UWM (US:UWMC)2022-05-09 16:00PART I - FINANCIAL INFORMATION Financial Statements Q1 2022 financial statements show significant asset and liability decreases, with net income declining due to lower loan production Condensed Consolidated Balance Sheets As of March 31, 2022, total assets decreased significantly to $11.0 billion from $22.5 billion at year-end 2021 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $901,174 | $731,088 | | Mortgage loans at fair value | $5,208,167 | $17,473,324 | | Mortgage servicing rights | $3,514,102 | $3,314,952 | | Total assets | $10,990,953 | $22,528,358 | | Liabilities | | | | Warehouse lines of credit | $4,076,829 | $15,954,938 | | Senior notes | $1,981,106 | $1,980,112 | | Total liabilities | $7,824,711 | $19,357,357 | | Total equity | $3,166,242 | $3,171,001 | Condensed Consolidated Statements of Operations Q1 2022 net income decreased 47.3% to $453.3 million from $860.0 million in Q1 2021 Q1 2022 vs. Q1 2021 Statement of Operations (in thousands, except per share data) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Loan production income | $383,871 | $1,074,665 | | Loan servicing income | $198,565 | $123,789 | | Change in fair value of MSRs | $171,963 | $(59,259) | | Total revenue, net | $821,794 | $1,189,870 | | Total expenses | $364,462 | $316,979 | | Net income | $453,287 | $860,005 | | Net income attributable to UWMHC | $21,930 | $47,985 | | Diluted EPS | $0.22 | $0.33 | Condensed Consolidated Statements of Changes in Equity Total equity slightly decreased from $3.171 billion to $3.166 billion in Q1 2022, offset by distributions - Key changes in equity for Q1 2022 include net income of $453.3 million, distributions to SFS Corp. of $450.6 million, dividends of $9.3 million, and stock-based compensation expense of $1.8 million14 Condensed Consolidated Statements of Cash Flows Q1 2022 net cash from operations significantly increased to $11.75 billion due to decreased mortgage loans Q1 2022 vs. Q1 2021 Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $11,751,763 | $2,637,017 | | Net cash provided by (used in) investing activities | $610,498 | $(7,233) | | Net cash used in financing activities | $(12,192,175) | $(2,260,958) | | Increase in cash and cash equivalents | $170,086 | $368,826 | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, 'Up-C' structure, MSRs, debt, and related party transactions - The company operates under an 'Up-C' structure where UWM Holdings Corporation's only material asset is its approximate 5.8% ownership of Class A Common Units in Holdings LLC, with the remaining 94.2% held by SFS Corp. and presented as a non-controlling interest222376 - In Q1 2022, the company sold MSRs on loans with an aggregate UPB of approximately $56.6 billion for proceeds of about $656.7 million. The fair value of the total MSR portfolio was $3.51 billion as of March 31, 202248 - As of March 31, 2022, the company had $4.08 billion outstanding on its warehouse lines of credit and $2.0 billion in aggregate principal of senior unsecured notes. The company was in compliance with all debt covenants535758 - The company declared a Q1 2022 dividend of $0.10 per share on Class A common stock, paid in April 2022. A subsequent dividend of $0.10 per share was declared for Q2 2022, payable in July 2022111113 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q1 2022 loan origination volume and gain margin declines to rising interest rates and competition Key Operational and Financial Metrics (in billions/millions) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Total Loan Origination Volume | $38.8B | $49.1B | | Gain Margin | 99 bps | 219 bps | | Loan Production Income | $383.9M | $1,074.7M | | Net Income | $453.3M | $860.0M | | Adjusted EBITDA | $128.4M | $711.4M | - The decrease in loan production income was primarily driven by a 120 basis point decline in gain margin and a $10.3 billion (21%) decrease in loan production volume compared to Q1 2021138 - The company's primary sources of liquidity are borrowings under warehouse facilities and cash flow from operations, including the sale of loans150151160 - The company has $2.0 billion in aggregate principal of senior unsecured notes with maturities in 2025, 2027, and 2029, and was in compliance with all related covenants166168170 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, impacting MSRs and loan origination, naturally hedged by its servicing portfolio - The company is subject to interest rate risk, which impacts MSRs, IRLCs, and mortgage loans at fair value. Rising rates generally increase MSR value but decrease origination volume, creating a natural hedge195197 Interest Rate Sensitivity Analysis as of March 31, 2022 (in thousands) | Change in Fair Value | Down 25 bps | Up 25 bps | | :--- | :--- | :--- | | Mortgage loans at fair value | $51,829 | $(53,179) | | MSRs | $(68,567) | $63,742 | | IRLCs (asset) | $111,146 | $(119,702) | | FLSCs (liability) | $(165,685) | $170,976 | - Credit risk is mitigated through stringent underwriting. For Q1 2022, originated loans had a weighted average FICO score of 741 and a loan-to-value ratio of 75.07%202 Controls and Procedures Management concluded that disclosure controls were effective as of March 31, 2022, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2022208 - No material changes to internal control over financial reporting occurred during the first quarter of 2022209 PART II - OTHER INFORMATION Legal Proceedings The company is involved in several legal proceedings, including class action and antitrust lawsuits, with no material adverse effect expected - A class action lawsuit was filed by three independent mortgage brokers alleging unpaid origination fees. The company denies the claims and intends to defend the matter vigorously212 - The Okavage Group filed an antitrust lawsuit alleging that UWM's policy to not work with brokers who also partner with two specific competitors is anticompetitive. A motion to dismiss is pending213215 - A former employee filed a class action lawsuit alleging violations of the Fair Labor Standards Act for unpaid overtime. The case is currently stayed pending settlement discussions216 Unregistered Sales of Equity Securities and Use of Proceeds The company has a $300 million share repurchase program, with no Q1 2022 repurchases, leaving $218.4 million available - No shares of Class A common stock were repurchased during Q1 2022219 - As of March 31, 2022, $218.4 million remained available under the company's share repurchase program, which expires in May 2023218219 Other Information The company amended its lease agreement with a related party owned by CEO Mat Ishbia to expand its corporate campus, approved by the Audit Committee - The company amended its lease agreement with a related party, an entity owned by CEO Mat Ishbia, to expand its corporate campus. The Audit Committee approved the transaction220 Exhibits This section lists exhibits filed with the Form 10-Q, including capital stock, lease amendment, CEO/CFO certifications, and XBRL data