentially leading to conflicts of interest with other stockholders254257 Properties UWM's headquarters in Pontiac, Michigan, consists of 1.4 million square feet across three leased buildings from related parties - The corporate headquarters in Pontiac, Michigan, comprises three leased buildings with approximately 1.4 million square feet of space272 - The properties are leased from entities controlled by CEO Mat Ishbia and founder Jeff Ishbia, making them related-party transactions272 Legal Proceedings UWM faces legal proceedings including class-action complaints for unpaid fees, an antitrust challenge, and a former employee's overtime claim - A class-action complaint was filed by three independent mortgage brokers in December 2020 concerning alleged unpaid origination fees due to a change in commission policy274 - The Okavage Group, LLC filed a complaint in April 2021 alleging UWM's policy to not work with brokers who also partner with certain competitors constitutes anticompetitive conduct under federal and Florida antitrust laws275 - A former employee filed a complaint in July 2021 alleging unpaid overtime in violation of the Fair Labor Standards Act, seeking class certification277 Mine Safety Disclosures This disclosure item is not applicable to the company's operations - Not applicable278 PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities UWM's Class A common stock trades on NYSE, initiated a $0.10 quarterly dividend, and repurchased $81.6 million in shares by year-end 2021 - The company's Class A common stock and Warrants are listed on the NYSE under symbols "UWMC" and "UWMCWS"281 - A quarterly dividend of $0.10 per share of Class A common stock was initiated in Q1 2021283 Share Repurchase Activity (Q4 2021) | Period | Total Shares Purchased | Average Price Paid Per Share | Approximate Dollar Value of Shares That May Yet be Purchased | | :--- | :--- | :--- | :--- | | October 1-31, 2021 | — | $— | $279,004,000 | | November 1-30, 2021 | 5,869,313 | $6.89 | $238,589,000 | | December 1-31, 2021 | 2,886,400 | $7.00 | $218,375,000 | | Total Q4 2021 | 8,755,713 | $6.92 | | | Total through 12/31/21 | 11,498,330 | $7.10 | | Management's Discussion and Analysis of Financial Condition and Results of Operations 2021 saw 24% origination growth but a 53.6% net income decline to $1.57 billion due to margin compression and MSR fair value accounting Consolidated Results of Operations Summary | ($ in thousands) | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Total revenue, net | $2,970,293 | $4,938,594 | $1,278,420 | | Total expenses | $1,392,052 | $1,553,634 | $863,363 | | Net income | $1,568,400 | $3,382,510 | $415,057 | | Adjusted EBITDA | $1,418,337 | $3,454,091 | $472,802 | - The decrease in 2021 net income was primarily driven by a $1.97 billion (43.2%) decrease in loan production income, caused by a 135 basis point decline in gain margin, partially offset by a 24% increase in loan production volume317 - Effective January 1, 2021, the company adopted the fair value method for MSRs, resulting in a $587.8 million net decrease in fair value recognized within revenue for 2021295314 - The company's liquidity is primarily sourced from warehouse facilities, with $16.0 billion outstanding on its lines as of December 31, 2021, a significant increase from $6.9 billion in 2020341351 Results of Operations 2021 net revenue decreased to $2.97 billion due to lower loan production income, offset by higher servicing income and reduced expenses from MSR accounting change Loan Production Income Components (2021 vs. 2020) | ($ in thousands) | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Primary gain (loss) | $(244,134) | $2,291,731 | (110.7)% | | Loan origination fees | $477,759 | $399,996 | 19.4% | | Capitalization of MSRs | $2,397,483 | $1,896,198 | 26.4% | | Total Loan production income | $2,585,807 | $4,551,415 | (43.2)% | - Loan servicing income increased to $638.7 million in 2021 from $288.3 million in 2020, a 121.6% increase, due to the growth in the average unpaid principal balance of loans serviced319 - Total expenses decreased by $161.6 million in 2021, driven by the elimination of MSR amortization expense ($573.1 million in 2020) due to an accounting change, though salaries and interest expense increased329330 Liquidity and Capital Resources Liquidity is primarily from warehouse facilities, with $16.0 billion outstanding, and 2021 saw a $10.0 billion net cash outflow from operations - The company funds the vast majority of its mortgage loan originations through short-term warehouse facilities, structured as master repurchase agreements340342 Financing Facilities Summary (as of Dec 31, 2021) | Facility Type | Total Advanced ($ thousands) | | :--- | :--- | | Warehouse Lines of Credit (MRA Funding) | $14,026,412 | | Early Funding Programs (Fannie/Freddie) | $1,235,426 | | Senior Notes (2025, 2027, 2029) | $2,000,000 (Principal) | | Borrowings against investment securities | $118,786 | Cash Flow Summary (2021 vs. 2020) | ($ in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(9,956,963) | $56,412 | | Net cash provided by investing activities | $199,751 | $231,882 | | Net cash provided by financing activities | $9,264,463 | $802,260 | | Net (decrease) increase in cash | $(492,749) | $1,090,554 | Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate, credit, and counterparty risks, hedging pipeline exposure but not MSRs, and maintaining high underwriting standards - The company's primary market risk is interest rate risk, impacting MSR valuations, IRLCs, and mortgage loans at fair value, with servicing considered a natural hedge to the origination business385386 Interest Rate Sensitivity Analysis (as of Dec 31, 2021) | ($ in thousands) | Down 25 bps | Up 25 bps | | :--- | :--- | :--- | | Change in Assets | | | | Mortgage loans at fair value | $89,174 | $(100,032) | | MSRs | $(92,030) | $84,894 | | IRLCs | $110,467 | $(128,632) | | Change in Liabilities | | | | FLSCs | $(199,079) | $222,457 | - Credit risk is managed through stringent underwriting standards, with 2021 originated loans having a weighted average FICO score of 750 and a loan-to-value ratio of 71.68%391 Financial Statements and Supplementary Data This section provides audited consolidated financial statements for 2019-2021, including balance sheets and cash flows, with an unqualified audit opinion Consolidated Balance Sheet Summary | ($ in thousands) | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $22,528,358 | $11,493,476 | | Mortgage loans at fair value | $17,473,324 | $7,916,515 | | Mortgage servicing rights | $3,314,952 | $1,756,864 | | Total Liabilities | $19,357,357 | $9,119,196 | | Warehouse lines of credit | $15,954,938 | $6,941,397 | | Senior notes | $1,980,112 | $789,323 | | Total Equity | $3,171,001 | $2,374,280 | - The independent auditor's report highlights a change in accounting principle: on January 1, 2021, the company adopted the fair value method to measure its mortgage servicing rights subsequent to initial recognition417 - The auditor identified the valuation of Mortgage Servicing Rights (MSRs) and the consolidation of Holdings LLC as a Variable Interest Entity (VIE) as critical audit matters due to significant judgments involved421424 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure No changes in or disagreements with accountants on accounting and financial disclosure were reported - None reported593 Controls and Procedures Management and independent auditors affirmed the effectiveness of disclosure controls and internal control over financial reporting as of December 31, 2021 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021596 - Management asserted that the company maintained effective internal control over financial reporting as of December 31, 2021, and the independent auditor's report concurred599600 Other Information No other information was reported for this item - None602 PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the 2022 Proxy Statement605 Executive Compensation Executive compensation details are incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the 2022 Proxy Statement606 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Equity compensation plans show 2.8 million securities to be issued and 77.2 million available, with other ownership data referenced from the 2022 proxy Equity Compensation Plan Information (as of Dec 31, 2021) | Plan Category | Number of Securities to be Issued Upon Exercise | Weighted Average Exercise Price | Number of Securities Remaining Available for Future Issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 2,812,320 | $— | 77,181,250 | | Equity compensation plans not approved by security holders | — | — | — | | Total | 2,812,320 | $— | 77,181,250 | Certain Relationships and Related Transactions, and Director Independence Details on related party transactions and director independence are incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the 2022 Proxy Statement610 Principal Accountant Fees and Services Principal accountant fees and services information is incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the 2022 Proxy Statement611 PART IV Exhibits and Financial Statement Schedules This section lists all exhibits filed with the Form 10-K, including corporate governance, debt, material contracts, and executive certifications - This item lists all exhibits filed with the Form 10-K, including corporate governance documents, debt agreements, material contracts, and executive certifications614 Form 10-K Summary No Form 10-K summary was provided for this item - None620