10-QPeriod: Q1 FY2022

Rocket Companies, Inc. Quarterly Report for Q1 Ended Mar 31, 2022

Filed May 10, 2022For Securities:RKT

Summary

Rocket Companies, Inc. reported a significant decrease in net income for the first quarter of 2022 compared to the same period in 2021. This decline was primarily driven by a substantial drop in the 'Gain on sale of loans, net,' reflecting both lower origination volumes and reduced gain on sale margins, influenced by a tighter spread between primary and secondary mortgage rates. While loan servicing income saw an increase due to the rising fair value of Mortgage Servicing Rights (MSRs), this was not enough to offset the overall decline in profitability. The company also experienced a considerable decrease in total revenue, largely impacted by the lower gain on sale of loans. Total expenses also decreased, primarily due to reduced other expenses related to title services and payoff interest. The company is actively managing its liquidity, with a substantial amount of cash on hand and significant available capacity under its funding facilities. However, investors should be aware of the ongoing volatility in the mortgage market and the company's strategic initiatives, including share repurchases and voluntary transition programs, which suggest a cautious outlook.

Financial Highlights

34 data points
Beta

Net Income

$53.71M

EPS (Diluted)

$0.40

Total Assets

$25.25B

Cash & Equivalents

$2.31B

Free Cash Flow

$8.75B

Financial Statements
Beta
Gross Profit$1.56B
Operating Expenses$1.61B
Net Income$53.71M
EPS (Basic)$0.44
EPS (Diluted)$0.40
Shares Outstanding (Basic)122.69M
Shares Outstanding (Diluted)1.98B

Key Highlights

  • 1Net income attributable to Rocket Companies significantly decreased to $53.7 million in Q1 2022 from $123.7 million in Q1 2021.
  • 2Total revenue declined to $2.67 billion in Q1 2022 from $4.54 billion in Q1 2021, primarily due to a substantial decrease in 'Gain on sale of loans, net'.
  • 3Gain on sale of loans, net decreased by 58.2% to $1.48 billion in Q1 2022 compared to $3.55 billion in Q1 2021.
  • 4Loan servicing income increased by 66.5% to $820.6 million in Q1 2022, driven by an increase in the fair value of MSRs and growth in the servicing portfolio.
  • 5Total expenses decreased by 5.2% to $1.61 billion in Q1 2022, largely due to a reduction in 'Other expenses', notably title-related expenses and payoff interest.
  • 6The company's servicing portfolio (UPB) grew to $545.8 billion as of March 31, 2022, up from $467.0 billion as of March 31, 2021.
  • 7Cash and cash equivalents, including restricted cash, decreased to $2.39 billion as of March 31, 2022, from $2.94 billion as of March 31, 2021.

Frequently Asked Questions

The primary driver of the decrease in net income for the first quarter of 2022, compared to the prior year, was a significant reduction in 'Gain on sale of loans, net.' This was due to both a decrease in mortgage loan origination volume and a decline in the gain on sale margin, influenced by a tighter spread between primary and secondary mortgage rates.

The fair value of originated MSRs decreased year-over-year, reflecting lower sold loan volume. However, overall 'Loan servicing income' increased significantly, driven by a substantial rise in the fair value of MSRs due to changes in valuation assumptions (like reduced prepayment speed assumptions) and growth in the company's servicing portfolio. This increase in servicing income helped partially offset the decline in gains on loan sales.

As of March 31, 2022, Rocket Companies had $2.39 billion in cash and cash equivalents (including restricted cash). The company also has significant liquidity available through its various funding facilities, with substantial unutilized capacity. While cash decreased from the prior year, the company maintains a strong liquidity position supported by its operational cash flow and credit facilities.

Total expenses decreased year-over-year, primarily driven by a reduction in 'Other expenses.' This decrease was largely attributable to lower title-related expenses and a reduction in 'payoff interest expense.' Salaries, commissions, and team member benefits saw a slight increase.