SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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



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



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

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

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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions 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	☐	~~(Do not check if smaller reporting company)~~	Smaller reporting company	☐
			Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for ~~companying~~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 ~~October~~July 26, ~~2017~~2019 there were ~~3,739,858~~3,655,268 total shares of common stock outstanding.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

~~Condensed Consolidated Balance Sheets~~



NVR, Inc.
Condensed Consolidated Balance Sheets (Continued)
(in thousands, except share and per share data)
(unaudited)

	June 30, 2019			December 31, 2018
LIABILITIES AND SHAREHOLDERS' EQUITY
Homebuilding:
Accounts payable	$	309,419		$	244,496
Accrued expenses and other liabilities	299,466			332,871
Customer deposits	146,207			138,246
Operating lease liabilities	72,360			—
Senior notes	597,991			597,681
	1,425,443			1,313,294
Mortgage Banking:
Accounts payable and other liabilities	43,387			44,077
Operating lease liabilities	14,971			—
	58,358			44,077
Total liabilities	1,483,801			1,357,371

Commitments and contingencies

Shareholders' equity:
Common stock, $0.01 par value; 60,000,000 shares authorized; 20,555,330 shares issued as of both June 30, 2019 and December 31, 2018	206			206
Additional paid-in capital	1,962,156			1,820,223
Deferred compensation trust – 107,295 and 107,340 shares of NVR, Inc. common stock as of June 30, 2019 and December 31, 2018, respectively	(16,912		)	(16,937		)
Deferred compensation liability	16,912			16,937
Retained earnings	7,429,948			7,031,333
Less treasury stock at cost – 16,911,734 and 16,977,499 shares as of June 30, 2019 and December 31, 2018, respectively	(7,272,871		)	(7,043,200		)
Total shareholders' equity	2,119,439			1,808,562
Total liabilities and shareholders' equity	$	3,603,240		$	3,165,933

Condensed Consolidated Statements of Income

Condensed Consolidated Statements of Cash Flows

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NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars and shares in ~~thousands)~~thousands, except per share data)

(unaudited)

1. Significant Accounting Policies

Basis of Presentation

The accompanying unaudited, condensed consolidated financial statements include the accounts of NVR, Inc. (“NVR”, the “Company”, "we", "us" or ~~the “Company”~~"our") and its subsidiaries and certain other entities in which the Company is deemed to be the primary beneficiary (see Notes 2 and 3 to the accompanying condensed consolidated financial statements). Intercompany accounts and transactions have been eliminated in consolidation. The statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Because the accompanying condensed consolidated financial statements do not include all of the information and footnotes required by GAAP, they should be read in conjunction with the financial statements and notes thereto included in ~~the Company’s~~our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018. In the opinion of management, all adjustments (consisting only of normal recurring accruals except as otherwise noted herein) considered necessary for a fair presentation have been included. Operating results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~2019.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

~~On January 1, 2017, the Company adopted Accounting Standards Update (“ASU”) 2016-09,~~ ~~Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting. In connection with the adoption of ASU 2016-09, the Company:~~

~~No other adjustments were made as a result of the adoption of ASU 2016-09.~~

~~The Company also adopted ASU 2015-11,~~ ~~Inventory – Simplifying the Measurement of Inventory~~ effective January 1, 2017. The standard requires inventory to be measured at the lower of cost or net realizable value. Under prior GAAP, impaired inventory was written down to net realizable value less a normal profit margin. Under the new standard, impaired inventory will only be written down to the net realizable value. ASU 2015-11 was adopted prospectively and did not have a material effect on the Company’s consolidated financial statements.

~~NVR, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollars and shares in thousands)~~

~~(unaudited)~~

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, comprehensive income equaled net income; therefore, a separate statement of comprehensive income is not included in the accompanying condensed consolidated financial statements.

Cash and Cash Equivalents

The beginning-of-period and end-of-period cash, restricted cash, and cash equivalent balances presented on the accompanying condensed consolidated statements of cash flows includes cash related to a consolidated joint venture which is included in homebuilding "Other assets" on the accompanying condensed consolidated balance sheets. The cash related to this consolidated joint venture as of June 30, 2019 and December 31, 2018 was $294 and $320, respectively, and as of June 30, 2018 and December 31, 2017 was $1,128 and $1,069, respectively.

Homebuilding revenue is recognized on the settlement date at the contract sales price, when control is transferred to our customers. Our contract liabilities, which consist of deposits received from customers (“Handmoney”) on homes not settled, were $146,207 and $138,246 as of June 30, 2019 and December 31, 2018, respectively. We expect that substantially all of the December 31, 2018 Handmoney balance will be recognized in revenue in 2019. Our prepaid sales compensation totaled approximately $18,100 and $17,000, as of June 30, 2019 and December 31, 2018, respectively. These amounts are included in homebuilding “Other assets” on the accompanying condensed consolidated balance sheets.

Recently Adopted Accounting Pronouncements

On January 1, 2019, we adopted ASU 2016-02, Leases (Topic 842), which requires the recognition of our leases on the balance sheet as right-of-use ("ROU") assets and lease liabilities. We elected to adopt Topic 842 using the effective date transition method, which permits us to apply the new standard prospectively and present comparative years under legacy GAAP.

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NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

(unaudited)

In adoption of the standard, we also elected the following:

Upon adoption, on January 1, 2019 we recorded a lease liability of $85,516 and a ROU asset of $79,345, which was recorded net of previously recognized straight-line operating lease adjustments on existing leases. The adoption of Topic 842 did not have an impact on our recognition of lease expense. See additional lease disclosures in Note 13.

2. Variable Interest Entities ("VIEs")

Fixed Price Finished Lot Purchase Agreements (“Lot Purchase Agreements”)

~~NVR~~We generally ~~does~~do not engage in the land development business. Instead, ~~the Company~~we typically ~~acquires~~acquire finished building lots at market prices from various development entities under Lot Purchase Agreements. The Lot Purchase Agreements require deposits that may be forfeited if ~~NVR fails~~we fail to perform under the Lot Purchase Agreements. The deposits required under the Lot Purchase Agreements are in the form of cash or letters of credit in varying amounts, and typically range up to 10% of the aggregate purchase price of the finished lots.

~~NVR believes~~We believe this lot acquisition strategy reduces the financial requirements and risks associated with direct land ownership and land development. ~~NVR~~We may, at ~~its~~our option, choose for any reason and at any time not to perform under these Lot Purchase Agreements by delivering notice of ~~its~~our intent not to acquire the finished lots under contract. ~~NVR’s~~Our sole legal obligation and economic loss for failure to perform under these Lot Purchase Agreements is limited to the amount of the deposit pursuant to the liquidated damage provisions contained within the Lot Purchase Agreements. ~~In other words, if NVR does not perform under a Lot Purchase Agreement, NVR loses only its deposit.~~ None of the creditors of any of the development entities with which ~~NVR enters~~we enter Lot Purchase Agreements have recourse to ~~the~~our general ~~credit of NVR. NVR~~credit. We generally ~~does~~do not have any specific performance obligations to purchase a certain number or any of the lots, nor ~~does NVR~~do we guarantee completion of the development by the developer or guarantee any of the developers’ financial or other liabilities.

~~NVR is~~We are not involved in the design or creation of the development entities from which ~~the Company purchases~~we purchase lots under Lot Purchase Agreements. The developer’s equity holders have the power to direct 100% of the operating activities of the development entity. ~~NVR has~~We have no voting rights in any of the development entities. The sole purpose of the development entity’s activities is to generate positive cash flow returns for the equity holders. Further, ~~NVR does~~we do not share in any of the profit or loss generated by the project’s development. The profits and losses are passed directly to the developer’s equity holders.

The deposit placed by ~~NVR~~us pursuant to the Lot Purchase Agreement is deemed to be a variable interest in the respective development entities. Those development entities are deemed to be ~~variable interest entities (“VIE”).~~VIEs. Therefore, the development entities with which ~~NVR enters~~we enter into Lot Purchase Agreements, including the joint venture limited liability corporations discussed below, are evaluated for possible consolidation by ~~NVR.~~us. An enterprise must consolidate a VIE when that enterprise has a controlling financial interest in the VIE. An enterprise is deemed to have a controlling financial interest if it has (i) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance, and (ii) the obligation to absorb losses of the VIE that could be significant to the VIE or the rights to receive benefits from the VIE that could be significant to the VIE.

~~NVR believes~~We believe the activities that most significantly impact a development entity’s economic performance are the operating activities of the entity. The development entity’s equity investors bear the full risk during the

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NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

(unaudited)

development process. Unless and until a development entity completes finished building lots through the development process, the entity does not earn any revenues. The operating development activities are managed solely by the development entity’s equity investors.

The development entities with which ~~NVR contracts~~we contract to buy finished lots typically select the respective projects, obtain the necessary zoning approvals, obtain the financing required with no support or guarantees from ~~NVR,~~us, select who will purchase the finished lots and at what price, and manage the completion of the infrastructure improvements, all for the purpose of generating a cash flow return to the development entity’s equity holders and all independent of ~~NVR. The Company possesses~~us. We possess no more than limited protective legal rights through the Lot Purchase Agreement in the specific finished lots that ~~it is~~we are purchasing, and ~~NVR possesses~~we possess no participative rights in the development entities. Accordingly, ~~NVR does~~we do not have the power to direct the activities of a developer that

~~NVR, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollars and shares in thousands)~~

~~(unaudited)~~

most significantly impact the developer’s economic performance. For this reason, ~~NVR has~~we have concluded that ~~it is~~we are not the primary beneficiary of the development entities with which ~~the Company enters~~we enter into Lot Purchase Agreements, and therefore, ~~NVR does~~we do not consolidate any of these VIEs.

As of ~~September~~June 30, ~~2017, NVR~~2019, we controlled approximately ~~79,700~~97,650 lots under Lot Purchase Agreements with third parties through deposits in cash and letters of credit totaling approximately ~~$385,600~~$435,900 and ~~$2,100,~~$3,900, respectively. As noted above, ~~NVR’s~~our sole legal obligation and economic loss for failure to perform under these Lot Purchase Agreements is limited to the amount of the deposit pursuant to the liquidated damage provisions contained in the Lot Purchase Agreements.

In addition, ~~NVR has~~we have certain properties under contract with land owners that are expected to yield approximately ~~9,700~~7,400 lots, which are not included in the number of total lots controlled. Some of these properties may require rezoning or other approvals to achieve the expected yield. These properties are controlled with deposits in cash and letters of credit totaling approximately ~~$11,700~~$1,700 and ~~$200,~~$100, respectively, as of ~~September~~June 30, ~~2017,~~2019, of which approximately ~~$5,200~~$1,400 is refundable if certain contractual conditions are not met. ~~NVR~~We generally ~~expects~~expect to assign the raw land contracts to a land developer and simultaneously enter into a Lot Purchase Agreement with the assignee if the project is determined to be feasible.

~~NVR’s~~Our total risk of loss related to contract land deposits as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016~~2018 was as follows:

On a limited basis, ~~NVR obtains~~we obtain finished lots using joint venture limited liability corporations (“JVs”). The JVs are typically structured such that ~~NVR is~~we are a non-controlling member and isare at risk only for the amount ~~the Company has~~we have invested, or ~~has~~have committed to invest, in addition to any deposits placed under Lot Purchase Agreements with the joint venture. ~~NVR is~~We are not a borrower, guarantor or obligor on any debt of the JVs, as applicable. ~~The Company enters~~We enter into Lot Purchase Agreements to purchase lots from these JVs, and as a result ~~has~~have a variable interest in these JVs.

At ~~September~~June 30, ~~2017, the Company~~2019, we had an aggregate investment totaling approximately ~~$42,300~~$25,000 in six JVs that are expected to produce approximately ~~7,200~~6,600 finished lots, of which approximately ~~3,900~~3,200 lots were controlled by ~~the Company~~us and

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NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

(unaudited)

the remaining approximately ~~3,300~~3,400 lots were either under contract with unrelated parties or not currently under contract. In addition, ~~NVR~~we had additional funding commitments totaling approximately ~~$5,800~~$4,700 in the aggregate to three of the JVs at ~~September~~June 30, ~~2017. The Company has~~2019. We have determined that ~~it is~~we are not the primary beneficiary of five of the JVs because we either ~~NVR and~~share power with the other JV partner ~~share power~~ or the other JV partner has the controlling financial interest. The aggregate investment in unconsolidated JVs was approximately ~~$41,900~~$25,000 and ~~$49,000~~$29,400 at ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively, and is reported in the “Other assets” line item on the accompanying condensed consolidated balance sheets. For the remaining JV, ~~NVR has~~we have concluded that ~~it is~~we are the primary beneficiary because ~~the Company has~~we have the controlling financial interest in the JV.

~~NVR, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollars and shares in thousands)~~

~~(unaudited)~~

~~The condensed balance sheets as~~ As of ~~September 30, 2017 and~~ December 31, ~~2016 of~~2018, all activities under the consolidated JV ~~were as follows:~~had been completed. As of June 30, 2019, we had no investment remaining in the JV and the JV had remaining balances of $294 in cash and $264 in accrued expenses, which are included in homebuilding "Other assets" and "Accrued expenses and other liabilities," respectively, in the accompanying condensed consolidated balance sheets.

~~The Company recognizes~~We recognize income from the JVs as a reduction to the lot cost of the lots purchased from the respective JVs when the homes are settled, ~~and is~~ based on the expected total profitability and the total number of lots expected to be produced by the respective JVs. ~~Distributions~~

We classify distributions received from ~~the~~ unconsolidated JVs using the cumulative earnings approach. As a result, distributions received up to the amount of cumulative earnings recognized by us are ~~allocated between return of capital and~~reported as distributions of earnings ~~based on the ratio~~and those in excess of ~~capital contributed by NVR to the total expected returns for the respective JVs, and~~that amount are reported as a distribution of capital. These distributions are classified within the accompanying condensed consolidated statements of cash flows as cash flows from operating activities and investing activities, ~~and operating activities,~~ respectively.

4. Land Under Development

On a limited basis, ~~NVR~~we directly ~~acquires~~acquire raw land parcels already zoned for its intended use to develop into finished lots. Land under development includes the land acquisition costs, direct improvement costs, capitalized interest where applicable, and real estate taxes.

In January 2017, the Company purchased a raw land parcel for approximately $14,400. In September 2017, the Company sold that land parcel to a developer for an amount which approximated NVR's net investment in the property as of the sale date. In conjunction with the sale, the Company also entered into a Lot Purchase Agreement with the developer for the option to purchase finished lots expected to be developed from the parcel.

As of ~~September~~June 30, ~~2017, NVR~~2019, we directly owned a total of ~~three~~four separate raw land parcels with a carrying value of ~~$19,182~~$46,725 that are expected to produce approximately ~~400~~550 finished lots. ~~The Company~~We also ~~has~~have additional funding commitments of approximately ~~$9,000~~$6,000 under a joint development agreement related to one parcel, a portion of which ~~the Company expects~~we expect will be offset by development credits of approximately ~~$4,800.~~$3,300.

None of the raw parcels had any indicators of impairment as of ~~September~~June 30, ~~2017. Based on market conditions, NVR may on a limited basis continue to directly acquire additional raw parcels to develop into finished lots.~~2019.

~~NVR, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollars and shares in thousands)~~

~~(unaudited)~~

5. Capitalized Interest

~~The Company capitalizes~~We capitalize interest costs to land under development during the active development of finished lots. In addition, ~~the Company capitalizes~~we capitalize interest costs ~~to its joint venture~~on our JV investments while the investments are considered qualified assets pursuant to ~~Accounting Standards Codification~~ASC Topic 835-20 - Interest. Capitalized interest is transferred to sold or unsold inventory as the development of finished lots is completed, then charged to cost of sales upon ~~the Company’s~~our settlement of homes and the respective lots. Interest incurred in excess of the interest capitalizable based on the level of qualified assets is expensed in the period incurred. ~~NVR’s~~

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NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

(unaudited)

The following table reflects the changes in our capitalized interest ~~costs incurred, capitalized, expensed and charged to cost of sales~~ during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016 was as follows:~~ 2018:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2019			2018			2019			2018
Interest capitalized, beginning of period	$	5,952		$	4,576		$	5,106		$	4,434		$	4,140		$	5,545		$	4,154		$	5,583
Interest incurred	6,615			6,562			19,754			19,347			6,607			6,624			13,106			13,220
Interest charged to interest expense	(6,120		)	(5,624		)	(17,870		)	(15,526		)	(6,301		)	(6,329		)	(12,516		)	(12,611		)
Interest charged to cost of sales	(778		)	(600		)	(1,321		)	(3,341		)	(592		)	(452		)	(890		)	(804		)
Interest capitalized, end of period	$	5,669		$	4,914		$	5,669		$	4,914		$	3,854		$	5,388		$	3,854		$	5,388

6. Earnings per Share

The following weighted average shares and share equivalents were used to calculate basic and diluted earnings per share for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016:~~2018:



	Three Months Ended June 30,		Six Months Ended June 30,
	2019	2018	2019	2018
Weighted average number of shares outstanding used to calculate basic EPS	3,612	3,635	3,610	3,655
Dilutive securities:
Stock options and restricted share units	347	507	352	526
Weighted average number of shares and share equivalents outstanding used to calculate diluted EPS	3,959	4,142	3,962	4,181

The following non-qualified stock options ~~and restricted share units~~("Options") issued under equity incentive plans were outstanding during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, but were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive.



	Three Months Ended June 30,		Six Months Ended June 30,
	2019	2018	2019	2018
Anti-dilutive securities	318	349	345	349

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Anti-dilutive securities 8
88
17
89

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NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars and shares in ~~thousands)~~thousands, except per share data)

(unaudited)

7. Shareholders’ Equity

A summary of changes in shareholders’ equity for the three months ended June 30, 2019 is presented below:



	Common Stock		Additional Paid-In Capital			Retained Earnings		Treasury Stock			Deferred Compensation Trust			Deferred Compensation Liability		Total
Balance, March 31, 2019	$	206	$	1,899,100		$	7,219,739	$	(7,220,269	)	$	(16,912	)	$	16,912	$	1,898,776

Net income	—		—			210,209		—			—			—		210,209
Deferred compensation activity, net	—		—			—		—			—			—		—
Purchase of common stock for treasury	—		—			—		(87,980		)	—			—		(87,980		)
Equity-based compensation	—		18,577			—		—			—			—		18,577
Proceeds from Options exercised	—		79,857			—		—			—			—		79,857
Treasury stock issued upon option exercise and restricted share vesting	—		(35,378		)	—		35,378			—			—		—
Balance, June 30, 2019	$	206	$	1,962,156		$	7,429,948	$	(7,272,871	)	$	(16,912	)	$	16,912	$	2,119,439

Common
Stock

Additional
Paid-In
Capital

Retained
Earnings

Treasury
Stock

Deferred
Compensation
Trust

Deferred
Compensation
Liability
Total
Balance, December 31, 2016 $ 206
$ 1,515,828
$ 5,695,376
$ (5,906,969 ) $ (17,375 ) $ 17,375
$ 1,304,441

Cumulative-effect adjustment from adoption of ASU 2016-09, net of tax —
1,566
(957 ) —
—
—
609
Net income —
—
412,902
—
—
—
412,902
Deferred compensation activity —
—
—
—
(1 ) 1
—
Purchase of common stock for treasury —
—
—
(230,199 ) —
—
(230,199 )
Equity-based compensation —
32,678
—
—
—
—
32,678
Proceeds from stock options exercised —
130,245
—
—
—
—
130,245
Treasury stock issued upon option exercise and restricted share vesting —
(54,205 ) —
54,205
—
—
—
Balance, September 30, 2017 $ 206
$ 1,626,112
$ 6,107,321
$ (6,082,963 ) $ (17,376 ) $ 17,376
$ 1,650,676
A summary of changes in shareholders’ equity for the six months ended June 30, 2019 is presented below:

~~The Company~~



	Common Stock		Additional Paid-In Capital			Retained Earnings		Treasury Stock			Deferred Compensation Trust			Deferred Compensation Liability			Total
Balance, December 31, 2018	$	206	$	1,820,223		$	7,031,333	$	(7,043,200	)	$	(16,937	)	$	16,937		$	1,808,562

Net income	—		—			398,615		—			—			—			398,615
Deferred compensation activity, net	—		—			—		—			25			(25		)	—
Purchase of common stock for treasury	—		—			—		(304,479		)	—			—			(304,479		)
Equity-based compensation	—		37,910			—		—			—			—			37,910
Proceeds from Options exercised	—		178,831			—		—			—			—			178,831
Treasury stock issued upon option exercise and restricted share vesting	—		(74,808		)	—		74,808			—			—			—
Balance, June 30, 2019	$	206	$	1,962,156		$	7,429,948	$	(7,272,871	)	$	(16,912	)	$	16,912		$	2,119,439

We repurchased ~~110~~approximately 30 and 112 shares of ~~its~~our common stock during the ~~nine~~three and six months ended ~~September~~June 30, ~~2017. The Company settles stock option~~2019, respectively. We settle Option exercises and vesting of ~~restricted share units~~RSUs by issuing shares of treasury stock. Approximately ~~153~~82 and 177 shares were issued from the treasury account during the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2019, respectively, in settlement of ~~stock option~~Option exercises and vesting of ~~restricted share units.~~RSUs. Shares are relieved from the treasury account based on the weighted average cost basis of treasury shares acquired.

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NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

(unaudited)

A summary of changes in shareholders’ equity for the three months ended June 30, 2018 is presented below:



	Common Stock		Additional Paid-In Capital			Retained Earnings		Treasury Stock			Deferred Compensation Trust			Deferred Compensation Liability			Total
Balance, March 31, 2018	$	206	$	1,678,100		$	6,400,185	$	(6,611,683	)	$	(17,389	)	$	17,389		$	1,466,808

Net income	—		—			203,174		—			—			—			203,174
Deferred compensation activity, net	—		—			—		—			241			(241		)	—
Purchase of common stock for treasury	—		—			—		(126,296		)	—			—			(126,296		)
Equity-based compensation	—		18,595			—		—			—			—			18,595
Proceeds from Options exercised	—		45,290			—		—			—			—			45,290
Treasury stock issued upon option exercise and restricted share vesting	—		(20,289		)	—		20,289			—			—			—
Balance, June 30, 2018	$	206	$	1,721,696		$	6,603,359	$	(6,717,690	)	$	(17,148	)	$	17,148		$	1,607,571

A summary of changes in shareholders’ equity for the six months ended June 30, 2018 is presented below:



	Common Stock		Additional Paid-In Capital			Retained Earnings		Treasury Stock			Deferred Compensation Trust			Deferred Compensation Liability			Total
Balance, December 31, 2017	$	206	$	1,644,197		$	6,231,940	$	(6,270,851	)	$	(17,383	)	$	17,383		$	1,605,492

Cumulative-effect adjustment from adoption of ASU 2014-09, net of tax	—		—			2,196		—			—			—			2,196
Net income	—		—			369,223		—			—			—			369,223
Deferred compensation activity, net	—		—			—		—			235			(235		)	—
Purchase of common stock for treasury	—		—			—		(483,538		)	—			—			(483,538		)
Equity-based compensation	—		28,104			—		—			—			—			28,104
Proceeds from Options exercised	—		86,094			—		—			—			—			86,094
Treasury stock issued upon option exercise and restricted share vesting	—		(36,699		)	—		36,699			—			—			—
Balance, June 30, 2018	$	206	$	1,721,696		$	6,603,359	$	(6,717,690	)	$	(17,148	)	$	17,148		$	1,607,571

We repurchased approximately 42 and 158 shares of our common stock during the three and six months ended June 30, 2018, respectively. Approximately 52and 96 shares were issued from the treasury account during the three and six months ended June 30, 2018, respectively, in settlement of Option exercises and vesting of RSUs.

8. Product Warranties

~~The Company establishes~~We establish warranty and product liability reserves (“Warranty Reserve”) to provide for estimated future expenses as a result of construction and product defects, product recalls and litigation incidental to ~~NVR’s~~our homebuilding business. Liability estimates are determined based on management’s judgment, considering such factors as historical experience, the ~~likely~~estimated current cost of corrective action, manufacturers’ and subcontractors’ participation in sharing the cost of corrective action, consultations with third party experts such as engineers, and discussions with ~~the Company’s~~our general counsel and outside counsel retained to handle specific product liability cases.

~~The following table reflects the changes in the Company’s Warranty Reserve during the three and nine months ended September 30, 2017 and 2016:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Warranty reserve, beginning of period $ 95,394
$ 87,953
$ 93,895
$ 87,407
Provision 12,940
11,622
35,107
33,331
Payments (11,677 ) (11,551 ) (32,345 ) (32,714 )
Warranty reserve, end of period $ 96,657
$ 88,024
$ 96,657
$ 88,024

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NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars and shares in ~~thousands)~~thousands, except per share data)

(unaudited)

The following table reflects the changes in our Warranty Reserve during the three and six months ended June 30, 2019 and 2018:



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Warranty reserve, beginning of period	$	102,852		$	95,606		$	103,700		$	94,513
Provision	16,446			16,217			28,269			27,744
Payments	(18,639		)	(12,121		)	(31,310		)	(22,555		)
Warranty reserve, end of period	$	100,659		$	99,702		$	100,659		$	99,702

9. Segment Disclosures

~~The following disclosure includes~~We disclose four homebuilding reportable segments that aggregate geographically ~~the Company’s~~our homebuilding operating segments, and ~~the~~our mortgage banking operations presented as one reportable segment. The homebuilding reportable segments are comprised of operating divisions in the following geographic areas:



Mid Atlantic:		Maryland, Virginia, West Virginia, Delaware and Washington, D.C.
North East:		New Jersey and Eastern Pennsylvania
Mid East:		New York, Ohio, Western Pennsylvania, Indiana and Illinois
South East:		North Carolina, South Carolina, Florida and Tennessee

Homebuilding profit before tax includes all revenues and income generated from the sale of homes, less the cost of homes sold, selling, general and administrative expenses and a corporate capital allocation charge. The corporate capital allocation charge is eliminated in consolidation and is based on the segment’s average net assets employed. The corporate capital allocation charged to the operating segment allows the Chief Operating Decision Maker (“CODM”) to determine whether the operating segment’s results are providing the desired rate of return after covering ~~the Company’s~~our cost of capital. ~~In addition, certain assets, including goodwill and intangible assets and consolidation adjustments as discussed further below, are~~

Assets not allocated to the operating segments ~~as those assets~~ are ~~neither~~not included in either the operating segment’s corporate capital allocation charge ~~nor in~~or the CODM’s evaluation of the operating segment’s performance. ~~The Company records~~We record charges on contract land deposits when it is determined that it is probable that recovery of the deposit is impaired. For segment reporting purposes, impairments on contract land deposits are generally charged to the operating segment upon the termination of a Lot Purchase Agreement with the developer, or the restructuring of a Lot Purchase Agreement resulting in the forfeiture of the deposit. Mortgage banking profit before tax consists of revenues generated from mortgage financing, title insurance and closing services, less the costs of such services and general and administrative costs. Mortgage banking operations are not charged a corporate capital allocation charge.

In addition to the corporate capital allocation and contract land deposit impairments discussed above, the other reconciling items between segment profit and consolidated profit before tax include unallocated corporate overhead (including all management incentive compensation), equity-based compensation expense, consolidation adjustments and external corporate interest expense. ~~NVR’s overhead~~Overhead functions such as accounting, treasury and human resources are centrally performed and ~~the~~these costs are not allocated to ~~the Company’s~~our operating segments. Consolidation adjustments consist of such items necessary to convert the reportable segments’ results, which are predominantly maintained on a cash basis, to a full accrual basis for external financial statement presentation purposes, and are not allocated to ~~the Company’s~~our operating segments. External corporate interest expense primarily consists of interest charges on ~~the Company’s~~our 3.95% Senior Notes due 2022 (the “Senior Notes”) and is not charged to the operating segments because the charges are included in the corporate capital allocation discussed above.

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NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars and shares in ~~thousands)~~thousands, except per share data)

(unaudited)

The following tables present segment revenues, profit and assets with reconciliations to the amounts reported for the consolidated enterprise, where applicable:



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Revenues:
Homebuilding Mid Atlantic	$	982,032	$	973,677	$	1,863,356	$	1,816,173
Homebuilding North East	121,804		147,618		244,431		270,332
Homebuilding Mid East	359,908		363,288		698,457		653,525
Homebuilding South East	293,704		265,880		594,410		500,526
Mortgage Banking	42,746		36,842		86,551		76,163
Total consolidated revenues	$	1,800,194	$	1,787,305	$	3,487,205	$	3,316,719

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Revenues:
Homebuilding Mid Atlantic $ 927,551
$ 873,490
$ 2,521,967
$ 2,279,207
Homebuilding North East 141,033
123,754
374,804
329,674
Homebuilding Mid East 338,900
327,387
895,168
877,921
Homebuilding South East 226,242
182,820
602,088
503,894
Mortgage Banking 34,194
30,118
95,477
79,082
Total consolidated revenues $ 1,667,920
$ 1,537,569
$ 4,489,504
$ 4,069,778

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Profit before taxes:
Homebuilding Mid Atlantic $ 109,417
$ 81,137
$ 274,527
$ 191,476
Homebuilding North East 18,762
8,711
41,980
18,354
Homebuilding Mid East 44,990
34,699
103,135
87,488
Homebuilding South East 26,849
16,548
64,330
45,159
Mortgage Banking 19,336
18,155
53,293
42,503
Total segment profit before taxes 219,354
159,250
537,265
384,980
Reconciling items:
Contract land deposit reserve adjustment (1) 1,910
785
(882 ) 3,421
Equity-based compensation expense (11,211 ) (11,081 ) (32,678 ) (32,459 )
Corporate capital allocation (2) 51,904
50,032
147,737
140,606
Unallocated corporate overhead (18,768 ) (18,459 ) (69,362 ) (74,485 )
Consolidation adjustments and other 7,087
9,798
20,513
25,660
Corporate interest expense (5,812 ) (5,322 ) (17,000 ) (14,688 )
Reconciling items sub-total 25,110
25,753
48,328
48,055
Consolidated profit before taxes $ 244,464
$ 185,003
$ 585,593
$ 433,035

~~NVR, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollars and shares in thousands)~~

~~(unaudited)~~


	September 30, 2017			December 31, 2016			Three Months Ended June 30,						Six Months Ended June 30,
Assets:
							2019			2018			2019			2018
Income before taxes:
Homebuilding Mid Atlantic	$	1,163,794		$	1,054,779		$	123,802		$	112,221		$	223,166		$	203,268
Homebuilding North East	145,094			126,720			11,563			16,777			23,023			32,481
Homebuilding Mid East	278,609			222,736			40,291			42,174			75,766			69,385
Homebuilding South East	288,473			214,225			30,825			29,203			65,861			52,440
Mortgage Banking	300,365			403,250			26,173			19,685			55,731			42,235
Total segment assets	2,176,335			2,021,710
Total segment profit before taxes							232,654			220,060			443,547			399,809
Reconciling items:
Consolidated variable interest entity	1,222			1,251
Cash and cash equivalents	611,094			375,748
Deferred taxes	176,892			170,652
Intangible assets and goodwill	50,490			51,526
Contract land deposit reserve	(32,188		)	(31,306		)
Equity-based compensation expense (1)							(18,577		)	(18,595		)	(37,910		)	(28,104		)
Corporate capital allocation (2)							56,177			53,954			110,735			104,653
Unallocated corporate overhead							(29,354		)	(22,503		)	(61,089		)	(53,787		)
Consolidation adjustments and other	65,666			54,362			9,836			14,701			20,034			22,031
Corporate interest expense							(6,024		)	(6,031		)	(11,998		)	(12,018		)
Reconciling items sub-total	873,176			622,233			12,058			21,526			19,772			32,775
Consolidated assets	$	3,049,511		$	2,643,943
Consolidated income before taxes							$	244,712		$	241,586		$	463,319		$	432,584


(1)	~~This item represents changes~~The increase in equity-based compensation expense for the six-month period ended June 30, 2019 was primarily attributable to the ~~contract land deposit impairment reserve, which are not allocated to~~equity grant in the ~~reportable segments.~~second quarter of 2018.


(2)	This item represents the elimination of the corporate capital allocation charge included in the respective homebuilding reportable segments. The corporate capital allocation charge is based on the segment’s monthly average asset balance, and was as follows for the periods presented:



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Corporate capital allocation charge:
Homebuilding Mid Atlantic	$	31,378	$	31,501	$	61,794	$	61,949
Homebuilding North East	4,626		4,580		9,353		8,760
Homebuilding Mid East	9,497		9,057		18,512		17,030
Homebuilding South East	10,676		8,816		21,076		16,914
Total	$	56,177	$	53,954	$	110,735	$	104,653

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NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

(unaudited)

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Corporate capital allocation charge:
Homebuilding Mid Atlantic $ 32,025
$ 31,960
$ 92,154
$ 87,911
Homebuilding North East 4,244
4,572
12,191
13,972
Homebuilding Mid East 7,747
7,366
22,024
21,523
Homebuilding South East 7,888
6,134
21,368
17,200
Total $ 51,904
$ 50,032
$ 147,737
$ 140,606



	June 30, 2019			December 31, 2018
Assets:
Homebuilding Mid Atlantic	$	1,082,646		$	1,018,953
Homebuilding North East	154,143			144,412
Homebuilding Mid East	330,446			290,815
Homebuilding South East	380,499			332,468
Mortgage Banking	537,496			517,075
Total segment assets	2,485,230			2,303,723
Reconciling items:
Cash and cash equivalents	860,956			688,783
Deferred taxes	115,432			112,333
Intangible assets and goodwill	49,911			49,989
Operating lease right-of-use assets	65,027			—
Contract land deposit reserve	(27,892		)	(29,216		)
Consolidation adjustments and other	54,576			40,321
Reconciling items sub-total	1,118,010			862,210
Consolidated assets	$	3,603,240		$	3,165,933

10. Fair Value

GAAP assigns a fair value hierarchy to the inputs used to measure fair value. Level 1 inputs are quoted prices in active markets for identical assets and liabilities. Level 2 inputs are inputs other than quoted market prices that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs.

Financial Instruments

The estimated fair ~~value~~values of ~~NVR’s~~our Senior Notes as of ~~September~~June 30, ~~2017 was $628,500.~~2019 and December 31, 2018 were $619,500 and $594,000, respectively. The estimated fair value is based on recent market prices of similar transactions, which is classified as Level 2 within the fair value hierarchy. The carrying ~~value of the Senior Notes was $596,913~~values at ~~September~~June 30, ~~2017.~~2019 and December 31, 2018 were $597,991 and $597,681, respectively. Except as otherwise noted below, ~~NVR believes~~we believe that insignificant differences exist between the carrying value and the fair value of ~~its~~our financial instruments, which consist primarily of cash equivalents, due to their short term nature.

~~NVR, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollars and shares in thousands)~~

~~(unaudited)~~

Derivative Instruments and Mortgage Loans Held for Sale

In the normal course of business, ~~NVR’s~~our wholly-owned mortgage subsidiary, NVR Mortgage Finance, Inc. (“NVRM”), enters into contractual commitments to extend credit to ~~NVR’s~~our homebuyers with fixed expiration dates. The commitments become effective when the borrowers "lock-in" a specified interest rate within time frames established by NVRM. All mortgagors are evaluated for credit worthiness prior to the extension of the commitment. Market risk arises if interest rates move adversely between the time of the "lock-in" of rates by the borrower and the sale date of the loan to a broker/dealer. To mitigate the effect of the interest rate risk inherent in providing rate lock commitments to borrowers, NVRM enters into optional or mandatory delivery forward sale contracts to sell whole loans and mortgage-backed securities to broker/dealers. The forward sales contracts lock in an interest rate and price for the sale of loans similar to the specific rate lock commitments. NVRM does not engage in speculative or trading derivative activities. Both the rate lock commitments to borrowers and the forward sale contracts to broker/dealers are undesignated derivatives and, accordingly, are marked to fair value through earnings. At ~~September~~June 30, ~~2017,~~2019, there were contractual commitments to extend credit to borrowers aggregating ~~$668,936~~$878,701 and open forward delivery contracts aggregating ~~$838,131,~~$1,169,844, which hedge both the rate lock loan commitments and closed loans held for sale.

Table of Contents

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

(unaudited)

The fair value of NVRM’s rate lock commitments to borrowers and the related input levels include, as applicable:


i)	the assumed gain/loss of the expected resultant loan sale (Level 2);


ii)	the effects of interest rate movements between the date of the rate lock and the balance sheet date (Level 2); and


iii)	the value of the servicing rights associated with the loan (Level 2).

The assumed gain/loss considers the excess servicing to be received or buydown fees to be paid upon securitization of the loan. The excess servicing and buydown fees are calculated pursuant to contractual terms with investors. To calculate the effects of interest rate movements, NVRM utilizes applicable published mortgage-backed security prices, and multiplies the price movement between the rate lock date and the balance sheet date by the notional loan commitment amount. NVRM sells all of its loans on a servicing released basis, and receives a servicing released premium upon sale. Thus, the value of the servicing rights is included in the fair value measurement and is based upon contractual terms with investors and varies depending on the loan type. NVRM assumes a fallout rate when measuring the fair value of rate lock commitments. Fallout is defined as locked loan commitments for which NVRM does not close a mortgage loan and is based on historical experience.

The fair value of NVRM’s forward sales contracts to broker/dealers solely considers the market price movement of the same type of security between the trade date and the balance sheet date (Level 2). The market price changes are multiplied by the notional amount of the forward sales contracts to measure the fair value.

Mortgage loans held for sale are recorded at fair value when closed, and thereafter are carried at the lower of cost or fair value, net of deferred origination costs, until sold. Fair value is measured using Level 2 inputs. The fair value of loans held for sale of ~~$258,554~~$462,693 included on the accompanying condensed consolidated balance sheet has been increased by ~~$2,537~~$13,545 from the aggregate principal balance of ~~$256,017.~~$449,148. As of December 31, 2018, the fair value of loans held for sale of $458,324 were increased by $10,880 from the aggregate principal balance of $447,444.

The fair value measurement of NVRM's undesignated derivative instruments was as follows:



	June 30, 2019			December 31, 2018
Rate lock commitments:
Gross assets	$	19,151		$	13,831
Gross liabilities	199			345
Net rate lock commitments	$	18,952		$	13,486
Forward sales contracts:
Gross assets	$	215		$	64
Gross liabilities	6,850			10,121
Net forward sales contracts	$	(6,635	)	$	(10,057	)

As of both June 30, 2019 and December 31, 2018, the net rate lock commitments are reported in mortgage banking "Other assets" and the net forward sales contracts are reported in mortgage banking "Accrued expenses and other liabilities" on the accompanying condensed consolidated balance sheets.

Table of Contents

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars and shares in ~~thousands)~~thousands, except per share data)

(unaudited)

~~The undesignated derivative instruments are included on the accompanying condensed consolidated balance sheet, as of September 30, 2017, as follows:~~

Fair Value Balance Sheet Location
Rate lock commitments:
Gross assets $ 7,221

Gross liabilities 3,610

Net rate lock commitments $ 3,611
NVRM - Other assets
Forward sales contracts:
Gross assets $ 1,771

Gross liabilities 802

Net forward sales contracts $ 969
NVRM - Other assets

The fair value measurement adjustment as of ~~September~~June 30, ~~2017~~2019 was as follows:



	Notional or Principal Amount		Assumed Gain/(Loss) From Loan Sale		Interest Rate Movement Effect		Servicing Rights Value		Security Price Change			Total Fair Value Measurement Gain/(Loss)
Rate lock commitments	$	878,701	$	4,796	$	5,231	$	8,925	$	—		$	18,952
Forward sales contracts	$	1,169,844	—		—		—		(6,635		)	(6,635		)
Mortgages held for sale	$	449,148	3,080		5,231		5,234		—			13,545
Total fair value measurement			$	7,876	$	10,462	$	14,159	$	(6,635	)	$	25,862

Notional or
Principal
Amount

Assumed
Gain/(Loss)
From Loan
Sale

Interest
Rate
Movement
Effect

Servicing
Rights
Value

Security
Price
Change

Total Fair
Value
Measurement
Gain/(Loss)
Rate lock commitments $ 668,936
$ (1,433 ) $ (1,361 ) $ 6,405
$ —
$ 3,611
Forward sales contracts $ 838,131
—
—
—
969
969
Mortgages held for sale $ 256,017
(301 ) 265
2,573
—
2,537
Total fair value measurement $ (1,734 ) $ (1,096 ) $ 8,978
$ 969
$ 7,117

The total fair value measurement adjustment as of December 31, 2018 was $14,309. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, NVRM recorded a fair value adjustment to income of ~~$1,572~~$2,644 and ~~$2,931,~~$11,553, respectively. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2018, NVRM recorded a fair value adjustment to ~~expense~~income of ~~$758~~$5,585 and ~~$826,~~$9,599, respectively. Unrealized gains/losses from the change in the fair value measurements are included in earnings as a component of mortgage banking fees in the accompanying condensed consolidated statements of income. The fair value measurement will be impacted in the future by the change in the value of the servicing rights, interest rate movements, security price fluctuations, and the volume and product mix of NVRM’s closed loans and locked loan commitments.

11. Debt

Senior Notes

As of ~~September~~June 30, ~~2017, the Company~~2019, we had Senior Notes outstanding with a principal balance of $600,000. The Senior Notes mature on September 15, 2022 and bear interest at 3.95%, payable semi-annually in arrears on March 15 and September ~~15.~~15. The Senior Notes were issued at a discount to yield 3.97% and have been reflected net of the unamortized discount and unamortized debt issuance costs in the accompanying condensed consolidated balance sheet.

Credit Agreement

~~NVR has~~We have an unsecured Credit Agreement (the “Credit Agreement”), which provides for aggregate revolving loan commitments of $200,000 (the “Facility”). Under the Credit Agreement, ~~the Company~~we may request increases of up to $300,000 to the Facility in the form of revolving loan commitments or term loans to the extent that new or existing lenders agree to provide additional revolving loan or term loan commitments. The Credit Agreement provides for a $100,000 sublimit for the issuance of letters of credit, of which approximately ~~$7,200~~$9,000 was outstanding at ~~September~~June 30, ~~2017,~~2019, and a $25,000 sublimit for a swing line commitment. The Credit Agreement termination date is July 15, 2021. There was no debt outstanding under the Facility at ~~September~~June 30, ~~2017.~~

~~NVR, Inc.~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(dollars and shares in thousands)~~

~~(unaudited)~~

2019.

Repurchase Agreement

NVRM provides for its mortgage origination and other operating activities using cash generated from its operations, borrowings from its parent company, NVR, as well as a revolving mortgage repurchase agreement (the “Repurchase Agreement”), which is non-recourse to NVR. The Repurchase Agreement provides for loan purchases up to $150,000, subject to certain sub-limits, and provides for an incremental commitment pursuant to which NVRM may from time to time request increases in the total commitment available under the Repurchase Agreement by up to $50,000 in the aggregate.sub-limits. Amounts outstanding under the Repurchase Agreement are collateralized by the Company’s mortgage loans held for sale. ~~The~~

In July 2019, NVRM entered into the Eleventh Amendment (the "Amendment") to the Repurchase Agreement, ~~expires on~~which extended the term of the Repurchase Agreement through July ~~25, 2018.~~22, 2020. The Amendment is filed herewith as Exhibit 10.1. All other terms and conditions under the amended Repurchase Agreement remained materially consistent. At ~~September~~June 30, ~~2017,~~2019, there were no borrowing base limitations reducing the amount available under the Repurchase Agreement. There was no debt outstanding under the Repurchase Agreement at ~~September~~June 30, ~~2017.~~2019.

Table of Contents

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars and shares in thousands, except per share data)

(unaudited)

12. Commitments and Contingencies

In June 2010, the Company received a Request for Information from the United States Environmental Protection Agency (“EPA”) pursuant to Section 308 of the Clean Water Act. The request sought information about storm water discharge practices in connection with homebuilding projects completed or underway by the Company in New York and New Jersey. The Company cooperated with this request, and provided information to the EPA. The Company was subsequently informed by the United States Department of Justice (“DOJ”) that the EPA forwarded the information on the matter to the DOJ. The Company has entered a consent decree with the EPA and DOJ to settle this matter. The U.S. District Court for the District of New Jersey approved the consent decree on September 7, 2017. The consent decree includes injunctive relief and a civil penalty, which was paid in September 2017. The Company believes the disposition of this matter will not have a material adverse effect on its results of operations and liquidity or on its financial condition.

~~The Company and its subsidiaries~~We are ~~also~~ involved in various ~~other~~ litigation arising in the ordinary course of business. In the opinion of management, and based on advice of legal counsel, this litigation is not expected to have a material adverse effect on ~~the~~our financial position, results of operations or cash ~~flows of the Company.~~flows. Legal costs incurred in connection with outstanding litigation are expensed as incurred.

13. ~~Income Taxes~~Leases

~~The Company’s effective tax rate~~We have operating leases for our corporate and division offices, production facilities, model homes, and certain office and production equipment. Additionally, we have finance leases for production equipment which are recorded in homebuilding "Property, plant and equipment, net" and "Accrued expenses and other liabilities" on the ~~three~~accompanying condensed consolidated balance sheets. Our leases have remaining lease terms of up to 10 years, some of which include options to extend the leases for up to 10 years, and ~~nine months ended September 30, 2017 was 33.7% and 29.5%, respectively. For~~some of which include options to terminate the three and nine months ended September 30, 2016, the Company’s effective tax rate was 36.5% and 36.6%, respectively. The 2017 effective tax rate was reduced as a result of the Company’s adoption oflease.

On January 1, 2019, we adopted ASU 2016-09, which requires the excess tax benefit from stock option exercises to be recorded as a reduction to income tax expense in the period stock options are exercised. During the three and nine months ended September 30, 2017, the Company recognized $8,357 and $44,720, respectively, in excess tax benefits. During the three and nine months ended September 30, 2016, excess tax benefits of $2,271 and $10,949, respectively, were recorded to additional paid-in capital within shareholders’ equity.

~~14. Recent Accounting Pronouncements~~

~~In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers~~2016-02, Leases (Topic 842), which requires ~~an entity~~lessees to recognize most leases on the ~~amount of revenue to which it expects to be entitled~~balance sheet as ROU assets with corresponding lease liabilities. See Note 1 for the transfer of promised goods or services to customers. The standard will replace most existing revenue recognition guidance in GAAP when it becomes effective. The standard is effective for the Company as of January 1, 2018. The Company plans to adopt the standard using the cumulative effect transition method. The Company does not believe thatadditional discussion regarding the adoption of ~~this standard will~~Topic 842. The ROU assets and lease liabilities are recognized based on the present value of lease payments over the lease term, discounted using our incremental borrowing rate at the commencement date of the lease. We recognize operating lease expense on a straight-line basis over the lease term.

We have elected to use the portfolio approach for certain equipment leases which have similar lease terms and payment schedules. Additionally, for certain equipment we account for the lease and non-lease components as a ~~material effect on its consolidated financial statements~~single lease component. Our sublease income is de minimis.

We have certain leases, primarily the leases of model homes, which have initial lease terms of twelve months or less ("Short-term leases"). We elected to exclude these leases from the recognition requirements under Topic 842, and ~~related disclosures.~~these leases have not been included in our recognized ROU assets and lease liabilities.

The components of lease expense were as follows:



	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Lease expense
Operating lease expense	$	8,387	$	15,947
Finance lease expense:
Amortization of ROU assets	21		21
Interest on lease liabilities	5		5
Short-term lease expense	5,640		11,245
Total lease expense	$	14,053	$	27,218

Table of Contents

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars and shares in ~~thousands)~~thousands, except per share data)

(unaudited)

~~In February 2016, FASB issued ASU 2016-02,~~ ~~Leases (Topic 842), which requires lessees~~Other information related to ~~recognize most~~ leases ~~on-balance sheet with a liability equal to the present value of~~was as follows:



	Six Months Ended June 30, 2019
Supplemental Cash Flows Information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	12,877
Operating cash flows from finance leases	5
Financing cash flows from finance leases	12

ROU assets obtained in exchange for lease obligations:
Operating leases	$	9,551
Finance leases	$	5,227

Weighted-average remaining lease term (in years):
Operating leases	4.7
Finance leases	7.0

Weighted-average discount rate:
Operating leases	3.7		%
Finance leases	3.0		%

We are committed under multiple non-cancelable operating and finance leases involving office space, production facilities, model homes, office and production equipment, and automobiles. Future minimum lease payments ~~over the lease term and a right-of-use asset~~under these leases as of June 30, 2019 were as follows:



Years Ending December 31,	Operating Leases			Finance Leases
2019	$	17,125		$	358
2020	24,719			716
2021	18,844			716
2022	14,777			716
2023	11,149			716
Thereafter	15,207			2,612
Total minimum lease payments	101,821			5,834
Less:
Imputed interest	(8,591		)	(618		)
Short-term lease payments	(5,899		)	—
Total lease liability	$	87,331		$	5,216

14. Income Taxes

Our effective tax rate for the ~~right~~three and six months ended June 30, 2019 was 14.1% and 14.0%, respectively, compared to use the underlying asset over the lease term. Lessees will recognize expenses on their income statements in a manner similar to current GAAP. The standard also requires additional disclosures of key information about leasing arrangements. The standard is effective15.9% and 14.6% for the ~~Company as~~three and six months ended June 30, 2018, respectively. In both periods, our effective tax rate was favorably impacted by the recognition of ~~January 1, 2019. The Company believes that~~income tax benefits related to excess tax benefits from stock option exercises. Excess tax benefits were $30,727 and $59,205 for the ~~adoption~~three and six months ended June 30, 2019, respectively and $26,456 and $46,022 for the three and six months ended June 30, 2018, respectively.

Table of ~~this standard will have a material effect on both assets~~Contents

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars and ~~liabilities presented on the balance sheet, and is further evaluating the impact of its adoption.~~shares in thousands, except per share data)

(unaudited)

15. Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), which significantly changes the way impairment of financial assets is recognized. The standard will require immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, which will generally result in earlier recognition of allowances for credit losses on loans and other financial instruments. The standard’s provisions will be applied as a cumulative-effect adjustment to beginning retained earnings as of the effective date. The standard is effective for ~~the Company~~us as of January 1, 2020. Early adoption is permitted for annual and interim periods beginning January 1, 2019. The Company is currently evaluating the effect that the standard will have on its consolidated financial statements and related disclosures.

~~In August 2016, FASB issued ASU 2016-15,~~ ~~Classification of Certain Cash Receipts and Cash Payments~~. The objective of the standard is to address the diversity in practice of how certain cash receipts and payments are presented on the statement of cash flows. The standard requires that the guidance be applied retrospectively in the first interim and annual periods in which an entity adopts the guidance. The standard is effective for the Company as of January 1, 2018. The Company expects the standard to affect the presentation of the distributions from joint ventures in the consolidated statement of cash flows.

~~In November 2016, FASB issued ASU 2016-18,~~ ~~Statement of Cash Flows (Topic 230), Restricted Cash~~. The amendments in the standard require that the statement of cash flows explain the change during the period in the total of cash, cash equivalents and restricted cash or restricted cash equivalents. As a result, restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total cash amounts shown on the statement of cash flows. The standard is effective for the Company as of January 1, 2018. The Company doesWe do not believe that the adoption of this standard will have a material effect on ~~its~~our consolidated financial statements ~~of cash flows~~ and related disclosures.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. The standard’s objective is to simplify the subsequent measurement of goodwill by eliminating the second step from the goodwill impairment test. Under the amendments in the standard, an entity would perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. If the carrying amount of a reporting unit exceeds its fair value, an impairment charge would then be recognized, not to exceed the amount of goodwill allocated to that reporting unit. The standard is effective for ~~the Company~~us on January 1, 2020, and early adoption is permitted. ~~The Company does~~We do not believe that the adoption of this standard will have a material effect on ~~its~~our consolidated financial statements and related disclosures.

~~In May 2017, FASB issued ASU 2017-09,~~ ~~Compensation – Stock Compensation (Topic 718), Scope of Modification Accounting.~~ The amendments in the standard clarify when changes in a share-based payment award must be accounted for as a modification, and will allow entities to make certain changes to share-based payment awards without accounting for them as modifications. Under the new guidance, entities will only apply modification accounting if there are substantive changes made to share-based payment awards. If a change made to a share-based payment award does not affect the fair value, vesting conditions and classification as either an equity or liability instrument, modification accounting will not need to be applied. The standard is effective for the Company on January 1, 2018, and early adoption is permitted. The Company does not believe that the adoption of this standard will have a material effect on its consolidated financial statements and related disclosures.


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

(dollars in ~~thousands)~~

thousands, except per share data)

Forward-Looking Statements

Some of the statements in this Quarterly Report on Form 10-Q, as well as statements made by us in periodic press releases or other public communications, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Certain, but not necessarily all, of such forward-looking statements can be identified by the use of forward-looking terminology, such as “believes,” “expects,” “may,” “will,” “should,” or “anticipates” or the negative thereof or other comparable terminology. All statements other than of historical facts are forward-looking statements. Forward-looking statements contained in this document may include those regarding market trends, NVR’s financial position, business strategy, the outcome of pending litigation, investigations or similar contingencies, projected plans and objectives of management for future operations. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance of NVR to be materially different from future results, performance or achievements expressed or implied by the forward-looking statements. Such risk factors include, but are not limited to the following: general economic and business conditions (on both a national and regional level); interest rate changes; access to suitable financing by NVR and NVR’s customers; increased regulation in the mortgage banking industry; the ability of our mortgage banking subsidiary to sell loans it originates into the secondary market; competition; the availability and cost of land and other raw materials used by NVR in its homebuilding operations; shortages of labor; weather related slow-downs; building moratoriums; governmental regulation; fluctuation and volatility of stock and other financial markets; mortgage financing availability; and other factors over which NVR has little or no control. NVR undertakes no obligation to update such forward-looking statements except as required by law. For additional information regarding risk factors, see Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A of NVR’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2018.

Unless the context otherwise requires, references to “NVR,” “we,” “us,” or “our” include NVR and its consolidated subsidiaries.

Results of Operations for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018

Overview

Business

Our primary business is the construction and sale of single-family detached homes, townhomes and condominiums, all of which are primarily constructed on a pre-sold basis. To fully serve customers of our homebuilding operations, we also operate a mortgage banking and title services business. We primarily conduct our operations in mature markets. Additionally, we generally grow our business through market share gains in our existing markets and by expanding into markets contiguous to our current active markets. Our four homebuilding reportable segments consist of the following regions:



Mid Atlantic:		Maryland, Virginia, West Virginia, Delaware and Washington, D.C.
North East:		New Jersey and Eastern Pennsylvania
Mid East:		New York, Ohio, Western Pennsylvania, Indiana and Illinois
South East:		North Carolina, South Carolina, Florida and Tennessee

Our lot acquisition strategy is predicated upon avoiding the financial requirements and risks associated with direct land ownership and development. We generally do not engage in land development (see discussion below of our land development activities). Instead, we typically acquire finished lots at market prices from various third party land developers pursuant to fixed price finished lot purchase agreements (“Lot Purchase Agreements”). These Lot Purchase Agreements require deposits, typically ranging up to 10% of the aggregate purchase price of the finished lots, in the form of cash or letters of credit that may be forfeited if we fail to perform under the Lot Purchase

Agreement. This strategy has allowed us to maximize inventory turnover, which we believe enables us to minimize market risk and to operate with less capital, thereby enhancing rates of return on equity and total capital.

In addition to constructing homes primarily on a pre-sold basis and utilizing what we believe is a conservative lot acquisition strategy, we focus on obtaining and maintaining a leading market position in each market we serve. This strategy allows us to gain valuable efficiencies and competitive advantages in our markets, which we believe contributes to minimizing the adverse effects of regional economic cycles and provides growth opportunities within these markets. Our continued success is contingent upon our ability to control an adequate supply of finished lots on which to build.

In certain specific strategic circumstances, we deviate from our historical lot acquisition strategy and engage in joint venture arrangements with land developers or directly acquire raw ground already zoned for its intended use for development. Once we acquire control of raw ground, we determine whether to sell the raw parcel to a developer and enter into a Lot Purchase Agreement with the developer to purchase the finished lots or to hire a developer to develop the land on our behalf. While joint venture arrangements and direct land development activity are not our preferred method of acquiring finished building lots, we may enter into additional transactions in the future on a limited basis where there exists a compelling strategic or prudent financial reason to do so. We expect, however, to continue to acquire substantially all our finished lot inventory using Lot Purchase Agreements with forfeitable deposits.

As of ~~September~~June 30, ~~2017,~~2019, we controlled approximately 101,400 lots as described below.

Lot Purchase Agreements

We controlled approximately ~~79,700~~97,650 lots under Lot Purchase Agreements with third parties through deposits in cash and letters of credit totaling approximately ~~$385,600~~$435,900 and ~~$2,100,~~$3,900, respectively. Included in the number of controlled lots are approximately ~~4,200~~4,700 lots for which we have recorded a contract land deposit impairment reserve of approximately ~~$32,200~~$27,900 as of ~~September~~June 30, ~~2017.~~2019.

Joint Venture Limited Liability Corporations (“JVs”)

We had an aggregate investment totaling approximately ~~$42,300~~$25,000 in six JVs, expected to produce approximately ~~7,200~~6,600 lots. Of the lots to be produced by the JVs, approximately ~~3,900~~3,200 lots were controlled by us and approximately ~~3,300~~3,400 were either under contract with unrelated parties or currently not under contract. We had additional funding commitments totaling approximately $4,700 in the aggregate to three of the JVs at June 30, 2019.

Land Under Development

We directly owned ~~three~~four separate raw land parcels, zoned for their intended use, with a ~~current~~ cost basis, including development costs, of approximately ~~$19,200~~$46,700 that we intend to develop into approximately ~~400~~550 finished lots. We had additional funding commitments of approximately ~~$9,000~~$6,000 under a joint development agreement related to one parcel, a portion of which we expect will be offset by development credits of approximately $4,800. During the third quarter of 2017, we sold a land parcel we had acquired in January 2017 to a developer for an amount which approximated our net investment in the property as of the sale date. In conjunction with the sale, we entered into a Lot Purchase Agreement with the developer for the option to purchase finished lots expected to be developed from the parcel.$3,300.

See Notes 2, 3 and 4 to the condensed consolidated financial statements included herein for additional information regarding Lot Purchase Agreements, JVs and land under development, respectively.

Raw Land Purchase Agreements

In addition, ~~to the lots we currently control as discussed above,~~ we have certain properties under contract with land owners that are expected to yield approximately ~~9,700 lots.~~7,400 lots, which are not included in the number of total lots controlled. Some of these properties may require rezoning or other approvals to achieve the expected yield. These properties are controlled with deposits in cash and letters of credit totaling approximately ~~$11,700~~$1,700 and ~~$200,~~$100, respectively, as of ~~September~~June 30, ~~2017,~~2019, of which approximately ~~$5,200~~$1,400 is refundable if certain contractual conditions are not met. We generally expect to assign the raw land contracts to a land developer and simultaneously enter into a Lot Purchase Agreement with the assignee if the project is determined to be feasible.

Current Business Environment and Key Financial Results

During the ~~first nine months~~second quarter of ~~2017 we~~2019, general market conditions continued to ~~experience improving new home demand as a result of favorable market conditions, including low interest rates,~~be favorably impacted by low unemployment and ~~improved~~strong consumer confidence. ~~However,~~Additionally, affordability issues, which had slowed demand for new ~~home prices~~homes during the second half of 2018, continued to be ~~constrained due~~favorably impacted by a slight pull back in interest rates during the first half of 2019, which contributed to ~~the competitive market environment.~~improved demand.

Our consolidated revenues for the ~~third~~second quarter of ~~2017~~2019 totaled ~~$1,667,920, an 8%~~$1,800,194, a 1% increase from the ~~third~~second quarter of ~~2016.~~2018. Net income for the ~~third~~second quarter ended ~~September~~June 30, ~~2017~~2019 was ~~$162,102,~~$210,209, or ~~$38.02~~$53.09 per diluted share, increases of ~~38%~~3% and ~~34%~~8% when compared to net income and diluted earnings per share in the ~~third~~second quarter of ~~2016,~~2018, respectively. Our homebuilding gross profit margin percentage ~~increased~~decreased to ~~19.9%~~18.9% in the ~~third~~second quarter of ~~2017~~2019 from ~~17.6%~~19.1% in the ~~third~~second quarter of ~~2016.~~2018. New orders, net of cancellations (“New Orders”) increased ~~21%~~6% in the ~~third~~second quarter of ~~2017~~2019 compared to the ~~third~~second quarter of ~~2016.~~2018. The average sales price for New Orders in the ~~third~~second quarter of ~~2017 of $382.8~~2019 decreased 3%5% to $358.6 compared to the ~~third~~second quarter of ~~2016.~~

Net income and diluted earnings per share were favorably impacted by the reduction in our effective tax rate in the third quarter of 2017 to 33.7% from 36.5% in the third quarter of 2016. The reduction in the effective tax rate was primarily due to our January 1, 2017 adoption of Accounting Standard Update (“ASU”) 2016-09, ~~Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting.~~ ~~See additional discussion regarding the income tax impact of the adoption of ASU 2016-09 in the “Effective Tax Rate” section below.~~2018.

We believe that ~~a continuation of~~ the ~~housing market recovery~~strength in demand for new homes is dependent upon a sustained ~~overall~~ economic ~~recovery,~~growth, driven by favorable unemployment levels and continued improvements in ~~job and~~ wage growth and household formation. Demand is also impacted by homebuyer affordability concerns, which are driven by both home prices and interest rate movements. We expect to continue to face gross margin pressure, ~~which will be~~ impacted by modest pricing power and our ability to manage land and construction costs. We also expect to face pressure on mortgage banking profit due to the competitive pricing pressures in the mortgage market. We believe that we are well positioned to take advantage of opportunities that may arise from future economic and homebuilding market volatility due to the strength of our balance sheet.

Homebuilding Operations

The following table summarizes the results of operations and other data for the consolidated homebuilding operations:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2019			2018			2019			2018
Financial Data:
Revenues	$	1,633,726		$	1,507,451		$	4,394,027		$	3,990,696		$	1,757,448		$	1,750,463		$	3,400,654		$	3,240,556
Cost of sales	$	1,307,971		$	1,242,292		$	3,552,071		$	3,294,421		$	1,425,388		$	1,416,797		$	2,764,194		$	2,628,743
Gross profit margin percentage	19.9		%	17.6		%	19.2		%	17.4		%	18.9		%	19.1		%	18.7		%	18.9		%
Selling, general and administrative expenses	$	95,606		$	92,867		$	294,610		$	290,925		$	112,210		$	106,517		$	227,944		$	212,064
Operating Data:
New orders (units)													5,239			4,964			10,378			10,138
Average new order price													$	358.6		$	376.3		$	362.7		$	377.3
Settlements (units)	4,158			3,922			11,331			10,509			4,720			4,611			9,213			8,507
Average settlement price	$	392.9		$	384.1		$	387.7		$	378.0		$	372.3		$	379.6		$	369.1		$	380.9
New orders (units)	4,200			3,477			13,302			11,938
Average new order price	$	382.8		$	392.8		$	384.0		$	383.6
Backlog (units)							8,855			7,658									9,530			10,162
Average backlog price							$	386.1		$	389.4								$	369.0		$	380.0
New order cancellation rate	13.3		%	17.7		%	13.9		%	15.1		%	13.1		%	13.0		%	13.6		%	13.3		%

Consolidated Homebuilding - Three Months Ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018

Homebuilding revenues ~~increased 8% for~~were essentially flat in the ~~third~~second quarter of ~~2017 from~~2019 compared to the same period in ~~2016,~~2018, as a result of a 6%2% increase in the number of units settled, ~~and~~offset by a 2% ~~increase~~decrease in the average settlement ~~price quarter over quarter.~~price. The ~~increases~~increase in the number of units settled ~~and~~was primarily attributable to a higher backlog turnover rate quarter over quarter. The decrease in the average settlement price ~~were primarily~~was attributable to a ~~9% higher backlog unit balance and a~~ 1% ~~higher~~lower average ~~sales~~ price of units in backlog ~~respectively,~~ entering the ~~third~~second quarter of ~~2017~~2019 compared to the same period in ~~2016.~~

2018, driven by a shift to smaller, lower priced products and to lower priced markets.

Gross profit margin percentage in the ~~third~~second quarter of ~~2017 increased 235 basis points~~2019 decreased to ~~19.9% compared to~~18.9%, from 19.1% in the ~~third~~second quarter of ~~2016, due to modest improvement~~2018. Gross profit margin was negatively impacted by increases in ~~pricing, moderating~~certain construction costs, ~~and the increase in the number of units settled, which allowed us to better leverage certain operating costs.~~offset partially by lower lumber costs quarter over quarter.

The number of New Orders increased ~~21%~~6% while the average sales price of New Orders decreased 3%5% in the ~~third~~second quarter of ~~2017~~2019 compared to the ~~third~~second quarter of ~~2016.~~2018. The increase in New Orders was attributable primarily to an increase in New Orders in our Mideast and Southeast market segments, partially driven by an increase in the average number of ~~New Orders increased~~active communities in each of these segments. Additionally, more favorable

market conditions in the second quarter of 2019 led to higher community absorption rates in each of our market segments ~~due to more favorable market conditions in the third quarter of 2017 compared to the same period in 2016, which led to higher community absorption rates~~ quarter over quarter. The decrease in the average sales price of New Orders was ~~primarily~~ attributable to a continued shift in New Orders to smaller, lower ~~priced~~price products, as well as a shift to markets ~~and to~~with lower ~~priced products.~~average sales prices.

Selling, general and administrative (“SG&A”) expenses in the ~~third~~second quarter of ~~2017~~2019 increased by 3%5% when compared to the same period in ~~2016, but~~2018, and as a percentage of revenue ~~decreased~~increased to ~~5.9%~~6.4% in the ~~third~~second quarter of ~~2017~~2019 from ~~6.2%~~6.1% in the ~~third~~second quarter of ~~2016.~~2018. The increase in SG&A ~~expenses as a percentage of revenue were favorably impacted by the 8%~~expense is primarily due to an approximate $3,700 increase in ~~homebuilding revenues coupled with relatively flat headcount~~personnel costs in the second quarter ~~over quarter.~~of 2019 compared to the same period in 2018.

Consolidated Homebuilding - ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018

Homebuilding revenues increased ~~10%~~5% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 from the same period in ~~2016, as a result of~~2018, due to an 8% increase in the number of units settled, ~~and~~offset partially by a 3% ~~increase~~decrease in the average settlement price year over year. The ~~increases~~increase in the number of units settled ~~and~~was primarily attributable to a higher backlog turnover rate year over year. The decrease in the average settlement price ~~were primarily~~was attributable to ~~an 11% higher backlog unit balance and~~ a ~~3% higher~~2% lower average ~~sales~~ price of units in backlog ~~respectively,~~ entering ~~2017~~2019 compared to ~~backlog entering 2016.~~the same period in 2018 and a relative shift in settlements to smaller, lower priced products and to lower priced markets.

Gross profit margin percentage in the first ~~nine~~six months of ~~2017 increased 171 basis points~~2019 decreased to ~~19.2% compared to 17.4%~~18.7% from 18.9% in the ~~first nine months~~same period of ~~2016,~~2018, due ~~primarily~~ to ~~modest improvement~~increases in ~~pricing and~~certain construction costs, ~~and the increase in the number of units settled, which allowed us to better leverage certain operating costs.~~ offset partially by lower lumber costs year over year.

The number of New Orders increased ~~11%~~2% while the average sales price of New Orders ~~remained flat~~decreased by 4% in the first ~~nine~~six months of ~~2017~~2019 when compared to the first ~~nine~~six months of ~~2016.~~2018. New Orders increased ~~in each of our market segments~~primarily due to ~~more~~an increase in New Orders in our Southeast market segment, driven in part by an increase in the average number of active communities in the segment. Additionally, favorable market conditions in ~~the first nine months of 2017 compared~~2019 led to ~~the first nine months of 2016, which led to~~a higher community absorption ~~rates~~rate year over year. The decrease in the average sales price of New Orders is attributable to a shift to smaller, lower priced products, as well as a shift to markets with lower average sales prices.

SG&A expenses in the first ~~nine~~six months of ~~2017 were relatively flat~~2019 increased by 7% when compared to the first ~~nine~~six months of ~~2016, but~~2018, and as a percentage of revenue ~~decreased~~increased to 6.7% in 2019 from 6.5% in 2018. SG&A expenses increased primarily due to an approximate $10,400 increase in equity-based compensation expense attributable to the ~~first nine months~~grant of ~~2017 from 7.3%~~non-qualified stock options ("Options") and restricted share units (RSUs") in the ~~first nine months~~second quarter of ~~2016. SG&A expenses as a percentage of revenue were favorably impacted by the 10%~~2018, and an approximate $3,200 increase in ~~revenues.~~personnel costs.

Backlog units and dollars were ~~8,855~~9,530 units and ~~$3,418,710,~~$3,516,505, respectively, as of ~~September~~June 30, ~~2017~~2019 compared to ~~7,658~~10,162 units and ~~$2,981,894,~~$3,861,853, respectively, as of ~~September~~June 30, ~~2016.~~2018. The ~~16% increase~~6% decrease in backlog units was primarily attributable to ~~a 14%~~the aforementioned 8% increase in units settled year over year. Backlog dollars were 9% lower year over year due primarily to the lower backlog unit balance, coupled with the 4% decrease in the average sales price of New Orders for the ~~six-month period ended September 30, 2017~~first six months of 2019 compared to the same period in ~~2016. Backlog dollars were favorably impacted by the increase in backlog units.~~2018.

Backlog, which represents homes sold but not yet settled with the customer, may be impacted by customer cancellations for various reasons that are beyond our control, such as failure to obtain mortgage financing, inability to sell an existing home, job loss, or a variety of other reasons. In any period, a portion of the cancellations that we experience are related to new sales that occurred during the same period, and a portion are related to sales that occurred in prior periods and therefore appeared in the opening backlog for the current period. Expressed as the total of all cancellations during the period as a percentage of gross sales during the period, our cancellation rate was ~~approximately 13.9%~~13.6% and ~~15.1%~~13.3% in the first ~~nine~~six months of ~~2017~~2019 and ~~2016,~~2018, respectively. During the most recent four quarters, approximately 6%5% of a reporting quarter’s opening backlog cancelled during the fiscal quarter. We can provide no assurance that our historical cancellation rates are indicative of the actual cancellation rate that may occur during the remainder of ~~2017~~2019 or future years. Other than those units that are cancelled, we expect to settle substantially all of our June 30, 2019 backlog within the next twelve months.

The backlog turnover rate is impacted by various factors, including, but not limited to, changes in New Order activity, internal production capacity, external subcontractor capacity and other external factors over which we do not exercise control.

Homebuilding segment profit ~~before tax~~ includes all revenues and income generated from the sale of homes, less the cost of homes sold, SG&A expenses, and a corporate capital allocation charge determined ~~at the~~by corporate ~~headquarters.~~management. The corporate capital allocation charge eliminates in consolidation and is based on the segment’s average net assets employed. The corporate capital allocation charged to the operating segment allows the Chief Operating Decision Maker to determine whether the operating segment’s results are providing the desired rate of return after covering our cost of capital.

We record charges on contract land deposits when we determine that it is probable that recovery of the deposit is impaired. For segment reporting purposes, impairments on contract land deposits are generally charged to the operating segment upon the termination of a Lot Purchase Agreement with the developer or the restructuring of a Lot Purchase Agreement resulting in the forfeiture of the deposit. We evaluate our entire net contract land deposit portfolio for impairment each quarter. For presentation purposes below, the contract land deposit reserve at ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016~~2018 has been allocated to the respective year’s reportable segments to show contract land deposits on a net basis. The net contract land deposit balances below also include approximately ~~$2,300~~$4,000 and ~~$2,400~~$3,900 at ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, respectively, of letters of credit issued as deposits in lieu of cash.

The following tables summarize certain homebuilding operating activity by reportable segment for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016.~~2018.

Selected Segment Financial Data:

Homebuilding Inventory:

(1) The reconciling items between segment inventory and consolidated inventory include certain consolidation adjustments necessary to convert the reportable segments’ results, which are predominantly maintained on a cash basis, to a full accrual basis for external financial statement presentation ~~purposes and~~purposes. These consolidation adjustments are not allocated to our operating segments.

Lots Controlled and Land Deposits:

September 30, 2017 December 31, 2016
Contract land deposits, net:
Mid Atlantic $ 214,009
$ 239,588
North East 27,149
27,648
Mid East 47,170
44,394
South East 79,129
70,593
Total $ 367,457
$ 382,223

Three Months Ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018

The Mid Atlantic segment had an approximate ~~$28,300,~~$11,600, or ~~35%~~10%, increase in segment profit in the ~~third~~second quarter of ~~2017~~2019 compared to the ~~third~~second quarter of ~~2016.~~2018. The increase in segment profit was driven by improved gross profit margins, and by an increase of approximately ~~$54,100,~~$8,400, or 6%1%, in segment revenues ~~and improved gross profit margins~~ quarter over quarter. Segment revenues increased ~~primarily~~ due to a 3%4% increase in ~~both~~ the number of units settled, ~~and~~offset partially by a 3% decrease in the average settlement price ~~of units settled~~ quarter over quarter. The increase in the number of units settled was favorably impacted by a 2% higher backlog ~~unit balance entering~~turnover rate quarter over quarter. The decrease in the ~~third~~average settlement price was primarily attributable to a relative shift in settlements to lower priced products in the second quarter of ~~2017~~2019 compared to the same period in 2016. The increase in the average settlement price was attributable to a shift in settlements to higher priced markets and to a 1% higher average price of units in backlog entering the third quarter of 2017 compared to the same period in 2016.2018. The Mid Atlantic segment’s gross profit margin percentage increased to ~~19.0%~~19.1% in the ~~third~~second quarter of ~~2017~~2019 from ~~17.0%~~18.3% in the ~~third~~second quarter of ~~2016,~~2018, primarily due ~~primarily~~ to ~~modest improvement in pricing~~lower lumber costs and lower ~~construction costs.~~

lot costs as a percentage of revenue.

Segment New Orders ~~increased 16% while~~and the average sales price of New Orders each decreased 2%4% in the ~~third~~second quarter of ~~2017~~2019 compared to the ~~third~~second quarter of ~~2016.~~2018. New Orders ~~increased despite~~decreased primarily due to a 4%12% decrease in the average number of active communities quarter over quarter, ~~as more favorable market conditions in the third quarter of 2017 led to~~offset partially by higher community absorption rates ~~within the segment.~~quarter over quarter. The decrease in the average sales price of New Orders ~~was primarily~~is attributable to a shift ~~in New Orders in the current year quarter~~ to lower priced ~~markets~~products and lower priced ~~products.~~markets within the segment.

~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018

The Mid Atlantic segment had an approximate ~~$83,100,~~$19,900, or ~~43%~~10%, increase in segment profit in the first ~~nine~~six months of ~~2017~~2019 compared to the first ~~nine~~six months of ~~2016.~~2018. The increase in segment profit was driven by an increase of approximately $47,200, or 3%, in segment revenues, ~~of approximately $242,800, or 11%,~~ and by improved gross profit margins year over year. Segment revenues increased due to a 9%7% increase in the number of units settled, ~~and~~offset partially by a ~~2% increase~~4% decrease in the average settlement price year over year. The ~~increases~~increase in ~~the number of~~ units settled ~~and the~~is attributable primarily to a higher backlog turnover rate year over year. The average settlement price in the current year was ~~favorably~~negatively impacted by a ~~13% higher backlog unit balance~~relative shift in settlements to lower priced products and ~~a 2% higher average sales price of units in backlog entering 2017 compared to~~lower priced markets within the ~~backlog entering 2016.~~segment. The Mid Atlantic segment’s gross profit margin percentage increased to ~~18.7% in 2017~~18.8% for the first six months of 2019 from ~~16.8% in 2016, due primarily to modest improvement in pricing and moderating construction costs.~~

~~Segment New Orders increased 7% and the average sales price of New Orders was flat~~18.5% in the first ~~nine~~six months of ~~2017 compared to the same period in 2016. The increase in New Orders was~~2018, primarily due to ~~more favorable market conditions~~lower lumber costs, offset partially by increases in ~~2017, which led to higher community absorption rates year over year.~~

~~Three Months Ended September 30, 2017 and 2016~~

The North East segment had an approximate $10,100, or 115%, increase in segment profit in the third quarter of 2017 compared to the third quarter of 2016 due to an increase in segment revenues of approximately $17,300, or 14%, and improved gross profit margins, quarter over quarter. The increase in segment revenues was due primarily to a 13% increase in the average price of units settled quarter over quarter. The increase in the average settlement price was attributable to an 11% higher average sales price of units in backlog entering the third quarter of 2017 compared to the same period in 2016, driven by a shift to higher priced markets in the segment and a shift to higher priced communities within certain markets. The North East segment’s gross profit margin percentage increased to 21.2% in the third quarter of 2017 from 16.3% in the third quarter of 2016. Gross profit margin and segment profit were favorably impacted by improvement in pricing and lower construction ~~costs quarter over quarter.~~ costs.

Segment New Orders and the average sales price of New Orders ~~increased 13%~~decreased 3% and 4%, respectively in the ~~third quarter~~first six months of ~~2017 compared to the third quarter of 2016. The increase in New Orders was attributable to more favorable market conditions in the third quarter of 2017~~2019 compared to the same period in ~~2016, which led~~2018. New Orders decreased primarily due to a 12% decrease in the average number of active communities year over year, offset partially by higher community

absorption rates ~~quarter~~year over ~~quarter.~~year. The ~~increase~~decrease in the average sales price of New Orders ~~quarter over quarter was~~is attributable to a relative shift ~~in New Orders~~ to ~~higher~~lower priced products and a shift to markets with lower average sales prices within the segment.

Three Months Ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018

The North East segment had an approximate ~~$23,600,~~$5,200, or ~~129%~~31%, ~~increase~~decrease in segment profit in the ~~first nine months~~second quarter of ~~2017~~2019 compared to the ~~first nine months~~second quarter of ~~2016~~2018 due primarily to ~~an increase~~a decrease in segment revenues of approximately ~~$45,100,~~$25,800, or ~~14%~~18%, ~~and improved gross profit margins, year~~quarter over ~~year.~~quarter. The ~~increase~~decrease in segment revenues was ~~due~~attributable to ~~a 4% increase~~decreases in the number of units settled and ~~a 10% increase in~~ the average settlement price ~~year over year. The increase in the number~~ of ~~units settled was~~11% and 7%, respectively, due primarily ~~attributable~~ to a ~~13% higher~~24% lower backlog unit balance ~~entering 2017 compared to the backlog unit balance entering 2016, partially offset by a~~and an 8% lower ~~backlog turnover rate year over year. The increase in the average settlement price was attributable to a 9% higher~~ average sales price of units in backlog entering ~~2017~~the second quarter of 2019 compared to the ~~same period in 2016, driven by a shift to higher priced markets in~~backlog entering the ~~segment and a shift to higher priced communities within certain markets.~~second quarter of 2018. The North East segment’s gross profit margin percentage ~~increased~~decreased to ~~20.0%~~19.1% in the second quarter of 2019 from 19.2% in the second quarter of 2018.

Segment New Orders were flat quarter over quarter, while the average sales price of New Orders decreased 7%, in the second quarter of 2019 compared to the second quarter of 2018. The average sales price of New Orders was negatively impacted primarily by a relative shift in New Orders to markets within the segment with lower average sales prices and a shift to lower priced products.

Six Months Ended June 30, 2019 and 2018

The North East segment had an approximate $9,500, or 29%, decrease in segment profit in the first ~~nine~~six months of ~~2017 from 16.1% in~~2019 compared to the first ~~nine~~six months of ~~2016. Gross profit margin and~~2018 due to a decrease in segment ~~profit were favorably impacted by improvement~~revenues of approximately $25,900, or 10%. The decrease in ~~pricing, moderating construction costs and the increase~~segment revenues was attributable to decreases in the number of units settled ~~which allowed us~~and the average settlement price of 6% and 4%, respectively, due primarily to ~~better leverage certain operating~~a 17% lower backlog unit balance and a 5% lower average sales price of units in backlog entering 2019 compared to the backlog entering 2018. The North East segment’s gross profit margin percentage decreased to 18.9% in the first six months of 2019 from 20.2% in the first six months of 2018, primarily due to higher construction costs.

Segment New Orders and the average sales price of New Orders ~~increased 11%~~decreased 8% and 8%7%, respectively, in the first ~~nine~~six months of ~~2017~~2019 compared to the same period in ~~2016.~~2018. New Orders were ~~favorably~~negatively impacted by a ~~3% increase~~15% decrease in the average number of active communities year over ~~year and by more favorable market conditions in 2017, which led to higher community absorption rates year over~~ year. The ~~increase in the~~ average ~~New Order~~ sales price ~~year over year,~~of New Orders was ~~attributable to~~negatively impacted primarily by a relative shift in New Orders to ~~higher priced~~ markets within the segment with lower average sales prices and a shift to ~~higher~~lower priced ~~communities within certain markets.~~products.

Three Months Ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018

The Mid East segment had an approximate ~~$10,300,~~$1,900, or ~~30%~~4%, ~~increase~~decrease in segment profit in the ~~third~~second quarter of ~~2017~~2019 compared to the ~~third~~second quarter of ~~2016.~~2018. The ~~increase~~decrease in segment profit was driven by ~~an increase~~a decrease in segment ~~revenue~~revenues of approximately ~~$11,500,~~$3,400, or 4%1%, ~~and improved gross profit margins~~ quarter over quarter. ~~The increase in~~Segment revenues ~~was~~decreased primarily due to a ~~3% increase~~1% decrease in the average settlement price of units settled quarter over quarter. The ~~increase in the average settlement price was attributable to a 2% higher average sales price of units in backlog entering the third quarter of 2017 compared to the same period in 2016. The~~ segment’s gross profit margin percentage increased to ~~20.3%~~19.0% in the ~~third~~second quarter of ~~2017~~2019 from ~~18.0%~~18.8% in the ~~third~~second quarter of ~~2016. Gross profit margins were favorably impacted~~2018, primarily due to lower lumber costs, offset partially by ~~modest improvement~~increases in ~~pricing and moderating~~certain construction ~~costs quarter over quarter.~~costs.

Segment New Orders increased ~~22%~~12%, while the average sales price of New Orders decreased 1%3% in the ~~third~~second quarter of ~~2017~~2019 compared to the ~~same period in 2016.~~second quarter of 2018. New Orders increased ~~as more favorable market conditions~~due primarily to an 11% increase in the ~~third~~average number of active communities quarter ~~of 2017 led to higher community absorption rates within the segment.~~over quarter. The average sales price of New Orders was negatively impacted by a relative shift ~~in sales~~ to lower priced products and to markets within the ~~segment.~~segment with lower average sales prices.

~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018

The Mid East segment had an approximate ~~$15,600,~~$6,400, or ~~18%~~9%, increase in segment profit in the first ~~nine~~six months of ~~2017~~2019 compared to the first ~~nine~~six months of ~~2016.~~2018. The increase in segment profit was driven by an increase of approximately ~~$17,200,~~$44,900, or 2%7%, in revenues ~~and improved~~year over year. Segment revenues increased primarily due to an 8% increase in the number of units settled year over year, due primarily to a higher backlog turnover rate year over

year. The segment’s gross profit ~~margins year~~margin percentage increased to 18.6% in the first six months of 2019 from 18.2% in first six months of 2018, primarily due to lower lumber costs, offset partially by increases in certain construction costs.

Segment New Orders increased 2%, while the average sales price of New Orders decreased 3% in the first six months of 2019 compared to the same period in 2018. New Orders increased primarily due to a 6% increase in the average number of active communities in 2019 compared to the same period in 2018. The average sales price of New Orders was negatively impacted by a relative shift to lower priced products and to markets within the segment with lower average sales prices.

Three Months Ended June 30, 2019 and 2018

The South East segment had an approximate $1,600, or 6%, increase in segment profit in the second quarter of 2019 compared to the second quarter of 2018. The increase in segment profit was primarily driven by an increase of approximately $27,800, or 10%, in revenues quarter over ~~year.~~quarter. The increase in revenues was due to a 3%6% increase in the number of units settled and a 4% increase in the average settlement price quarter over quarter. The number of units settled ~~which~~ was ~~attributable~~favorably impacted by a 3% higher backlog unit balance entering the second quarter of 2019 compared to the same period in 2018, coupled with a higher backlog turnover rate quarter over quarter. The average settlement price in the second quarter of 2019 was favorably impacted by a 3% higher average sales price of ~~homes~~units in backlog entering ~~2017~~the second quarter of 2019 compared to the same period 2018. The South East segment’s gross profit margin percentage decreased to 19.2% in ~~2016.~~ the second quarter of 2019 from 19.7% in the second quarter of 2018, primarily due to increased lot costs and certain construction costs, offset partially by lower lumber costs.

Segment New Orders increased 22%, while the average sales price on New Orders decreased 1%, in the second quarter of 2019 compared to the second quarter of 2018. New Orders were favorably impacted by an increase in the average number of active communities in certain of our stronger markets within the segment and by a higher segment absorption rate in the second quarter of 2019 compared to the second quarter of 2018.

Six Months Ended June 30, 2019 and 2018

The South East segment had an approximate $13,400, or 26%, increase in segment profit in the first six months of 2019 compared to the first six months of 2018. The increase in segment profit was primarily driven by an increase of approximately $93,900, or 19%, in revenues year over year, due primarily to a 17% increase in the number of units settled year over year. The increase in units settled was attributable to a 7% higher backlog unit balance entering 2019 compared to the backlog unit balance entering 2018, coupled with a higher backlog turnover rate year over year. The South East segment’s gross profit margin percentage increased to 19.5% in the first six months of 2019 from 19.3% in the first ~~nine~~six months of ~~2017 from 18.0% in the same period of 2016,~~2018 primarily due to ~~modest improvement~~lower lumber costs, offset partially by increases in ~~pricing and moderating~~certain construction costs year over year.

Segment New Orders and the average sales price of New Orders increased ~~14%~~19% and 1%, respectively, in the first ~~nine~~six months of ~~2017~~2019 compared to the ~~same period in 2016. New Orders increased despite a 6% decrease in the average number~~first six months of ~~active communities year over year as more favorable market conditions in 2017 led to higher community absorption rates within the segment.~~

~~Three Months Ended September 30, 2017 and 2016~~

The South East segment had an approximate $10,300, or 62%, increase in segment profit in the third quarter of 2017 compared to the third quarter of 2016. The increase in segment profit was primarily driven by an increase of approximately $43,400, or 24%, in revenues and improved gross profit margins quarter over quarter. The increase in revenues was due to a 27% increase in the number of units settled, partially offset by a 3% decrease in the average price of units settled quarter over quarter. The increase in the number of units settled was primarily attributable to an 18% higher backlog unit balance entering the third quarter of 2017 compared to the same period in 2016, coupled with a higher backlog turnover rate quarter over quarter. The decrease in the average settlement price quarter over quarter is primarily attributable to a shift in settlements to lower priced markets and lower priced product within the segment. The South East segment’s gross profit margin percentage increased to 20.7% in the third quarter of 2017 from 18.5% in the third quarter of 2016, primarily due to modest improvement in pricing and the increase in the number of units settled, which allowed us to better leverage certain operating costs, partially offset by higher construction costs quarter over quarter.

~~Segment New Orders increased 37%, while the average sales price of New Orders decreased 4% in the third quarter of 2017 compared to the same period in 2016.~~2018. New Orders were favorably impacted by ~~a 13% increase in~~

the average number of active communities in the third quarter of 2017 compared to the same period in 2016 and more favorable market conditions in the third quarter of 2017, which led to higher community absorption rates. The average sales price of New Orders was negatively impacted by a shift in New Orders to lower priced markets and lower priced products within the segment.

~~Nine Months Ended September 30, 2017 and 2016~~

~~The South East segment had~~ an approximate $19,200, or 42%, increase in segment profit in the first nine months of 2017 compared to the first nine months of 2016. The increase in segment profit was primarily driven by an increase of approximately $98,200, or 19%, in revenues and improved gross profit margins. The increase in revenues was primarily attributable to a 19% increase in the number of units settled. The increase in settlements was attributable to a 17% higher backlog unit balance entering 2017 compared to backlog entering 2016. The South East segment’s gross profit margin percentage increased to 20.0% in the first nine months of 2017 from 18.6% in the first nine months of 2016 primarily due to modest improvement in pricing, partially offset by higher construction costs year over year.

~~Segment New Orders increased 22%, while the average sales price of New Orders was relatively flat in the first nine months of 2017 compared to 2016. New Orders were favorably impacted by a 13%~~ increase in the average number of active communities in certain of our stronger markets withn the ~~first nine months of 2017 compared to the same period in 2016~~segment, and ~~more favorable market conditions in 2017, which led to~~by a higher ~~community~~segment absorption ~~rates.~~

rate year over year.

Homebuilding Segment Reconciliations to Consolidated Homebuilding Operations

In addition to the corporate capital allocation and contract land deposit impairments discussed above, the other reconciling items between homebuilding segment profit and homebuilding consolidated ~~profit~~income before tax include unallocated corporate overhead (which includes all management incentive compensation), equity-based compensation expense, consolidation adjustments and external corporate interest expense. Our overhead functions, such as accounting, treasury and human resources, are centrally performed and the costs are not allocated to our operating segments. Consolidation adjustments consist of such items to convert the reportable segments’ results, which are predominantly maintained on a cash basis, to a full accrual basis for external financial statement presentation purposes, and are not allocated to our operating segments. External corporate interest expense

primarily consists of interest charges on our 3.95% Senior Notes due 2022, and is not charged to the operating segments because the charges are included in the corporate capital allocation discussed above.

Mortgage Banking Segment

Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018

We conduct our mortgage banking activity through NVR Mortgage Finance, Inc. (“NVRM”), a wholly owned subsidiary. NVRM focuses exclusively on serving the homebuilding segment customer base. NVRM sells all of the mortgage loans it closes to investors in the secondary markets on a servicing-released basis, typically within 30 days from the loan closing. The following table summarizes the results of our mortgage banking operations and certain statistical data for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016:~~2018:

Loan closing volume for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 increased by approximately ~~$60,300,~~$16,900, or 6%1%, and ~~$249,000,~~$148,300 or 9%7%, respectively, from the same periods in ~~2016.~~2018. The ~~increases~~increase in loan closing volume during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 were~~2019, respectively, was primarily attributable to the 6%2% and 8% increases ~~respectively,~~ in the homebuilding segment’s number of units settled during the three and six months ended June 30, 2019, respectively, when compared to the same periods in ~~2016.~~2018.

Segment profit for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 increased by approximately ~~$1,200,~~$6,500, or 7%33%, and ~~$10,800,~~$13,500, or ~~25%~~32%, respectively, from the same periods in ~~2016.~~2018. The increases were primarily attributable to an increase in mortgage banking fees ~~partially offset by an increase~~and a decrease in general and administrative expenses. Mortgage banking fees increased by approximately ~~$4,100~~$5,900 and ~~$16,400~~$10,400 during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, respectively, resulting from the aforementioned increase in loan closing volume and an increase in secondary marketing gains ~~on sales~~and the timing of ~~loans.~~loan sales. General and administrative expenses ~~increased by~~decreased approximately ~~$2,900~~$700 and ~~$5,900~~$2,400 during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, respectively, ~~resulting from an increase~~primarily due to a decrease in personnel costs. Mortgage banking income before tax in the first six months of 2019 was favorably impacted by a reversal of approximately $2,200 of equity-based compensation expense related to options forfeited during the first quarter.

Our effective tax rate during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 was ~~33.7%~~14.1% and ~~29.5%~~14.0%, ~~respectively. For~~respectively, compared to 15.9% and 14.6% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016, our~~2018, respectively. Our effective tax rate was ~~36.5% and 36.6%, respectively. The 2017 effective~~favorably impacted by the recognition of income tax ~~rate was reduced as a result of our January 1, 2017 adoption of ASU 2016-09, which requires the~~benefits related to excess tax ~~benefit~~benefits from stock option exercises, ~~to be recorded as a reduction to income tax expense in the period stock options are exercised. During~~which totaled $30,727 and $59,205, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, we recognized $8,357, or $1.96 per diluted share,~~2019, respectively, and ~~$44,720, or $10.65 per diluted share, respectively, in excess tax benefits. During~~$26,456 and $46,022, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016, excess tax benefits of $2,271 and $10,949, respectively, were recorded to additional paid-in capital within shareholders’ equity.~~ 2018, respectively.

We expect to experience volatility in our effective tax rate in future quarters as the amount of the excess tax benefit from equity-based awards is dependent on our stock price when awards are exercised as well as on the timing of exercises, which historically has varied from quarter to quarter.

Liquidity and Capital Resources

Lines of Credit and Notes Payable

Our homebuilding business segment funds its operations from cash flows provided by operating activities, a short-term unsecured working capital revolving credit facility and capital raised in the public debt and equity markets. ~~The~~Our unsecured Credit Agreement (the “Credit Agreement”) provides for aggregate revolving loan commitments of $200,000. Under the Credit Agreement, we may request increases of up to $300,000 to the facility in the form of revolving loan commitments or term loans to the extent that new or existing lenders agree to provide additional revolving loan or term loan commitments. The Credit Agreement provides for a $100,000 sublimit for the issuance of letters of credit of which there was approximately ~~$7,200~~$9,000 outstanding at ~~September~~June 30, ~~2017,~~2019, and a $25,000 sublimit for a swing line commitment. The Credit Agreement termination date is July 15, 2021. There was no debt outstanding under the Credit Agreement at ~~September~~June 30, ~~2017.~~2019.

Our mortgage banking subsidiary, NVRM, provides for its mortgage origination and other operating activities using cash generated from its operations, borrowings from its parent company, NVR, as well as a $150,000 revolving mortgage repurchase facility (the “Repurchase Agreement”), which is non-recourse to NVR. ~~The Repurchase Agreement provides for an incremental commitment pursuant~~In July 2019, NVRM entered into the Eleventh Amendment to ~~which we may request increases in the total commitment available under~~ the Repurchase Agreement, ~~by up to $50,000 in~~which extended the ~~aggregate. The~~term of the Repurchase Agreement ~~expires on~~through July ~~25, 2018.~~22, 2020. All other terms and conditions under the amended Repurchase Agreement remained materially consistent. At ~~September~~June 30, ~~2017,~~2019, there were no borrowing base limitations reducing the amount available under the Repurchase Agreement. There was no debt outstanding under the Repurchase Agreement at ~~September~~June 30, ~~2017.~~2019.

There have been no material changes in our lines of credit and notes payable during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2019. For additional information regarding lines of credit and notes payable, see Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018.

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, cash, restricted cash, and cash equivalents increased by ~~$231,442.~~$174,161. Cash provided by operating activities was ~~$340,776.~~$302,619. Cash was provided by earnings for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and net proceeds of ~~$172,336~~$54,662 from mortgage loan activity. Cash was primarily used to fund the increase in homebuilding inventory of ~~$284,459, which was primarily attributable~~$144,618, due to an increase in the number of units under construction at ~~September~~June 30, ~~2017~~2019 compared to December 31, ~~2016.~~2018.

Net cash used in investing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 of ~~$9,380~~$2,798 included cash used for purchases of property, plant and equipment of ~~$15,670,~~$10,699, partially offset by the receipt of capital distributions from our unconsolidated JVs totaling ~~$6,081.~~$7,167.

Net cash used in financing activities was ~~$99,954~~$125,660 for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2019. Cash was used to repurchase ~~110,392~~111,655 shares of our common stock at an aggregate purchase price of ~~$230,199~~$304,479 under our ongoing common stock repurchase program, discussed below. Cash was provided from stock option exercise proceeds totaling ~~$130,245.~~

In addition to funding growth in our homebuilding and mortgage banking operations, we historically have used a substantial portion of our excess liquidity to repurchase outstanding shares of our common stock in open

market and privately negotiated transactions. This ongoing repurchase activity is conducted pursuant to publicly announced Board authorizations, and is typically executed in accordance with the safe-harbor provisions of Rule 10b-18 promulgated under the Exchange Act. In addition, the Board resolutions authorizing us to repurchase shares of our common stock specifically prohibit us from purchasing shares from our officers, directors, Profit Sharing/401(k) Plan Trust or Employee Stock Ownership Plan Trust. The repurchase program assists us in accomplishing our primary objective of creating increases in shareholder value. See Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds, of this Quarterly Report on Form 10-Q for further discussion of repurchase activity during the ~~third~~second quarter of ~~2017.~~

Recent Accounting Pronouncements

See Note 1415 to the accompanying condensed consolidated financial statements for discussion of recently issued accounting pronouncements applicable to us.

Critical Accounting Policies

There have been no material changes to our critical accounting policies as previously disclosed in Part II, Item 7, of our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~

Item 3. Quantitative and Qualitative Disclosure about Market Risk

There have been no material changes in our market risks during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2019. For additional information regarding our market risks, see Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~

Item 4. Controls and Procedures

As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective. There have been no changes in our internal control over financial reporting in the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

In June 2010, we received a Request for Information from the United States Environmental Protection Agency (“EPA”) pursuant to Section 308 of the Clean Water Act. The request sought information about storm water discharge practices in connection with homebuilding projects completed or underway by us in New York and New Jersey. We cooperated with this request, and provided information to the EPA. We were subsequently informed by the United States Department of Justice (“DOJ”) that the EPA forwarded the information on the matter to the DOJ. We have entered a consent decree with the EPA and DOJ to settle this matter. The U.S. District Court for the District of New Jersey approved the consent decree on September 7, 2017. The consent decree includes injunctive relief and a civil penalty, which was paid in September 2017. We believe the disposition of this matter will not have a material adverse effect on our results of operations and liquidity or on our financial condition.

We are ~~also~~ involved in various ~~other~~ litigation arising in the ordinary course of business. In the opinion of management, and based on advice of legal counsel, this litigation is not expected to have a material adverse effect

on our financial position, results of operations or cash flows. Legal costs incurred in connection with outstanding litigation are expensed as incurred.

Item 1A. Risk Factors

There have been no material changes to the risk factors as previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~

(dollars in thousands, except per share data)

We had two share repurchase authorizations outstanding during the quarter ended ~~September~~June 30, ~~2017.~~2019. On ~~November~~December 12, 2018 and May 2, ~~2016, and February 15, 2017,~~2019, we publicly announced that our Board of Directors authorized the repurchase of our outstanding common stock in one or more open market and/or privately negotiated transactions, up to an aggregate of $300,000 per authorization. The repurchase authorizations do not have expiration dates. We repurchased the following shares of our common stock during the ~~third~~second quarter of ~~2017:~~2019:

Period
Total Number
of Shares
Purchased

Average
Price Paid
per Share

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs

Maximum Number
(or Approximate Dollar Value) of
Shares that May Yet
Be Purchased Under
the Plans or
Programs
July 1 - 31, 2017 7,910
$ 2,394.38
7,910
$ 305,415
August 1 - 31, 2017 —
$ —
—
$ 305,415
September 1 - 30, 2017 (1) 18,720
$ 2,764.59
18,720
$ 253,660
Total 26,630
$ 2,654.63
26,630



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
April 1 - 30, 2019	21,567	$	2,848.98	21,567	$	137,615
May 1 - 31, 2019	4,428	$	3,173.01	4,428	$	423,565
June 1 - 30, 2019	3,831	$	3,259.03	3,831	$	411,080
Total	29,826	$	2,949.75	29,826

(1) 2,001 outstanding shares were repurchased under the November 2, 2016 share repurchase authorization, which fully utilized the authorization. The remaining 16,719 outstanding shares were repurchased under the February 15, 2017 share repurchase authorization.



		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File Number	Exhibit Number	Filing Date
10.1	Eleventh Amendment to Amended and Restated Master Repurchase Agreement Dated July 24, 2019 between NVR Mortgage Finance, Inc. and U.S. Bank National Association. Filed herewith.
31.1	Certification of NVR’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
31.2	Certification of NVR’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
32	Certification of NVR’s Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.
101.INS	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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.



		NVR, Inc.

Date: ~~October 30, 2017~~July 31, 2019	By:	/s/ Daniel D. Malzahn
		Daniel D. Malzahn
		Senior Vice President, Chief Financial Officer and Treasurer



Virginia		54-1394360
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.01 per share	NVR	New York Stock Exchange


NVR, Inc.							NVR, Inc.
Condensed Consolidated Balance Sheets							Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)							(in thousands, except share and per share data)
(unaudited)							(unaudited)

	September 30, 2017			December 31, 2016				June 30, 2019		December 31, 2018
ASSETS
Homebuilding:
Cash and cash equivalents	$	611,094		$	375,748			$	860,956	$	688,783
Restricted cash	13,797			17,561				20,403		16,982
Receivables	20,448			18,937				28,943		18,641
Inventory:
Lots and housing units, covered under sales agreements with customers	1,187,508			883,868				1,199,015		1,076,904
Unsold lots and housing units	158,049			145,065				132,667		115,631
Land under development	19,182			46,999				46,725		38,857
Building materials and other	11,820			16,168				19,321		21,718
	1,376,559			1,092,100				1,397,728		1,253,110
Assets related to consolidated variable interest entity	1,222			1,251

Contract land deposits, net	365,142			379,844				409,754		396,177
Property, plant and equipment, net	43,822			45,915				48,279		42,234
Operating lease right-of-use assets								65,027		—
Reorganization value in excess of amounts allocable to identifiable assets, net	41,580			41,580				41,580		41,580
Goodwill and finite-lived intangible assets, net	1,563			2,599
Other assets	266,572			257,811				185,727		184,004
	2,741,799			2,233,346				3,058,397		2,641,511
Mortgage Banking:
Cash and cash equivalents	15,790			19,657				21,363		23,092
Restricted cash	2,075			1,857				3,393		3,071
Mortgage loans held for sale, net	258,554			351,958				462,693		458,324
Property and equipment, net	6,308			4,903				6,240		6,510
Operating lease right-of-use assets								14,078		—
Reorganization value in excess of amounts allocable to identifiable assets, net	7,347			7,347				7,347		7,347
Other assets	17,638			24,875				29,729		26,078
	307,712			410,597				544,843		524,422
Total assets	$	3,049,511		$	2,643,943			$	3,603,240	$	3,165,933

LIABILITIES AND SHAREHOLDERS' EQUITY
Homebuilding:
Accounts payable	$	267,039		$	251,212
Accrued expenses and other liabilities	337,932			336,318
Liabilities related to consolidated variable interest entity	853			882
Customer deposits	162,285			122,236
Senior notes	596,913			596,455
	1,365,022			1,307,103
Mortgage Banking:
Accounts payable and other liabilities	33,813			32,399
	33,813			32,399
Total liabilities	1,398,835			1,339,502

Commitments and contingencies

Shareholders' equity:
Common stock, $0.01 par value; 60,000,000 shares authorized; 20,555,330 shares issued as of both September 30, 2017 and December 31, 2016	206			206
Additional paid-in capital	1,626,112			1,515,828
Deferred compensation trust – 108,638 and 108,640 shares of NVR, Inc. common stock as of September 30, 2017 and December 31, 2016, respectively	(17,376		)	(17,375		)
Deferred compensation liability	17,376			17,375
Retained earnings	6,107,321			5,695,376
Less treasury stock at cost – 16,819,467 and 16,862,327 shares as of September 30, 2017 and December 31, 2016, respectively	(6,082,963		)	(5,906,969		)
Total shareholders' equity	1,650,676			1,304,441
Total liabilities and shareholders' equity	$	3,049,511		$	2,643,943


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2019			2018			2019			2018
Homebuilding:
Revenues	$	1,633,726		$	1,507,451		$	4,394,027		$	3,990,696		$	1,757,448		$	1,750,463		$	3,400,654		$	3,240,556
Other income	1,715			703			4,264			2,223			5,833			2,164			11,570			4,141
Cost of sales	(1,307,971		)	(1,242,292		)	(3,552,071		)	(3,294,421		)	(1,425,388		)	(1,416,797		)	(2,764,194		)	(2,628,743		)
Selling, general and administrative	(95,606		)	(92,867		)	(294,610		)	(290,925		)	(112,210		)	(106,517		)	(227,944		)	(212,064		)
Operating income	231,864			172,995			551,610			407,573			225,683			229,313			420,086			403,890
Interest expense	(5,821		)	(5,338		)	(17,040		)	(14,734		)	(6,033		)	(6,047		)	(12,026		)	(12,054		)
Homebuilding income	226,043			167,657			534,570			392,839			219,650			223,266			408,060			391,836

Mortgage Banking:
Mortgage banking fees	34,194			30,118			95,477			79,082			42,746			36,842			86,551			76,163
Interest income	1,953			2,000			5,168			5,111			2,737			2,915			5,570			5,008
Other income	583			473			1,398			1,140			681			641			1,220			1,165
General and administrative	(18,010		)	(14,959		)	(50,190		)	(44,345		)	(20,834		)	(21,796		)	(37,592		)	(41,031		)
Interest expense	(299		)	(286		)	(830		)	(792		)	(268		)	(282		)	(490		)	(557		)
Mortgage banking income	18,421			17,346			51,023			40,196			25,062			18,320			55,259			40,748

Income before taxes	244,464			185,003			585,593			433,035			244,712			241,586			463,319			432,584
Income tax expense	(82,362		)	(67,611		)	(172,691		)	(158,664		)	(34,503		)	(38,412		)	(64,704		)	(63,361		)

Net income	$	162,102		$	117,392		$	412,902		$	274,371		$	210,209		$	203,174		$	398,615		$	369,223

Basic earnings per share	$	43.26		$	30.43		$	110.60		$	70.70		$	58.20		$	55.90		$	110.43		$	101.03

Diluted earnings per share	$	38.02		$	28.46		$	98.33		$	66.24		$	53.09		$	49.05		$	100.61		$	88.31

Basic weighted average shares outstanding	3,747			3,858			3,733			3,881			3,612			3,635			3,610			3,655

Diluted weighted average shares outstanding	4,263			4,125			4,199			4,142			3,959			4,142			3,962			4,181


	Nine Months Ended September 30,						Six Months Ended June 30,
	2017			2016			2019			2018
Cash flows from operating activities:
Net income	$	412,902		$	274,371		$	398,615		$	369,223
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	17,087			16,591			10,146			10,024
Equity-based compensation expense	32,678			32,459			37,910			28,104
Contract land deposit impairments (recoveries), net	3,396			(1,427		)
Contract land deposit and other (recoveries) impairments, net							(23		)	44
Gain on sale of loans, net	(73,372		)	(59,386		)	(67,919		)	(58,891		)
Mortgage loans closed	(2,860,903		)	(2,542,659		)	(2,373,748		)	(2,223,302		)
Mortgage loans sold and principal payments on mortgage loans held for sale	3,033,239			2,633,539			2,428,410			2,229,894
Distribution of earnings from unconsolidated joint ventures	5,120			8,026			2,156			2,849
Net change in assets and liabilities:
Increase in inventory	(284,459		)	(309,824		)	(144,618		)	(187,416		)
Decrease (increase) in contract land deposits	11,306			(32,774		)
Decrease (increase) in receivables	162			(2,913		)
Increase in accounts payable and accrued expenses	15,109			59,736
(Increase) decrease in contract land deposits							(13,554		)	9,333
Increase in receivables							(9,597		)	(10,417		)
Increase (decrease) in accounts payable and accrued expenses							32,771			(11,332		)
Increase in customer deposits	40,049			33,732			7,961			22,000
Other, net	(11,538		)	(7,034		)	(5,891		)	(10,663		)
Net cash provided by operating activities	340,776			102,437			302,619			169,450

Cash flows from investing activities:
Investments in and advances to unconsolidated joint ventures	(455		)	(653		)	(335		)	(284		)
Distribution of capital from unconsolidated joint ventures	6,081			9,162			7,167			6,027
Purchase of property, plant and equipment	(15,670		)	(16,513		)	(10,699		)	(9,251		)
Proceeds from the sale of property, plant and equipment	664			701			1,069			425
Net cash used in investing activities	(9,380		)	(7,303		)	(2,798		)	(3,083		)

Cash flows from financing activities:
Purchase of treasury stock	(230,199		)	(291,743		)	(304,479		)	(483,538		)
Distributions to partner in consolidated variable interest entity	—			(217		)
Principal payments on finance lease liabilities							(12		)	—
Proceeds from the exercise of stock options	130,245			33,938			178,831			86,094
Net cash used in financing activities	(99,954		)	(258,022		)	(125,660		)	(397,444		)

Net increase (decrease) in cash and cash equivalents	231,442			(162,888		)
Cash and cash equivalents, beginning of the period	396,619			425,316
Net increase (decrease) in cash, restricted cash, and cash equivalents							174,161			(231,077		)
Cash, restricted cash, and cash equivalents, beginning of the period							732,248			689,557

Cash and cash equivalents, end of the period	$	628,061		$	262,428
Cash, restricted cash, and cash equivalents, end of the period							$	906,409		$	458,480

Supplemental disclosures of cash flow information:
Interest paid during the period, net of interest capitalized	$	23,112		$	20,899		$	12,052		$	12,151
Income taxes paid during the period, net of refunds	$	169,949		$	148,117		$	71,486		$	86,269



		Page

PART I	FINANCIAL INFORMATION	1

Item 1.	Condensed Consolidated Financial Statements	1

	Condensed Consolidated Balance Sheets (unaudited)	1

	Condensed Consolidated Statements of Income (unaudited)	2

	~~Condensed Consolidated Statements of Cash Flows (unaudited)~~	3

	~~Notes to~~ Condensed Consolidated ~~Financial~~ Statements of Cash Flows (unaudited)	4
	Notes to Condensed Consolidated Financial Statements (unaudited)	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1720

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	3133

Item 4.	Controls and Procedures	31

~~PART II~~	~~OTHER INFORMATION~~	31

~~Item 1.~~	~~Legal Proceedings~~	31

~~Item 1A.~~	~~Risk Factors~~	32

~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	32

~~Item 6.~~	~~Exhibits~~	33

PART II	~~SIGNATURE~~OTHER INFORMATION	33
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 6.	Exhibits	35

	SIGNATURE	36


(1)	As of both ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016, the Company was~~2018, we were committed to purchase 10 finished lots under specific performance obligations.



	Fair Value		Balance Sheet Location
Rate lock commitments:
Gross assets	$	7,221
Gross liabilities	3,610
Net rate lock commitments	$	3,611	NVRM - Other assets
Forward sales contracts:
Gross assets	$	1,771
Gross liabilities	802
Net forward sales contracts	$	969	NVRM - Other assets


	As of September 30,						As of June 30,
	2017			2016			2019			2018
	Units	Average Price		Units	Average Price		Units	Average Price		Units	Average Price
Backlog:
Mid Atlantic	4,360	$	439.8	4,024	$	444.3	4,445	$	421.2	4,976	$	427.1
North East	744	$	414.6	604	$	389.3	623	$	384.4	763	$	418.3
Mid East	2,024	$	334.8	1,619	$	334.7	2,169	$	324.2	2,365	$	334.7
South East	1,727	$	298.4	1,411	$	295.7	2,293	$	306.0	2,058	$	304.0
Total	8,855	$	386.1	7,658	$	389.4	9,530	$	369.0	10,162	$	380.0



	September 30, 2017		December 31, 2016
Contract land deposits, net:
Mid Atlantic	$	214,009	$	239,588
North East	27,149		27,648
Mid East	47,170		44,394
South East	79,129		70,593
Total	$	367,457	$	382,223