~~City~~20City

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2022~~2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 1-8951

M.D.C. HOLDINGS, INC.

(Exact name of Registrant as specified in its charter)


Delaware			84-0622967
(State or other jurisdiction of incorporation or organization)			(I.R.S. employer identification no.)


4350 South Monaco Street, Suite 500									80237
Denver, Colorado									(Zip code)
(Address of principal executive offices)

(303) 773-1100

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $.01 par value

MDC

New York Stock Exchange

6% Senior Notes due January 2043

MDC 43

New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-Accelerated Filer

☐

Smaller Reporting Company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July ~~26, 2022, 71,156,158~~24, 2023, 74,546,435 shares of M.D.C. Holdings, Inc. common stock were outstanding.

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M.D.C. HOLDINGS, INC.

FORM 10-Q

FOR THE QUARTER ENDED June 30, ~~2022~~2023

INDEX


		Page No.
Part I. Financial Information:

Item 1.	Unaudited Consolidated Financial Statements:

	Consolidated Balance Sheets at June 30, ~~2022~~2023 and December 31, ~~2021~~2022	1

	Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, ~~2022~~2023 and ~~2021~~2022	2

	Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, ~~2022~~2023 and ~~2021~~2022	3

	Consolidated Statements of Cash Flows for the six months ended June 30, ~~2022~~2023 and ~~2021~~2022	4

	Notes to Unaudited Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2325

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3840

Item 4.	Controls and Procedures	3941

Part II. Other Information:

Item 1.	Legal Proceedings	4042

Item 1A.	Risk Factors	4042

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4042

Item 5.	Other Information	43

Item 6.	Exhibits	4143

~~Signature~~Signatures		4143

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PART I. FINANCIAL INFORMATION

Item 1. Unaudited Consolidated Financial Statements

M.D.C. HOLDINGS, INC.

Consolidated Balance Sheets


		June 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022
		(unaudited)					(unaudited)
		(Dollars in thousands, except per share amounts)					(Dollars in thousands, except share and per share amounts)
ASSETS	ASSETS					ASSETS
Homebuilding:	Homebuilding:					Homebuilding:
Cash and cash equivalents	Cash and cash equivalents	$	475,254	$	485,839	Cash and cash equivalents	$	1,011,748	$	696,075
Restricted cash	Restricted cash	5,994		12,799		Restricted cash	3,503		3,143
Marketable securities						Marketable securities	597,152		443,712
Trade and other receivables	Trade and other receivables	121,202		98,580		Trade and other receivables	67,497		116,364
Inventories:	Inventories:					Inventories:
Housing completed or under construction	Housing completed or under construction	2,385,563		1,917,616		Housing completed or under construction	1,733,515		1,722,061
Land and land under development	Land and land under development	1,717,022		1,843,235		Land and land under development	1,411,753		1,793,718
Total inventories	Total inventories	4,102,585		3,760,851		Total inventories	3,145,268		3,515,779
Property and equipment, net	Property and equipment, net	61,574		60,561		Property and equipment, net	63,014		63,730
Deferred tax asset, net	Deferred tax asset, net	16,735		17,942		Deferred tax asset, net	46,607		49,252
Prepaids and other assets	Prepaids and other assets	95,956		106,562		Prepaids and other assets	68,073		70,007
Total homebuilding assets	Total homebuilding assets	4,879,300		4,543,134		Total homebuilding assets	5,002,862		4,958,062
Financial Services:	Financial Services:					Financial Services:
Cash and cash equivalents	Cash and cash equivalents	114,989		104,821		Cash and cash equivalents	140,615		17,877

Marketable securities						Marketable securities	79,413		117,388
Mortgage loans held-for-sale, net	Mortgage loans held-for-sale, net	190,070		282,529		Mortgage loans held-for-sale, net	158,746		229,513
Other assets	Other assets	48,468		33,044		Other assets	31,895		40,432
Total financial services assets	Total financial services assets	353,527		420,394		Total financial services assets	410,669		405,210
Total Assets	Total Assets	$	5,232,827	$	4,963,528	Total Assets	$	5,413,531	$	5,363,272
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Homebuilding:	Homebuilding:					Homebuilding:
Accounts payable	Accounts payable	$	186,252	$	149,488	Accounts payable	$	133,190	$	109,218
Accrued and other liabilities	Accrued and other liabilities	397,349		370,910		Accrued and other liabilities	341,773		383,406
Revolving credit facility	Revolving credit facility	10,000		10,000		Revolving credit facility	10,000		10,000
Senior notes, net	Senior notes, net	1,482,174		1,481,781		Senior notes, net	1,482,985		1,482,576
Total homebuilding liabilities	Total homebuilding liabilities	2,075,775		2,012,179		Total homebuilding liabilities	1,967,948		1,985,200
Financial Services:	Financial Services:					Financial Services:
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	107,170		97,903		Accounts payable and accrued liabilities	101,329		110,536
Mortgage repurchase facility	Mortgage repurchase facility	175,565		256,300		Mortgage repurchase facility	123,151		175,752
Total financial services liabilities	Total financial services liabilities	282,735		354,203		Total financial services liabilities	224,480		286,288
Total Liabilities	Total Liabilities	2,358,510		2,366,382		Total Liabilities	2,192,428		2,271,488
Stockholders' Equity	Stockholders' Equity					Stockholders' Equity
Preferred stock, $0.01 par value; 25,000,000 shares authorized; none issued or outstanding	Preferred stock, $0.01 par value; 25,000,000 shares authorized; none issued or outstanding	—		—		Preferred stock, $0.01 par value; 25,000,000 shares authorized; none issued or outstanding	—		—
Common stock, $0.01 par value; 250,000,000 shares authorized; 71,157,875 and 70,668,093 issued and outstanding at June 30, 2022 and December 31, 2021, respectively		712		707
Common stock, $0.01 par value; 250,000,000 shares authorized; 74,544,221 and 72,585,596 issued and outstanding at June 30, 2023 and December 31, 2022, respectively						Common stock, $0.01 par value; 250,000,000 shares authorized; 74,544,221 and 72,585,596 issued and outstanding at June 30, 2023 and December 31, 2022, respectively	745		726
Additional paid-in-capital	Additional paid-in-capital	1,719,642		1,709,276		Additional paid-in-capital	1,812,299		1,784,173
Retained earnings	Retained earnings	1,153,963		887,163		Retained earnings	1,407,969		1,306,885
Accumulated other comprehensive income						Accumulated other comprehensive income	90		—
Total Stockholders' Equity	Total Stockholders' Equity	2,874,317		2,597,146		Total Stockholders' Equity	3,221,103		3,091,784
Total Liabilities and Stockholders' Equity	Total Liabilities and Stockholders' Equity	$	5,232,827	$	4,963,528	Total Liabilities and Stockholders' Equity	$	5,413,531	$	5,363,272

The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements.

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M.D.C. HOLDINGS, INC.

Consolidated Statements of Operations and Comprehensive Income


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022

		(Dollars in thousands, except per share amounts)									(Dollars in thousands, except share and per share amounts)
Homebuilding:	Homebuilding:									Homebuilding:
Home sale revenues	Home sale revenues	$	1,450,823	$	1,367,773	$	2,691,343	$	2,409,631	Home sale revenues	$	1,103,470	$	1,450,823	$	2,123,486	$	2,691,343
Home cost of sales	Home cost of sales	(1,062,016)		(1,051,181)		(1,983,394)		(1,865,069)		Home cost of sales	(908,991)		(1,062,016)		(1,749,738)		(1,983,394)
Inventory impairments	Inventory impairments	—		—		(660)		—		Inventory impairments	(13,500)		—		(21,300)		(660)
Total cost of sales	Total cost of sales	(1,062,016)		(1,051,181)		(1,984,054)		(1,865,069)		Total cost of sales	(922,491)		(1,062,016)		(1,771,038)		(1,984,054)
Gross profit	Gross profit	388,807		316,592		707,289		544,562		Gross profit	180,979		388,807		352,448		707,289
Selling, general and administrative expenses	Selling, general and administrative expenses	(133,849)		(128,861)		(263,163)		(243,854)		Selling, general and administrative expenses	(106,733)		(133,849)		(201,721)		(263,163)

Interest and other income	Interest and other income	822		868		1,577		1,835		Interest and other income	17,939		822		31,398		1,577
Other expense	Other expense	(15,509)		(1,090)		(16,933)		(1,527)		Other expense	(127)		(15,509)		932		(16,933)
Homebuilding pretax income	Homebuilding pretax income	240,271		187,509		428,770		301,016		Homebuilding pretax income	92,058		240,271		183,057		428,770

Financial Services:	Financial Services:									Financial Services:
Revenues	Revenues	36,229		33,318		65,360		78,341		Revenues	32,619		36,229		62,105		65,360
Expenses	Expenses	(18,801)		(16,440)		(35,736)		(31,545)		Expenses	(15,487)		(18,801)		(30,737)		(35,736)
Other income, net	Other income, net	1,264		1,155		2,451		2,042		Other income, net	3,860		1,264		7,594		2,451
Financial services pretax income	Financial services pretax income	18,692		18,033		32,075		48,838		Financial services pretax income	20,992		18,692		38,962		32,075

Income before income taxes	Income before income taxes	258,963		205,542		460,845		349,854		Income before income taxes	113,050		258,963		222,019		460,845
Provision for income taxes	Provision for income taxes	(69,421)		(51,190)		(122,882)		(84,812)		Provision for income taxes	(19,557)		(69,421)		(47,826)		(122,882)
Net income	Net income	$	189,542	$	154,352	$	337,963	$	265,042	Net income	$	93,493	$	189,542	$	174,193	$	337,963

Other comprehensive income (loss) net of tax:										Other comprehensive income (loss) net of tax:
Unrealized gain (loss) related to available-for-sale debt securities										Unrealized gain (loss) related to available-for-sale debt securities	$	(233)	$	—	$	90	$	—
Other comprehensive income (loss)										Other comprehensive income (loss)	(233)		—		90		—
Comprehensive income	Comprehensive income	$	189,542	$	154,352	$	337,963	$	265,042	Comprehensive income	$	93,260	$	189,542	$	174,283	$	337,963

Earnings per share:	Earnings per share:									Earnings per share:
Basic	Basic	$	2.66	$	2.19	$	4.75	$	3.76	Basic	$	1.28	$	2.66	$	2.38	$	4.75
Diluted	Diluted	$	2.59	$	2.11	$	4.61	$	3.62	Diluted	$	1.24	$	2.59	$	2.33	$	4.61

Weighted average common shares outstanding:	Weighted average common shares outstanding:									Weighted average common shares outstanding:
Basic	Basic	70,841,476		70,291,057		70,804,019		70,044,326		Basic	72,934,920		70,841,476		72,793,951		70,804,019
Diluted	Diluted	72,881,012		72,715,273		72,945,748		72,754,141		Diluted	74,956,026		72,881,012		74,500,489		72,945,748

Dividends declared per share	Dividends declared per share	$	0.50	$	0.40	$	1.00	$	0.77	Dividends declared per share	$	0.50	$	0.50	$	1.00	$	1.00

The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements.

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M.D.C. HOLDINGS, INC.

Consolidated Statements of Changes in Stockholders’ Equity

(Dollars in thousands, except share amounts)


		Six Months Ended June 30, 2022															Six Months Ended June 30, 2023
		Common Stock			Additional Paid-in Capital				Retained Earnings					Total			Common Stock				Additional Paid-in Capital				Retained Earnings				Accumulated Other Comprehensive Income				Total
		Shares	Amount										Shares					Amount
Balance at December 31, 2021		70,668,093	$	707			$	1,709,276			$	887,163					$	2,597,146
Balance at December 31, 2022																Balance at December 31, 2022	72,585,596		$	726			$	1,784,173			$	1,306,885			$	—			$	3,091,784
Net income	Net income	—	—		—				148,421					148,421		Net income	—		—		—				80,700				—				80,700
Other comprehensive income (loss)																Other comprehensive income (loss)	—		—		—				—				323				323
Shares issued under stock-based compensation programs, net	Shares issued under stock-based compensation programs, net	498,921	5		(12,633)				—					(12,628)		Shares issued under stock-based compensation programs, net	503,022		5		(11,745)				—				—				(11,740)
Cash dividends declared	Cash dividends declared	—	—		—				(35,583)					(35,583)		Cash dividends declared	—		—		—				(36,543)				—				(36,543)
Stock-based compensation expense	Stock-based compensation expense	—	—		13,726				—					13,726		Stock-based compensation expense	—		—		5,597				—				—				5,597
Forfeiture of restricted stock	Forfeiture of restricted stock	(4,769)	—		—				—					—		Forfeiture of restricted stock	(1,283)		—		—				—				—				—
Balance at March 31, 2022		71,162,245	$	712	$	1,710,369			$	1,000,001				$	2,711,082
Balance at March 31, 2023																Balance at March 31, 2023	73,087,335		$	731	$	1,778,025			$	1,351,042			$	323			$	3,130,121
Net Income	Net Income	—	—		—				189,542					189,542		Net Income	—		—		—				93,493				—				93,493
Other comprehensive income (loss)																Other comprehensive income (loss)	—		—		—				—				(233)				(233)
Shares issued under stock-based compensation programs, net	Shares issued under stock-based compensation programs, net	(1,573)	—		(58)				—					(58)		Shares issued under stock-based compensation programs, net	1,459,256		14		31,318				—				—				31,332
Cash dividends declared	Cash dividends declared	—	—		—				(35,580)					(35,580)		Cash dividends declared	—		—		—				(36,566)				—				(36,566)
Stock-based compensation expense	Stock-based compensation expense	—	—		9,331				—					9,331		Stock-based compensation expense	—		—		2,956				—				—				2,956
Forfeiture of restricted stock	Forfeiture of restricted stock	(2,797)	—		—				—					—		Forfeiture of restricted stock	(2,370)		—		—				—				—				—
Balance at June 30, 2022		71,157,875	$	712	$	1,719,642			$	1,153,963				$	2,874,317
Balance at June 30, 2023																Balance at June 30, 2023	74,544,221		$	745	$	1,812,299			$	1,407,969			$	90			$	3,221,103


		Six Months Ended June 30, 2021															Six Months Ended June 30, 2022
		Common Stock			Additional Paid-in Capital				Retained Earnings					Total			Common Stock				Additional Paid-in Capital				Retained Earnings				Accumulated Other Comprehensive Income				Total
		Shares	Amount										Shares					Amount
Balance at December 31, 2020		64,851,126	$	649			$	1,407,597			$	711,666					$	2,119,912
Balance at December 31, 2021																Balance at December 31, 2021	70,668,093		$	707			$	1,709,276			$	887,163			$	—			$	2,597,146
Net income	Net income	—	—		—				110,690					110,690		Net income	—		—		—				148,421				—				148,421
Shares issued under stock-based compensation programs, net	Shares issued under stock-based compensation programs, net	221,303	2		1,007				—					1,009		Shares issued under stock-based compensation programs, net	498,921		5		(12,633)				—				—				(12,628)
Cash dividends declared	Cash dividends declared	—	—		—				(25,978)					(25,978)		Cash dividends declared	—		—		—				(35,583)				—				(35,583)
Stock dividends declared		5,192,776	52		279,579				(280,318)					(687)
Stock-based compensation expense	Stock-based compensation expense	—	—		9,926				—					9,926		Stock-based compensation expense	—		—		13,726				—				—				13,726
Balance at March 31, 2021		70,265,205	$	703	$	1,698,109			$	516,060				$	2,214,872
Forfeiture of restricted stock																Forfeiture of restricted stock	(4,769)		—		—				—				—				—
Balance at March 31, 2022																Balance at March 31, 2022	71,162,245		$	712	$	1,710,369			$	1,000,001			$	—			$	2,711,082
Net Income	Net Income	—	—		—				154,352					154,352		Net Income	—		—		—				189,542				—				189,542
Shares issued under stock-based compensation programs, net	Shares issued under stock-based compensation programs, net	358,993	3		(16,546)				—					(16,543)		Shares issued under stock-based compensation programs, net	(1,573)		—		(58)				—				—				(58)
Cash dividends declared	Cash dividends declared	—	—		—				(28,248)					(28,248)		Cash dividends declared	—		—		—				(35,580)				—				(35,580)
Stock-based compensation expense	Stock-based compensation expense	—	—		8,126				—					8,126		Stock-based compensation expense	—		—		9,331				—				—				9,331
Forfeiture of restricted stock	Forfeiture of restricted stock	(4,560)	—		—				—					—		Forfeiture of restricted stock	(2,797)		—		—				—				—				—
Balance at June 30, 2021		70,619,638	$	706	$	1,689,689			$	642,164				$	2,332,559
Balance at June 30, 2022																Balance at June 30, 2022	71,157,875		$	712	$	1,719,642			$	1,153,963			$	—			$	2,874,317

The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements.

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M.D.C. HOLDINGS, INC.

Consolidated Statements of Cash Flows


		Six Months Ended June 30,					Six Months Ended June 30,
		2022		2021			2023		2022

		(Dollars in thousands)					(Dollars in thousands)
Operating Activities:	Operating Activities:					Operating Activities:
Net income	Net income	$	337,963	$	265,042	Net income	$	174,193	$	337,963
Adjustments to reconcile net income to net cash provided by (used in) operating activities:	Adjustments to reconcile net income to net cash provided by (used in) operating activities:					Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Stock-based compensation expense	Stock-based compensation expense	24,793		18,867		Stock-based compensation expense	10,285		24,793
Depreciation and amortization	Depreciation and amortization	13,903		16,178		Depreciation and amortization	11,453		13,903
Inventory impairments	Inventory impairments	660		—		Inventory impairments	21,300		660
Deferred income tax expense (benefit)		1,207		(3,339)
Project abandonment costs						Project abandonment costs	(918)		16,949
Amortization of discount of marketable debt securities						Amortization of discount of marketable debt securities	(18,856)		—

Deferred income tax benefit						Deferred income tax benefit	2,616		1,207
Net changes in assets and liabilities:	Net changes in assets and liabilities:					Net changes in assets and liabilities:
Trade and other receivables	Trade and other receivables	(22,332)		(57,105)		Trade and other receivables	57,221		(22,332)
Mortgage loans held-for-sale, net	Mortgage loans held-for-sale, net	92,459		46,470		Mortgage loans held-for-sale, net	70,767		92,459
Housing completed or under construction	Housing completed or under construction	(468,301)		(385,698)		Housing completed or under construction	(13,595)		(468,301)
Land and land under development	Land and land under development	126,300		36,379		Land and land under development	364,133		109,351
Prepaids and other assets	Prepaids and other assets	(5,775)		4,695		Prepaids and other assets	1,263		(5,775)
Accounts payable and accrued and other liabilities	Accounts payable and accrued and other liabilities	70,183		70,595		Accounts payable and accrued and other liabilities	(27,933)		70,183
Net cash provided by operating activities	Net cash provided by operating activities	171,060		12,084		Net cash provided by operating activities	651,929		171,060

Investing Activities:	Investing Activities:					Investing Activities:
Purchases of marketable securities						Purchases of marketable securities	(665,490)		—
Maturities of marketable securities						Maturities of marketable securities	569,000		—
Purchases of property and equipment	Purchases of property and equipment	(13,698)		(13,447)		Purchases of property and equipment	(10,550)		(13,698)
Net cash (used in) investing activities		(13,698)		(13,447)
Net cash used in investing activities						Net cash used in investing activities	(107,040)		(13,698)

Financing Activities:	Financing Activities:					Financing Activities:
Proceeds from (payments on) mortgage repurchase facility, net		(80,735)		(37,709)
Payments on mortgage repurchase facility, net						Payments on mortgage repurchase facility, net	(52,601)		(80,735)

Proceeds from issuance of senior notes		—		347,725

Dividend payments	Dividend payments	(71,163)		(54,913)		Dividend payments	(73,109)		(71,163)
Payments of deferred financing costs		—		(819)

Issuance of shares under stock-based compensation programs, net	Issuance of shares under stock-based compensation programs, net	(12,686)		(15,534)		Issuance of shares under stock-based compensation programs, net	19,592		(12,686)
Net cash provided by (used in) financing activities		(164,584)		238,750
Net cash used in financing activities						Net cash used in financing activities	(106,118)		(164,584)

Net increase (decrease) in cash, cash equivalents and restricted cash	Net increase (decrease) in cash, cash equivalents and restricted cash	(7,222)		237,387		Net increase (decrease) in cash, cash equivalents and restricted cash	438,771		(7,222)
Cash, cash equivalents and restricted cash:	Cash, cash equivalents and restricted cash:					Cash, cash equivalents and restricted cash:
Beginning of period	Beginning of period	603,459		503,972		Beginning of period	717,095		603,459
End of period	End of period	$	596,237	$	741,359	End of period	$	1,155,866	$	596,237

Reconciliation of cash, cash equivalents and restricted cash:	Reconciliation of cash, cash equivalents and restricted cash:					Reconciliation of cash, cash equivalents and restricted cash:
Homebuilding:	Homebuilding:					Homebuilding:
Cash and cash equivalents	Cash and cash equivalents	$	475,254	$	638,547	Cash and cash equivalents	$	1,011,748	$	475,254
Restricted cash	Restricted cash	5,994		14,158		Restricted cash	3,503		5,994
Financial Services:	Financial Services:					Financial Services:
Cash and cash equivalents	Cash and cash equivalents	114,989		88,654		Cash and cash equivalents	140,615		114,989
Total cash, cash equivalents and restricted cash	Total cash, cash equivalents and restricted cash	$	596,237	$	741,359	Total cash, cash equivalents and restricted cash	$	1,155,866	$	596,237

The accompanying Notes are an integral part of these Unaudited Consolidated Financial Statements.

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1. Basis of Presentation

The Unaudited Consolidated Financial Statements of M.D.C. Holdings, Inc. ("MDC," “the Company," “we,” “us,” or “our,” which ~~refers~~refer to M.D.C. Holdings, Inc. and its subsidiaries) have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Accordingly, they do not include all information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements. These statements reflect all normal and recurring adjustments which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of MDC at June 30, ~~2022~~2023 and for all periods presented. These statements should be read in conjunction with MDC’s Consolidated Financial Statements and Notes thereto included in MDC’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Included in these footnotes are certain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding our business, financial condition, results of operations, cash flows, strategies and prospects. These forward-looking statements may be identified by terminology such as “likely,” “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained in this section are reasonable, we cannot guarantee future results. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from those expressed or implied by the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in subsequent reports on Forms 10-K, 10-Q and 8-K should be considered.

Where necessary, reclassifications have been made to our prior period financial information to conform to the current year presentation.

2. Recently Issued Accounting Standards

~~There are~~Adopted New Accounting Standards

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2020-04, “Reference Rate Reform (Topic 848),” as amended by ASU 2021-01 in January 2021 and ASU 2022-06 in December 2022, directly addressing the effects of reference rate reform on financial reporting as a result of the cessation of the publication of certain LIBOR rates beginning December 31, 2021, with complete elimination of the publication of the LIBOR rates by June 30, 2023. The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform by virtue of referencing LIBOR or another reference rate expected to be discontinued. This guidance became effective on March 12, 2020 and can be adopted no ~~recently issued accounting standards applicable to~~later than December 31, 2024, with early adoption permitted. We adopted this amendment in the ~~Company.~~second quarter of 2023. The adoption of ASU 2020-04, as amended by ASU 2021-01 and ASU 2022-06, did not have a material impact on our consolidated balance sheet or consolidated statement of operations and comprehensive income.

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3. Segment Reporting

An operating segment is defined as a component of an enterprise for which discrete financial information is available and is reviewed regularly by the Chief Operating Decision Maker (“CODM”), or decision-making group, to evaluate performance and make operating decisions. We have identified our CODM as two key executives—the Executive Chairman and the Chief Executive Officer (“CEO”).

We have identified each homebuilding division as an operating segment. Our homebuilding operating segments have been aggregated into the reportable segments noted below because they are similar in the following regards: (1) economic characteristics; (2) housing products; (3) class of homebuyer; (4) regulatory environments; and (5) methods used to construct and sell homes. Our homebuilding reportable segments ~~are as follows~~conducted ongoing operations in the following states:

•West (Arizona, California, Nevada, New Mexico, Oregon, Texas and Washington)

•Mountain (Colorado, Idaho and Utah)

•East ~~(Florida, mid-Atlantic, which includes~~(Alabama, Florida, Maryland, Pennsylvania, Tennessee and ~~Virginia, and Tennessee)~~Virginia)

Our financial services business consists ~~of the operations~~ of the following operating segments: (1) HomeAmerican Mortgage Corporation (“HomeAmerican”); (2) Allegiant Insurance Company, Inc., A Risk Retention Group (“Allegiant”); (3) StarAmerican Insurance Ltd. (“StarAmerican”); (4) American Home Insurance Agency, Inc.; and (5) American Home Title and Escrow Company. Due to its contributions to consolidated pretax income, we consider HomeAmerican to be a reportable segment (“mortgage operations”). The remaining operating segments have been aggregated into 1one reportable segment (“other”) because they do not individually exceed 10 percent of: (1) consolidated revenue; (2) the greater of (a) the combined reported profit of all operating segments that did not report a loss or (b) the positive value of the combined reported loss of all operating segments that reported losses; or (3) consolidated assets.

Corporate is a non-operating segment that develops and implements strategic initiatives and supports our operating divisions by centralizing key administrative functions such as finance, treasury, information technology, insurance, risk management, litigation and human resources. Corporate also provides the necessary administrative functions to support MDC as a publicly traded company. A portion of the expenses incurred by Corporate are allocated to the homebuilding operating segments based on their respective percentages of assets and, to a lesser degree, a portion of Corporate expenses are allocated to the financial services segments. A majority of Corporate’s personnel and resources are primarily dedicated to activities relating to the homebuilding segments, and, therefore, the balance of any unallocated Corporate expenses is included in the homebuilding operations section of our consolidated statements of operations and comprehensive income.

The following table summarizes revenues for our homebuilding and financial services operations:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022

		(Dollars in thousands)									(Dollars in thousands)
Homebuilding	Homebuilding									Homebuilding
West	West	$	788,279	$	847,683	$	1,495,590	$	1,464,294	West	$	616,559	$	788,279	$	1,194,492	$	1,495,590
Mountain	Mountain	437,001		400,633		772,129		725,350		Mountain	346,070		437,001		647,225		772,129
East	East	225,543		119,457		423,624		219,987		East	140,841		225,543		281,769		423,624
Total homebuilding revenues	Total homebuilding revenues	$	1,450,823	$	1,367,773	$	2,691,343	$	2,409,631	Total homebuilding revenues	$	1,103,470	$	1,450,823	$	2,123,486	$	2,691,343

Financial Services	Financial Services									Financial Services
Mortgage operations	Mortgage operations	$	22,077	$	23,321	$	39,678	$	58,486	Mortgage operations	$	22,758	$	22,077	$	41,177	$	39,678
Other	Other	14,152		9,997		25,682		19,855		Other	9,861		14,152		20,928		25,682
Total financial services revenues	Total financial services revenues	$	36,229	$	33,318	$	65,360	$	78,341	Total financial services revenues	$	32,619	$	36,229	$	62,105	$	65,360

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The following table summarizes pretax income (loss) for our homebuilding and financial services operations:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022

		(Dollars in thousands)									(Dollars in thousands)
Homebuilding	Homebuilding									Homebuilding
West	West	$	148,508	$	132,919	$	279,034	$	210,106	West	$	29,639	$	148,508	$	72,839	$	279,034
Mountain	Mountain	79,135		64,052		129,641		109,910		Mountain	44,676		79,135		69,712		129,641
East	East	34,407		10,846		65,801		18,681		East	14,149		34,407		29,458		65,801
Corporate	Corporate	(21,779)		(20,308)		(45,706)		(37,681)		Corporate	3,594		(21,779)		11,048		(45,706)
Total homebuilding pretax income	Total homebuilding pretax income	$	240,271	$	187,509	$	428,770	$	301,016	Total homebuilding pretax income	$	92,058	$	240,271	$	183,057	$	428,770
Financial Services	Financial Services									Financial Services
Mortgage operations	Mortgage operations	$	10,673	$	14,088	$	18,106	$	40,127	Mortgage operations	$	13,852	$	10,673	$	23,578	$	18,106
Other	Other	8,019		3,945		13,969		8,711		Other	7,140		8,019		15,384		13,969
Total financial services pretax income	Total financial services pretax income	$	18,692	$	18,033	$	32,075	$	48,838	Total financial services pretax income	$	20,992	$	18,692	$	38,962	$	32,075

Total pretax income	Total pretax income	$	258,963	$	205,542	$	460,845	$	349,854	Total pretax income	$	113,050	$	258,963	$	222,019	$	460,845

The following table summarizes total assets for our homebuilding and financial services operations. The assets in our West, Mountain and East segments consist primarily of inventory while the assets in our Corporate segment primarily include our cash and cash equivalents, marketable securities and deferred tax assets. The assets in our financial services segment consist mostly of cash and cash equivalents, marketable securities and mortgage loans held-for-sale.


		June 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022

		(Dollars in thousands)					(Dollars in thousands)
Homebuilding assets	Homebuilding assets					Homebuilding assets
West	West	$	2,653,052	$	2,472,378	West	$	2,049,618	$	2,275,144
Mountain	Mountain	1,169,938		1,072,717		Mountain	830,367		1,005,622
East	East	508,690		450,675		East	420,699		427,926
Corporate	Corporate	547,620		547,364		Corporate	1,702,178		1,249,370
Total homebuilding assets	Total homebuilding assets	$	4,879,300	$	4,543,134	Total homebuilding assets	$	5,002,862	$	4,958,062
Financial services assets	Financial services assets					Financial services assets
Mortgage operations	Mortgage operations	$	232,139	$	313,373	Mortgage operations	$	190,529	$	267,309
Other	Other	121,388		107,021		Other	220,140		137,901
Total financial services assets	Total financial services assets	$	353,527	$	420,394	Total financial services assets	$	410,669	$	405,210

Total assets	Total assets	$	5,232,827	$	4,963,528	Total assets	$	5,413,531	$	5,363,272

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4. Earnings Per Share

Accounting Standards Codification ("ASC") Topic 260, Earnings per Share ("ASC 260") requires a company that has participating security holders (for example, holders of unvested restricted stock that have non-forfeitable dividend rights) to utilize the two-class method for calculating earnings per share (“EPS”) unless the treasury stock method results in lower EPS. The two-class method is an allocation of earnings/(loss) between the holders of common stock and a company’s participating security holders. Under the two-class method, earnings/(loss) for the reporting period are allocated between common shareholders and other security holders based on their respective rights to receive distributed earnings (i.e., dividends) and undistributed earnings (i.e., net income/(loss)). Our common shares outstanding are comprised of shareholder owned common stock and shares of unvested restricted stock held by participating security holders. Basic EPS is calculated by dividing income or loss attributable to common stockholders by the weighted average number of shares of common stock outstanding, excluding participating shares in accordance with ASC 260. To calculate diluted EPS, basic EPS is adjusted to include the effect of potentially dilutive stock options outstanding and contingently issuable equity awards. The table below shows our basic and diluted EPS calculations.


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022

		(Dollars in thousands, except per share amounts)									(Dollars in thousands, except per share amounts)
Numerator	Numerator									Numerator
Net income	Net income	$	189,542	$	154,352	$	337,963	$	265,042	Net income	$	93,493	$	189,542	$	174,193	$	337,963
Less: distributed earnings allocated to participating securities	Less: distributed earnings allocated to participating securities	(161)		(133)		(355)		(291)		Less: distributed earnings allocated to participating securities	(187)		(161)		(403)		(355)
Less: undistributed earnings allocated to participating securities	Less: undistributed earnings allocated to participating securities	(689)		(589)		(1,261)		(1,067)		Less: undistributed earnings allocated to participating securities	(291)		(689)		(522)		(1,261)
Net income attributable to common stockholders (numerator for basic earnings per share)	Net income attributable to common stockholders (numerator for basic earnings per share)	188,692		153,630		336,347		263,684		Net income attributable to common stockholders (numerator for basic earnings per share)	93,015		188,692		173,268		336,347
Add back: undistributed earnings allocated to participating securities	Add back: undistributed earnings allocated to participating securities	689		589		1,261		1,067		Add back: undistributed earnings allocated to participating securities	291		689		522		1,261
Less: undistributed earnings reallocated to participating securities	Less: undistributed earnings reallocated to participating securities	(676)		(569)		(1,231)		(1,032)		Less: undistributed earnings reallocated to participating securities	(285)		(676)		(511)		(1,231)
Numerator for diluted earnings per share under two class method		$	188,705	$	153,650	$	336,377	$	263,719
Numerator for diluted earnings per share under two-class method										Numerator for diluted earnings per share under two-class method	$	93,021	$	188,705	$	173,279	$	336,377

Denominator	Denominator									Denominator
Weighted-average common shares outstanding	Weighted-average common shares outstanding	70,841,476		70,291,057		70,804,019		70,044,326		Weighted-average common shares outstanding	72,934,920		70,841,476		72,793,951		70,804,019
Add: dilutive effect of stock options	Add: dilutive effect of stock options	1,406,274		2,424,216		1,738,041		2,394,887		Add: dilutive effect of stock options	1,620,982		1,406,274		1,496,963		1,738,041
Add: dilutive effect of contingently issuable equity awards	Add: dilutive effect of contingently issuable equity awards	633,262		—		403,688		314,928		Add: dilutive effect of contingently issuable equity awards	400,124		633,262		209,575		403,688
Denominator for diluted earnings per share under two class method		72,881,012		72,715,273		72,945,748		72,754,141
Denominator for diluted earnings per share under two-class method										Denominator for diluted earnings per share under two-class method	74,956,026		72,881,012		74,500,489		72,945,748

Basic Earnings Per Common Share	Basic Earnings Per Common Share	$	2.66	$	2.19	$	4.75	$	3.76	Basic Earnings Per Common Share	$	1.28	$	2.66	$	2.38	$	4.75
Diluted Earnings Per Common Share	Diluted Earnings Per Common Share	$	2.59	$	2.11	$	4.61	$	3.62	Diluted Earnings Per Common Share	$	1.24	$	2.59	$	2.33	$	4.61

Diluted EPS for ~~both~~ the three and six months ended June 30, 2023 and 2022 excluded options to purchase 15,000 shares of common stock, because the effect of their inclusion would be anti-dilutive. ~~There were zero anti-dilutive options for both the three and six months ended June 30, 2021.~~

5. Fair Value Measurements

ASC Topic 820, Fair Value Measurements (“ASC 820”), defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs, other than quoted prices in active markets, that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

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The following table sets forth the fair values and methods used for measuring the fair values of financial instruments on a recurring basis, except those for which the carrying values approximate fair values:


			Fair Value						Fair Value
Financial Instrument	Financial Instrument	Hierarchy	June 30, 2022		December 31, 2021		Financial Instrument	Hierarchy	June 30, 2023		December 31, 2022

			(Dollars in thousands)						(Dollars in thousands)

Marketable securities							Marketable securities
Debt securities (available-for-sale)							Debt securities (available-for-sale)	Level 1	$	676,565	$	561,100

Mortgage loans held-for-sale, net	Mortgage loans held-for-sale, net	Level 2	$	190,070	$	282,529	Mortgage loans held-for-sale, net	Level 2	$	158,746	$	229,513

Derivative and financial instruments, net (Note 17)							Derivative and financial instruments, net (Note 17)
Interest rate lock commitments							Interest rate lock commitments	Level 2	$	2,617	$	(1,678)
Forward sales of mortgage-backed securities							Forward sales of mortgage-backed securities	Level 2	$	2,712	$	(5,269)
Mandatory delivery forward loan sale commitments							Mandatory delivery forward loan sale commitments	Level 2	$	33	$	791
Best-effort delivery forward loan sale commitments							Best-effort delivery forward loan sale commitments	Level 2	$	—	$	1,976

The following methods and assumptions were used to estimate the fair value of each class of financial instruments as of June 30, ~~2022~~2023 and December 31, ~~2021.~~2022.

Debt securities. Our debt securities consist of U.S. government treasury securities with original maturities upon acquisition of less than six months and are treated as available-for-sale investments and, as such, are recorded at fair value with all changes in fair value initially recorded through other comprehensive income. Debt securities are reviewed on a regular basis for impairment. There were no impairments recorded during the three and six months ended June 30, 2023.

The estimated fair value, gross unrealized holding gains, gross unrealized holding losses and amortized cost for debt securities by major classification are as follows:


	June 30, 2023								December 31, 2022
	(Dollars in thousands)
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
U.S. Government	$	676,446	$	120	$	1	$	676,565	$	561,100	$	—	$	—	$	561,100
Total Debt Securities	$	676,446	$	120	$	1	$	676,565	$	561,100	$	—	$	—	$	561,100

Mortgage loans held-for-sale, net. Our mortgage loans held-for-sale, which are measured at fair value on a recurring basis, include (1) mortgage loans held-for-sale that are under commitments to sell and (2) mortgage loans held-for-sale that are not under commitments to sell. At June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, we had ~~$134.4~~$48.0 million and ~~$157.7~~$142.9 million, respectively, of mortgage loans held-for-sale at fair value under commitments to sell. The fair value for those loans was based on quoted market prices for those mortgage loans, which are Level 2 fair value inputs. At June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, we had ~~$55.7~~$110.7 million and ~~$124.9~~$86.6 million, respectively, of mortgage loans held-for-sale that were not under commitments to sell. The fair value for those loans was primarily based upon the estimated market price received from an outside party, which is a Level 2 fair value input.

Gains (losses) on ~~sales of~~ mortgage loans, net, are included as a component of revenues in the financial services section of our consolidated statements of operations and comprehensive income. For the three and six months ended June 30, ~~2022,~~2023, we recorded a gain (loss) on mortgage loans held-for-sale, net of $(3.4) million and $(5.6) million, respectively, compared to $(4.3) million and $(9.3) ~~million, compared to $28.8 million and $46.2~~ million for the same period in the prior year.

Derivative and financial instruments, net. Our derivatives and financial instruments, which include (1) interest rate lock commitments, (2) forward sales of mortgage-backed securities, (3) mandatory delivery forward loan sale commitments and (4) best-effort delivery forward loan sale commitments, are measured at fair value on a recurring basis based on market prices for similar instruments.

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For the financial assets and liabilities that the Company does not reflect at fair value, the following methods and assumptions were used to estimate the fair value of each class of financial instruments.

Cash and cash equivalents (excluding debt securities with an original maturity of three months or less), restricted cash, trade and other receivables, prepaids and other assets, accounts payable, accrued and other liabilities and borrowings on our revolving credit facility. Fair value approximates carrying value.

Mortgage Repurchase Facility. The debt associated with our mortgage repurchase facility (see Note 18 for further discussion) is at floating rates that approximate current market rates and have relatively short-term maturities, generally within 30 days. The fair value approximates carrying value and is based on Level 2 inputs.

Senior Notes. The estimated values of the senior notes in the following table are based on Level 2 inputs, which primarily reflect estimated prices for our senior notes that were provided by multiple sources.

June 30, 2022 December 31, 2021
Carrying
Amount Fair Value Carrying
Amount Fair Value
(Dollars in thousands)
$300 million 3.850% Senior Notes due January 2030, net $ 297,821 $ 251,498 $ 297,699 $ 319,057
$350 million 2.500% Senior Notes due January 2031, net 347,269 257,216 347,126 339,185
$500 million 6.000% Senior Notes due January 2043, net 491,010 410,815 490,903 628,092
$350 million 3.966% Senior Notes due August 2061, net 346,074 200,097 346,053 337,017
Total $ 1,482,174 $ 1,119,626 $ 1,481,781 $ 1,623,351


	June 30, 2023				December 31, 2022
	Carrying Amount		Fair Value		Carrying Amount		Fair Value

	(Dollars in thousands)
$300 million 3.850% Senior Notes due January 2030, net	$	298,076	$	261,448	$	297,949	$	246,236
$350 million 2.500% Senior Notes due January 2031, net	347,559		275,270		347,413		255,374
$500 million 6.000% Senior Notes due January 2043, net	491,234		448,648		491,120		414,017
$350 million 3.966% Senior Notes due August 2061, net	346,116		208,283		346,094		204,014
Total	$	1,482,985	$	1,193,649	$	1,482,576	$	1,119,641

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6. Inventories

The following table sets forth, by reportable segment, information relating to our homebuilding inventories:


		June 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022

		(Dollars in thousands)					(Dollars in thousands)
Housing completed or under construction:	Housing completed or under construction:					Housing completed or under construction:
West	West	$	1,362,339	$	1,077,256	West	$	1,082,237	$	1,026,880
Mountain	Mountain	720,864		596,164		Mountain	433,319		511,092
East	East	302,360		244,196		East	217,959		184,089
Subtotal	Subtotal	2,385,563		1,917,616		Subtotal	1,733,515		1,722,061
Land and land under development:	Land and land under development:					Land and land under development:
West	West	1,143,752		1,235,363		West	873,348		1,145,119
Mountain	Mountain	403,142		435,958		Mountain	363,658		433,893
East	East	170,128		171,914		East	174,747		214,706
Subtotal	Subtotal	1,717,022		1,843,235		Subtotal	1,411,753		1,793,718
Total inventories	Total inventories	$	4,102,585	$	3,760,851	Total inventories	$	3,145,268	$	3,515,779

Our inventories are primarily associated with communities where we intend to construct and sell homes, including models and unsold homes. Costs capitalized to land and land under development primarily include: (1) land costs; (2) land development costs; (3) entitlement costs; (4) capitalized interest; (5) engineering fees; and (6) title insurance, real property taxes and closing costs directly related to the purchase of the land parcel. Components of housing completed or under construction primarily include: (1) land costs transferred from land and land under development; (2) direct construction costs associated with a house; (3) real property taxes, engineering fees, permits and other fees; (4) capitalized interest; and (5) indirect construction costs, which include field construction management salaries and benefits, utilities and other construction related costs. Land costs are transferred from land and land under development to housing completed or under construction at the point in time that construction of a home on an owned lot begins.

In accordance with ASC Topic 360, Property, Plant, and Equipment (“ASC 360”), homebuilding inventories, excluding those classified as held for sale, are carried at cost unless events and circumstances indicate that the carrying value of the underlying subdivision may not be recoverable. We evaluate inventories for impairment at each quarter end on a subdivision level basis as each such subdivision represents the lowest level of identifiable cash flows. In making this determination, we review, among other things, the following for each subdivision:

•actual and trending “Operating Margin” (which is defined as home sale revenues less home cost of sales and all incremental costs associated directly with the subdivision, including sales commissions and marketing costs);

•~~estimated future undiscounted cash flows and Operating Margin;~~

•forecasted Operating Margin for homes in backlog;

•actual and trending net home orders;

•homes available for sale;

•market information for each sub-market, including competition levels, home foreclosure levels, the size and style of homes currently being offered for sale and lot size; and

•known or probable events indicating that the carrying value may not be recoverable.

If events or circumstances indicate that the carrying value of our inventory may not be recoverable, assets are reviewed for impairment by comparing the undiscounted estimated future cash flows from an individual subdivision (including capitalized interest) to its carrying value. If the undiscounted future cash flows are less than the subdivision’s carrying value, the carrying value of the subdivision is written down to its then estimated fair value. We generally determine the estimated fair value of each subdivision by determining the present value of the estimated future cash flows at discount rates, which are Level 3 inputs, that are commensurate with the risk of the subdivision under evaluation. The evaluation for the recoverability of the carrying value of the assets for each individual subdivision can be impacted significantly by our estimates of future home sale revenues, home construction costs, and development costs per home, all of which are Level 3 inputs.

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If land is classified as held for sale, we measure it in accordance with ASC 360 at the lower of the carrying value or fair value less estimated costs to sell. In determining fair value, we primarily rely upon the most recent negotiated price, which is a Level 2 input. If a negotiated price is not available, we will consider several factors including, but not limited to, current market conditions, recent comparable sales transactions and market analysis studies, which are considered Level 3 inputs. If the fair value less estimated costs to sell is lower than the current carrying value, the land is impaired down to its estimated fair value less costs to sell.

Inventory impairments recognized by segment for the three and six months ended ~~ended~~ June 30, ~~2022~~2023 and ~~2021~~2022 are shown in the table below.


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
		(Dollars in thousands)									(Dollars in thousands)
Housing Completed or Under Construction:										Housing Completed or Under Construction:
West	West	$	—	$	—	$	660	$	—	West	$	1,787	$	—	$	1,787	$	660
Mountain	Mountain	—		—		—		—		Mountain	—		—		664		—
East	East	—		—		—		—		East	—		—		—		—
Subtotal										Subtotal	1,787		—		2,451		660
Land and Land Under Development:										Land and Land Under Development:
West										West	11,713		—		11,713		—
Mountain										Mountain	—		—		7,136		—
East										East	—		—		—		—
Subtotal										Subtotal	11,713		—		18,849		—
Total Inventory Impairments	Total Inventory Impairments	$	—	$	—	$	660	$	—	Total Inventory Impairments	$	13,500	$	—	$	21,300	$	660

The table below provides quantitative data, for the periods presented, where applicable, used in determining the fair value of the impaired inventory.


		Impairment Data					Quantitative Data			Impairment Data					Quantitative Data
Three Months Ended	Three Months Ended	Number of Subdivisions Impaired	Inventory Impairments		Fair Value of Inventory After Impairments		Discount Rate		Three Months Ended	Number of Subdivisions Impaired	Inventory Impairments		Fair Value of Inventory After Impairments		Discount Rate
		(Dollars in thousands)								(Dollars in thousands)
June 30, 2023									June 30, 2023	1	$	13,500	$	17,886	18%
March 31, 2023									March 31, 2023	1	$	7,800	$	13,016	18%
Total									Total		$	21,300

March 31, 2022	March 31, 2022	1	$	660	$	1,728		N/A	March 31, 2022	1	$	660	$	1,728		N/A
Total	Total		$	660					Total		$	660

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7. Capitalization of Interest

We capitalize interest to inventories during the period of development in accordance with ASC Topic 835, Interest (“ASC 835”). Homebuilding interest capitalized as a cost of inventories is included in cost of sales during the period that related units or lots are delivered. To the extent our homebuilding debt exceeds our qualified assets as defined in ASC 835, we expense a portion of the interest incurred. Qualified homebuilding assets consist of all lots and homes, excluding finished unsold homes or finished models, within projects that are actively selling or under development. The table set forth below summarizes homebuilding interest activity. For all periods presented below, our qualified assets exceeded our homebuilding debt and as such, all interest incurred has been capitalized.


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022

		(Dollars in thousands)									(Dollars in thousands)
Homebuilding interest incurred	Homebuilding interest incurred	$	17,382	$	17,409	$	34,640	$	34,741	Homebuilding interest incurred	$	17,450	$	17,382	$	34,904	$	34,640
Less: Interest capitalized	Less: Interest capitalized	(17,382)		(17,409)		(34,640)		(34,741)		Less: Interest capitalized	(17,450)		(17,382)		(34,904)		(34,640)
Homebuilding interest expensed	Homebuilding interest expensed	$	—	$	—	$	—	$	—	Homebuilding interest expensed	$	—	$	—	$	—	$	—

Interest capitalized, beginning of period	Interest capitalized, beginning of period	$	60,468	$	55,268	$	58,054	$	52,777	Interest capitalized, beginning of period	$	61,310	$	60,468	$	59,921	$	58,054
Plus: Interest capitalized during period	Plus: Interest capitalized during period	17,382		17,409		34,640		34,741		Plus: Interest capitalized during period	17,450		17,382		34,904		34,640
Less: Previously capitalized interest included in home cost of sales	Less: Previously capitalized interest included in home cost of sales	(15,681)		(18,326)		(30,525)		(33,167)		Less: Previously capitalized interest included in home cost of sales	(16,807)		(15,681)		(32,872)		(30,525)
Interest capitalized, end of period	Interest capitalized, end of period	$	62,169	$	54,351	$	62,169	$	54,351	Interest capitalized, end of period	$	61,953	$	62,169	$	61,953	$	62,169

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8. Leases

We lease certain property, land and equipment, the majority of which comprise property related leases to provide office space where we operate our business. Leases with an initial term of 12 months or less are not recorded on the balance sheet. We recognize lease expense for these leases on a straight-line basis over the lease term.

Our property related leases typically have terms of between three and five years, with the exception of the lease governing the Company’s headquarters. All of our property related leases are classified as operating leases. These leases do not contain any residual value guarantees or restrictive covenants and do not include variable lease payments, except for the payment of common area maintenance and real estate taxes. Many of our property related leases give us the option to extend the lease term for a period of time, generally consistent with the initial lease term. These options are excluded from our calculation of the right-of-use asset and lease liability until such time as we determine it is reasonably certain that the option will be exercised.

The property related lease for the Company’s headquarters in Denver, Colorado is ten years in length with an expiration date of October 31, 2026 and contains a ten year option to extend the term of the lease through 2036. This option has been excluded from our calculation of the right-of-use asset and lease liability as it is not currently considered reasonably certain that the option will be exercised.

Operating lease expense is included as a component of selling, general and administrative expenses in the homebuilding section and expenses in the financial services ~~sections~~section of our consolidated statements of operations and comprehensive ~~income, respectively.~~income. Components of operating lease expense were as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022

		(Dollars in thousands)									(Dollars in thousands)
Operating lease cost 1	Operating lease cost 1	$	2,107	$	1,995	$	4,238	$	3,972	Operating lease cost 1	$	2,220	$	2,107	$	4,376	$	4,238
Less: Sublease income (Note 19)		(142)		(39)		(225)		(78)
Less: Sublease income										Less: Sublease income	(148)		(142)		(292)		(225)
Net lease cost	Net lease cost	$	1,965	$	1,956	$	4,013	$	3,894	Net lease cost	$	2,072	$	1,965	$	4,084	$	4,013

1Includes variable lease costs, which are immaterial.

Supplemental cash flow information related to leases was as follows:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022

		(Dollars in thousands)									(Dollars in thousands)
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:									Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	Operating cash flows from operating leases	$	1,999	$	1,887	$	4,021	$	3,745	Operating cash flows from operating leases	$	2,235	$	1,999	$	4,296	$	4,021
Right of use assets obtained in exchange for new operating lease liabilities		$	547	$	—	$	4,295	$	830
Leased assets obtained in exchange for new operating lease liabilities										Leased assets obtained in exchange for new operating lease liabilities	$	248	$	547	$	1,894	$	4,295

Weighted-average remaining lease term and discount rate for operating leases were as follows:


		June 30, 2022		June 30, 2021			June 30, 2023		June 30, 2022
Weighted-average remaining lease term (in years)	Weighted-average remaining lease term (in years)	4.4		4.9		Weighted-average remaining lease term (in years)	3.7		4.4
Weighted-average discount rate	Weighted-average discount rate	5.5	%	5.5	%	Weighted-average discount rate	5.5	%	5.5	%

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Maturities of operating lease liabilities were as follows:

Year Ended December 31,
(Dollars in thousands)
2022 (excluding the six months ended June 30, 2022) $ 3,451
2023 7,150
2024 6,498
2025 6,373
2026 5,573
Thereafter 1,119
Total operating lease payments 1
$ 30,164
Less: Interest 3,396
Present value of operating lease liabilities 2
$ 26,768


	Year Ended December 31,
	(Dollars in thousands)
2023 (excluding the six months ended June 30, 2023)	$	3,227
2024	7,895
2025	7,815
2026	6,553
2027	1,339
Thereafter	710
Total operating lease payments	$	27,539
Less: Effects of discounting	2,632
Present value of operating lease liabilities 1	$	24,907

1~~Operating lease payments exclude $1.3 million of legally binding lease payments for leases signed but not yet commenced.~~

2Homebuilding and financial services operating lease liabilities of ~~$26.7~~$24.7 million and ~~$0.1~~$0.2 million, respectively, are included as a component of accrued and other liabilities and accounts payable and accrued liabilities, respectively, in the homebuilding and financial services sections of our consolidated balance sheet at June 30, ~~2022.~~2023.

9. Homebuilding Prepaids and Other Assets

The following table sets forth the components of homebuilding prepaids and other assets:


		June 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022

		(Dollars in thousands)					(Dollars in thousands)
Land option deposits						Land option deposits	$	22,626	$	19,539
Operating lease right-of-use asset (Note 8)	Operating lease right-of-use asset (Note 8)	$	25,689	$	25,514	Operating lease right-of-use asset (Note 8)	23,569		25,636
Land option deposits		43,564		41,617
Prepaids	Prepaids	14,302		26,058		Prepaids	11,323		13,333
Goodwill						Goodwill	6,008		6,008
Deferred debt issuance costs on revolving credit facility, net	Deferred debt issuance costs on revolving credit facility, net	6,192		7,166		Deferred debt issuance costs on revolving credit facility, net	4,291		5,241
Goodwill		6,008		6,008
Other	Other	201		199		Other	256		250
Total prepaids and other assets	Total prepaids and other assets	$	95,956	$	106,562	Total prepaids and other assets	$	68,073	$	70,007

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10. Homebuilding Accrued and Other Liabilities and Financial Services Accounts Payable and Accrued Liabilities

The following table sets forth information relating to homebuilding accrued and other liabilities:


		June 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022

		(Dollars in thousands)					(Dollars in thousands)
Accrued compensation and related expenses						Accrued compensation and related expenses	$	71,627	$	100,653
Customer and escrow deposits	Customer and escrow deposits	$	89,287	$	89,353	Customer and escrow deposits	55,601		42,296
Accrued compensation and related expenses		70,525		81,417
Warranty accrual (Note 11)	Warranty accrual (Note 11)	42,711		37,491		Warranty accrual (Note 11)	47,209		46,857
Accrued interest		30,934		30,934
Lease liability (Note 8)	Lease liability (Note 8)	26,705		26,440		Lease liability (Note 8)	24,682		26,574
Land development and home construction accruals	Land development and home construction accruals	25,670		22,012		Land development and home construction accruals	16,525		20,028
Accrued interest						Accrued interest	30,934		30,934
Income taxes payable	Income taxes payable	22,937		9,836		Income taxes payable	17,976		23,880
Construction defect claim reserves (Note 12)	Construction defect claim reserves (Note 12)	9,174		9,287		Construction defect claim reserves (Note 12)	10,271		10,466
Retentions payable						Retentions payable	17,857		21,519
Other accrued liabilities	Other accrued liabilities	79,406		64,140		Other accrued liabilities	49,091		60,199
Total accrued and other liabilities	Total accrued and other liabilities	$	397,349	$	370,910	Total accrued and other liabilities	$	341,773	$	383,406

A reclassification was made to our prior period financial information, where $21.5 million was reclassed from other accrued liabilities to retentions payable to conform to the current year presentation.

The following table sets forth information relating to financial services accounts payable and accrued liabilities:


		June 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022

		(Dollars in thousands)					(Dollars in thousands)
Insurance reserves (Note 12)	Insurance reserves (Note 12)	$	78,750	$	72,900	Insurance reserves (Note 12)	$	84,854	$	84,108
Accounts payable and other accrued liabilities	Accounts payable and other accrued liabilities	28,420		25,003		Accounts payable and other accrued liabilities	16,475		26,428
Total accounts payable and accrued liabilities	Total accounts payable and accrued liabilities	$	107,170	$	97,903	Total accounts payable and accrued liabilities	$	101,329	$	110,536

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11. Warranty Accrual

Our homes are sold with limited third-party warranties and, under our agreement with the issuer of the third-party warranties, we are responsible for performing all of the work for the first two years of the warranty coverage, and paying for certain work required to be performed subsequent to year two. We record accruals for general and structural warranty claims, as well as accruals for known, unusual warranty-related expenditures. Our warranty accrual is recorded based upon historical payment experience in an amount estimated to be adequate to cover expected costs of materials and outside labor during warranty periods. The determination of the warranty accrual rate for closed homes and the evaluation of our warranty accrual balance at period end are based on an internally developed analysis that includes known facts and interpretations of circumstances, including, among other things, our trends in historical warranty payment levels and warranty payments for claims not considered to be normal and recurring.

Our warranty accrual is included in accrued and other liabilities in the homebuilding section of our consolidated balance sheets and adjustments to our warranty accrual are recorded as an increase or reduction to home cost of sales in the homebuilding section of our consolidated statements of operations and comprehensive income.

The table set forth below summarizes accrual, adjustment and payment activity related to our warranty accrual for the three and six months ended June 30, ~~2022~~2023 and ~~2021.~~2022. The warranty accrual ~~for~~during the three and six months ended June 30, ~~2022 increased due~~2023 remained relatively flat as the decrease in home closings was offset by an increase to the per home accrual rate concurrent with the increase in ~~the number of home closings.~~construction costs year-over-year. The warranty accrual ~~for~~during the six months ended June 30, 2022 ~~increased also due to~~included a $2.4 million adjustment to increase our warranty ~~accrual during the period.~~accrual. This adjustment was due to higher general warranty related expenditures. ~~There were no warranty adjustments during the three and six months ended June 30, 2021.~~


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022

		(Dollars in thousands)									(Dollars in thousands)
Balance at beginning of period	Balance at beginning of period	$	40,946	$	33,873	$	37,491	$	33,664	Balance at beginning of period	$	46,666	$	40,946	$	46,857	$	37,491
Expense provisions	Expense provisions	6,787		5,703		12,619		10,088		Expense provisions	6,302		6,787		11,937		12,619
Cash payments	Cash payments	(5,022)		(4,559)		(9,839)		(8,735)		Cash payments	(5,759)		(5,022)		(11,585)		(9,839)
Adjustments	Adjustments	—		—		2,440		—		Adjustments	—		—		—		2,440

Balance at end of period	Balance at end of period	$	42,711	$	35,017	$	42,711	$	35,017	Balance at end of period	$	47,209	$	42,711	$	47,209	$	42,711

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12. Insurance and Construction Defect Claim Reserves

The establishment of reserves for estimated losses associated with insurance policies issued by Allegiant and re-insurance agreements issued by StarAmerican are based on actuarial studies that include known facts and interpretations of circumstances, including our experience with similar cases and historical trends involving claim payment patterns, pending levels of unpaid claims, product mix or concentration, claim severity, frequency patterns, ~~depending on the business conducted,~~ and changing regulatory and legal environments. It is possible that changes in the insurance payment experience used in estimating our ultimate insurance losses could have a material impact on our insurance reserves.

The establishment of reserves for estimated losses to be incurred by our homebuilding subsidiaries associated with: (1) the self-insured retention (“SIR”) portion of construction defect claims that are expected to be covered under insurance policies with Allegiant and (2) the entire cost of any construction defect claims that are not expected to be covered by insurance policies with Allegiant, are based on third party actuarial studies that include known facts similar to those for our insurance reserves. It is possible that changes in the payment experience used in estimating our ultimate losses for construction defect claims could have a material impact on our reserves.

The table set forth below summarizes our insurance and construction defect claim reserves activity for the three and six months ended June 30, ~~2022~~2023 and ~~2021.~~2022. These reserves are included as a component of accounts payable and accrued liabilities and accrued and other liabilities in the financial services and homebuilding sections, respectively, of the consolidated balance sheets.


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022

		(Dollars in thousands)									(Dollars in thousands)
Balance at beginning of period	Balance at beginning of period	$	84,424	$	74,003	$	82,187	$	70,054	Balance at beginning of period	$	93,137	$	84,424	$	94,574	$	82,187
Expense provisions	Expense provisions	5,020		5,388		9,452		9,671		Expense provisions	4,100		5,020		7,889		9,452
Cash payments, net of recoveries	Cash payments, net of recoveries	(1,520)		(3,105)		(3,715)		(3,439)		Cash payments, net of recoveries	(2,112)		(1,520)		(7,338)		(3,715)
Balance at end of period	Balance at end of period	$	87,924	$	76,286	$	87,924	$	76,286	Balance at end of period	$	95,125	$	87,924	$	95,125	$	87,924

In the ordinary course of business, we make payments from our insurance and construction defect claim reserves to settle litigation claims arising from our homebuilding activities. These payments are irregular in both their timing and their magnitude. As a result, the cash payments, net of recoveries shown for the three and six months ended June 30, ~~2022~~2023 and ~~2021~~2022 are not necessarily indicative of what future cash payments will be for subsequent periods.

13. Income Taxes

Our overall effective income tax rates were 17.3% and 21.5% for the three and six months ended June 30, 2023 and 26.8% and 26.7% for the three and six months ended June 30, ~~2022 and 24.9% and 24.2% for the three and six months ended June 30, 2021.~~2022. The rates for the three and six months ended June 30, ~~2022~~2023 resulted in income tax expense of $19.6 million and $47.8 million, respectively, compared to the income tax expense of $69.4 million and $122.9 ~~million, respectively, compared to income tax expense of $51.2 million and $84.8~~ million for the three and six months ended June 30, ~~2021,~~2022, respectively. The year-over-year ~~increase~~decrease in the effective tax rate for the three and six months ended June 30, ~~2022,~~2023, was primarily due to energy tax credits used in 2023 that had not ~~being~~been extended into 2022 by June 30, 2022, and ~~a decrease~~an increase in the windfall on non-qualifying stock options exercised and lapsed restricted stock during the ~~respective~~ periods.

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14. Senior Notes

The carrying values of our senior notes as of June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, net of any unamortized debt issuance costs or discount, were as follows:


		June 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022

		(Dollars in thousands)					(Dollars in thousands)
3.850% Senior Notes due January 2030, net	3.850% Senior Notes due January 2030, net	$	297,821	$	297,699	3.850% Senior Notes due January 2030, net	$	298,076	$	297,949
2.500% Senior Notes due January 2031, net	2.500% Senior Notes due January 2031, net	347,269		347,126		2.500% Senior Notes due January 2031, net	347,559		347,413
6.000% Senior Notes due January 2043, net	6.000% Senior Notes due January 2043, net	491,010		490,903		6.000% Senior Notes due January 2043, net	491,234		491,120
3.966% Senior Notes due August 2061, net	3.966% Senior Notes due August 2061, net	346,074		346,053		3.966% Senior Notes due August 2061, net	346,116		346,094
Total	Total	$	1,482,174	$	1,481,781	Total	$	1,482,985	$	1,482,576

Our senior notes are not secured and, while the senior note indentures contain some restrictions on secured debt and other transactions, they do not contain financial covenants. Our senior notes are fully and unconditionally guaranteed on an unsecured basis, jointly and severally, by most of our homebuilding segment subsidiaries.

In January 2021, we completed an offering of $350.0 million of 2.500% senior notes due January 2031 at 100% of par. In August 2021, the Company issued $350.0 million of 3.966% senior notes due August 2061 at 100% of par. We used the net proceeds for general corporate purposes, which included the retirement of our 5.500% senior notes discussed further below, which were scheduled to mature in January 2024.

15. Stock-Based Compensation

The following table sets forth share-based award expense activity for the three and six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, which is included as a component of selling, general and administrative expenses and expenses in the homebuilding and financial services sections, respectively, of our consolidated statements of operations and comprehensive income:


		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022

		(Dollars in thousands)									(Dollars in thousands)
Stock option grants expense	Stock option grants expense	$	593	$	725	$	1,180	$	1,589	Stock option grants expense	$	45	$	593	$	202	$	1,180
Restricted stock awards expense	Restricted stock awards expense	2,041		1,452		4,628		3,921		Restricted stock awards expense	2,963		2,041		6,525		4,628
Performance share units expense	Performance share units expense	7,277		6,842		18,985		13,435		Performance share units expense	1,779		7,277		3,558		18,985
Total stock-based compensation	Total stock-based compensation	$	9,911	$	9,019	$	24,793	$	18,945	Total stock-based compensation	$	4,787	$	9,911	$	10,285	$	24,793

Additional detail on the performance share units ("PSUs") expense is included below:

~~2018~~2020 PSU Grants. The ~~2018~~2020 PSU awards vested on ~~April 29, 2021.~~February 3, 2023. For the three and six months ended June 30, ~~2021,~~2022, the Company recorded share-based award expense of ~~$1.3 million related to these awards.~~

~~2019 PSU Grants. The 2019 PSU awards vested on February 3, 2022. For the three and six months ended June 30, 2021, the Company recorded share-based award expense of $1.8~~$2.5 million and ~~$3.7~~$4.9 million, respectively, related to these awards.

~~2020~~2021 PSU Grants. As of June 30, ~~2022,~~2023, the Company recorded the required share-based award expense related to the awards of ~~$2.5~~$1.8 million and ~~$4.9~~$3.6 million for the three and six months ended June 30, ~~2022,~~2023, respectively, based on its assessment of the probability for achievement of the performance targets. For the three and six months ended June 30, ~~2021,~~2022, the Company recorded share-based award expense of ~~$5.0~~$4.8 million and ~~$8.5~~$14.1 million, respectively, related to these awards.

~~2021 PSU Grant~~s. As of June 30, 2022, the Company recorded the required share-based award expense related to the awards of $4.8 million and $14.1 million for the three and six months ended June 30, 2022, based on its assessment of the probability for achievement of the performance targets.

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16. Commitments and Contingencies

Surety Bonds and Letters of Credit. We are required to obtain surety bonds and letters of credit in support of our obligations for land development and subdivision improvements, homeowner association dues, warranty work, contractor license fees and earnest money deposits. At June 30, ~~2022,~~2023, we had outstanding surety bonds and letters of credit totaling ~~$379.6~~$333.0 million and ~~$211.0~~$108.1 million, respectively, including ~~$159.8~~$61.4 million in letters of credit issued by HomeAmerican. The estimated cost to complete obligations related to these bonds and letters of credit were approximately ~~$186.7~~$150.7 million and ~~$167.3~~$69.4 million, respectively. All letters of credit as of June 30, ~~2022,~~2023, excluding those issued by HomeAmerican, were issued under our unsecured revolving credit facility (see Note 18 for further discussion of the revolving credit facility). We expect that the obligations secured by these performance bonds and letters of credit generally will be performed in the ordinary course of business and in accordance

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with the applicable contractual terms. To the extent that the obligations are performed, the related performance bonds and letters of credit should be released and we should not have any continuing obligations. However, in the event any such performance bonds or letters of credit are called, our indemnity obligations could require us to reimburse the issuer of the performance bond or letter of credit.

We have made no material guarantees with respect to third-party obligations.

Litigation. Due to the nature of the homebuilding business, we have been named as defendants in various claims, complaints and other legal actions arising in the ordinary course of business, including product liability claims and claims associated with the sale and financing of homes. In the opinion of management, the outcome of these ordinary course matters will not have a material adverse effect upon our financial condition, results of operations or cash flows.

Lot Option Contracts. In the ordinary course of business, we enter into lot option purchase contracts (“Option Contracts”), generally through a deposit of cash or a letter of credit, for the right to purchase land or lots at a future point in time with predetermined terms. The use of such land option and other contracts generally allow us to reduce the risks associated with direct land ownership and development, reduces our capital and financial commitments, and minimizes the amount of land inventories on our consolidated balance sheets. In certain cases, these contracts will be settled shortly following the end of the period. Our obligation with respect to Option Contracts is generally limited to forfeiture of the related deposits. At June 30, ~~2022,~~2023, we had cash deposits, capitalized costs and letters of credit totaling ~~$40.9~~$21.9 million, $3.2 million and ~~$11.0~~$2.6 million, respectively, at risk associated with ~~the option~~options to purchase ~~7,296~~3,765 lots.

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17. Derivative and Financial Instruments

In the normal course of business, we enter into interest rate lock commitments ("IRLCs") with borrowers who have applied for loan funding and meet defined credit and underwriting criteria. Since we can terminate ~~a loan commitment~~IRLCs if the borrower does not comply with the terms of the contract, and some ~~loan commitments~~IRLCs may expire without being ~~drawn upon,~~utilized, these ~~commitments~~IRLCs do not necessarily represent future cash requirements.

Market risk arises if interest rates move adversely between the time ~~of the IRLCs~~we originate a mortgage loan or we enter into an IRLC and the date the loan is committed or sold to an investor. We mitigate our exposure to interest rate market risk relating to mortgage loans held-for-sale and IRLCs using: (1) forward sales of mortgage-backed securities, which are commitments to sell a specified financial instrument at a specified future date for a specified price, (2) mandatory delivery forward loan sale commitments, which are obligations of an investor to buy loans at a specified price within a specified time period, and (3) best-effort delivery forward loan sale commitments, which are obligations of an investor to buy loans at a specified price subject to the underlying mortgage loans being funded and closed. The best-effort delivery forward loan sale commitments do not meet the definition of a derivative financial ~~instruments~~instrument in accordance with ASC Topic 815, Derivatives and Hedging ("("ASC 815"). We have elected the fair value option for the ~~firm commitment financial instruments~~best-effort delivery forward loan sale commitments in accordance with ASC Topic 825, Financial Instruments ("ASC 825").

Forward sales of mortgage-backed securities are the predominant derivative and financial instruments we use to minimize market risk during the period from the time we extend an interest rate lock to a loan applicant until the time the loan is committed under a best-effort or mandatory delivery forward loan sale commitment.

The following table sets forth the notional amounts and fair value measurement of our derivative and financial instruments at June 30, ~~2022~~2023 and December 31, ~~2021:~~2022:


							June 30, 2023								December 31, 2022
		June 30, 2022		December 31, 2021
							Notional Value		Derivative Assets		Derivative Liabilities		Derivatives, Net		Notional Value		Derivative Assets		Derivative Liabilities		Derivatives, Net
		(Dollars in thousands)					(Dollars in thousands)								(Dollars in thousands)
Interest rate lock commitments	Interest rate lock commitments	$	871,839	$	268,796	Interest rate lock commitments	$	255,423	$	2,870	$	253	$	2,617	$	394,004	$	1,566	$	3,244	$	(1,678)
Forward sales of mortgage-backed securities	Forward sales of mortgage-backed securities	553,000		275,600		Forward sales of mortgage-backed securities	303,500		2,712		—		2,712		323,000		580		5,849		(5,269)
Mandatory delivery forward loan sale commitments	Mandatory delivery forward loan sale commitments	99,117		128,391		Mandatory delivery forward loan sale commitments	34,405		156		123		33		105,060		794		3		791
Best-effort delivery forward loan sale commitments	Best-effort delivery forward loan sale commitments	351,237		51,993		Best-effort delivery forward loan sale commitments	15,547		77		77		—		139,972		2,161		185		1,976

For the three and six months ended June 30, ~~2022,~~2023, we recorded net gains on these derivative and financial instruments measured on a recurring basis of ~~$19.7~~$5.3 million and ~~$37.3~~$1.5 million, respectively, in revenues in the financial services section of our consolidated statements of operations and comprehensive income, compared to net ~~gain (loss)~~gains of ~~$(8.5)~~$19.7 million and ~~$6.6~~$37.3 million for the same periods in ~~2021.~~2022. There are no credit-risk-related contingent features within our derivative agreements, and counterparty risk is considered minimal.

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18. Lines of Credit

Revolving Credit Facility. We have an unsecured revolving credit agreement (“Revolving Credit Facility”) with a group of lenders which may be used for general corporate purposes. This agreement was amended on December 28, 2020 to (1) increase the aggregate commitment from $1.0 billion to $1.2 billion (the “Commitment”), (2) extend the Revolving Credit Facility maturity of $1.125 billion of the Commitments to December 18, 2025 with the remaining Commitment continuing to terminate on December 18, 2023 and (3) provide that the aggregate amount of the commitments may increase to an amount not to exceed $1.7 billion upon our request, subject to receipt of additional commitments from existing or additional lenders and, in the case of additional lenders, the consent of the co-administrative agents.

Effective April 11, 2023, the Revolving Credit Facility was amended to transition from a eurocurrency based interest rate to an interest rate based on the Secured Overnight Financing Rate ("SOFR"). As defined in the Revolving Credit Facility, interest rates on base rate borrowings are equal to the highest of (1) 0.0%, (2) a prime rate, (3) a federal funds effective rate plus ~~1.50%~~0.50%, and (4) ~~a specified eurocurrency~~the one month term SOFR screen rate plus the SOFR adjustment plus 1.00% and, in each case, plus a margin that is determined based on our credit ratings and leverage ratio. Interest rates on ~~eurocurrency~~SOFR borrowings are equal to ~~a specified eurocurrency~~the greater of (1) 0.0% and (2) the sum of the term SOFR screen rate for such interest period plus the SOFR adjustment, plus a margin that is determined based on our credit ratings and leverage ratio. At any time at which our leverage ratio, as of the last day of the most recent calendar quarter, exceeds 55%, the aggregate principal amount of all consolidated senior debt borrowings outstanding may not exceed the borrowing base. There is no borrowing base requirement if our leverage ratio, as of the last day of the most recent calendar quarter, is 55% or less.

~~The Revolving Credit Facility provides for a transition from the eurocurrency rate to a benchmark replacement upon the occurrence of certain events.~~

The Revolving Credit Facility is fully and unconditionally guaranteed, jointly and severally, by most of our homebuilding segment subsidiaries. The facility contains various representations, warranties and covenants that we believe are customary for agreements of this type. The financial covenants include a consolidated tangible net worth test and a leverage test, along with a consolidated tangible net worth covenant, all as defined in the Revolving Credit Facility. A failure to satisfy the foregoing tests does not constitute an event of default, but can trigger a “term-out” of the facility. A breach of the consolidated tangible net worth covenant (but not the consolidated tangible net worth test) or a violation of anti-corruption or sanctions laws would result in an event of default.

The Revolving Credit Facility is subject to acceleration upon certain specified events of default, including breach of the consolidated tangible net worth covenant, a violation of anti-corruption or sanctions laws, failure to make timely payments, breaches of certain representations or covenants, failure to pay other material indebtedness, or another person becoming beneficial owner of 50% or more of our outstanding common stock. We believe we were in compliance with the representations, warranties and covenants included in the Revolving Credit Facility as of June 30, ~~2022.~~2023.

We incur costs associated with unused commitment fees pursuant to the terms of the Revolving Credit Facility. At June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, there were ~~$51.1~~$46.7 million and ~~$40.1~~$48.3 million, respectively, in letters of credit outstanding, which reduced the amounts available to be borrowed under the Revolving Credit Facility. At June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, we had $10.0 million and $10.0 million, respectively, outstanding under the Revolving Credit Facility. As of June 30, ~~2022,~~2023, availability under the Revolving Credit Facility was approximately $1.14 billion.

Mortgage Repurchase Facility. HomeAmerican has a Master Repurchase Agreement (the “Mortgage Repurchase Facility”) with U.S. Bank National Association (“USBNA”). The Mortgage Repurchase Facility provides liquidity to HomeAmerican by providing for the sale of up to an aggregate of $75 million (subject to increase by up to $75 million under certain conditions) of eligible mortgage loans to USBNA with an agreement by HomeAmerican to repurchase the mortgage loans at a future date. Until such mortgage loans are transferred back to HomeAmerican, the documents relating to such loans are held by USBNA, as custodian, pursuant to the Custody Agreement (“Custody Agreement”), dated as of November 12, 2008, by and between HomeAmerican and USBNA. In the event that an eligible mortgage loan becomes ineligible, as defined under the Mortgage Repurchase Facility, HomeAmerican may be required to repurchase the ineligible mortgage loan immediately. The Mortgage Repurchase Facility was amended on ~~September 24, 2020, March 25, 2021,~~ May 20, 2021, December 21, 2021, ~~and~~ May 19, 2022 and May 18, 2023 to adjust the commitments to purchase for specific time periods. The total capacity of the facility at June 30, ~~2022~~2023 was ~~$225~~$125 million. The May ~~19, 2022~~18, 2023 amendment extended the termination date of the Repurchase Agreement to May ~~18, 2023.~~16, 2024.

At June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, HomeAmerican had ~~$175.6~~$123.2 million and ~~$256.3~~$175.8 million, respectively, of mortgage loans that HomeAmerican was obligated to repurchase under the Mortgage Repurchase Facility. Mortgage loans that HomeAmerican is obligated to repurchase under the Mortgage Repurchase Facility are accounted for as a debt financing arrangement and are reported as mortgage repurchase facility in the consolidated balance sheets. ~~The December 21, 2021 amendment also provides for a transition from a pricing rate~~Pricing under the Mortgage Repurchase Facility is based on the ~~London Interbank Offered Rate (LIBOR) to one based on the Secured Overnight Financing Rate (SOFR).~~SOFR.

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The Mortgage Repurchase Facility contains various representations, warranties and affirmative and negative covenants that we believe are customary for agreements of this type. The negative covenants include, among others, (i) a minimum Adjusted Tangible Net Worth requirement, (ii) a maximum Adjusted Tangible Net Worth ratio, (iii) a minimum adjusted net income requirement, and (iv) a minimum Liquidity requirement. The foregoing capitalized terms are defined in the Mortgage Repurchase Facility. We believe HomeAmerican was in compliance with the representations, warranties and covenants included in the Mortgage Repurchase Facility as of June 30, ~~2022.~~2023.

19. Related Party Transactions

The Company has a sublease agreement with CVentures, Inc. Larry A. Mizel, the Executive Chairman of the Company, is the President of CVentures, Inc. The sublease is for office space that CVentures, Inc. has continuously leased from the Company as disclosed in the Form 8-K filed July 27, 2005 and the Form 8-K filed March 28, 2006. The current sublease term commenced November 1, 2016 and will continue through October 31, 2026. The sublease agreement is for approximately 5,437 rentable square feet at a base rent that increases over the term from $26.50 to $31.67 per rentable square foot per year. The sublease rent is an allocation of the rent under the master lease agreement based on the sublease square footage.

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20. Supplemental Guarantor Information

Our senior notes are fully and unconditionally guaranteed on an unsecured basis, jointly and severally, by the following subsidiaries (collectively, the "Guarantor Subsidiaries"), which are 100%-owned subsidiaries of the Company:

•M.D.C. Land Corporation

•RAH of Florida, Inc.

•Richmond American Construction, Inc.

•Richmond American Construction NM, Inc.

•Richmond American Homes of Arizona, Inc.

•Richmond American Homes of Colorado, Inc.

•Richmond American Homes of Florida, LP

•Richmond American Homes of Idaho, Inc.

•Richmond American Homes of Maryland, Inc.

•Richmond American Homes of Nevada, Inc.

•Richmond American Homes of New Mexico, Inc.

•Richmond American Homes of Oregon, Inc.

•Richmond American Homes of Pennsylvania, Inc.

•Richmond American Homes of Tennessee, Inc.

•Richmond American Homes of Texas, Inc.

•Richmond American Homes of Utah, Inc.

•Richmond American Homes of Virginia, Inc.

•Richmond American Homes of Washington, Inc.

The senior note indentures do not provide for a suspension of the guarantees. Other than for the senior notes due 2061, the senior note indentures, provide that any Guarantor may be released from its guarantee so long as (1) no default or event of default exists or would result from release of such guarantee, (2) the Guarantor being released has consolidated net worth of less than 5% of the Company’s consolidated net worth as of the end of the most recent fiscal quarter, (3) the Guarantors released from their guarantees in any year-end period comprise in the aggregate less than 10% (or 15% if and to the extent necessary to permit the cure of a default) of the Company’s consolidated net worth as of the end of the most recent fiscal quarter, (4) such release would not have a material adverse effect on the homebuilding business of the Company and its subsidiaries and (5) the Guarantor is released from its guarantee(s) under all Specified Indebtedness (other than by reason of payment under its guarantee of Specified Indebtedness). The indenture for the senior notes due 2061 provides that, if a Guarantor is released under its guarantees of our credit facilities or other publicly traded debt securities, the Guarantor will also be released under its guarantee of the senior notes due 2061. Upon delivery of an officers’ certificate and an opinion of counsel stating that all conditions precedent provided for in the indenture relating to such transactions have been complied with and the release is authorized, the guarantee will be automatically and unconditionally released. “Specified Indebtedness” means indebtedness under the senior notes, the Company’s Indenture dated as of December 3, 2002, the Revolving Credit Facility, and any refinancing, extension, renewal or replacement of any of the foregoing.

As the combined assets, liabilities and results of operations of M.D.C. Holdings, Inc. and the Guarantor Subsidiaries (the “Obligor Group”) are not materially different from those in the homebuilding section of our consolidated balance sheets and consolidated statements of operations and comprehensive income, separate summarized financial information of the Obligor Group has not been included. As of June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, amounts due to (due from) non-guarantor subsidiaries from the Obligor Group totaled ~~$59.4~~$(25.8) million and ~~$60.2~~$29.7 million, respectively.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with, and is qualified in its entirety by, the Unaudited Consolidated Financial Statements and Notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This item contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are based upon management’s experiences, observations, and analyses. Actual results may differ materially from those indicated in such forward-looking statements. Factors that may cause such a difference include, but are not limited to, those discussed in "Item 1A. Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 and this Quarterly Report on Form 10-Q.


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended June 30,						Six Months Ended June 30,
		2022			2021			2022			2021				2023			2022			2023			2022

		(Dollars in thousands, except per share amounts)													(Dollars in thousands, except per share amounts)
Homebuilding:	Homebuilding:													Homebuilding:
Home sale revenues	Home sale revenues	$	1,450,823		$	1,367,773		$	2,691,343		$	2,409,631		Home sale revenues	$	1,103,470		$	1,450,823		$	2,123,486		$	2,691,343
Home cost of sales	Home cost of sales	(1,062,016)			(1,051,181)			(1,983,394)			(1,865,069)			Home cost of sales	(908,991)			(1,062,016)			(1,749,738)			(1,983,394)
Inventory impairments	Inventory impairments	—			—			(660)			—			Inventory impairments	(13,500)			—			(21,300)			(660)
Total cost of sales	Total cost of sales	(1,062,016)			(1,051,181)			(1,984,054)			(1,865,069)			Total cost of sales	(922,491)			(1,062,016)			(1,771,038)			(1,984,054)
Gross profit	Gross profit	388,807			316,592			707,289			544,562			Gross profit	180,979			388,807			352,448			707,289
Gross margin	Gross margin	26.8		%	23.1		%	26.3		%	22.6		%	Gross margin	16.4		%	26.8		%	16.6		%	26.3		%
Selling, general and administrative expenses	Selling, general and administrative expenses	(133,849)			(128,861)			(263,163)			(243,854)			Selling, general and administrative expenses	(106,733)			(133,849)			(201,721)			(263,163)

Interest and other income	Interest and other income	822			868			1,577			1,835			Interest and other income	17,939			822			31,398			1,577
Other expense	Other expense	(15,509)			(1,090)			(16,933)			(1,527)			Other expense	(127)			(15,509)			932			(16,933)
Homebuilding pretax income	Homebuilding pretax income	240,271			187,509			428,770			301,016			Homebuilding pretax income	92,058			240,271			183,057			428,770

Financial Services:	Financial Services:													Financial Services:
Revenues	Revenues	36,229			33,318			65,360			78,341			Revenues	32,619			36,229			62,105			65,360
Expenses	Expenses	(18,801)			(16,440)			(35,736)			(31,545)			Expenses	(15,487)			(18,801)			(30,737)			(35,736)
Other income, net	Other income, net	1,264			1,155			2,451			2,042			Other income, net	3,860			1,264			7,594			2,451
Financial services pretax income	Financial services pretax income	18,692			18,033			32,075			48,838			Financial services pretax income	20,992			18,692			38,962			32,075

Income before income taxes	Income before income taxes	258,963			205,542			460,845			349,854			Income before income taxes	113,050			258,963			222,019			460,845
Provision for income taxes	Provision for income taxes	(69,421)			(51,190)			(122,882)			(84,812)			Provision for income taxes	(19,557)			(69,421)			(47,826)			(122,882)
Net income	Net income	$	189,542		$	154,352		$	337,963		$	265,042		Net income	$	93,493		$	189,542		$	174,193		$	337,963

Earnings per share:	Earnings per share:													Earnings per share:
Basic	Basic	$	2.66		$	2.19		$	4.75		$	3.76		Basic	$	1.28		$	2.66		$	2.38		$	4.75
Diluted	Diluted	$	2.59		$	2.11		$	4.61		$	3.62		Diluted	$	1.24		$	2.59		$	2.33		$	4.61

Weighted average common shares outstanding:	Weighted average common shares outstanding:													Weighted average common shares outstanding:
Basic	Basic	70,841,476			70,291,057			70,804,019			70,044,326			Basic	72,934,920			70,841,476			72,793,951			70,804,019
Diluted	Diluted	72,881,012			72,715,273			72,945,748			72,754,141			Diluted	74,956,026			72,881,012			74,500,489			72,945,748

Dividends declared per share	Dividends declared per share	$	0.50		$	0.40		$	1.00		$	0.77		Dividends declared per share	$	0.50		$	0.50		$	1.00		$	1.00

Cash provided by (used in):	Cash provided by (used in):													Cash provided by (used in):
Operating Activities	Operating Activities	$	53,005		$	70,041		$	171,060		$	12,084		Operating Activities	$	225,765		$	53,005		$	651,929		$	171,060
Investing Activities	Investing Activities	$	(6,814)		$	(7,698)		$	(13,698)		$	(13,447)		Investing Activities	$	137,720		$	(6,814)		$	(107,040)		$	(13,698)
Financing Activities	Financing Activities	$	(38,304)		$	(97,592)		$	(164,584)		$	238,750		Financing Activities	$	(12,610)		$	(38,304)		$	(106,118)		$	(164,584)

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Overview

Industry Conditions and Outlook for MDC*

~~The strong demand~~During the second quarter of 2023, industry conditions continued to improve from those experienced induring much of 2022. Demand increased and cancellations normalized as interest rates stabilized and buyers adjusted to higher interest rate levels. In addition, existing home inventory levels remained constrained as home sale listings continued to decline, dropping below pre-pandemic levels. In comparison, the ~~housing market over the last two years slowed~~magnitude and speed of interest rate increases during the second quarter of 2022 as the average 30-year fixed mortgage rate approached 6.0% in June, representing its largest year-over-year basis point increase in over 40 years. The magnitude and speed of these recent rate increases has caused many buyers to pause and reconsider a home purchase, resulting in lower gross demand and higher ~~cancellations during~~cancellation levels. As a result, our net orders and net order value increased 54% and 37%, respectively, in the second ~~quarter. Longer-term, after buyers acclimate~~quarter of 2023 as compared to ~~higher interest rates, we believe that~~the second quarter of 2022. Supply chain conditions have also normalized to a ~~more normalized level~~large degree with our average construction build time for closed homes improving on a sequential basis in the second quarter of ~~housing activity should~~2023 for the first time in over two years. These improvements allowed us to turn our inventories quicker than expected, leading to strong top and bottom line results and positive cash flow from operations in the second quarter of 2023. We expect our construction build times to continue to ~~be supported by low levels~~improve in the second half of ~~existing home inventory,~~the year based on the projected construction build times of our homes currently under construction. As a ~~continued focus on suburban home ownership and interest rates that remain low by historical standards. However,~~result, we ~~also believe that there is increasing risk that housing activity could be negatively impacted by broader economic factors such as declining consumer confidence or higher inflation.~~are currently projecting deliveries for the 2023 full year of at least 8,000 homes.

Throughout the homebuilding industry we have continued to see production challenges due to supply chain disruptions, labor market tightness, and shortages of certain building materials. These disruptions have caused our cycle times to extend year-over-year compared to the three and six months ended June 30, 2021. However, during the second quarter we began to see signs that the pressure on our cycle times may be abating. We continue to work with our suppliers and trade partners to address ongoing issues, but it remains uncertain whether or not conditions will improve in the near term. Continued supply chain disruptions and labor and material shortages could further extend delivery times and increase cost pressures.

~~We believe we are well-positioned to navigate the ever evolving market conditions given our strong financial position.~~ We ended the quarter with ~~total cash~~9.3 unsold homes under construction, excluding model homes, ("speculative homes" or "spec homes") per active community and ~~cash equivalents of $590.2 million, total liquidity of $1.74 billion and no senior note maturities until 2030. We remain focused on cash flow as we continue to build through~~just 0.8 completed spec homes per active community. The demand for our quick move-in homes ~~in backlog, and as a result have slowed our pace of land acquisition and approval activity~~remained strong during the second quarter, with spec homes representing 67% of ~~2022. We ended~~our gross orders. As we continue to pivot our operations to prioritize an increased number of spec homes, we have recently introduced our Curated by the ~~quarter~~Home GalleryTM collection. These homes include finish details selected by members of our professional design team specific to home plans and geography. Our curated collection allows us to capitalize on our design expertise, given our experience with ~~33,130 lots controlled, which represents a decrease of 4% from the prior year.~~build-to-order homes, to deliver thoughtfully designed homes to quick move-in homebuyers.

~~While we~~We remain confident in the long-term growth prospects for the industry given the underproduction of new homes over the past decade and the decreasing supply of existing home inventory. With that said, the current demand for new homes is subject to continued ~~and increasing~~ uncertainty due to many ~~factors. These include~~factors, including ongoing inflation concerns, the Federal Reserve's quantitative tightening and the resulting impact on mortgage interest rates, consumer confidence, the current geopolitical environment ~~the Federal Reserve's continued quantitative tightening, the sharp rise in mortgage interest rates, ongoing inflation concerns, the impact of the COVID-19 pandemic~~ and other factors. The potential effect of these factors is highly uncertain and could adversely and materially impact our operations and financial results in future periods.

We believe that we are uniquely equipped to navigate these uncertainties and any continued market volatility given our seasoned leadership team, strong financial position and distinct operating strategy. We remain focused on maximizing risk-adjusted returns while minimizing the risks of excess leverage and land ownership. We ended the quarter with total cash and cash equivalents and marketable securities of $1.83 billion, total liquidity of $2.97 billion, a debt-to-capital ratio of 31.7% and no senior note maturities until 2030.

Three Months Ended June 30, ~~2022~~2023

For the three months ended June 30, ~~2022,~~2023, our net income was ~~$189.5~~$93.5 million, or ~~$2.59~~$1.24 per diluted share, a ~~23% increase~~51% decrease compared to net income of ~~$154.4~~$189.5 million, or ~~$2.11~~$2.59 per diluted share, for the same period in the prior year. ~~Both our~~Our homebuilding ~~and financial services businesses contributed to~~business was the ~~increase,~~primary driver of the decrease, as pretax income ~~from our homebuilding operations increased $52.8~~decreased $148.2 million, or ~~28%, and~~62% year-over-year. This decrease was partially offset by our financial services business, as its pretax income increased ~~$0.7~~$2.3 million, or 4%12%, compared to the same period in the prior year. The ~~increase~~decrease in homebuilding pretax income was ~~the result of~~primarily due to a ~~6% increase~~24% decrease in home sale revenues and ~~an increase~~a 1,040 basis point decrease in gross margin from home sales. The decrease in gross margin from home sales was driven largely by an increase in both incentives and construction costs year-over-year, as well as $13.5 million of ~~370 basis points. This was~~inventory impairments recognized during the period. These decreases were partially offset by project abandonment expense of $15.5 million ~~as we intentionally slowed land approval and acquisition activity~~ during the prior year quarter ~~as noted above.~~compared to just $0.1 million in the current quarter. The increase in financial services pretax income was ~~primarily~~ due to our ~~insurance operations, which benefited from increased premium revenue within our captive insurance companies. This was partly offset by~~mortgage operations. The increase in pretax income for our mortgage operations business, as we have seen profitability per loan locked, sold and closed return to more historical levels during the period ended June 30, 2022 as competition in the primary mortgage market has increased. The decrease in mortgage operations was partly offset by an increase in interest rate lock volume as well as an increase in mortgage servicing revenue, as additions to our mortgage servicing portfolio increased year-over-year.

The dollar value of our net new home orders decreased 40% from the prior year period, due to a 48% decrease in the number of net new orders, which was slightly offset by a 16% increase in the average selling price of net new orders. The decrease in the number of net new orders was due to a decrease in ~~the monthly sales absorption rate, which was partially offset~~salary related expenses driven by lower headcount, an increase in ~~average active communities year-over-year~~capture rate and the allocation of revenue from ~~188 to 203 communities. The~~our homebuilding business associated with our financing incentives. Our other financial services operations and homebuilding business each saw an increase in ~~the average selling price was the result of price~~interest income due to increases ~~implemented~~ in ~~the second half of 2021~~both interest rates and ~~the first quarter of 2022.~~our cash and short-term investments year-over-year.

Six Months Ended June 30, ~~2022~~2023

For the six months ended June 30, ~~2022,~~2023, our net income was ~~$338.0~~$174.2 million, or ~~$4.61~~$2.33 per diluted share, a ~~28% increase~~48% decrease compared to net income of ~~$265.0~~$338.0 million, or ~~$3.62~~$4.61 per diluted share, for the same period in the prior year. Our homebuilding business was the driver of the ~~increase,~~decrease, as pretax income from our homebuilding operations ~~increased $127.8~~decreased $245.7 million, or ~~42%~~57%. This was slightly offset by our financial services pretax income, which ~~decreased $16.8~~increased $6.9 million, or ~~34%~~21%. The main drivers of the

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decrease in homebuilding pretax income and increase in ~~homebuilding~~financial services pretax income are consistent with the second quarter commentary discussed above. The decrease in financial services pretax income was primarily due to our mortgage operations, which was slightly offset by our insurance operations. The main drivers of the decrease in mortgage operations and increase in insurance operations are consistent with the second quarter commentary discussed above.

* See "Forward-Looking Statements" below.

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Homebuilding

Pretax Income (Loss):


		Three Months Ended								Six Months Ended									Three Months Ended								Six Months Ended
		June 30,				Change				June 30,				Change					June 30,				Change				June 30,				Change
		2022		2021		Amount		%		2022		2021		Amount		%			2023		2022		Amount		%		2023		2022		Amount		%

		(Dollars in thousands)																	(Dollars in thousands)
West	West	$	148,508	$	132,919	$	15,589	12	%	$	279,034	$	210,106	$	68,928	33	%	West	$	29,639	$	148,508	$	(118,869)	(80)	%	$	72,839	$	279,034	$	(206,195)	(74)	%
Mountain	Mountain	79,135		64,052		15,083		24	%	129,641		109,910		19,731		18	%	Mountain	44,676		79,135		(34,459)		(44)	%	69,712		129,641		(59,929)		(46)	%
East	East	34,407		10,846		23,561		217	%	65,801		18,681		47,120		252	%	East	14,149		34,407		(20,258)		(59)	%	29,458		65,801		(36,343)		(55)	%
Corporate	Corporate	(21,779)		(20,308)		(1,471)		(7)	%	(45,706)		(37,681)		(8,025)		(21)	%	Corporate	3,594		(21,779)		25,373		117	%	11,048		(45,706)		56,754		124	%
Total Homebuilding pretax income	Total Homebuilding pretax income	$	240,271	$	187,509	$	52,762	28	%	$	428,770	$	301,016	$	127,754	42	%	Total Homebuilding pretax income	$	92,058	$	240,271	$	(148,213)	(62)	%	$	183,057	$	428,770	$	(245,713)	(57)	%

For the three months ended June 30, ~~2022,~~2023, we recorded homebuilding pretax income of ~~$240.3~~$92.1 million, ~~an increase~~a decrease of ~~28%~~62% from ~~$187.5~~$240.3 million for the same period in the prior year. The ~~increase~~decrease was due to a ~~6% increase~~24% decrease in home sale revenues, a ~~370~~1,040 basis point ~~increase~~decrease in ~~our~~ gross margin from home sales and a 2050 basis point ~~decrease~~increase in our selling, general and administrative expenses as a percentage of ~~revenue.~~home sale revenues. These decreases were partially offset by a decrease in project abandonment expense and an increase in interest income year-over-year.

Our West segment experienced a ~~$15.6~~$118.9 million year-over-year ~~increase~~decrease in pretax income, due to ~~an improved~~a decrease in gross margin ~~slightly offset by~~from home sales and a 7%22% decrease in home sale revenues. Our Mountain segment experienced a ~~$15.1~~$34.5 million ~~increase~~decrease in pretax income from the prior year, as a result of a ~~9% increase~~21% decrease in home sale revenues and ~~an improved~~a decrease in gross ~~margin.~~margin from home sales. Our East segment experienced a ~~$23.6~~$20.3 million ~~increase~~decrease in pretax income from the prior year, due primarily to a ~~89% increase~~38% decrease in home sale revenues, ~~as well as~~a decrease in gross margin from home sales, and an ~~improved gross margin. Our Mountain and East homebuilding segments also benefited from decreased~~increase in selling, general and administrative expenses as a percentage of ~~revenue driven by improved operating leverage.~~home sale revenues. Our Corporate segment experienced a ~~$1.5~~$25.4 million ~~decrease~~increase in pretax income, due ~~primarily~~ to ~~increased~~decreased compensation related costs associated with a decrease in headcount, decreased stock-based and deferred compensation ~~expense. This was partially offset by~~expenses and an increase in ~~the amount of corporate cost allocated to our homebuilding and financial services segments.~~interest income.

For the six months ended June 30, ~~2022,~~2023, we recorded homebuilding pretax income of ~~$428.8~~$183.1 million, ~~an increase~~a decrease of ~~42%~~57% from ~~$301.0~~$428.8 million for the same period in the prior year. The ~~increase~~decrease was due to a ~~12% increase~~21% decrease in home sale revenues, a ~~370~~970 basis point ~~increase~~decrease in our gross margin from home sales, ~~and~~slightly offset by a 30 basis point decrease in our selling, general and administrative expenses as a percentage of revenue. Our West segment experienced a $68.9 million increase in pretax income, due to an improved gross margin, a 2% increase in home sale revenue, and a decrease in selling, general and administrative expenses as a percentage of revenue. Commentary on the drivers of the increase in pretax income in our West, Mountain and East homebuilding segments and Corporate segment is consistent with the ~~2022~~2023 second quarter discussion above.

Assets:


		June 30, 2022			December 31, 2021			Change						June 30, 2023					December 31, 2022			Change
							Amount			%							Amount					%

				(Dollars in thousands)														(Dollars in thousands)
West	West	$	2,653,052		$	2,472,378		$	180,674		7	%	West		$	2,049,618				$	2,275,144		$	(225,526)		(10)		%
Mountain	Mountain	1,169,938			1,072,717			97,221			9	%	Mountain	830,367					1,005,622			(175,255)			(17)		%
East	East	508,690			450,675			58,015			13	%	East	420,699					427,926			(7,227)			(2)		%
Corporate	Corporate	547,620			547,364			256			0	%	Corporate	1,702,178					1,249,370			452,808			36		%
Total homebuilding assets	Total homebuilding assets	$	4,879,300		$	4,543,134		$	336,166		7	%	Total homebuilding assets	$	5,002,862				$	4,958,062		$	44,800		1		%

Total homebuilding assets ~~increased 7%~~remained relatively flat from December 31, ~~2021~~2022 to June 30, ~~2022. Homebuilding~~2023. The increase in the Corporate segment assets ~~increased~~was driven by an increase to cash and cash equivalents as well as marketable securities. The decrease in ~~each~~the West and Mountain segments assets was driven by decreases in home sale receivables and land and land under development. The decrease in home sale receivables was driven by the timing of ~~our operating segments largely~~home closings at the end of the period. The decrease in land and land under development was due to lower levels of land acquisition. Assets in the Mountain segment were further impacted by a ~~greater number of homes~~decrease in housing completed or under construction ~~as of period-end.~~

during the period, due to home closings outpacing construction starts.

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New Home Deliveries & Home Sale Revenues:

Changes in home sale revenues are impacted by changes in the number of new homes delivered and the average selling price of those delivered homes. Commentary for each of our segments on significant changes in these two metrics is provided below.


		Three Months Ended June 30,																	Three Months Ended June 30,
		2022					2021					% Change							2023					2022					% Change
		Homes	Home Sale Revenues		Average Price		Homes	Home Sale Revenues		Average Price		Homes		Home Sale Revenues		Average Price			Homes	Home Sale Revenues		Average Price		Homes	Home Sale Revenues		Average Price		Homes		Home Sale Revenues		Average Price

		(Dollars in thousands)																	(Dollars in thousands)
West	West	1,371	$	788,279	$	575.0	1,672	$	847,683	$	507.0	(18)	%	(7)	%	13	%	West	1,162	$	616,559	$	530.6	1,371	$	788,279	$	575.0	(15)	%	(22)	%	(8)	%
Mountain	Mountain	665	437,001		657.1		711	400,633		563.5		(6)	%	9	%	17	%	Mountain	539	346,070		642.1		665	437,001		657.1		(19)	%	(21)	%	(2)	%
East	East	500	225,543		451.1		339	119,457		352.4		47	%	89	%	28	%	East	308	140,841		457.3		500	225,543		451.1		(38)	%	(38)	%	1	%
Total	Total	2,536	$	1,450,823	$	572.1	2,722	$	1,367,773	$	502.5	(7)	%	6	%	14	%	Total	2,009	$	1,103,470	$	549.3	2,536	$	1,450,823	$	572.1	(21)	%	(24)	%	(4)	%


	Six Months Ended June 30,
	2023					2022					% Change
	Homes	Home Sale Revenues		Average Price		Homes	Home Sale Revenues		Average Price		Homes		Home Sale Revenues		Average Price

	(Dollars in thousands)
West	2,226	$	1,194,492	$	536.6	2,614	$	1,495,590	$	572.1	(15)	%	(20)	%	(6)	%
Mountain	1,026	647,225		630.8		1,213	772,129		636.5		(15)	%	(16)	%	(1)	%
East	608	281,769		463.4		942	423,624		449.7		(35)	%	(33)	%	3	%
Total	3,860	$	2,123,486	$	550.1	4,769	$	2,691,343	$	564.3	(19)	%	(21)	%	(3)	%

Six Months Ended June 30,
2022 2021 % Change
Homes Home Sale
Revenues Average
Price Homes Home Sale
Revenues Average
Price Homes Home
Sale
Revenues Average Price
(Dollars in thousands)
West 2,614 $ 1,495,590 $ 572.1 2,948 $ 1,464,294 $ 496.7 (11) % 2 % 15 %
Mountain 1,213 772,129 636.5 1,323 725,350 548.3 (8) % 6 % 16 %
East 942 423,624 449.7 629 219,987 349.7 50 % 93 % 29 %
Total 4,769 $ 2,691,343 $ 564.3 4,900 $ 2,409,631 $ 491.8 (3) % 12 % 15 %

For the three and six months ended June 30, ~~2022,~~2023, the decrease in the number of new homes delivered in each of our segments was ~~negatively impacted~~the result of a decrease in the number of homes in backlog to begin the period. This decrease was partially offset within each segment by an increase in ~~construction cycle times year-over-year.~~backlog conversion rates due to an increase in the number of homes both sold and closed during the quarter. This increase was ~~primarily the~~a result of ~~extended permitting times, supply chain disruptions~~our recent pivot to focus more on spec homes and ~~labor shortages~~the year-over-year increase in the number of unsold started homes to begin the period as a result of the ~~pandemic as well as the strong demand for new homes~~above average cancellation rates experienced in ~~recent periods.~~the second half of 2022. The average selling price of homes delivered was negatively impacted by increased incentives during the three and six months ended June 30, 2023.

West Segment Commentary

For the three and six months ended June 30, ~~2022,~~2023, the decrease in new home deliveries, as discussed above, was the result of a decrease in backlog conversion rates in most of our markets within this segment as a result of the increased construction cycle times discussed above. This decrease was partially offsetfurther impacted by an increase in ~~the number of homes~~construction cycle times year-over-year in ~~backlog to begin the respective periods.~~our Phoenix and Tucson divisions. The average selling price of homes delivered ~~increased~~decreased as a result of ~~price increases implemented over the past two years. These increases were slightly offset by~~ a shift in mix from our California divisions to ~~lower priced communities.~~our Arizona divisions as well as the increased incentives discussed above.

Mountain Segment Commentary

For the three and six months ended June 30, ~~2022,~~2023, the decrease in new home deliveries was driven by the ~~result of~~factors discussed above. This was partly offset by a decrease in ~~backlog conversion rates in most of our markets within this segment as a result of the increased~~ construction cycle times ~~discussed above. This decrease was partially offset by an increase~~year-over-year in ~~the number of homes in backlog to begin the period. The average selling price of homes delivered increased as a result of price increases implemented over the past two years.~~

our Utah division.

East Segment Commentary

For the three and six months ended June 30, ~~2022,~~2023, the ~~increase~~decrease in new home deliveries, as discussed above, was ~~due to an increase~~partially offset by a decrease in ~~the number~~construction cycle times year-over-year across all of ~~homes in backlog to begin the period as well as an increase in backlog conversion rates as a result of the construction status of those homes in beginning backlog.~~our East divisions. The average selling price of homes delivered increased ~~as a result of price increases implemented over the past two years as well as~~driven by our Florida markets, due to a shift in mix ~~within several markets~~ to higher priced ~~communities.~~

communities, offset partially by increased incentives discussed above.

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Gross Margin from Home Sales:

Our gross margin from home sales for the three months ended June 30, ~~2022, increased 370~~2023, decreased 1,040 basis points year-over-year from ~~23.1%~~26.8% to ~~26.8%~~16.4%. ~~Gross~~The decrease in gross margin from home sales ~~increased across each~~was driven largely by increases in both incentives and construction costs year-over-year, as well as $13.5 million of ~~our segments on both build-to-order and speculative home deliveries driven by price increases implemented in~~inventory impairments recognized during the ~~second half of 2021 and the first quarter of 2022. This increase was partially offset by an increase in building costs year-over-year.~~current year period.

Our gross margin from home sales for the six months ended June 30, ~~2022, increased 370~~2023, decreased 970 basis points year-over-year from ~~22.6%~~26.3% to ~~26.3%~~16.6%. The ~~increase~~decrease in gross margin from home sales ~~are consistent with~~was driven largely by increases in both incentives and construction costs year-over-year, and to a lesser extent by $21.3 million of inventory impairments recognized during the ~~second quarter discussed above. This increase was~~current year period compared to $0.7 million in the prior year period. These decreases were partially offset by ~~an increase in building costs year-over-year, a $0.7 million inventory impairment and~~ a $2.4 million warranty accrual adjustment recognized during the six months ended June 30, 2022.

Inventory Impairments:

~~Selling, General and Administrative Expenses:~~
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 Change 2022 2021 Change
(Dollars in thousands)
General and administrative expenses $ 72,894 $ 61,958 $ 10,936 $ 144,877 $ 119,121 $ 25,756
General and administrative expenses as a percentage of home sale revenues
5.0 % 4.5 % 50 bps 5.4 % 4.9 % 50 bps
Marketing expenses $ 26,035 $ 26,832 $ (797) $ 51,667 $ 52,535 $ (868)
Marketing expenses as a percentage of home sale revenues
1.8 % 2.0 % -20 bps 1.9 % 2.2 % -30 bps
Commissions expenses $ 34,920 $ 40,071 $ (5,151) $ 66,619 $ 72,198 $ (5,579)
Commissions expenses as a percentage of home sale revenues
2.4 % 2.9 % -50 bps 2.5 % 3.0 % -50 bps
Total selling, general and administrative expenses $ 133,849 $ 128,861 $ 4,988 $ 263,163 $ 243,854 $ 19,309
Total selling, general and administrative expenses as a percentage of home sale revenues
9.2 % 9.4 % -20 bps 9.8 % 10.1 % -30 bps

~~General and administrative expenses increased~~Inventory impairments recognized by segment for the three and six months ended June 30, 2023 and 2022 ~~due to increased stock-based~~are shown in the table below.


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(Dollars in thousands)				(Dollars in thousands)
Housing Completed or Under Construction:
West	$	1,787	$	—	$	1,787	$	660
Mountain	—		—		664		—
East	—		—		—		—
Subtotal	1,787		—		2,451		660
Land and Land Under Development:
West	11,713		—		11,713		—
Mountain	—		—		7,136		—
East	—		—		—		—
Subtotal	11,713		—		18,849		—
Total Inventory Impairments	$	13,500	$	—	$	21,300	$	660

The table below provides quantitative data, for the periods presented, where applicable, used in determining the fair value of the impaired inventory.


	Impairment Data					Quantitative Data
Three Months Ended	Number of Subdivisions Impaired	Inventory Impairments		Fair Value of Inventory After Impairments		Discount Rate
	(Dollars in thousands)
June 30, 2023	1	$	13,500	$	17,886		18%
March 31, 2023	1	$	7,800	$	13,016	18%
Total		$	21,300

March 31, 2022	1	$	660	$	1,728		N/A
Total		$	660

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Selling, General and ~~deferred compensation~~Administrative Expenses:


	Three Months Ended June 30,								Six Months Ended June 30,
	2023			2022			Change		2023			2022			Change

	(Dollars in thousands)
General and administrative expenses	$	52,205		$	72,894		$	(20,689)	$	94,981		$	144,877		$	(49,896)
General and administrative expenses as a percentage of home sale revenues	4.7		%	5.0		%	-30 bps		4.5		%	5.4		%	-90 bps
Marketing expenses	$	22,637		$	26,035		$	(3,398)	$	45,733		$	51,667		$	(5,934)
Marketing expenses as a percentage of home sale revenues	2.1		%	1.8		%	30 bps		2.2		%	1.9		%	30 bps
Commissions expenses	$	31,891		$	34,920		$	(3,029)	$	61,007		$	66,619		$	(5,612)
Commissions expenses as a percentage of home sale revenues	2.9		%	2.4		%	50 bps		2.9		%	2.5		%	40 bps
Total selling, general and administrative expenses	$	106,733		$	133,849		$	(27,116)	$	201,721		$	263,163		$	(61,442)
Total selling, general and administrative expenses as a percentage of home sale revenues	9.7		%	9.2		%	50 bps		9.5		%	9.8		%	-30 bps

General and administrative expenses ~~as well as increased salary related expenses due to higher average headcount. For the six months ended June 30, 2022, the increase was also due to increased bonus expenses.~~

~~Marketing expenses were consistent~~decreased for the three and six months ended June 30, ~~2022~~2023 due to decreased compensation related costs associated with a decrease in headcount as well as decreased stock-based and deferred compensation expenses.

Marketing expenses decreased for the three and six months ended June 30, 2023 compared to the previous period ~~as increased salary related expenses were offset by~~due to decreased master marketing fees, amortization of deferred selling ~~cost.~~cost, and model home expenses.

Commissions expenses decreased for the three and six months ended June 30, ~~2022~~2023 due to decreases in home sale revenues, partially offset by changes in our commission ~~structure, which were partially offset by increases in home sale revenues.~~structure.

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Other Homebuilding Operating Data

Net New Orders and Active Subdivisions:

Changes in the dollar value of net new orders are impacted by changes in the number of net new orders and the average selling price of those homes. Commentary for each of our segments on significant changes in these two metrics is provided below.


		Three Months Ended June 30,																		Three Months Ended June 30,
		2022						2021						% Change									2023						2022						% Change
		Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes		Dollar Value		Average Price		Monthly Absorption Rate			Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes		Dollar Value		Average Price		Monthly Absorption Rate

		(Dollars in thousands)																		(Dollars in thousands)
West	West	857	$	543,584	$	634.3	2.45	1,602	$	850,742	$	531.0	5.67	(47)	%	(36)	%	19	%	(57)	%	West	1,341	$	761,926	$	568.2	3.20	857	$	543,584	$	634.3	2.45	56	%	40	%	(10)	%	31	%
Mountain	Mountain	277	196,340		708.8		1.79	706	433,793		614.4		4.18	(61)	%	(55)	%	15	%	(57)	%	Mountain	474	286,350		604.1		2.85	277	196,340		708.8		1.79	71	%	46	%	(15)	%	59	%
East	East	270	142,221		526.7		2.63	406	180,205		443.9		3.56	(33)	%	(21)	%	19	%	(26)	%	East	352	158,164		449.3		3.17	270	142,221		526.7		2.63	30	%	11	%	(15)	%	21	%
Total	Total	1,404	$	882,145	$	628.3	2.31	2,714	$	1,464,740	$	539.7	4.80	(48)	%	(40)	%	16	%	(52)	%	Total	2,167	$	1,206,440	$	556.7	3.10	1,404	$	882,145	$	628.3	2.31	54	%	37	%	(11)	%	34	%


		Six Months Ended June 30,																		Six Months Ended June 30,
		2022						2021						% Change									2023						2022						% Change
		Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes		Dollar Value		Average Price		Monthly Absorption Rate			Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes		Dollar Value		Average Price		Monthly Absorption Rate

		(Dollars in thousands)																		(Dollars in thousands)
West	West	2,561	$	1,574,372	$	614.7	3.91	3,377	$	1,791,809	$	530.6	5.73	(24)	%	(12)	%	16	%	(32)	%	West	2,353	$	1,337,435	$	568.4	2.84	2,561	$	1,574,372	$	614.7	3.91	(8)	%	(15)	%	(8)	%	(27)	%
Mountain	Mountain	1,197	799,482		667.9		3.76	1,717	1,017,585		592.7		5.03	(30)	%	(21)	%	13	%	(25)	%	Mountain	884	528,139		597.4		2.66	1,197	799,482		667.9		3.76	(26)	%	(34)	%	(11)	%	(29)	%
East	East	797	399,780		501.6		3.73	829	354,950		428.2		4.03	(4)	%	13	%	17	%	(7)	%	East	697	313,257		449.4		3.12	797	399,780		501.6		3.73	(13)	%	(22)	%	(10)	%	(17)	%
Total	Total	4,555	$	2,773,634	$	608.9	3.83	5,923	$	3,164,344	$	534.2	5.21	(23)	%	(12)	%	14	%	(26)	%	Total	3,934	$	2,178,831	$	553.8	2.85	4,555	$	2,773,634	$	608.9	3.83	(14)	%	(21)	%	(9)	%	(26)	%

*Calculated as total net new orders (gross orders less cancellations) in period ÷ average active communities during period ÷ number of months in period.


						Average Active Subdivisions				Average Active Subdivisions									Average Active Subdivisions				Average Active Subdivisions
		Active Subdivisions				Three Months Ended				Six Months Ended					Active Subdivisions				Three Months Ended				Six Months Ended
		June 30,		%		June 30,		%		June 30,		%			June 30,		%		June 30,		%		June 30,		%
		2022	2021	Change		2022	2021	Change		2022	2021	Change			2023	2022	Change		2023	2022	Change		2023	2022	Change
West	West	122	91	34	%	117	94	24	%	109	98	11	%	West	142	122	16	%	140	117	20	%	138	109	27	%
Mountain	Mountain	51	55	(7)	%	52	56	(7)	%	53	57	(7)	%	Mountain	56	51	10	%	56	52	8	%	55	53	4	%
East	East	34	41	(17)	%	34	38	(11)	%	36	34	6	%	East	34	34	—	%	37	34	9	%	37	36	3	%
Total	Total	207	187	11	%	203	188	8	%	198	189	5	%	Total	232	207	12	%	233	203	15	%	230	198	16	%

For the three ~~and six~~ months ended June 30, ~~2022,~~2023, the increase in the number of net new orders in each of our segments was ~~negatively impacted~~the result of an increase in the monthly sales absorption pace. This was driven by a higher pace of gross orders (before cancellations) as well as a decrease in cancellations as a percentage of gross sales during the period. Gross orders in the prior year began to slow beginning in the second quarter due to the magnitude and speed of interest rate increases. The increase in net new orders in each of our segments was also partially due to an increase in average active subdivisions year-over-year.

For the six months ended June 30, 2023, the decrease in the number of net new orders in each of our segments was the result of a decrease in the monthly sales absorption pace. This was driven by a lower pace of gross ~~sales~~orders (before cancellations) as well as an increase in cancellations as both a percentage of homes in beginning backlog to start the ~~quarter (“cancellation rate”). The lower pace~~period and a percentage of gross sales ~~experienced~~ during the ~~respective periods was~~period (“cancellation rates”). Gross orders in the ~~result of the sharp rise in mortgage interest rates~~prior year, specifically during the first ~~half of 2022 and~~quarter, benefited from historically strong demand, which began to ~~a lesser extent the return of more seasonal sale patterns during~~soften in the second quarter of ~~2022.~~2022 as noted above. See the "Cancellation Rate" section below for commentary on the increase in our cancellation ~~rate.~~rates. The ~~increase in average selling price for the three and six months ended June 30, 2022 was due to price increases implemented in the second half of 2021 and the first quarter of 2022.~~

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~~West Segment Commentary~~

~~For the three and six months ended June 30, 2022, the~~ decrease in net new orders ~~was due to a decrease~~ in the monthly sales absorption rate as discussed above. This was partially offset by an increase in average active subdivisions year-over-year. The increase in average selling price was partially offset by a shift in mix toeach of our ~~more affordable communities.~~

~~Mountain Segment Commentary~~

For the three and six months ended June 30, 2022, the decrease in net new orders was due to a decrease in the monthly sales absorption rates as discussed above, as well as a decrease in average active subdivisions within our Utah market.

~~East Segment Commentary~~

For the three and six months ended June 30, 2022, the decrease in net new orders was due to a decrease in the monthly sales absorption rate as discussed above. For the three months ended June 30, 2022, the decrease in net new orders was also due to a decrease in average active subdivisions year-over-year. For the six months ended June 30, 2022, the decrease in net new orderssegments was partially offset by an increase in average active subdivisions year-over-year.

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For the three and six months ended June 30, 2023, the decrease in the average selling price in each of our segments was due to decreases in base pricing during the second half of 2022 in most communities and to a lesser extent increased incentives.

Cancellation Rate:


		Cancellations as a Percentage of Homes in Beginning Backlog								Cancellations as a Percentage of Homes in Beginning Backlog
		2022				2021						Three Months Ended
		Three Months Ended								2023		2022
		March 31,		June 30,		March 31,		June 30,				June 30,		March 31,		June 30,		March 31,
West	West	8	%	10	%	7	%	5	%		West	19	%	26	%	10	%	8	%
Mountain	Mountain	8	%	9	%	8	%	5	%		Mountain	21	%	25	%	9	%	8	%
East	East	9	%	11	%	13	%	9	%		East	16	%	24	%	11	%	9	%
Total	Total	8	%	10	%	8	%	6	%		Total	19	%	25	%	10	%	8	%


	Cancellations as a Percentage of Gross Sales
	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
West	20	%	35	%	26	%	24	%
Mountain	23	%	44	%	27	%	25	%
East	16	%	35	%	18	%	25	%
Total	20	%	37	%	25	%	24	%

In light of our recent pivot to focus more on spec homes, we believe it is appropriate to view our cancellations as a product of both our beginning backlog as well as our gross sales during the period. Our cancellation rate as a percentage of homes in beginning backlog increased year-over-year in each of our segments, due to a decrease in beginning backlog to start the period. However, our cancellation rate as a percentage of gross sales decreased year-over-year during the three months ended June 30, ~~2022. The increase in cancellation rates was~~2023 as a result of improved demand as well as the impact the sharp increase in mortgage interest rates ~~during~~in the ~~first half of 2022 and its impact~~prior year period had on our homebuyers in backlog who where unable to lock their interest rate prior to these increases.

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Backlog:


		June 30,																	June 30,
		2022					2021					% Change							2023					2022					% Change
		Homes	Dollar Value		Average Price		Homes	Dollar Value		Average Price		Homes		Dollar Value		Average Price			Homes	Dollar Value		Average Price		Homes	Dollar Value		Average Price		Homes		Dollar Value		Average Price

		(Dollars in thousands)																	(Dollars in thousands)
West	West	4,163	$	2,438,184	$	585.7	4,139	$	2,204,500	$	532.6	1	%	11	%	10	%	West	2,018	$	1,163,697	$	576.7	4,163	$	2,438,184	$	585.7	(52)	%	(52)	%	(2)	%
Mountain	Mountain	2,158	1,450,194		672.0		2,412	1,426,496		591.4		(11)	%	2	%	14	%	Mountain	573	385,027		671.9		2,158	1,450,194		672.0		(73)	%	(73)	%	—	%
East	East	1,105	549,721		497.5		1,127	482,736		428.3		(2)	%	14	%	16	%	East	457	214,658		469.7		1,105	549,721		497.5		(59)	%	(61)	%	(6)	%
Total	Total	7,426	$	4,438,099	$	597.6	7,678	$	4,113,732	$	535.8	(3)	%	8	%	12	%	Total	3,048	$	1,763,382	$	578.5	7,426	$	4,438,099	$	597.6	(59)	%	(60)	%	(3)	%

At June 30, ~~2022,~~2023, we had ~~7,426~~3,048 homes in backlog with a total value of ~~$4.44~~$1.76 billion. This represented a 3%59% decrease in the number of homes in backlog and ~~an 8% increase~~60% decrease in the dollar value of those homes in backlog from June 30, ~~2021.~~2022. The decrease in the number of homes in backlog iswas primarily a result of ~~increased cancellations and~~ a decrease in the ~~pace~~level of ~~gross sales~~net new orders during the second half of 2022, which continued to a lesser degree into the first quarter of ~~2022.~~2023, as well as a shift in consumer preference to quick move-in homes and our associated pivot to focus on more spec homes to supplement build-to-order construction activity. This was partially offset by an increase in cycle times ~~year-over-year within nearly all of our markets.~~year-over-year. The ~~increase~~decrease in ~~the~~ average selling price in each of ~~homes~~our segments was driven by decreases in ~~backlog was due to price increases implemented in~~base pricing during the second half of ~~2021~~2022 in most communities and ~~the first quarter of 2022. These increases were slightly offset by~~to a ~~shift in mix to lower priced communities, most notably in our West segment, consistent with our ongoing strategy of offering more affordable home plans.~~lesser extent increased incentives. Our ability to convert backlog into closings could be negatively impacted in future periods by ongoing inflation concerns, the ~~pandemic, rising~~Federal Reserve's quantitative tightening and the resulting impact on mortgage interest rates, consumer confidence, the current geopolitical environment and other factors, the extent to which is highly uncertain and depends on future developments.

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Homes Completed or Under Construction (WIP lots):


		June 30,		%			June 30,		%
		2022	2021	Change			2023	2022	Change
Unsold:	Unsold:					Unsold:
Completed	Completed	46	19	142	%	Completed	184	46	300	%
Under construction	Under construction	607	214	184	%	Under construction	1,971	607	225	%
Total unsold started homes	Total unsold started homes	653	233	180	%	Total unsold started homes	2,155	653	230	%
Sold homes under construction or completed	Sold homes under construction or completed	7,007	6,655	5	%	Sold homes under construction or completed	2,691	7,007	(62)	%
Model homes under construction or completed	Model homes under construction or completed	524	502	4	%	Model homes under construction or completed	558	524	6	%
Total homes completed or under construction	Total homes completed or under construction	8,184	7,390	11	%	Total homes completed or under construction	5,404	8,184	(34)	%

The increase in total unsold started homes and decrease in sold homes under construction or completed is due to ~~an increase in the cancellation rate during the three months ended June 30, 2022.~~our recent pivot to focus more on spec homes.

Lots Owned and Optioned (including homes completed or under construction):


		June 30, 2022			June 30, 2021						June 30, 2023			June 30, 2022
		Lots Owned	Lots Optioned	Total	Lots Owned	Lots Optioned	Total	Total % Change			Lots Owned	Lots Optioned	Total	Lots Owned	Lots Optioned	Total	Total % Change
West	West	15,027	1,963	16,990	13,265	4,729	17,994	(6)	%	West	10,795	687	11,482	15,027	1,963	16,990	(32)	%
Mountain	Mountain	6,696	2,961	9,657	6,599	4,174	10,773	(10)	%	Mountain	4,552	1,637	6,189	6,696	2,961	9,657	(36)	%
East	East	4,111	2,372	6,483	3,636	1,997	5,633	15	%	East	3,197	1,441	4,638	4,111	2,372	6,483	(28)	%
Total	Total	25,834	7,296	33,130	23,500	10,900	34,400	(4)	%	Total	18,544	3,765	22,309	25,834	7,296	33,130	(33)	%

Our total owned and optioned lots at June 30, ~~2022~~2023 were ~~33,130,~~22,309, which represented a 4%33% decrease year-over-year. This decrease is a result of our intentional slowdown in land acquisition and approval activity in the second half of 2022 into the first quarter of 2023 due to ~~current~~the market ~~uncertainty.~~uncertainty during those periods. We believe that our total lot supply is sufficient to meet our operating needs, ~~for several years,~~ consistent with our philosophy of maintaining a two to three year supply of land. See "Forward-Looking Statements" below.

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Financial Services


		Three Months Ended								Six Months Ended
		June 30,				Change				June 30,				Change					Three Months Ended								Six Months Ended
		2022		2021		Amount		%		2022		2021		Amount		%			June 30,				Change				June 30,				Change
																			2023		2022		Amount		%		2023		2022		Amount		%
		(Dollars in thousands)																	(Dollars in thousands)
Financial services revenues	Financial services revenues																	Financial services revenues
Mortgage operations	Mortgage operations	$	22,077	$	23,321	$	(1,244)	(5)	%	$	39,678	$	58,486	$	(18,808)	(32)	%	Mortgage operations	$	22,758	$	22,077	$	681	3	%	$	41,177	$	39,678	$	1,499	4	%
Other	Other	14,152		9,997		4,155		42	%	25,682		19,855		5,827		29	%	Other	9,861		14,152		(4,291)		(30)	%	20,928		25,682		(4,754)		(19)	%
Total financial services revenues	Total financial services revenues	$	36,229	$	33,318	$	2,911	9	%	$	65,360	$	78,341	$	(12,981)	(17)	%	Total financial services revenues	$	32,619	$	36,229	$	(3,610)	(10)	%	$	62,105	$	65,360	$	(3,255)	(5)	%
Financial services pretax income	Financial services pretax income																	Financial services pretax income
Mortgage operations	Mortgage operations	$	10,673	$	14,088	$	(3,415)	(24)	%	$	18,106	$	40,127	$	(22,022)	(55)	%	Mortgage operations	$	13,852	$	10,673	$	3,179	30	%	$	23,578	$	18,106	$	5,472	30	%
Other	Other	8,019		3,945		4,074		103	%	13,969		8,711		$	5,258	60	%	Other	7,140		8,019		(879)		(11)	%	15,384		13,969		$	1,415	10	%
Total financial services pretax income	Total financial services pretax income	$	18,692	$	18,033	$	659	4	%	$	32,075	$	48,838	$	(16,763)	(34)	%	Total financial services pretax income	$	20,992	$	18,692	$	2,300	12	%	$	38,962	$	32,075	$	6,887	21	%

For the three months ended June 30, ~~2022,~~2023, our financial services pretax income increased to ~~$18.7~~$21.0 million compared to ~~$18.0~~$18.7 million in the second quarter of ~~2021.~~2022. The increase in financial services pretax income was ~~primarily~~driven by our mortgage operations due to a decrease in salary related expenses driven by lower headcount, an increase in capture rate and the allocation of revenue from our homebuilding business associated with our financing incentives. The decrease in other financial services was driven by our insurance operations which ~~benefited from increased premium~~saw a decrease in revenue ~~within our captive insurance companies. This was mostly offset by our mortgage operations business,~~ due to decreased profitability per loan locked and sold during the period ended June 30, 2022 driven by increased competition in the primary mortgage market, as well as an increase to compensation expense due to higher headcount. Thea decrease in ~~mortgage operations was partly~~homes closed, partially offset by an increase in ~~mortgage servicing revenue~~interest income due to ~~an increase~~increases in ~~additions to the servicing portfolio year-over-year, as well as an increase in~~both interest rate lock commitments as many homebuyers elected to take advantage of long-term lock opportunities during the quarter. The accounting treatment for these rate lock commitments had a favorable pull-forward effect on pre-tax income in the second quarter of 2022.rates and our cash and short-term investments year-over-year.

For the six months ended June 30, ~~2022,~~2023, our financial services pretax income ~~decreased~~increased to ~~$32.1~~$39.0 million compared to ~~$48.8~~$32.1 million in the prior year period. The ~~decrease~~increase in financial services pretax income was ~~primarily~~ due to both our mortgage ~~operations, as a result of decreased profitability per loan locked~~ and sold as well as compensation expense, partially offset by an increase in mortgage servicing revenue and interest rate lock commitments. The decrease was also partly offset by an increase in premium revenue within our captive insurance companies.other financial services operations. The main drivers of the ~~decrease~~increase in mortgage operations ~~and increase related to our captive insurance companies are~~is consistent with the second quarter commentary discussed above. The increase in other financial services was driven by our insurance operations which saw an increase in interest income due to increases in both interest rates and our cash and short-term investments year-over-year, partially offset by a decrease in revenue due to a decrease in homes closed.

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The following table sets forth information for our mortgage operations segment relating to mortgage loans originated and capture rate.


		Three Months Ended						% or Percentage			Six Months Ended									% or Percentage Change			Three Months Ended								% or Percentage				Six Months Ended								% or Percentage Change
		June 30,								June 30,									June 30,											June 30,
		2022			2021					Change				2022				2021								2023				2022					Change				2023						2022

		(Dollars in thousands)																					(Dollars in thousands)
Total Originations (including transfer loans):	Total Originations (including transfer loans):																					Total Originations (including transfer loans):
Loans	Loans	1,517			1,564			(3)	%		2,831				3,132							(10)	%	Loans		1,320				1,517			(13)	%				2,541				2,831			(10)	%
Principal	Principal	$	703,325		$	643,129		9	%		$	1,309,125			$	1,259,134				4	%	Principal	$	596,887			$	703,325			(15)	%			$	1,152,495			$	1,309,125			(12)	%
Capture Rate Data:	Capture Rate Data:																					Capture Rate Data:
Capture rate as % of all homes delivered	Capture rate as % of all homes delivered	60		%	57		%	3	%		59		%		64		%			(5)	%	Capture rate as % of all homes delivered	66		%		60		%		6	%			66		%		59		%		7	%
Capture rate as % of all homes delivered (excludes cash sales)	Capture rate as % of all homes delivered (excludes cash sales)	63		%	60		%	3	%		63		%		66		%			(3)	%	Capture rate as % of all homes delivered (excludes cash sales)	71		%		63		%		8	%			72		%		63		%		9	%
Mortgage Loan Origination Product Mix:	Mortgage Loan Origination Product Mix:																					Mortgage Loan Origination Product Mix:
FHA loans	FHA loans	14		%	18		%	(4)	%		13		%		19		%			(6)	%	FHA loans	24		%		14		%		10	%			20		%		13		%		7	%
Other government loans (VA & USDA)	Other government loans (VA & USDA)	22		%	18		%	4	%		21		%		18		%			3	%	Other government loans (VA & USDA)	20		%		22		%		(2)	%			20		%		21		%		(1)	%
Total government loans	Total government loans	36		%	36		%	—	%		34		%		37		%			(3)	%	Total government loans	44		%		36		%		8	%			40		%		34		%		6	%
Conventional loans	Conventional loans	64		%	64		%	—	%		66		%		63		%			3	%	Conventional loans	56		%		64		%		(8)	%			60		%		66		%		(6)	%
		100		%	100		%	—	%		100		%		100		%			—	%		100		%		100		%		—	%			100		%		100		%		—	%
Loan Type:	Loan Type:																					Loan Type:
Fixed rate	Fixed rate	97		%	100		%	(3)	%		98		%		100		%			(2)	%	Fixed rate	100		%		97		%		3	%			100		%		98		%		2	%
ARM	ARM	3		%	—		%	3	%		2		%		—		%			2	%	ARM	—		%		3		%		(3)	%			—		%		2		%		(2)	%
Credit Quality:	Credit Quality:																					Credit Quality:
Average FICO Score	Average FICO Score	744			740			1	%		743				739					1	%	Average FICO Score	739				744				(1)	%			739				743				(1)	%
Other Data:	Other Data:	`			`																	Other Data:	`				`
Average Combined LTV ratio	Average Combined LTV ratio	81		%	84		%	(3)	%		82		%		85		%			(3)	%	Average Combined LTV ratio	83		%		81		%		2	%			83		%		82		%		1	%
Full documentation loans	Full documentation loans	100		%	100		%	—	%		100		%		100		%			—	%	Full documentation loans	100		%		100		%		—	%			100		%		100		%		—	%
Loans Sold to Third Parties:	Loans Sold to Third Parties:																					Loans Sold to Third Parties:
Loans	Loans	1,502			1,701			(12)	%		3,029				3,287					(8)	%	Loans	1,335				1,502				(11)	%			2,689				3,029				(11)	%
Principal	Principal	$	700,058		$	689,530		2	%		$	1,391,416			$	1,300,428				7	%	Principal	$	605,740			$	700,058			(13)	%			$	1,226,069			$	1,391,416			(12)	%

Income Taxes

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CRITICAL ACCOUNTING ESTIMATES AND POLICIES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Management evaluates such estimates and judgments on an on-going basis and makes adjustments as deemed necessary. Actual results could differ from these estimates if conditions are significantly different in the future. See "Forward-Looking Statements" below.

Our critical accounting estimates and policies have not changed from those reported in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

LIQUIDITY AND CAPITAL RESOURCES

We use our liquidity and capital resources to (1) support our operations, including the purchase of land, land development and construction of homes; (2) provide working capital; and (3) provide mortgage loans for our homebuyers. Our liquidity includes our cash and cash equivalents, marketable securities, Revolving Credit Facility (as defined below) and Mortgage Repurchase Facility (as defined below). Additionally, we have an existing effective shelf registration statement that allows us to issue equity, debt or hybrid securities up to $5.0 billion, of which $5.0 billion remains.

Material Cash Requirements

We are a party to many contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on the Consolidated Balance Sheet as of June 30, ~~2022,~~2023, while others are considered future commitments. Our contractual obligations primarily consist of long-term debt and related interest payments, payments due on our Mortgage Repurchase Facility, purchase obligations related to expected acquisition of land under purchase agreements and land development agreements (many of which are secured by letters of credit or surety bonds) and operating leases. Other material cash requirements include land acquisition and development costs not yet contracted for, home construction costs, operating expenses, including our selling, general and administrative expenses, investments and funding of capital improvements and dividend payments.

At June 30, ~~2022,~~2023, we had outstanding senior notes with varying maturities totaling an aggregate principal amount of ~~$1.5~~$1.50 billion, with none payable within 12 months. Future interest payments associated with the notes total ~~$1.3~~$1.29 billion, with $64.2 million payable within 12 months. As of June 30, ~~2022,~~2023, we had ~~$30.2~~$27.5 million of required operating lease future minimum payments.

At June 30, ~~2022,~~2023, we had deposits of ~~$43.6~~$22.6 million in the form of cash and ~~$11.6~~$3.2 million in the form of letters of credit that secured option contracts to purchase ~~7,296~~3,765 lots for a total estimated purchase price of ~~$743.1~~$409.8 million.

At June 30, ~~2022,~~2023, we had outstanding surety bonds and letters of credit totaling ~~$379.6~~$333.0 million and ~~$211.0~~$108.1 million, respectively, including ~~$159.8~~$61.4 million in letters of credit issued by HomeAmerican. The estimated cost to complete obligations related to these bonds and letters of credit was approximately ~~$186.7~~$150.7 million and ~~$167.3~~$69.4 million, respectively. We expect that the obligations secured by these performance bonds and letters of credit generally will be performed in the ordinary course of business and in accordance with the applicable contractual terms. To the extent that the obligations are performed, the related performance bonds and letters of credit should be released and we should not have any continuing obligations. However, in the event any such performance bonds or letters of credit are called, our indemnity obligations could require us to reimburse the issuer of the performance bond or letter of credit. We have made no material guarantees with respect to third-party obligations.

Capital Resources

Our capital structure is primarily a combination of (1) permanent financing, represented by stockholders’ equity; (2) long-term financing, represented by our 3.850% senior notes due 2030, 2.500% senior notes due 2031, 6.000% senior notes due 2043, and 3.966% senior notes due 2061; (3) our Revolving Credit Facility and (4) our Mortgage Repurchase Facility. Because of our current balance of cash, cash equivalents, marketable securities, ability to access the capital markets, and available capacity under both our Revolving Credit Facility and Mortgage Repurchase Facility, we believe that our capital resources are ~~adequate to satisfy our~~

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adequate to satisfy our short and long-term capital requirements, including meeting future payments on our senior notes as they become due. See “Forward-Looking Statements” ~~above.~~below.

We may from time to time seek to retire or purchase our outstanding senior notes through cash purchases, whether through open market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

Senior Notes, Revolving Credit Facility and Mortgage Repurchase Facility

Senior Notes. Our senior notes are not secured and, while the senior note indentures contain some restrictions on secured debt and other transactions, they do not contain financial covenants. Our senior notes are fully and unconditionally guaranteed on an unsecured basis, jointly and severally, by most of our homebuilding segment subsidiaries. We believe that we are in compliance with the representations, warranties and covenants in the senior note indentures.

Revolving Credit Facility. We have an unsecured revolving credit agreement (“Revolving Credit Facility”) with a group of lenders, which may be used for general corporate purposes. This agreement was amended on December 28, 2020 to (1) increase the aggregate commitment from $1.0 billion to $1.2 billion (the "Commitment"), (2) extend the Revolving Credit Facility maturity of $1.125 billion of the Commitments to December 18, 2025 with the remaining Commitment continuing to terminate on December 18, 2023 and (3) provide that the aggregate amount of the commitments may increase to an amount not to exceed $1.7 billion upon our request, subject to receipt of additional commitments from existing or additional lenders and, in the case of additional lenders, the consent of the co-administrative agents.

~~The Revolving Credit Facility provides for a transition from the eurocurrency rate to a benchmark replacement upon the occurrence of certain events.~~

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Dividends

During the three months ended June 30, ~~2022~~2023 and ~~2021,~~2022, we paid cash dividends of $0.50 per ~~share and $0.40 per share, respectively.~~share. During the six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, we paid cash dividends of $1.00 per ~~share and $0.77 per share, respectively. Additionally, during the six months ended June 30, 2021, we distributed an 8% stock dividend.~~share.

MDC Common Stock Repurchase Program

At June 30, ~~2022,~~2023, we were authorized to repurchase up to 4.0 million shares of our common stock. We did not repurchase any shares of our common stock during the three ~~and six~~ months ended June 30, ~~2022.~~2023.

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Consolidated Cash Flow

During the six months ended June 30, ~~2022,~~2023, net cash provided by operating activities was ~~$171.1~~$651.9 million compared with ~~$12.1~~net cash provided by operating activities of $171.1 million in the prior year period. Cash used to increase housing completed or under construction for the six months ended June 30, 2022 and 2021 was $468.3 million and $385.7 million, respectively, as homes in inventory increased during both periods. During the six months ended June 30, 2023 and 2022, ~~and 2021,~~one of the most significant ~~source~~sources of cash provided by operating activities was net income of $174.2 million and $338.0 million, ~~and $265.0 million,~~ respectively. ~~Cash~~Another significant source of cash provided by ~~the decrease in mortgage loans held-for-sale was $92.5 million and $46.5 million in~~operating activities during the six months ended June 30, 2023 and 2022 ~~and 2021, respectively, as a result of the above average level of originations that occur during the fourth quarter. Cash~~was cash provided by the decrease in land and land under development of $364.1 million and $109.4 million, respectively. This decrease was the result of home starts outnumbering lot acquisitions during the respective periods. During the six months ended June 30, 2023 and 2022, cash used by housing completed or under construction was $13.6 million and $468.3 million, respectively. This decrease in cash used in the current year period as compared to the prior year period was due to the increase in homes in inventory being less significant during the six months ended June 30, 2023 than the increase in homes in inventory during the same period in the prior year. Cash provided to decrease trade and other receivables for the six months ended June 30, ~~2022 and 2021~~2023 was ~~$126.3~~$57.2 million ~~and $36.4 million, respectively, as home starts outnumbered lot acquisitions during the respective periods. Cash~~compared to cash used to increase trade and other receivables for the six months ended June 30, 2022 ~~and 2021~~of $22.3 million. This change was ~~$22.3 million and $57.1 million, respectively,~~ due to ~~the~~a year-over-year ~~increases~~decrease in ~~the dollar amount of~~ home deliveries during ~~both periods.~~the six months ended June 30, 2023. Cash ~~provided~~used by the change in accounts payable and accrued liabilities for the ~~three~~six months ended June 30, ~~2022 and 2021~~2023 was $27.9 million compared to cash provided of $70.2 million for the six months ended June 30, 2022. The change in accounts payable and ~~$70.6 million, respectively,~~accrued liabilities were due to ~~the increased~~decreased construction spend during ~~both periods~~the six months ended June 30, 2023 as a result of the ~~increase~~year-over-year decrease in home deliveries and homes in ~~inventory at both period ends.~~inventory.

During the six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, net cash used in investing activities was $107.0 million and $13.7 million, ~~and $13.4 million,~~ respectively. ~~This primarily relates to~~The increase in net cash used toin investing activities was driven by $665.5 million of cash used in the purchase ~~property and equipment, which~~of marketable securities during the six months ended June 30, 2023. This was ~~consistent year-over-year.~~partially offset by cash provided by the maturities of marketable securities of $569.0 million during the six months ended June 30, 2023.

During the six months ended June 30, 2023 and 2022, net cash used in financing activities was $106.1 million and $164.6 million ~~compared with net cash provided by financing activities of $238.8 million in the prior year period.~~respectively. The primary driver of this decrease in net cash provided by financing activities was the ~~proceeds from~~increase in cash provided on the issuance of ~~senior notes of $347.7 million during the~~shares under stock based compensation programs. The six months ended June 30, ~~2021. Cash~~2023 saw cash provided of $19.6 million compared to cash used ~~to decrease the mortgage repurchase facility was $80.7 million and $37.7~~of $12.7 million for the six months ended June 30, ~~2022 and 2021, respectively,~~2023 resulting from an increase in cash received from the exercise of stock options driven by an increase in the ~~increased proceeds from the sale~~number of ~~mortgage loans.~~stock options exercised year-over-year.

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OTHER

Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q, as well as statements made by us in periodic press releases, oral statements made by our officials in the course of presentations about the Company and conference calls in connection with quarterly earnings releases, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding our business, financial condition, results of operations, cash flows, strategies and prospects. These forward-looking statements may be identified by terminology such as “likely,” “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained in this Report are reasonable, we cannot guarantee future results. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from those expressed or implied by the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in subsequent reports on Forms 10-K, 10-Q and 8-K should be considered. Additionally, information about issues that could lead to material changes in performance and risk factors that have the potential to affect us isare contained under the caption “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 and Item 1A of Part II of this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We have a cash and investment policy that enables us to achieve an appropriate investment return while preserving principal and managing risk. Under this policy, cash and cash equivalents may include U.S. government securities, commercial bank deposits, commercial paper, certificates of deposit, money market funds, and time deposits, with maturities of three months or less. Marketable securities under this policy may include holdings in U.S. government securities with a maturity of more than three months, equity securities and corporate debt securities.

As of June 30, ~~2022,~~2023, our cash and cash equivalents included commercial bank deposits and money market ~~funds.~~funds and our marketable securities included U.S. government treasury securities with original maturities upon acquisition of less than six months.

We are exposed to market risks related to fluctuations in interest rates on mortgage loans held-for-sale, mortgage interest rate lock commitments, marketable securities and debt. Financial instruments utilized in the normal course of business by HomeAmerican include forward sales of mortgage-backed securities, which are commitments to sell a specified financial instrument at a specified future date for a specified price, mandatory delivery forward loan sale commitments, which are obligations of an investor to buy loans at a specified price within a specified time period, and best-effort delivery forward loan sale commitments, which are obligations of an investor to buy loans at a specified price subject to the underlying mortgage loans being funded and closed. Such contracts are the only significant financial and derivative instruments utilized by MDC. HomeAmerican’s mortgage loans in process for which an interest rate lock commitment had been made to a borrower that had not closed at June 30, ~~2022~~2023 had an aggregate principal balance of ~~$871.8~~$255.4 million, of which ~~$556.6~~$253.7 million had not yet been committed to a mortgage purchaser. In addition, HomeAmerican had mortgage loans held-for-sale with an aggregate principal balance of ~~$190.3~~$156.8 million at June 30, ~~2022,~~2023, of which ~~$55.1~~$108.6 million had not yet been committed to a mortgage purchaser. In order to hedge the changes in fair value of interest rate lock commitments and mortgage loans held-for-sale that had not yet been committed to a mortgage purchaser, HomeAmerican had forward sales of securities totaling ~~$553.0~~$303.5 million and ~~$275.6~~$323.0 million at June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

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HomeAmerican provides mortgage loans that generally are sold forward on a best-efforts or mandatory commitment basis and subsequently delivered to a third-party purchaser between 5 and 35 days after closing. Forward sale commitments and forward sales of mortgage-backed securities are used for non-trading purposes to sell mortgage loans and economically hedge price risk due to fluctuations in interest rates on rate-locked mortgage loans in process that have not closed and mortgage loans held-for-sale. Due to this economic hedging philosophy, the market risk associated with these mortgages is limited. For forward sales commitments, forward sales of mortgage-backed securities and commitments to originate mortgage loans that are still outstanding at the end of a reporting period, we record the changes in fair value of these financial instruments in revenues in the financial services section of the consolidated statements of operations and comprehensive income with an offset to either other assets or accounts payable and accrued liabilities in the financial services section of our consolidated balance sheets, depending on the nature of the change.

We utilize our Revolving Credit Facility, our Mortgage Repurchase Facility and senior notes in our financing strategy. For fixed rate debt, changes in interest rates generally affect the fair value of the debt instrument, but do not affect our earnings or

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cash flows. We do not have an obligation to prepay our senior notes prior to maturity and, as a result, interest rate risk and changes in fair value do not have an impact on our financial position, results of operations or cash flows. For variable rate debt such as our Revolving Credit Facility and Mortgage Repurchase Facility, changes in interest rates generally do not affect the fair value of the outstanding borrowing on the debt facilities, but do affect our earnings and cash flows. See “Forward-Looking Statements” above.

Item 4. Controls and Procedures

(a)Conclusion regarding the effectiveness of disclosure controls and procedures - An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures was performed under the supervision, and with the participation, of our management, including the Executive Chairman (principal executive officer) and the Chief Financial Officer (principal financial officer). Based on that evaluation, our management, including the Executive Chairman and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

(b)Changes in internal control over financial reporting - There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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M.D.C. HOLDINGS, INC.

FORM 10-Q

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Because of the nature of the homebuilding business, we and certain of our subsidiaries and affiliates have been named as defendants in various claims, complaints and other legal actions arising in the ordinary course of business, including product liability claims and claims associated with the sale and financing of our homes. In the opinion of management, the outcome of these ordinary course matters will not have a material adverse effect upon our financial condition, results of operations or cash flows.

Item 1A. Risk Factors

In addition to the other information set forth in this Form 10-Q, you should carefully consider the risk factors that appeared under Item 1A. Risk Factors in the Company’s ~~2021~~2022 Annual Report on Form 10-K. ~~There are~~Except as set forth below, there have been no material changes from the risk factors included within the Company’s ~~2021~~2022 Annual Report on Form 10-K.

Financial industry turmoil could materially and adversely affect our liquidity and consolidated financial statements.

The banking industry has experienced certain bank failures and other turmoil in 2023. The failure of other banks or financial institutions, if it occurs, could have a material adverse effect on our liquidity or consolidated financial statements if we have placed cash or other deposits at such banks or financial institutions, or if such banks or financial institutions, or any substitute or additional banks or financial institutions, participate in our Revolving Credit Facility. Under our Revolving Credit Facility, non-defaulting lenders are not obligated to cover or acquire a defaulting lender’s respective commitment to fund loans or to issue letters of credit and may be unwilling to issue additional letters of credit if we do not enter into arrangements to address the risk with respect to the defaulting lender (which may include cash collateral). If the non-defaulting lenders are unable or unwilling to cover or acquire a defaulting lender’s respective commitment, we may not be able to access the Revolving Credit Facility’s full borrowing or letter of credit capacity to support our business needs. In addition, if a buyer under our Mortgage Repurchase Facility, which is used to fund mortgage originations, fails or is unable or unwilling to fulfill its obligations, HomeAmerican may be limited in its ability to provide mortgage loans to our homebuyers, which may prevent them from closing on their homes at the time expected or at all.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information about our repurchase of common stock during the three months ended June 30, ~~2022:~~2023:
Period
Total Number of Shares Purchased (1)
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plan or Program (2)
Maximum Number of Shares that may yet be Purchased under the Plan or Program (2)
April 1 to April 30, 2022 — N/A — 4,000,000
May 1 to May 31, 2022 1,573 $ 36.95 — 4,000,000
June 1 to June 30, 2022 — N/A — 4,000,000


Period	Total Number of Shares Purchased (1)	Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Plan or Program (2)	Maximum Number of Shares that may yet be Purchased under the Plan or Program (2)
April 1 to April 30, 2023	—	N/A	—	4,000,000
May 1 to May 31, 2023	—	N/A	—	4,000,000
June 1 to June 30, 2023	—	N/A	—	4,000,000

(1) Represents shares of common stock withheld by us to cover withholding taxes due upon the vesting of restricted stock award shares, at the election of certain holders of nonvested shares, with market value approximating the amount of withholding taxes due.

(2) We are authorized to repurchase up to 4,000,000 shares of our common stock. There were no shares of MDC common stock repurchased under this repurchase program during the three month period ended June 30, ~~2022.~~2023.

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Item 5. Other Information

During the second quarter of 2023, there were four officers as defined in § 240.16a–1(f) that entered into irrevocable tax withholding elections intended to satisfy the affirmative defense conditions of Rule 10b5-1(c). The elections provide that shares of stock subject to awards (restricted stock awards or performance share unit awards) that vest in calendar year 2024 will be withheld by the Company in an amount to satisfy minimum statutory tax withholding obligations.

The officers who adopted the instructions were Larry A. Mizel, Executive Chairman, David D. Mandarich, Chief Executive Officer, Robert N. Martin, Chief Financial Officer, and Michael L. Kaplan, Chief Legal Officer. The elections were made on May 4th, 2023 for Mr. Mizel, May 3rd, 2023 for Mr. Mandarich and May 8th, 2023 for Mr. Martin and Mr. Kaplan.

Item 6. Exhibits


~~2.1~~10.1			~~Asset Purchase~~Credit Agreement ~~dated~~by and among M.D.C. Holding, Inc., U.S. Bank National Association, as designated agent and co-administrative agent, Citibank, N.A., as co-administrative agent, and the other Lenders identified therein, as amended as of April ~~21, 2022, between Richmond American Homes of Tennessee, Inc. and The Jones Company of Tennessee, L.L.C.~~11, 2023 (incorporated by reference to Exhibit ~~2.1~~10.1 to the Company's Form 8-K filed April 13, 2023). *
10.2			First Amendment to the M.D.C. Holdings, Inc. 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 of the ~~Company's~~Company’s Current Report on Form 8-K filed April ~~22, 2022)~~19, 2023).*
~~10.8~~10.3			~~Ninth~~M.D.C. Holdings, Inc. 2021 Equity Incentive Plan, as amended as of April 17, 2021 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed April 19, 2023). *
10.4			Tenth Amendment to Amended and Restated Master Repurchase Agreement between HomeAmerican Mortgage Corporation, as Seller, and U.S. Bank National Association, as Agent and Buyer, dated as of May ~~19, 2022~~18, 2023 (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed May ~~20, 2022)~~19, 2023). *
22			Subsidiary Guarantors (incorporated by reference to Exhibit 22 to the Company's Form 10-Q for the quarter ended June 30, 2021). *
31.1			Certification of principal executive officer required by 17 CFR 240.13a-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2			Certification of principal financial officer required by 17 CFR 240.13a-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1			Certification of principal executive officer required by 17 CFR 240.13a-14(b), pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2			Certification of principal financial officer required by 17 CFR 240.13a-14(b), pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101			The following financial statements, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets as of June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, (ii) Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, (iii) Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, (iv) Consolidated Statements of Cash Flows for the six months ended June 30, ~~2022~~2023 and ~~2021;~~2022; and (v) Notes to the Unaudited Consolidated Financial Statements, tagged as blocks of text.
104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

____________________

*Incorporated by reference.

~~SIGNATURE~~SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


~~Date: July 28, 2022~~			M.D.C. HOLDINGS, INC.
			(Registrant)

Date: July 27, 2023			By: /s/ Robert N. Martin
			Robert N. Martin Senior Vice President and Chief Financial Officer (principal financial officer and duly authorized officer)

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Date: July 27, 2023			By: /s/ Derek R. Kimmerle
			Derek R. Kimmerle
			Vice President, Controller and Chief Accounting Officer (principal accounting officer and duly authorized officer)

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	Year Ended December 31,
	(Dollars in thousands)
2022 (excluding the six months ended June 30, 2022)	$	3,451
2023	7,150
2024	6,498
2025	6,373
2026	5,573
Thereafter	1,119
Total operating lease payments 1	$	30,164
Less: Interest	3,396
Present value of operating lease liabilities 2	$	26,768