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

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

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

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~~M.D.C. HOLDINGS, INC.~~

~~Consolidated Statements of~~ ~~Changes in Stockholders’ Equity~~

~~(Dollars in thousands, except share amounts)~~

Six-Month Period Ended June 30, 2018

Accumulated

Additional

Other

Common Stock

Paid-in

Retained

Comprehensive

Shares

Amount

Capital

Earnings

Income

Total

Balance at December 31, 2017
56,123,228 $ 561 $ 1,144,570 $ 258,164 $ 3,992 $ 1,407,287
Cumulative effect of newly adopted accounting standards
- - - 5,766 (3,992 ) 1,774
Balance at January 1, 2018
56,123,228 561 1,144,570 263,930 - 1,409,061
Net Income
- - - 38,764 - 38,764
Shares issued upon exercise of stock options and awards of restricted stock
97,783 1 281 - - 282
Cash dividends declared
- - - (16,865 ) - (16,865 )
Stock-based compensation expense
- - 1,251 - - 1,251
Forfeiture of restricted stock
(1,368 ) - - - - -
Balance at March 31, 2018
56,219,643 $ 562 $ 1,146,102 $ 285,829 $ - $ 1,432,493
Net Income
- - - 63,899 - 63,899
Shares issued upon exercise of stock options and awards of restricted stock
216,850 2 5,551 - - 5,553
Cash dividends declared
- - (16,928 ) - (16,928 )
Stock-based compensation expense
- 4,824 - - 4,824
Forfeiture of restricted stock
(504 ) - - - - -
Balance at June 30, 2018
56,435,989 $ 564 $ 1,156,477 $ 332,800 $ - $ 1,489,841

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

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M.D.C. HOLDINGS, INC.

Consolidated Statements of Cash Flows

	Six Months Ended						Three Months Ended
	June 30,						March 31,
	2019			2018			2020			2019
	(Dollars in thousands)						(Dollars in thousands)
Operating Activities:
Net income	$	95,143		$	102,663		$	36,760		$	40,550
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Stock-based compensation expense		8,383			6,075			4,440			4,251
Depreciation and amortization		9,941			9,952			5,152			4,878
Inventory impairments		610			750			-			610
Net gain on marketable equity securities		(7,167	)		(125	)
Amortization of discount / premiums on marketable debt securities, net		-			(366	)
Net (gain) loss on marketable equity securities								13,268			(4,840	)
Deferred income tax expense		7,759			3,557			1,131			2,696
Net changes in assets and liabilities:
Trade and other receivables		(36	)		(2,317	)		(1,611	)		(13,771	)
Mortgage loans held-for-sale, net		39,874			30,929			63,100			38,401
Housing completed or under construction		(118,528	)		(133,576	)		(178,873	)		2,137
Land and land under development		24,438			(84,457	)		29,051			(18,496	)
Prepaid and other assets		(4,206	)		(5,108	)		(8,460	)		1,085
Accounts payable and accrued liabilities		(546	)		15,835			(1,131	)		(3,153	)
Net cash provided by (used in) operating activities		55,665			(56,188	)		(37,173	)		54,348

Investing Activities:
Purchases of marketable securities		(5,116	)		(14,659	)		(9,782	)		(4,785	)
Maturities of marketable securities		-			50,000
Sales of marketable securities		5,057			12,460			9,276			4,737
Purchases of property and equipment		(13,860	)		(13,051	)		(6,512	)		(6,386	)
Net cash provided by (used in) investing activities		(13,919	)		34,750
Net cash used in investing activities								(7,018	)		(6,434	)

Financing Activities:
Payments on mortgage repurchase facility, net		(33,776	)		(31,521	)		(40,872	)		(31,959	)
Repayment of senior notes								(250,000	)		-
Proceeds from issuance of senior notes								298,050			-
Dividend payments		(35,636	)		(33,793	)		(20,768	)		(17,115	)
Proceeds from exercise of stock options		17,328			5,835
Issuance of shares under stock-based compensation programs, net								8,194			7,087
Net cash used in financing activities		(52,084	)		(59,479	)		(5,396	)		(41,987	)

Net decrease in cash, cash equivalents and restricted cash		(10,338	)		(80,917	)
Net increase (decrease) in cash, cash equivalents and restricted cash								(49,587	)		5,927
Cash, cash equivalents and restricted cash:
Beginning of period		470,139			514,240			474,212			470,139
End of period	$	459,801		$	433,323		$	424,625		$	476,066

Reconciliation of cash, cash equivalents and restricted cash:
Homebuilding:
Cash and cash equivalents	$	390,061		$	378,219		$	386,704		$	416,374
Restricted cash		12,911			7,443			15,762			8,136
Financial Services:
Cash and cash equivalents		56,829			47,661			22,159			51,556
Total cash, cash equivalents and restricted cash	$	459,801		$	433,323		$	424,625		$	476,066

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

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The Unaudited Consolidated Financial Statements of M.D.C. Holdings, Inc. ("MDC," “the Company," “we,” “us,” or “our,” which refers to M.D.C. Holdings, Inc. and its subsidiaries) have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Accordingly, they do not include all information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements. These statements reflect all normal and recurring adjustments which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of MDC at ~~June 30, 2019~~March 31, 2020 and for all periods presented. These statements should be read in conjunction with MDC’s Consolidated Financial Statements and Notes thereto included in MDC’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

On ~~January 28, 2019,~~ ~~MDC’s board of directors declared an 8% stock dividend that was distributed on~~ ~~February 28, 2019~~ ~~to shareholders of record on~~ ~~February 14, 2019.~~ ~~In accordance with Accounting Standards Codification (“ASC”) Topic~~ ~~260,~~~~Earnings Per Share~~ ~~(“ASC~~ ~~260”~~~~), basic and diluted earnings per share amounts, share amounts and dividends declared per share have been restated for any periods or dates prior to the stock dividend record date.~~

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

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

~~Accounting Standards Update (“ASU”)~~ ~~2016~~-~~02,~~~~Leases~~ ~~(“ASU~~ ~~2016~~-~~02”~~~~) is codified in ASC~~ ~~842,~~~~Leases~~ ~~(“ASC~~ ~~842”~~~~). ASC~~ ~~842~~ ~~supersedes current lease guidance in ASC~~ ~~840~~ and requires a lessee to recognize a right-of-use asset and a corresponding lease liability for substantially all leases. The lease liability will be equal to the present value of the remaining lease payments while the right-of-use asset will be similarly calculated and then adjusted for initial direct costs. In ~~addition, ASC~~ ~~842~~ ~~expands the disclosure requirements to increase the transparency and comparability of the amount, timing and uncertainty of cash flows arising from leases. On~~ ~~January 1, 2019,~~ ~~we adopted ASC~~ ~~842~~ using the modified retrospective transition method. We elected available practical expedients permitted under the transition guidance within the new standard, which among other items, allowed the Company to carry forward its historical lease classification and ~~not~~ ~~reassess existing leases under the new definition of a lease in ASC~~ ~~842.~~ ~~In addition, we will account for lease and non-lease components as a single lease component.~~

~~Adoption of ASC~~ ~~842~~ ~~resulted in the recording of additional net lease assets and lease liabilities of~~ ~~$34.2~~ ~~million and~~ ~~$34.3~~ ~~million, respectively, as of~~ ~~January 1, 2019.~~ ~~The difference between the additional lease assets and lease liabilities, net of the deferred tax impact, was recorded as an adjustment to retained earnings. The standard did~~ ~~not~~ ~~materially impact our consolidated statements of operations and comprehensive income or consolidated cash flows.~~

In June 2016, the FASB issued ASU 2016-13,Financial Instruments—Credit Losses (Topic 326):Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires measurement and recognition of expected credit losses for financial assets held. The amendments in ASU 2016-13 eliminate the probable threshold for initial recognition of a credit loss in ~~current~~legacy GAAP and reflect an entity’s current estimate of all expected credit losses. ~~ASU~~ ~~2016~~-13 ~~is effective for our interim and annual reporting periods beginning~~ On January 1, 2020, we adopted ASU ~~and is to be applied~~2016-13 using athe modified retrospective transition ~~method. Earlier adoption is permitted. We do~~ method, resulting in a cumulative effect adjustment that decreased the opening balance of retained earnings by less than $0.1 million. The standard did not ~~plan to early adopt ASU~~ ~~2016~~-13 materially impact our consolidated statements of operations and ~~with our current holdings of financial instruments that are subject to credit losses, we do~~ ~~not~~ ~~believe adoption of this guidance will have a material impact on our financial statements.~~comprehensive income or consolidated cash flows.

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

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

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

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

On a periodic basis, we assess our Corporate cost allocation estimates. Our most recent assessment resulted in increases in Corporate cost allocations to both our homebuilding and financial services segments beginning January 1, 2020, to reflect the use of centralized administrative functions. Applying the most recent cost allocation estimate to the three months ended March 31, 2019 would have resulted in decreased pretax income for our homebuilding and financial services segments of approximately $2.7 million and $0.4 million, respectively, with corresponding increases in our Corporate segment pretax income. Additionally, beginning January 1, 2020, we have reflected the expense associated with all homebuilding employee bonuses in the respective homebuilding segment to which the employee reports, consistent with how the CODM is now evaluating homebuilding division performance and making operating decisions. Had these bonuses been reflected in a similar manner during the three months ended March 31, 2019, pretax income for our homebuilding segments would have decreased by an additional $3.0 million with a corresponding increase in our Corporate segment pretax income.

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

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

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

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

Diluted EPS for the three ~~and~~ ~~six~~months ended ~~June 30,~~ March 31, 2020 and 2019excluded options to purchase approximately ~~0.5~~0.4 million and 0.5 million shares of common stock, respectively, because the effect of their inclusion would be anti-dilutive. ~~For the same periods in~~ ~~2018,~~ ~~diluted EPS excluded options to purchase approximately 0.7 and 0.6 million shares, respectively.~~

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5.	~~Accumulated~~ ~~Other Comprehensive Income~~

~~The following table sets forth our changes in accumulated other comprehensive income (“AOCI”):~~

Three Months Ended

Six Months Ended

June 30,

June 30,

2019

2018

2019

2018

(Dollars in thousands)

Beginning balance ¹
$ - $ - $ - $ 3,992
Adoption of accounting standards
- - - (3,992 )
Ending balance
$ - $ - $ - $ -

⁽¹⁾ ~~Amounts net-of-tax.~~

~~During the~~ ~~first~~ ~~quarter of~~ ~~2018,~~ an election was made to reclassify the income tax effects of the Tax Cuts and Jobs Act related to net unrealized gains on equity investments from accumulated other comprehensive income to retained earnings.

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

The following table sets forth the fair values and methods used for measuring the fair values of financial instruments on a recurring basis:

The following methods and assumptions were used to estimate the fair value of each class of financial instruments as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019.

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

Equity securities. Our equity securities consist of holdings in common stock and exchange traded funds. As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, all of our equity securities were recorded at fair value with all changes in fair value recorded to other income (expense), net ~~gain (loss) on marketable equity securities~~ in the financial services section of our consolidated statements of operations and comprehensive income.

~~Debt~~ ~~securities~~~~. Our debt securities consist of U.S. government securities. As of~~ ~~June 30, 2019~~ ~~and~~ ~~December 31, 2018,~~ all of our debt securities were treated as available-for-sale investments and, as such, are recorded at fair value with all changes in fair value initially recorded through AOCI, subject to an assessment to determine if any unrealized loss, if applicable, is other-than-temporary.

~~The following tables set forth the cost and estimated fair value of our available-for-sale debt securities:~~

The following table reconciles the net gain (loss) recognized during the three ~~and~~ ~~six~~months ended ~~June 30, 2019~~March 31, 2020 and ~~2018~~2019 on equity securities to the unrealized gain (loss) recognized during the periods on equity securities still held at the reporting date.

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Mortgage loans held-for-sale, net. Our mortgage loans held-for-sale, which are measured at fair value on a recurring basis, include (1) mortgage loans held-for-sale that are under commitments to sell and (2) mortgage loans held-for-sale that are not under commitments to sell. At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, we had ~~$97.3~~$88.1 million and ~~$130.8~~$136.8 million, respectively, of mortgage loans held-for-sale under commitments to sell. The fair value for those loans was based on quoted market prices for those mortgage loans, which are Level 2 fair value inputs. At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, we had ~~$12.0~~$45.8 million and ~~$18.5~~$60.2 million, respectively, of mortgage loans held-for-sale that were not under commitments to sell. The fair value for those loans was primarily based upon the estimated market price received from an outside party, which is a Level 2 fair value input.

Gains on sales of mortgage loans, net, are included as a component of revenues in the financial services section of our consolidated statements of operations and comprehensive income. For the three ~~and~~ ~~six~~months ended ~~June 30, 2019,~~March 31, 2020, we recorded net gains on the sales of mortgage loans of ~~$12.6~~$16.7 million, ~~and $24.3 million, respectively,~~ compared to ~~$10.3 million and $19.3~~$11.7 million for the same ~~periods~~period in the prior ~~year, respectively.~~year.

Mortgage Repurchase Facility. The debt associated with our mortgage repurchase facility (see Note 1918 for further discussion) is at floating rates that approximate current market rates and have relatively short-term maturities, generally within 30 days. The fair value approximates carrying value and is based on Level 2 inputs.

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

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

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

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

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

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

Impairments of homebuilding inventory by segment for the three ~~and~~ ~~six~~months ended ~~June 30, 2019~~March 31, 2020 and ~~2018~~2019 are shown in the table below.

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

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

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

Our property related leases typically have terms of between 3three and 5five years, with the exception of the lease governing the Company’s headquarters, and are classified as operating leases. These leases do not contain any residual value guarantees or restrictive covenants and do nonot include variable lease payments, except for the payment of common area maintenance and real estate taxes. Many of our property related leases give us the option to extend the lease term for a period of time, generally consistent with the initial lease term. These options are excluded from our calculation of the right-of-use asset and lease liability until such time as we determine it is reasonably certain that the option will be exercised.

The property related lease for the Company’s headquarters in Denver, Colorado is 10ten years in length with an expiration date of October 31, 2026 and contains a 10ten year option to extend the term of the lease through 2036. This option has been excluded from our calculation of the right-of-use asset and lease liability as it is not currently considered reasonably certain that the option will be exercised.

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

Supplemental cash flow information related to non-cash transactions also includes the recognition of operating lease right-of-use assets of $33.5 million and operating lease liabilities of $34.3 million upon adoption of ASC ~~842.~~

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

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

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

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

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

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

The table set forth below summarizes accrual, adjustment and payment activity related to our warranty accrual for the three ~~and~~ ~~six~~months ended ~~June 30, 2019~~March 31, 2020 and ~~2018.~~2019. ~~For the~~ ~~three~~ ~~months ended~~ ~~June 30, 2019,~~ we recorded an adjustment to decrease our warranty accrual by $1.4 million due to lower than expected general warranty related expenditures in certain close of escrow years. No such adjustments were recorded during the ~~three~~ ~~months ended~~ ~~June 30, 2018.~~ ~~For the~~ ~~six~~ ~~months ended~~ ~~June 30, 2019~~ ~~and~~ ~~2018,~~ ~~we recorded adjustments to decrease our warranty accrual by $0.5 million and increase our warranty accrual by $3.1 million, respectively. The adjustments recorded during the~~ ~~six~~ ~~months ended~~ ~~June 30, 2019~~ ~~are consistent with the~~ ~~three~~ ~~month period noted above and are partially offset by warranty accruals related to homes with structural related issues. The adjustments recorded during the~~ ~~six~~ ~~months ended~~ ~~June 30, 2018~~ ~~were due to higher than expected general warranty related expenditures.~~

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

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

The table set forth below summarizes our insurance and construction defect claim reserves activity for the three ~~and~~ ~~six~~months ended ~~June 30, 2019~~March 31, 2020 and ~~2018.~~2019. These reserves are included as a component of accounts payable and accrued liabilities and accrued and other liabilities in either the financial services ~~and~~or homebuilding sections of the consolidated balance ~~sheets.~~sheets, respectively.

In the ordinary course of business, we make payments from our insurance and construction defect claim reserves to settle litigation claims arising from our homebuilding activities. These payments are irregular in both their timing and their magnitude. As a result, the cash payments, net of recoveries shown for the three ~~and~~ ~~six~~months ended ~~June 30, 2019~~March 31, 2020 and ~~2018~~2019 are not necessarily indicative of what future cash payments will be for subsequent periods.

Our overall effective income tax rates were ~~26.6%~~24.3% and ~~26.8%~~27.1% for the three ~~and~~ ~~six~~months ended ~~June 30, 2019,~~March 31, 2020 ~~respectively, and 16.6% and 19.3% for the~~ ~~three~~and ~~six~~2019, ~~months ended~~ ~~June 30, 2018,~~ ~~respectively. The rates for the~~ ~~three~~ ~~and~~ ~~six~~ ~~months ended~~ ~~June 30, 2019~~ ~~resulted~~respectively, resulting in income tax expense of ~~$19.7~~$11.8 million and ~~$34.8 million, respectively, compared to income tax expense of $12.7 million and $24.5~~$15.1 million for the ~~three~~ ~~and~~ ~~six~~ ~~months ended~~ ~~June 30, 2018,~~ same periods, respectively. The year-over-year ~~increases~~decrease in our effective tax rate for the three months ended March 31, 2020 was primarily impacted by a windfall on non-qualifying stock options exercised and lapsed restricted stock awards during the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 ~~were due to benefits from~~as well as energy tax credits related to homes closed during the quarter. These benefits were partially offset by a decrease in the amount of ~~$6.8 million and $8.0 million, respectively, which reduced our respective~~executive compensation that is deductible under Internal Revenue Code Section ~~2018~~162 ~~tax rates. It is currently uncertain as to the extent, if any, that energy tax credits will impact our~~ ~~2019~~ ~~results, and therefore no benefit has been recorded for~~ ~~2019.~~(m).

At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019, we had deferred tax assets, net of valuation allowances and deferred tax liabilities, of ~~$29.4~~$20.7 million and ~~$37.2~~$21.8 million, respectively. The valuation allowances were primarily related to various state net operating loss carryforwards where realization is ~~more~~ uncertain at this time due to the limited carryforward periods coupled with minimal ~~operating~~ activity that exists in certain states.

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The carrying ~~value~~values of our senior notes as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, net of any unamortized debt issuance costs or discount, were as follows:

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

We account for share-based awards in accordance with ASC Topic 718 Compensation–Stock Compensation (“ASC 718”), which requires the fair value of stock-based compensation awards to be amortized as an expense over the vesting period. Stock-based compensation awards are valued at fair value on the date of grant. The following table sets forth share-based award expense activity for the three ~~and~~ ~~six~~months ended ~~June 30, 2019~~March 31, 2020 and ~~2018,~~2019, which is included as a component of selling general and administrative expenses and expenses in the homebuilding and financial services sections of our consolidated statements of operations and comprehensive income, respectively:

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On August 5, 2019, May 23, 2018, June 20, 2017 and July 25, 2016, the Company granted long term performance ~~stock~~share unit awards (“PSUs”) to each of the CEO, the COO, and the Chief Financial Officer (“CFO”) under the Company’s 2011 Equity Incentive Plan. The PSUs ~~will be~~are earned based upon the Company’s performance, over a 3three year period (the “Performance Period”), measured by increasing home sale revenues over a “Base Period.” Each award is conditioned upon the Company achieving an average gross margin from home sales (excluding impairments) of at least fifteen percent (15%) over the Performance Period. Target goals will be earned if the Company’s three year average home sale revenues over the Performance Period (“Performance Revenues”) exceed the home sale revenues over the Base Period (“Base Revenues”) by at least 10% but less than 20%. If Performance Revenues exceed the Base Revenues by at least 5% but less than 10%, 50% of the Target Goals will be earned (“Threshold Goals”). If Performance Revenues exceed the Base Revenues by at least 20%, 200% of the Target Goals will be earned (“Maximum Goals”). For the PSUs granted in 2017, 2018and ~~2018,~~2019, the number of PSUs earned shall be adjusted to be proportional to the partial performance between the Threshold Goals, Target Goals and Maximum Goals. Details for each defined term above for each grant has been provided in the table below.

In accordance with ASC 718, the PSUs were valued on the date of grant at their fair value. The fair value of these grants was equal to the closing price of MDC stock on the date of grant less the discounted cash flows of expected future dividends over the respective vesting period (as these PSUs do not participate in dividends). The grant date fair value and maximum potential expense if the Maximum Goals were met for these awards has been provided in the table above. ASC 718 does not permit recognition of expense associated with performance-based stock awards until achievement of the performance targets are probable of occurring.

2016 PSU Grants. The 2016 PSU awards vested on August 7, 2019 at the Maximum Goal following the achievement of the Maximum Goals and certification by the Compensation Committee that the Maximum Goals had been achieved. For the three months ended March 31, 2019 the Company recorded share-based award expense of $0.9 million related to these awards.

2017 PSU Grants. As of ~~June 30, 2019,~~March 31, 2020, the Company determined that achievement of the Maximum Goals for these awards was probable and, as such, the Company recorded ~~share-based~~share- award expense related to the awards of ~~$0.9 million and $1.8~~$1.4 million for the three ~~and~~months ended ~~six~~March 31, 2020. For the three months ended ~~June 30, 2019.~~ ~~As of~~ ~~June 30, 2018,~~March 31, 2019, the Company ~~had concluded that achievement of the Maximum Goals for these awards was probable and as such,~~ recorded share-based award expense of $2.2 million related to ~~the awards of $4.1 million and $4.5 million for the~~ ~~three~~ ~~and~~ ~~six~~ ~~months ended~~ ~~June 30, 2018.~~ ~~The awards will vest following the filing of our~~ ~~second~~ ~~quarter Form~~ 10~~-Q when the Compensation Committee certifies the performance under the PSU agreements.~~these awards.

~~2017~~2018 PSU Grants. As of ~~June 30, 2019,~~March 31, 2020, the Company determined that achievement between the Target ~~Goals~~ and Maximum Goals for these awards was probable and, as such, the Company recorded share-based award expense related to the awards of ~~$2.3 million and $4.5~~$1.0 million for the three ~~and~~ ~~six~~months ended ~~June 30, 2019.~~March 31, 2020. ~~As of~~At ~~June 30, 2018,~~March 31, 2019, the Company concluded that achievement of any of the performance metrics had not met the level of probability required to record compensation expense, and as such, no0 expense related to ~~the grant of~~ these awards had been recognized as of ~~June 30, 2018.~~March 31, 2019.

~~2018~~2019 PSU Grants. For the PSUs granted in ~~May~~August of ~~2018,~~2019, the Company concluded that achievement of any of the performance metrics has not met the level of probability required to record compensation expense and, as such, no0 expense related to these awards has been recognized as of ~~June 30, 2019.~~March 31, 2020.

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176.	Commitments and Contingencies

Surety Bonds and Letters of Credit. We are required to obtain surety bonds and letters of credit in support of our obligations for land development and subdivision improvements, homeowner association dues, warranty work, contractor license fees and earnest money deposits. At ~~June 30, 2019,~~March 31, 2020, we had outstanding surety bonds and letters of credit totaling ~~$244.8~~$284.0 million and ~~$89.6~~$96.6 million, respectively, including ~~$63.6~~$70.9 million in letters of credit issued by HomeAmerican. The estimated cost to complete obligations related to these bonds and letters of credit were approximately ~~$123.3~~$152.4 million and ~~$43.0~~$51.2 million, respectively. All letters of credit as of ~~June 30, 2019,~~March 31, 2020, excluding those issued by HomeAmerican, were issued under our unsecured revolving credit facility (see Note 1918 for further discussion of the revolving credit facility). We expect that the obligations secured by these performance bonds and letters of credit generally will be performed in the ordinary course of business and in accordance with the applicable contractual terms. To the extent that the obligations are performed, the related performance bonds and letters of credit should be released and we should not have any continuing obligations. However, in the event any such performance bonds or letters of credit are called, our indemnity obligations could require us to reimburse the issuer of the performance bond or letter of credit.

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

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

Lot Option Contracts. In the ordinary course of business, we enter into lot option purchase contracts (“Option Contracts”), generally through a deposit of cash or a letter of credit, for the right to purchase land or lots at a future point in time with predetermined terms. The use of such land option and other contracts generally allow us to reduce the risks associated with direct land ownership and development, reduces our capital and financial commitments, and minimizes the amount of land inventories on our consolidated balance sheets. In certain cases, these contracts will be settled shortly following the end of the period. Our obligation with respect to Option Contracts is generally limited to forfeiture of the related deposits. At ~~June 30, 2019,~~March 31, 2020, we had cash deposits and letters of credit totaling ~~$23.3~~$21.4 million and ~~$4.5~~$8.2 million, respectively, at risk associated with the option to purchase 8,533 lots.

Coronavirus/COVID-~~6,454~~19 Pandemic. While the response to the pandemic continues to rapidly evolve, many state and local governments had extended and expanded on restrictions that substantially limited the operations of non-essential businesses and the activities of individuals. Certain markets in which we do business stopped our construction and sales of homes and others limited the operations of sales centers and model homes. We continue to market and sell homes in all markets, but economic uncertainty and shelter in place requirements have caused a significant decline in traffic at our sales centers and model homes, and we have seen a significant increase in our cancellation rate. The impact of the decreased traffic and increased cancellation rate was evident in our net new orders for the month of April, which fell 53% year-over-year. While the extent to which the pandemic will impact our financial results in the coming periods depends on future developments, the pandemic and its associated impact on the U.S. economy and consumer confidence could have a material impact to the Company’s future results of operations, financial condition and cash flows.

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187.	Derivative Financial Instruments

The derivative instruments we utilize in the normal course of business are interest rate lock commitments and forward sales of mortgage-backed securities, both of which typically are short-term in nature. Forward sales of mortgage-backed securities are utilized to hedge changes in fair value of our interest rate lock commitments as well as mortgage loans held-for-sale not under commitments to sell. For forward sales of mortgage-backed securities, as well as interest rate lock commitments that are still outstanding at the end of a reporting period, we record the changes in fair value of the derivatives in revenues in the financial services section of our consolidated statements of operations and comprehensive income with an offset to other assets or accounts payable and accrued liabilities in the financial services section of our consolidated balance sheets, depending on the nature of the change.

At ~~June 30, 2019,~~March 31, 2020, we had interest rate lock commitments with an aggregate principal balance of ~~$148.3~~$221.0 million. Additionally, we had ~~$11.4~~$43.7 million of mortgage loans held-for-sale at ~~June 30, 2019~~March 31, 2020 that had not yet been committed to a mortgage purchaser. In order to hedge the changes in fair value of our interest rate lock commitments and mortgage loans held-for-sale that had not yet been committed to a mortgage purchaser, we had forward sales of securities totaling ~~$105.0~~$162.0 million at ~~June 30, 2019.~~March 31, 2020.

For the three ~~and~~ ~~six~~months ended ~~June 30,~~ March 31, 2020 and 2019,we recorded net gains on derivatives of ~~$0.5~~$1.0 million and ~~$1.4~~$0.9 million, respectively, onin revenues in the financial services section of our ~~derivatives, compared to net gains~~consolidated statements of ~~$0.8 million~~operations and ~~$2.3 million for the same periods in~~ ~~2018.~~comprehensive income.

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198.	Lines of Credit

Revolving Credit Facility. We have an unsecured revolving credit agreement (“Revolving Credit Facility”) with a group of lenders which may be used for general corporate purposes. This agreement was amended on November 1, 2018 to (1) extend the Revolving Credit Facility maturity to December 18, 2023, (2) increase the aggregate commitment from $700 million to $1.0 billion (the “Commitment”) and (3) provide that the aggregate amount of the commitments may increase to an amount not to exceed $1.5 billion upon our request, subject to receipt of additional commitments from existing or additional lenders and, in the case of additional lenders, the consent of the co-administrative agents. As defined in the Revolving Credit Facility, interest rates on base rate borrowings are equal to the highest of (1) 0.0%, (2) a prime rate, (3) a federal funds effective rate plus 1.50%, and (4) a specified eurocurrency rate plus 1.00% and, in each case, plus a margin that is determined based on our credit ratings and leverage ratio. Interest rates on eurocurrency borrowings are equal to a specified eurocurrency rate plus a margin that is determined based on our credit ratings and leverage ratio. At any time at which our leverage ratio, as of the last day of the most recent calendar quarter, exceeds 55%, the aggregate principal amount of all consolidated senior debt borrowings outstanding may not exceed the borrowing base. There is no borrowing base requirement if our leverage ratio, as of the last day of the most recent calendar quarter, is 55% or less.

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

The Revolving Credit Facility is subject to acceleration upon certain specified events of default, including breach of the consolidated tangible net worth covenant, a violation of anti-corruption or sanctions laws, failure to make timely payments, breaches of certain representations or covenants, failure to pay other material indebtedness, or another person becoming beneficial owner of 50% or more of our outstanding common stock. We believe we were in compliance with the representations, warranties and covenants included in the Revolving Credit Facility as of ~~June 30, 2019.~~March 31, 2020.

We incur costs associated with unused commitment fees pursuant to the terms of the Revolving Credit Facility. At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, there were ~~$26.0~~$25.7 million and ~~$27.8~~$23.5 million, respectively, in letters of credit outstanding, which reduced the amounts available to be borrowed under the Revolving Credit Facility. We had $15.0 million outstanding under the Revolving Credit Facility as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019. As of ~~June 30, 2019,~~March 31, 2020, availability under the Revolving Credit Facility was approximately ~~$959.0~~$959.3 million.

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Mortgage Repurchase Facility. HomeAmerican has a Master Repurchase Agreement (the “Mortgage Repurchase Facility”) with U.S. Bank National Association (“USBNA”). Effective May 23, 2019, the Mortgage Repurchase Facility was amended to extend its termination date to May 21, 2020. The Mortgage Repurchase Facility provides liquidity to HomeAmerican by providing for the sale of up to an aggregate of $75 million (subject to increase by up to $75 million under certain conditions) of eligible mortgage loans to USBNA with an agreement by HomeAmerican to repurchase the mortgage loans at a future date. Until such mortgage loans are transferred back to HomeAmerican, the documents relating to such loans are held by USBNA, as custodian, pursuant to the Custody Agreement (“Custody Agreement”), dated as of November 12, 2008, by and between HomeAmerican and USBNA. In the event that an eligible mortgage loan becomes ineligible, as defined under the Mortgage Repurchase Facility, HomeAmerican may be required to repurchase the ineligible mortgage loan immediately. The maximum aggregate commitment of the Mortgage Repurchase Facility was temporarily increased on ~~June 27, 2019~~March 30, 2020 from ~~$75~~$75 million to ~~$100~~$110 million effective through ~~July 25, 2019.~~April 27, 2020. The Mortgage Repurchase Facility also had a temporary increase in the maximum aggregate commitment from $75 million to ~~$130~~$150 million on December ~~27, 2018~~24, 2019 effective through January ~~25, 2019.~~22, 2020. At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, HomeAmerican had ~~$83.0~~$108.7 million and ~~$116.8~~$149.6 million, respectively, of mortgage loans that HomeAmerican was obligated to repurchase under the Mortgage Repurchase Facility. Mortgage loans that HomeAmerican is obligated to repurchase under the Mortgage Repurchase Facility are accounted for as a debt financing arrangement and are reported as mortgage repurchase facility in the consolidated balance sheets. Advances under the Mortgage Repurchase Facility carry a price range that is based on a LIBOR rate or successor benchmark rate.

The Mortgage Repurchase Facility contains various representations, warranties and affirmative and negative covenants that we believe are customary for agreements of this type. The negative covenants include, among others, (i) a minimum Adjusted Tangible Net Worth requirement, (ii) a maximum Adjusted Tangible Net Worth ratio, (iii) a minimum adjusted net income requirement, and (iv) a minimum Liquidity requirement. The foregoing capitalized terms are defined in the Mortgage Repurchase Facility. We believe HomeAmerican was in compliance with the representations, warranties and covenants included in the Mortgage Repurchase Facility as of ~~June 30, 2019.~~March 31, 2020.

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2019.

Related Party Transactions

We contributed ~~$0.5~~$1.5 million in cash to the MDC/Richmond American Homes Foundation (the “Foundation”) during the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. The Foundation is a non-profit organization operated exclusively for charitable, educational and other purposes beneficial to social welfare within the meaning of Section 501(c)(3) of the Internal Revenue Code. The following Directors and/or officers of the Company served as directors of the Foundation at ~~June 30, 2019,~~March 31, 2020, all of whom serve without compensation:

Name		MDC Title
Larry A. Mizel		Chairman and CEO
David D. Mandarich		President and COO

Three other individuals, who are independent of the Company, also serve as directors of the Foundation. All directors of the Foundation serve without compensation.

The Company has a sublease agreement with CVentures, Inc. Larry A. Mizel, the Chief Executive Officer of the Company, is the President of CVentures, Inc. The sublease is for office space that CVentures, Inc. has continuously leased from the Company since 2005. The current sublease term commenced November 1, 2016 and will continue through October 31, 2021, with an option to extend to October 31, 2026. The sublease agreement is for approximately 5,437 rentable square feet at a base rent that increases over the initial term from $26.50 to $28.68 per rentable square foot per year, and increasing over the extension term from $29.26 to $31.67 per rentable square foot per year. The sublease rent is an allocation of the rent under the master lease agreement based on the sublease square footage.

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210.	Supplemental Guarantor Information

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

●

M.D.C. Land Corporation

●

RAH of Florida, Inc.

●

Richmond American Construction, Inc.

●

Richmond American Homes of Arizona, Inc.

●

Richmond American Homes of Colorado, Inc.

●

Richmond American Homes of Florida, LP

●

Richmond American Homes of Illinois, Inc.

●

Richmond American Homes of Maryland, Inc.

●

Richmond American Homes of Nevada, Inc.

●

Richmond American Homes of New Jersey, Inc.

●

Richmond American Homes of Oregon, Inc.

●

Richmond American Homes of Pennsylvania, Inc.

●

Richmond American Homes of Utah, Inc.

●

Richmond American Homes of Virginia, Inc.

●

Richmond American Homes of Washington, Inc.

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

We have determined that separate, full financial statements of the Guarantor Subsidiaries would not be material to investors and, accordingly, supplemental financial information for the Guarantor and Non-Guarantor Subsidiaries is presented below.

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

The following discussion should be read in conjunction with, and is qualified in its entirety by, the Unaudited Consolidated Financial Statements and Notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This item contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are based upon management’s experiences, observations, and analyses. Actual results may differ materially from those indicated in such forward-looking statements. Factors that may cause such a difference include, but are not limited to, those discussed in "Item 1A: Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 and this Quarterly Report on Form 10-Q.

Specifically, as a result of the Coronavirus/COVID-19 pandemic, we experienced increasingly adverse business conditions, especially iTn the latter half of March 2020, w~~he Company distributed~~hich negatively impacted our operating results. ~~an 8% stock dividend on~~These adverse business conditions have continued into the 2020 second quarter. ~~February~~28~~, 201~~9 ~~to shareholders of record on~~ ~~February~~14, ~~201~~9~~. In accordance with Accounting Standards Codific~~~~ation 260, “Earnings per Share,”~~ ~~basic and diluted earnings per share amounts, weighted-average shares outstanding, and dividends declared per share have been restated for all periods present~~~~ed to reflect the effect of this stock dividend~~.It is unclear how long these adverse conditions will persist or how they will impact our results in future periods.

	Three Months Ended						Six Months Ended
	June 30,						June 30,						Three Months Ended
	2019			2018			2019			2018			March 31,
	(Dollars in thousands, except per share amounts)												2020			2019
Homebuilding:													(Dollars in thousands, except per share amounts)
Home sale revenues	$	732,844		$	749,608		$	1,380,122		$	1,357,296		$	697,085		$	647,278
Home cost of sales		(590,172	)		(606,403	)		(1,114,724	)		(1,103,035	)		(558,647	)		(524,552	)
Inventory impairments		-			(200	)		(610	)		(750	)		-			(610	)
Total cost of sales		(590,172	)		(606,603	)		(1,115,334	)		(1,103,785	)		(558,647	)		(525,162	)
Gross profit		142,672			143,005			264,788			253,511			138,438			122,116
Gross margin		19.5	%		19.1	%		19.2	%		18.7	%		19.9	%		18.9	%
Selling, general and administrative expenses		(82,712	)		(81,571	)		(164,973	)		(152,912	)		(89,321	)		(82,261	)
Interest and other income		2,764			1,774			5,155			3,633			1,889			2,391
Other expense		(1,110	)		(871	)		(2,301	)		(1,434	)		(1,337	)		(1,191	)
Homebuilding pretax income		61,614			62,337			102,669			102,798			49,669			41,055

Financial Services:
Revenues		18,597			21,372			36,001			40,407			21,886			17,404
Expenses		(9,574	)		(9,611	)		(18,531	)		(18,442	)		(10,929	)		(8,957	)
Interest and other income		1,367			1,240			2,631			2,260
Net gain on marketable equity securities		2,327			1,278			7,167			125
Financial services pretax income		12,717			14,279			27,268			24,350
Other income (expense), net														(12,064	)		6,104
Financial services pretax income (loss)														(1,107	)		14,551

Income before income taxes		74,331			76,616			129,937			127,148			48,562			55,606
Provision for income taxes		(19,738	)		(12,717	)		(34,794	)		(24,485	)		(11,802	)		(15,056	)
Net income	$	54,593		$	63,899		$	95,143		$	102,663		$	36,760		$	40,550

Earnings per share:
Basic	$	0.88		$	1.05		$	1.55		$	1.69		$	0.58		$	0.66
Diluted	$	0.86		$	1.03		$	1.50		$	1.66		$	0.56		$	0.64

Weighted average common shares outstanding:
Basic		61,336,404			60,590,899			61,138,982			60,466,527			62,491,238			60,939,364
Diluted		63,323,267			61,604,286			63,023,149			61,525,442			64,931,225			62,708,334

Dividends declared per share	$	0.30		$	0.28		$	0.60		$	0.56		$	0.33		$	0.30

Cash provided by (used in):
Operating Activities	$	1,317		$	5,298		$	55,665		$	(56,188	)	$	(37,173	)	$	54,348
Investing Activities	$	(7,485	)	$	41,127		$	(13,919	)	$	34,750		$	(7,018	)	$	(6,434	)
Financing Activities	$	(10,097	)	$	(20,682	)	$	(52,084	)	$	(59,479	)	$	(5,396	)	$	(41,987	)

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Overview

Industry Conditions

During the first quarter of 2020, the new Coronavirus/COVID-19 pandemic emerged as a threat to global health and economic conditions. Starting in March 2020, the pandemic dramatically changed the everyday lives of individuals throughout much of the United States. For example, stay at home and shelter in place orders were issued by many state and local governments, including the required closure of non-essential businesses in many areas, which have had a significant impact on not only our industry, but the overall economy. Some state and local governments did not identify residential construction as an essential business, which has impacted our ability to physically construct homes, while others limited the operations of sales centers and model homes. While certain of these restrictions have started to lapse during the second quarter, the extent to which the pandemic will impact our financial results in the coming periods depends on future developments, which are highly uncertain and cannot be predicted at this time.

Our first priority with regard to the pandemic is to address the health and safety of our employees, customers, subcontractors and suppliers, as well as the communities in which we operate. We have implemented work-from-home arrangements for employees where practical, increased sanitization procedures in offices and subdivisions, imposed significant business travel restrictions and otherwise promoted social distancing measures. We have implemented virtual processes for key operational activities that have traditionally been done in-person, such as model home tours, Home Gallery appointments, and pre-closing walk-throughs. While we have continued to see some demand for new housing, overall we have experienced a significant decline in traffic and net home orders during the second half of March and continuing into the second quarter. The decline in activity to start the second quarter was evident in our net new orders for the month of April, which fell 53% year-over-year.

Three M~~onths~~ E~~nded~~~~June~~ 30~~, 201~~9Months Ended March 31, 2020

For the three months ended ~~June 30, 2019,~~March 31, 2020, our homebuilding operations generated pretax income of $49.7 million, which was a 21% increase compared to $41.1 million for the same period in the prior year. The increase was the result of an improvement in gross margin from home sales as well as an increase in home sale revenues year-over-year. Gross margin from home sales for the first quarter of 2020 rose 100 basis points to 19.9% compared to 18.9% in the prior year. Home sale revenues increased 8% from $647.3 million in the prior year period to $697.1 million in the first quarter of 2020.

Our financial services business incurred a pretax loss of $1.1 million for the three months ended March 31, 2020 compared to pretax income of $14.6 million for the same period in the prior year. This decrease was the result of unrealized losses on equity securities during the first quarter of 2020 totaling $13.9 million as compared to unrealized gains of $4.6 million during the first quarter of 2019. These equity securities form part of the investment portfolio held by our Insurance Entities and the holding period of these investments is intended to align with the longer-term nature of the underlying insurance reserves held by these entities.

For the three months ended March 31, 2020, we reported net income ~~was $54.6~~of $36.8 million, or ~~$0.86~~$0.56 per diluted share, a ~~15%~~9% decrease compared to net income of ~~$63.9~~$40.6 million, or ~~$1.03~~$0.64 per diluted share, for the same period in the prior year. The decrease was primarily the result of a higher effective tax rate due to federal energy tax credits, which reduced our 2018 second quarter income tax expense by $6.8 million. It is currently uncertain as to the extent, if any, that energy tax credits will impact our 2019 results, and therefore no benefit has been recorded for 2019. Financial services pretax income decreased $1.6 million, due to $1.4 million of gains recognized in the same period in the prior year on the sale of conventional mortgage servicing rights, as well as a year-over-year decrease in the servicing income related to those loans. These decreases in financial services pretax income were partially offset by $2.3 million of net gains on equity securities in the second quarter of 2019 as compared to $1.3 million for the same period in the prior year. Pretax income from homebuilding operations decreased by $0.7 million year-over-year, as a slight decrease in homebuilding gross profit and a slight increase in selling, general and administrative costs were mostly offset by an increase in interest and other income.

~~Home sale revenues were down from $749.6 million in the 2018 second quarter to $732.8 million in the 2019 second quarter. The $16.8 million year-over-year~~This decrease was the result of ~~a 2% decrease in~~ the ~~average price of homes delivered during~~losses incurred on the ~~quarter.~~

The dollar value of our net new home orders increased 25% from the prior year period, driven by a 32% increase in the number of net new orders. The increase in net new orders was the result of a 19% increase in average active subdivisions coupled with a 12% increase in our monthly sales absorption pace. Our second quarter monthly sales absorption pace of 4.1 was our highest second quarter absorption pace since 2005. The increase in the number of net new orders was offset by a 6% decrease in the average selling price, consistent with our ongoing focus on offering more affordable home plans. The decrease in the average selling price was also caused by a shift in the mix of home orders to more affordable markets.

~~Six Months Ended~~~~June 30, 2019~~

For the six months ended June 30, 2019, our net income was $95.1 million, or $1.50 per diluted share, a 7% decrease compared to net income of $102.7 million, or $1.66 per diluted share, for the same period in the prior year. Similar to the 2018 second quarter commentaryinvestment portfolio discussed above, ~~this decrease was caused by a higher effective tax rate due to federal energy tax credits,~~ which ~~reduced our income tax expense for the six months ended June 30, 2018 by $8.0 million, and by the sale of mortgage servicing rights in the same period in the prior year. These decreases~~ were partially offset by ~~$7.2 million of net gains on equity securities for~~ the ~~six months ended June 30, 2019 as compared to $0.1 million for the same period~~growth in ~~the prior year. Our~~homebuilding pretax income ~~from homebuilding operations decreased by $0.1 million year-over-year,~~ as ~~an $11.3 million increase in homebuilding gross profit was offset by higher selling, general~~well as tax benefits recognized during the first quarter of 2020 related to vested share-based awards and ~~administrative costs.~~energy tax credits.

~~Industry Conditions and~~ Outlook for ~~MDC~~*MDC*

~~The homebuilding market strengthened during~~We remain confident in our ability to manage through the ~~second quarter of 2019, driven~~uncertainty created by ~~continued demand for more affordable product offerings and lower interest rates, while concerns surrounding tariffs did not appear~~the pandemic, even though the extent to ~~have significant~~which it will impact on industry conditions. Based on recent commentary from the Federal Reserve and other government institutions, it appears likely that the industry will continue to benefit from the tailwind of lower interest rates during the second half of 2019, while the ultimate impact of tariffs remains uncertain.

~~The positive momentum we generated during the first half of 2019 from the year-over-year improvement in community count and the re-acceleration of absorption rate growth~~our financial results in the ~~second~~coming periods depends on future developments, which are highly uncertain and cannot be predicted at this time (see discussion above and in Risk Factors below). Our financial position to end the 2020 first quarter ~~of 2019 helped drive our largest year-over-year increase in net new orders since 2012. The demand for our more affordable product lines~~ remained strong, ~~during the second quarter~~with cash and investment balances exceeding $450 million and available borrowing capacity on our Revolving Credit Facility exceeding $950 million, resulting in total liquidity of ~~2019, accounting for 63% of our net new orders in~~more than $1.4 billion. We ended the quarter compared to 52% in the prior year period. With our wide selection of more affordable products and distinct build-to-order strategy across all price points, we are well positioned to continue capturing demand in the second half of 2019.

~~Our dollar value~~with $2.2 billion dollars of homes in backlog, towhich was 31% higher than at the end of the 2019 ~~second quarter was down 1% year-over-year~~first quarter. However, our ability to ~~$1.93 billion. This decrease is primarily~~convert that backlog into closings has been negatively impacted by a higher rate of cancellations and some limitations that have temporarily been placed on construction and closing activity. We have taken steps to improve cash flow and reduce costs to diminish the ~~result~~future impacts of the pandemic on our business. We have been successful in extending the closing date of some of our ~~continued focus~~planned land purchases and have re-evaluated planned development activities to decrease cash expenditures. Our experienced senior leadership team continues to monitor the impact of the pandemic on ~~more affordable home plans~~a daily basis adjusting day-to-day business operations and ~~a shift in the mix of home sales~~our ongoing operating strategy as necessary to adapt to our more affordable markets, which reduced the average price of homes in our backlog by 8%. However, this reduction in average price was almost completely offset by a 7% increase in the number of homes in backlog to 4,293, which was the highest level of quarter-end units in backlog since 2006.current environment.

Our liquidity to end the 2019 second quarter was up 29% year-over-year to $1.47 billion, providing us with significant resources to fund continued growth. This increase was in large part due to the $300 million increase in our homebuilding line of credit to $1.0 billion during the fourth quarter of 2018.

* See "Forward-Looking Statements" below.

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Homebuilding

Pretax Income:

	Three Months Ended												Six Months Ended												Three Months Ended
	June 30,						Change						June 30,						Change						March 31,						Change
	2019			2018			Amount			%			2019			2018			Amount			%			2020			2019			Amount			%
	(Dollars in thousands)																								(Dollars in thousands)
West	$	35,350		$	37,708		$	(2,358	)		(6	%)	$	68,550		$	62,081		$	6,469			10	%	$	36,576		$	33,200		$	3,376		10	%
Mountain		35,972			35,854			118			0	%		57,686			60,039			(2,353	)		(4	%)		21,512			21,714			(202	)	(1)	%
East		2,152			4,141			(1,989	)		(48	%)		3,625			7,516			(3,891	)		(52	%)		900			1,473			(573	)	(39)	%
Corporate		(11,860	)		(15,366	)		3,506			23	%		(27,192	)		(26,838	)		(354	)		1	%		(9,319	)		(15,332	)		6,013		39	%
Total Homebuilding pretax income	$	61,614		$	62,337		$	(723	)		(1	%)	$	102,669		$	102,798		$	(129	)		(0	%)	$	49,669		$	41,055		$	8,614		21	%

~~For the three months ended June 30, 2019,~~

As noted above, we ~~recorded~~generated homebuilding pretax income for the quarter of ~~$61.6~~$49.7 million, ~~a decrease~~an increase of ~~$0.7~~$8.6 million from ~~$62.3~~$41.1 million for the same period in the prior year. The ~~decrease~~increase was due to a 2% decrease in home sale revenues and a 40 basis point increase in our selling, general and administrative expenses as a percentage of revenue. These decreases in pretax income were mostly offset by a 40 basis point improvement in our gross margin from home sales.

Our West segment experienced a $2.4 million year-over-year decrease in pretax income, primarily due to a 2% decrease in home sale revenues. Our East segment experienced a $2.0 million decrease in pretax income from the prior year, due to a 32% decrease in home sale revenues, which was partially offset by an improved gross margin from home sales. Our Corporate segment experienced a $3.5 million year-over-year increase in pretax income largely due to a $1.6 million year-over-year decrease in bonus expense and $0.7 million decrease in stock-based compensation expense.

For the six months ended June 30, 2019, we recorded homebuilding pretax income of $102.7 million, a decrease of $0.1 million from $102.8 million for the same period in the prior year. The decrease was due to a 70 basis point increase in our selling, general and administrative expenses as a percentage of revenue. This decrease was mostly offset by a 50100 basis point improvement in our gross margin from home sales and ~~a 2%~~an 8% increase in home sale revenues.

Our West segment experienced a ~~$6.5~~$3.4 million year-over-year ~~improvement~~increase in pretax income, ~~primarily~~ due to an improved gross margin from home sales and a 6%10% increase in home ~~sale revenues.~~sales revenue, which was slightly offset by a $3.4 million increase in general and administrative expenses resulting from a change in our Corporate cost allocation discussed below. Our Mountain segment experienced a ~~$2.4~~$0.2 million decrease in pretax income from the prior year, ~~period, primarily due to increased selling,~~as a result of a $1.6 million increase in general and administrative expenses ~~driven~~due to a change in our Corporate cost allocation, which was mostly offset by ~~an increased average active community count.~~a 7% increase in home sales revenue. Our East segment experienced a ~~$3.9~~$0.6 million decrease in pretax income from the prior year, due primarily to a ~~23% decrease~~$0.7 million increase in ~~home sale revenues.~~general and administrative expenses resulting from a change in our Corporate cost allocation. Our Corporate segment experienced a $6.0 million increase in pretax income, due mostly to the impact of the change in our Corporate cost allocation.

On a periodic basis, we assess our Corporate cost allocation estimates. Our most recent assessment resulted in increases in Corporate cost allocations to both our homebuilding and financial services segments beginning January 1, 2020, to reflect the use of centralized administrative functions. Applying the most recent cost allocation estimate to the three months ended March 31, 2019 would have resulted in decreased pretax income for our homebuilding and financial services segments of approximately $2.7 million and $0.4 million, respectively, with corresponding increases in our Corporate segment pretax income. Additionally, beginning January 1, 2020, we have reflected the expense associated with all homebuilding employee bonuses in the respective homebuilding segment to which the employee reports, consistent with how the CODM is now evaluating homebuilding division performance and making operating decisions. Had these bonuses been reflected in a similar manner during the three months ended March 31, 2019, pretax income for our homebuilding segments would have decreased by an additional $3.0 million with a corresponding increase in our Corporate segment pretax income.

Assets:

	June 30,		December 31,		Change						March 31,		December 31,		Change
	2019		2018		Amount			%			2020		2019		Amount			%
	(Dollars in thousands)										(Dollars in thousands)
West	$	1,368,888	$	1,301,374	$	67,514			5	%	$	1,559,410	$	1,461,645	$	97,765			7	%
Mountain		816,993		793,150		23,843			3	%		907,727		869,665		38,062			4	%
East		188,322		169,485		18,837			11	%		216,063		194,592		21,471			11	%
Corporate		481,844		484,193		(2,349	)		(0	%)		466,192		505,507		(39,315	)		(8)	%
Total homebuilding assets	$	2,856,047	$	2,748,202	$	107,845			4	%	$	3,149,392	$	3,031,409	$	117,983			4	%

Total homebuilding assets increased 4% from December 31, ~~2018~~2019 to ~~June 30, 2019.~~March 31, 2020. Homebuilding assets increased in each of our operating segments largely due to a greater number of homes completed or under construction as of ~~period-end. Increased land acquisition and development~~March 31, 2020. However, the funds for the construction activity ~~drove additional increases in land and land under development balances~~came from our Corporate segment, causing a decline in our ~~East segment, while decreased land acquisition activity in our West segment partially offset increases in the number of homes completed or under construction noted above.~~Corporate segment’s assets.

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New Home Deliveries & Home Sale Revenues:

Changes in home sale revenues are impacted by changes in the number of new homes delivered and the average selling price of those delivered homes. Commentary for each of our segments on significant changes in these two metrics is provided below. Our backlog conversion rate has been negatively impacted by the pandemic due to a higher rate of cancellations and some limitations that have temporarily been placed on construction activity.

Three Months Ended June 30,

2019

2018

% Change

Homes

Home Sale Revenues

Average Price

Homes

Home Sale Revenues

Average Price

Homes

Home Sale Revenues

Average Price

(Dollars in thousands)

West
785 $ 384,530 $ 489.8 769 $ 391,806 $ 509.5 2 % (2 %) (4 %)
Mountain
534 287,476 538.3 522 268,541 514.4 2 % 7 % 5 %
East
195 60,838 312.0 221 89,261 403.9 (12 %) (32 %) (23 %)
Total
1,514 $ 732,844 $ 484.0 1,512 $ 749,608 $ 495.8 0 % (2 %) (2 %)

	Six Months Ended June 30,																					Three Months Ended March 31,
	2019						2018						% Change									2020						2019						% Change
	Homes		Home Sale Revenues		Average Price		Homes		Home Sale Revenues		Average Price		Homes			Home Sale Revenues			Average Price			Homes		Home Sale Revenues		Average Price		Homes		Home Sale Revenues		Average Price		Homes			Home Sale Revenues			Average Price
	(Dollars in thousands)																					(Dollars in thousands)
West		1,537	$	754,088	$	490.6		1,450	$	711,315	$	490.6		6	%		6	%		0	%		871	$	405,498	$	465.6		752	$	369,558	$	491.4		16	%		10	%		(5)	%
Mountain		943		496,668		526.7		938		477,173		508.7		1	%		4	%		4	%		435		222,858		512.3		409		209,192		511.5		6	%		7	%		0	%
East		392		129,366		330.0		398		168,808		424.1		(2	%)		(23	%)		(22	%)		241		68,729		285.2		197		68,528		347.9		22	%		0	%		(18)	%
Total		2,872	$	1,380,122	$	480.5		2,786	$	1,357,296	$	487.2		3	%		2	%		(1	%)		1,547	$	697,085	$	450.6		1,358	$	647,278	$	476.6		14	%		8	%		(5)	%

West Segment Commentary

For the three months ended ~~June 30, 2019, our West segment experienced a 2% year-over-year~~March 31, 2020, the increase in new home deliveries was the ~~number~~result of ~~new homes delivered despite~~ a ~~4% decrease~~33% increase in the number of homes in backlog to ~~start~~begin the period. This increase was ~~due to an improved~~partially offset by a decrease in backlog conversion ~~rate that~~rates in most of our markets within this segment. This decrease was driven by a ~~higher~~lower percentage of homes both sold and delivered in the ~~second~~first quarter of ~~2019~~2020 as compared to ~~2018.~~the 2019 first quarter. The ~~4% decrease in the~~ average selling price of ~~homes delivered is the~~homes-delivered decreased as a result of a ~~shift~~decline in ~~mix within California away~~the percentage of deliveries coming from our higher priced communities in Southern ~~California to more affordable communities in Northern~~ California. In addition, a greater percentage of closings within nearly all of our Western markets during the current period ~~occurred in Arizona, where~~were from our ~~most~~more affordable ~~Western markets are located.~~product offerings.

Mountain Segment Commentary

For the ~~six~~three months ended ~~June 30, 2019, our West segment experienced~~March 31, 2020, the increase in new home deliveries was the result of a ~~6% year-over-year~~16% increase in the number homes in backlog to begin the period. This increase was partially offset by a decrease in backlog conversion rates in our Colorado markets due to a lower percentage of homes in backlog to start the 2020 first quarter that were under construction at that time.

East Segment Commentary

For the three months ended March 31, 2020, the increase in new ~~homes delivered as a~~home deliveries was the result of a 5%53% increase in the number of homes in backlog to ~~start~~begin the period. ~~The average selling price of homes delivered remained consistent as price increases implemented across most markets during the 2018 spring selling season were~~This increase was partially offset by a ~~shift~~decrease in ~~mix~~backlog conversion rates in most of our markets within ~~California away from higher priced communities in Southern California~~this segment due to ~~more affordable communities in Northern California. In addition,~~(1) a ~~greater~~lower percentage ~~of closings during the current period occurred in Arizona, where our most affordable Western markets are located.~~

~~Mountain Segment Commentary~~

~~For both the three and six months ended June 30, 2019, new home deliveries were up despite the number~~ of homes in backlog to start the ~~periods being down 10% and 17%, respectively. The increase in deliveries was due to an improved backlog conversion rate~~2020 first quarter that ~~was driven by (1) shorter average cycle times~~were under construction at that time and (2) a ~~higher~~lower percentage of homes both sold and delivered in the ~~current year periods~~first quarter of 2020 as compared to the ~~prior year. Cycle time improvements were primarily driven by our Colorado markets as a result of (1) an increase in the percentage of Seasons~~^TM~~deliveries, which have some of the shortest cycle times of all of our product offerings and (2) improved cycle times across all of our product offerings in these markets.~~2019 first quarter. The increase in the average selling price of homes delivered was driven by our Colorado markets due to (1) price increases implemented in the first half of 2018 and (2) a shift in the mix of homes closed to some of our higher priced submarkets. These increases were partially offset by the increase in the percentage of Seasons^TM ~~deliveries mentioned above, which have some of the lowest average selling prices of all of our product offerings.~~

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~~Table of Contents~~

~~East Segment Commentary~~

~~For both the three and six months ended June 30, 2019, the~~ decrease in the average selling price of homes delivered in our East segment was due to a change in mix resulting from (1) a higher percentage of deliveries in this segment coming from communities that offer more affordable home plans and (2) a higher percentage of our deliveries coming from our Florida markets, which have a lower average selling price than our mid-Atlantic ~~market and (2) a higher percentage of deliveries in this segment coming from communities that offer more affordable home plans.~~market.

For the three months ended June 30, 2019, the 12% decrease in new home deliveries was driven by an 8% decrease in homes in backlog to begin the period along with a decrease in the backlog conversion rate. The decreased backlog conversion rate was the result

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Table of a lower percentage of homes in backlog to start the 2019 second quarter that were under construction at that time, which was largely offset by shorter cycle times resulting from a higher percentage of deliveries from our more affordable product offerings.

For the six months ended June 30, 2019, the 2% decrease in new home deliveries was driven by a 19% decrease in homes in backlog to begin the period, which was largely offset by an increased backlog conversion rate. The increased backlog conversion rate was the result of (1) a decrease in cancellation rates in the first quarter of 2019 and (2) shorter cycle times resulting from a higher percentage of deliveries from our more affordable product offerings.

Contents

Gross Margin from Home Sales:

Our gross margin from home sales for the three months ended ~~June 30, 2019,~~March 31, 2020, increased 40100 basis points year-over-year from ~~19.1%~~18.9% to ~~19.5%~~19.9%. During the three months ended ~~June 30,~~March 31, 2019 we recorded ~~a $1.4~~inventory impairments of $0.6 million ~~adjustment to decrease our~~and warranty ~~accrual. This adjustment positively~~adjustments of $0.9 million, which negatively impacted gross margin by 20 basis ~~points. Our gross margin from home sales~~points in the ~~2019 second~~prior year. Gross margins increased in the first quarter ~~was~~of 2020 on both build-to-order and speculative home deliveries driven by price increases implemented across the majority of our communities over the past nine-months. Gross margins were also positively impacted ~~by a 20 basis point improvement in our capitalized interest in cost of sales~~ as a result of a lower percentage of speculative home ~~sale revenues.~~

~~Our~~deliveries in the quarter, which typically have a lower gross margin from home sales for the six months ended June 30, 2019, increased 50 basis points year-over-year from 18.7% to 19.2%. During the six months ended June 30, 2019 we recorded a $0.5 million adjustment to decreasethan our warranty accrual, while the same period in 2018 included a $3.1 million adjustment to increase our warranty accrual (a 20 basis point negative impact to gross margin). Our gross margin from home sales for the six months ended June 30, 2019 was also positively impacted by a 20 basis point improvement in our capitalized interest in cost of sales as a percentage of home sale revenues.build-to-order deliveries.

Inventory Impairments:

Impairments of homebuilding inventory by segment for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ are shown in the table below:

	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2019		2018		2019		2018		2020		2019
	(Dollars in thousands)								(Dollars in thousands)
West	$	-	$	-	$	-	$	375	$	-	$	-
Mountain		-		-		400		175		-		400
East		-		200		210		200		-		210
Total inventory impairments	$	-	$	200	$	610	$	750	$	-	$	610

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

Impairment Data

Quantitative Data

Three Months Ended

Total
Subdivisions
Tested

Inventory
Impairments

Fair Value of
Inventory After Impairments

Number of
Subdivisions
Impaired

Discount Rate

(Dollars in thousands)

March 31, 2019
16 $ 610 $ 10,476 2 N/A
June 30, 2019
12 $ - N/A 0 N/A

March 31, 2018
24 $ 550 $ 5,223 2 12%
June 30, 2018
17 $ 200 $ 767 1 12%

Impairment Data

Quantitative Data

Three Months Ended

Inventory
Impairments

Fair Value of
Inventory After

Impairments

Number of
Subdivisions
Impaired

Discount Rate

March 31, 2019

610

10,476

N/A

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

	Three Months Ended June 30,									Six Months Ended June 30,								Three Months Ended March 31,
	2019			2018			Change			2019			2018			Change		2020		2019		Change
	(Dollars in thousands)																	(Dollars in thousands)
General and administrative expenses	$	39,326		$	40,372		$	(1,046	)	$	81,898		$	76,125		$	5,773	$	45,089	$	42,572	$	2,517
General and administrative expenses as a percentage of home sale revenues		5.4	%		5.4	%	0 bps				5.9	%		5.6	%	30 bps			6.5%		6.6%	(10) bps

Marketing expenses	$	19,513		$	17,215		$	2,298		$	37,809		$	32,786		$	5,023	$	21,446	$	18,296	$	3,150
Marketing expenses as a percentage of home sale revenues		2.7	%		2.3	%	40 bps				2.7	%		2.4	%	30 bps			3.1%		2.8%	30 bps

Commissions expenses	$	23,873		$	23,984		$	(111	)	$	45,266		$	44,001		$	1,265	$	22,786	$	21,393	$	1,393
Commissions expenses as a percentage of home sale revenues		3.3	%		3.2	%	10 bps				3.3	%		3.2	%	10 bps			3.3%		3.3%	0 bps

Total selling, general and administrative expenses	$	82,712		$	81,571		$	1,141		$	164,973		$	152,912		$	12,061	$	89,321	$	82,261	$	7,060
Total selling, general and administrative expenses as a percentage of home sale revenues		11.3	%		10.9	%	40 bps				12.0	%		11.3	%	70 bps			12.8%		12.7%	10 bps

For the three months ended ~~June 30, 2019,~~March 31, 2020, the ~~decrease~~increase in our ~~general and administrative~~marketing expenses was ~~due to decreased compensation-related expenses~~ driven by ~~a $1.8 million year-over-year decrease in bonus~~(1) increased sales office expense and ~~$0.7 million decrease in stock-based compensation. These decreases were partially offset by an increase in salaries and benefits. Marketing expenses increased due to increased~~ product advertising resulting from ~~a 14% increase in~~an increased number of average active subdivisions ~~as well as~~and (2) increased ~~compensation-related expenses driven by~~compensation expense due to a higher average ~~headcount.~~headcount during the quarter.

~~For the six months ended June 30, 2019, the increase in our general~~General and administrative expenses ~~was~~increased for the three months ended March 31, 2020 due to increased compensation-related expenses driven by higher average headcount ~~and additional stock-based compensation expense of $2.3 million. The increase in marketing expenses was driven by increased sales office and model home expenses and product advertising, resulting from~~during the ~~increase in active subdivisions noted above, as well as increased compensation expenses driven by higher average headcount.~~quarter.

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Table of Contents

Other Homebuilding Operating Data

Net New Orders and Active Subdivisions:

Changes in the dollar value of net new orders are impacted by changes in the number of net new orders and the average selling price of those homes. Commentary for each of our segments on significant changes in these two metrics is provided below. Our monthly absorption rate has been negatively impacted by the pandemic due to a higher rate of cancellations and a decrease in customer traffic resulting from stay at home and shelter in place orders. The negative impact is shown in net new home orders for the month of March, which decreased 27% year-over-year to 611. Furthermore, to start the 2020 second quarter, April net new orders decreased 53% year-over-year to 357.

Three Months Ended June 30,

2019

2018

% Change

Homes

Dollar
Value

Average Price

Monthly Absorption Rate *

Homes

Dollar Value

Average Price

Monthly Absorption Rate *

Homes

Dollar Value

Average Price

Monthly Absorption Rate

(Dollars in thousands)

West
1,246 $ 550,742 $ 442.0 4.46 1,020 $ 458,082 $ 449.1 4.55 22 % 20 % (2 %) (2 %)
Mountain
690 318,275 461.3 3.56 508 250,454 493.0 2.97 36 % 27 % (6 %) 20 %
East
337 98,843 293.3 4.36 193 67,627 350.4 2.65 75 % 46 % (16 %) 65 %
Total
2,273 $ 967,860 $ 425.8 4.13 1,721 $ 776,163 $ 451.0 3.68 32 % 25 % (6 %) 12 %

	Six Months Ended June 30,																												Three Months Ended March 31,
	2019								2018								% Change												2020						2019						% Change
	Homes		Dollar Value		Average Price		Monthly Absorption Rate *		Homes		Dollar Value		Average Price		Monthly Absorption Rate *		Homes			Dollar Value			Average Price			Monthly Absorption Rate			Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes		Dollar Value		Average Price			Monthly Absorption Rate
	(Dollars in thousands)																												(Dollars in thousands)
West		2,211	$	1,003,236	$	453.7		4.15		2,053	$	937,759	$	456.8		4.66		8	%		7	%		(1	%)		(11	%)	1,382	$	655,892	$	474.6	5.13	965	$	433,307	$	449.0	3.82	43	%	51	%		6	%	34	%
Mountain		1,409		669,523		475.2		3.53		1,175		590,045		502.2		3.45		20	%		13	%		(5	%)		2	%	693		339,132		489.4	3.54	719		336,932		468.6	3.52	(4)	%	1	%		4	%	1	%
East		609		182,141		299.1		4.33		397		147,943		372.7		2.82		53	%		23	%		(20	%)		54	%	324		97,723		301.6	3.66	272		81,179		298.5	4.17	19	%	20	%		1	%	(12)	%
Total		4,229	$	1,854,900	$	438.6		3.94		3,625	$	1,675,747	$	462.3		3.93		17	%		11	%		(5	%)		0	%	2,399	$	1,092,747	$	455.5	4.33	1,956	$	851,418	$	435.3	3.75	23	%	28	%		5	%	16	%

*Calculated as total net new orders in period ÷ average active communities during period ÷ number of months in period

								Average Active Subdivisions							Average Active Subdivisions											Average Active Subdivisions
	Active Subdivisions							Three Months Ended							Six Months Ended							Active Subdivisions				Three Months Ended
	June 30,				%			June 30,				%			June 30,				%			March 31,		%		March 31,		%
	2019		2018		Change			2019		2018		Change			2019		2018		Change			2020	2019	Change		2020	2019	Change
West		97		78		24	%		94		75		25	%		89		73		22	%	92	88	5	%	90	84	7	%
Mountain		65		61		7	%		65		57		14	%		66		57		16	%	64	64	0	%	65	69	(6	)%
East		25		25		0	%		26		24		8	%		23		24		(4	%)	29	26	12	%	30	22	36	%
Total		187		164		14	%		185		156		19	%		178		154		16	%	185	178	4	%	185	175	6	%

West Segment Commentary

For ~~both~~ the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, the increase in net new orders ~~were primarily~~was driven by increases in both the monthly sales absorption rate and average active subdivisions. Nearly all markets experienced an improvement in their sales pace year-over-year, with our Nevada, Phoenix and California markets all experiencing a sales pace in excess of five net new orders per community per month. The increase in average selling price was due to price increases implemented over the past nine-months within the majority of our communities as well as a shift in mix of homes sold from Nevada to more expensive Southern California markets.

Mountain Segment Commentary

For the three months ended March 31, 2020, the decrease in net new orders was the result of (1) a slight decrease in the number of average active subdivisions in ~~all~~Colorado and (2) an increased cancellation rate (see further discussion below). The increase in average selling price was the result of price increases implemented across the majority of our ~~markets in this segment, with Nevada and Washington experiencing~~communities over the ~~largest increases. Oregon, our newest market, finished the quarter with three active communities compared with none a year ago.~~ past nine-months.

East Segment Commentary

For the ~~six~~three months ended ~~June 30, 2019, this~~March 31, 2020, the increase in net new orders was driven by an increase in the number of average active subdivisions in each of our Florida and mid-Atlantic markets. This increase was partially offset by ~~an 11%~~a decrease in the monthly sales absorption ~~rate. While several markets experienced a decline in their sales pace year-over-year, California was the main driver of the decline as a result of:~~rate due to (1) a ~~smaller relative proportion of affordable product offerings currently available~~decrease in ~~this~~close out communities in our mid-Atlantic market and (2) an increased cancellation rate (see further discussion below). ~~The decrease in average selling price is due to a shift in the mix of home orders to our more affordable markets, most notably from our California to our Arizona markets.~~

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~~Mountain Segment Commentary~~

For the three and six months ended June 30, 2019, net new orders increased 36% and 20%, respectively, driven by increases in our average active subdivisions and monthly sales absorption rates. The increase in average active community count was a result of growth in each of our markets, most notably Utah where average active community count has nearly doubled year-over-year. The increase in our monthly sales absorption pace was driven by our Colorado markets as a result of the demand for our expanded offering of more affordable home plans. The decrease in average selling price is due to a shift in mix to lower priced communities, consistent with our focus on offering more affordable home plans.

~~East Segment Commentary~~

For both the three and six months ended June 30, 2019, the increase in net new orders were primarily driven by increases in monthly sales absorption rates. For the three months ended June 30, 2019, this increase was further impacted by an 8% increase in average active community count as we experienced growth in both our Florida and mid-Atlantic markets. The improved sales pace was primarily due to an increased offering of more affordable products in our Florida markets, which have realized a higher selling pace. The sales pace in our Florida markets also benefited from a decreased cancellation rate (see further discussion below). The decrease in the average selling price of net new orders is due to mix as a result of: (1) a higher percentage of our net new orders coming from an expanded offering of more affordable home plans, due to an increasing level of demand for these plans, and (2) a higher percentage of our net new orders coming from our Florida markets, which have a lower average selling price than our mid-Atlantic operations.

Cancellation Rate:

	Cancellations as a Percentage of Homes in Beginning Backlog
	2019						2018						Cancellations as a Percentage of Homes in Beginning Backlog
	Three Months Ended												Three Months Ended March 31,				Change in
	Mar 31			Jun 30			Mar 31			Jun 30			2020		2019		Percentage
West		14	%		13	%		14	%		10	%	15	%	14	%	1	%
Mountain		14	%		13	%		11	%		12	%	22	%	14	%	8	%
East		11	%		18	%		23	%		17	%	23	%	11	%	12	%
Total		14	%		14	%		14	%		12	%	18	%	14	%	4	%

Our cancellations as a percentage of homes in beginning backlog to start the quarter (“cancellation rate”) increased year-over-year in each of our ~~markets, with the exception of Arizona (West segment)~~segments, most notably in our Colorado and Florida ~~(East segment). Our Florida markets benefited from~~markets. In general, we experienced a higher cancellation rate during the ~~implementation~~month of ~~additional underwriting procedures prior~~March due to the ~~acceptance of new home contracts. Our Southern California (West segment) markets experienced the largest percentage increase year-over-year, largely due to homebuyer uncertainty~~pandemic as a result of ~~affordability concerns.~~general economic uncertainty and changes in our homebuyers’ employment status. Additionally, our Florida market was impacted by a shift in mix to include more first-time homebuyers who have a higher likelihood of cancellation. Cancellations as a percentage of homes in beginning backlog for the month of April were 6.6% compared to 4.3% in the prior year.

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~~Table of Contents~~

Backlog:

	June 30,																					March 31,
	2019						2018						% Change									2020						2019						% Change
	Homes		Dollar Value		Average Price		Homes		Dollar Value		Average Price		Homes			Dollar Value			Average Price			Homes		Dollar Value		Average Price		Homes		Dollar Value		Average Price		Homes			Dollar Value			Average Price
	(Dollars in thousands)																					(Dollars in thousands)
West		2,197	$	1,016,327	$	462.6		2,054	$	1,011,780	$	492.6		7	%		0	%		(6	%)		2,534	$	1,227,996	$	484.6		1,736	$	830,703	$	478.5		46	%		48	%		1	%
Mountain		1,509		739,921		490.3		1,490		766,539		514.5		1	%		(3	%)		(5	%)		1,469		754,155		513.4		1,353		690,623		510.4		9	%		9	%		1	%
East		587		173,436		295.5		454		170,364		375.3		29	%		2	%		(21	%)		650		191,972		295.3		445		133,140		299.2		46	%		44	%		(1)	%
Total		4,293	$	1,929,684	$	449.5		3,998	$	1,948,683	$	487.4		7	%		(1	%)		(8	%)		4,653	$	2,174,123	$	467.3		3,534	$	1,654,466	$	468.2		32	%		31	%		(0)	%

At ~~June 30, 2019,~~March 31, 2020, we had ~~4,293~~4,653 homes in backlog with a total value of ~~$1.93~~$2.2 billion. This represented a 7%32% increase in the number of homes in backlog and a ~~1% decrease~~31% increase in the dollar value of homes in backlog from ~~June 30, 2018.~~March 31, 2019. The increase in the number of homes in backlog is primarily a result of the year-over-year increase in net new orders induring the ~~second quarter of 2019,~~last six-months, offset slightly by animproved cycle times across each of our Segments. However, our ability to convert backlog into closings has been negatively impacted by the pandemic due to a higher rate of cancellations and some limitations that have temporarily been placed on construction activity, and therefore the year-over-year increase in backlog ~~conversion rates due to improved cycle times. The decrease~~at March 31, 2020 might not result in ~~the average selling price of~~a year-over-year increase in closings during future periods. At April 30, 2020, we had 4,487 homes in backlog, ~~is due to a shift in mix to lower priced communities, consistent with our focus on offering more affordable home plans, as well as a shift in geographical mix with~~representing an ~~increased proportion~~18% increase from April 30, 2019

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Table of ~~net new orders coming from our Arizona (West segment) and Florida (East segment) markets, which have the lowest average selling prices in our Company.~~

Contents

Homes Completed or Under Construction (WIP lots):

	June 30,				%			March 31,				%
	2019		2018		Change			2020		2019		Change
Unsold:
Completed		96		86		12	%		160		120		33	%
Under construction		236		268		(12	%)		216		177		22	%
Total unsold started homes		332		354		(6	%)		376		297		27	%
Sold homes under construction or completed		3,023		2,980		1	%		3,259		2,362		38	%
Model homes under construction or completed		457		373		23	%		502		459		9	%
Total homes completed or under construction		3,812		3,707		3	%		4,137		3,118		33	%

~~Our model~~The increase in sold homes under construction or completed ~~were up 23% despite our active community count being up only 14% year-over-year. This~~ is ~~primarily~~due to the increased demand we have experienced in recent periods as a result of ~~models being constructed~~our increased offering of more affordable home plans. The increase in unsold started homes is due to ~~open new communities~~the increased cancellation rate experienced during the first quarter of 2020, particularly during the month of March as a result of the pandemic. We believe that the higher rate of cancellations is likely to continue during the second quarter, which could result in a continued increase in the ~~near future as we plan for growth in our active community count.~~number of unsold started homes.

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~~Table of Contents~~

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

	June 30, 2019						June 30, 2018									March 31, 2020						March 31, 2019
	Lots Owned		Lots Optioned		Total		Lots Owned		Lots Optioned		Total		Total % Change			Lots Owned		Lots Optioned		Total		Lots Owned		Lots Optioned		Total		Total % Change
West		8,611		2,446		11,057		7,906		2,916		10,822		2	%		9,641		2,393		12,034		7,894		2,462		10,356		16	%
Mountain		6,457		2,741		9,198		5,329		4,041		9,370		(2	%)		6,540		4,007		10,547		6,636		2,612		9,248		14	%
East		2,085		1,267		3,352		1,509		1,925		3,434		(2	%)		2,410		2,133		4,543		1,989		1,294		3,283		38	%
Total		17,153		6,454		23,607		14,744		8,882		23,626		(0	%)		18,591		8,533		27,124		16,519		6,368		22,887		19	%

Our total owned and optioned lots at ~~June 30,~~March 31, 2020 were 27,124, up 19% from March 31, 2019, ~~were 23,607, which is consistent with levels~~but down slightly from ~~June 30, 2018.~~27,386 at December 31, 2019, due to a slowdown in land acquisition during the quarter as a result of the pandemic. We believe that our total lot supply, coupled with our planned acquisition activity, can support growth in future periods. However, due to the pandemic, there is also an increased likelihood that planned acquisition activity may be delayed or abandoned. See "Forward-Looking Statements" below.

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Financial ~~Services~~Services

	Three Months Ended										Six Months Ended
	June 30,				Change						June 30,				Change						Three Months Ended
	2019		2018		Amount			%			2019		2018		Amount			%			March 31,					Change
	(Dollars in thousands)																				2020			2019		Amount			%
Financial services revenues																					(Dollars in thousands)
Mortgage operations	$	11,689	$	14,547	$	(2,858	)		(20	%)	$	21,863	$	27,243	$	(5,380	)		(20	%)	$	14,625		$	10,174	$	4,451			44	%
Other		6,908		6,825		83			1	%		14,138		13,164		974			7	%		7,261			7,230		31			0	%
Total financial services revenues	$	18,597	$	21,372	$	(2,775	)		(13	%)	$	36,001	$	40,407	$	(4,406	)		(11	%)	$	21,886		$	17,404	$	4,482			26	%

Financial services pretax income
Mortgage operations	$	6,239	$	9,040	$	(2,801	)		(31	%)	$	11,232	$	16,560	$	(5,328	)		(32	%)	$	8,243		$	4,993	$	3,250			65	%
Other		6,478		5,239		1,239			24	%		16,036		7,790		8,246			106	%		(9,350	)		9,558		(18,908	)		(198)	%
Total financial services pretax income	$	12,717	$	14,279	$	(1,562	)		(11	%)	$	27,268	$	24,350	$	2,918			12	%
Total financial services pretax income (loss)																					$	(1,107	)	$	14,551	$	(15,658	)		(108)	%

For the three months ended ~~June 30, 2019,~~March 31, 2020, our financial services business incurred a pretax loss of $1.1 million compared to pretax income ~~decreased $1.6~~of $14.6 million or 11%, from the same period in the prior year. This was primarily due to our mortgage operations segment, which saw a decrease in both revenues and pretax income due to a $1.4 million gain recognized on the sale of conventional mortgage servicing rights during the three months ended June 30, 2018, as well as year-over-year decreases in mortgage servicing income, due to the aforementioned sale, and the volume of loans originated. These decreases in pretax income were partially offset by an increase in our other financial services segment driven by $2.3 million of net gains on equity securities as compared to $1.3 million of net gains on equity securities for the same period in the prior year.

For the six months ended June 30, 2019, our financial services pretax income increased $2.9 million, or 12% from the same period in the prior year. The increase was primarily due to our other financial services segment driven by $7.2 million of net gains on equity securities as compared to $0.1 million of net gains on equity securities for the same period in the prior year. This decrease was ~~partially offset by a decrease in~~due to our ~~mortgage operations~~other financial services segment, which ~~was due in part to an increase in special financing offers year-over-year, especially in~~had unrealized losses on equity securities during the first quarter of 2020 totaling $13.9 million as compared to unrealized gains of $4.6 million during the first quarter of 2019. ~~Commentary~~

Based on the ~~other drivers~~size and duration of the ~~decrease~~liabilities held by our Insurance Entities, as well as regulatory capital requirements, we have historically invested the premiums collected by our Insurance Entities in a portfolio of assets to appropriately match these liabilities in duration and also maintain required levels of capital. Based on our investment policy, this portfolio has historically comprised money market funds, U.S. Government securities and equity securities. Given the expected duration of the underlying insurance liabilities and our current liquidity, we do not anticipate a need to liquidate any investments held by our Insurance Entities in the next twelve months.

For the three months ended March 31, 2020, our mortgage operations ~~segment is consistent with~~pretax income increased $3.2 million due to higher interest rate lock volume driven by the ~~2019 second quarter discussion above.~~ year-over-year increase in homes in beginning backlog and to a lesser extent lower interest rates during the quarter.

Our mortgage operations have not yet experienced a significant slowdown in loan originations due to the pandemic, but a reduction in our home sales activity would directly impact our mortgage lending activities. As a result of the government intervention in the financial markets, including the Federal Reserve’s purchase of mortgage backed securities, we expect to be able to continue making loans that can be readily sold into the secondary mortgage market.

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

	Three Months Ended						% or			Six Months Ended						% or
	June 30,						Percentage			June 30,						Percentage			Three Months Ended				% or
	2019			2018			Change			2019			2018			Change			March 31,				Percentage
	(Dollars in thousands)																		2020		2019		Change
Total Originations (including transfer loans):																			(Dollars in thousands)
Loans		931			922			1	%		1,714			1,729			(1	%)		1,029		783		31	%
Principal	$	351,148		$	340,805			3	%	$	636,674		$	638,875			(0	%)	$	379,306	$	285,525		33	%
Capture Rate Data:
Capture rate as % of all homes delivered		61	%		61	%		0	%		60	%		62	%		(2	%)		66%		58%		8	%
Capture rate as % of all homes delivered (excludes cash sales)		66	%		66	%		0	%		64	%		67	%		(3	%)		69%		62%		7	%
Mortgage Loan Origination Product Mix:
FHA loans		15	%		16	%		(1	%)		16	%		15	%		1	%		22%		17%		5	%
Other government loans (VA & USDA)		19	%		18	%		1	%		19	%		18	%		1	%		22%		20%		2	%
Total government loans		34	%		34	%		0	%		35	%		33	%		2	%		44%		37%		7	%
Conventional loans		66	%		66	%		0	%		65	%		67	%		(2	%)		56%		63%		(7)	%
		100	%		100	%		0	%		100	%		100	%		0	%		100%		100%		0	%
Loan Type:
Fixed rate		97	%		97	%		0	%		97	%		97	%		0	%		99%		96%		3	%
ARM		3	%		3	%		0	%		3	%		3	%		0	%		1%		4%		(3)	%
Credit Quality:
Average FICO Score		742			741			0	%		740			742			(0	%)		735		736		(0)	%
Other Data:	`			`															`		`
Average Combined LTV ratio		82	%		82	%		0	%		81	%		82	%		(1	%)		85%		81%		4	%
Full documentation loans		100	%		100	%		0	%		100	%		100	%		0	%		100%		100%		0	%
Loans Sold to Third Parties:
Loans		929			932			(0	%)		1,818			1,805			1	%		1,199		889		35	%
Principal	$	350,010		$	346,501			1	%	$	670,424		$	667,254			0	%	$	438,101	$	320,414		37	%

Income Taxes

Our overall effective income tax rates were ~~26.6%~~24.3% and ~~26.8%~~27.1% for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019, respectively, ~~and 16.6% and 19.3% for the three and six months ended June 30, 2018, respectively. The rates for the three and six months ended June 30, 2019 resulted~~resulting in income tax expense of ~~$19.7~~$11.8 million and ~~$34.8 million, respectively, compared to income tax expense of $12.7 million and $24.5~~$15.1 million for the ~~three and six months ended June 30, 2018,~~same periods, respectively. The year-over-year ~~increases~~decrease in our effective tax rate for the three ~~and six~~ months ended ~~June 30, 2019 were due to benefits from~~March 31, 2020 was primarily impacted by a windfall on non-qualifying stock options exercised and lapsed restricted stock awards during the three months ended March 31, 2020 as well as energy tax credits related to homes closed during the quarter. These benefits were partially offset by a decrease in the amount of ~~$6.8 million and $8.0 million, respectively, which reduced our respective 2018 tax rates. It~~executive compensation that is ~~currently uncertain as to the extent, if any, that energy tax credits will impact our 2019 results, and therefore no benefit has been recorded for 2019.~~deductible under Internal Revenue Code Section 162(m).

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CRITICAL ACCOUNTING ESTIMATES AND POLICIES

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

Our critical accounting estimates and policies have not changed from those reported in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

LIQUIDITY AND CAPITAL RESOURCES

We use our liquidity and capital resources to: (1) support our operations, including the purchase of land, land development and construction of homes; (2) provide working capital; and (3) provide mortgage loans for our homebuyers. Our liquidity includes our cash and cash equivalents, marketable securities, Revolving Credit Facility and Mortgage Repurchase Facility (both defined below). Additionally, we have an existing effective shelf registration statement that allows us to issue equity, debt or hybrid securities up to $2.0 billion. Following the issuance of $300 million of 3.850% senior notes on January 9, 2020, $1.70 billion remains on our effective shelf registration statement.

We have marketable equity securities that consist primarily of holdings in common stock and exchange traded funds.

Capital Resources

Our capital structure is primarily a combination of: (1) permanent financing, represented by stockholders’ equity; (2) long-term financing, represented by our ~~5½%~~5.500% senior notes due 2024, 3.850% senior notes due 2030 and our 6%6.000% senior notes due 2043; (3) ~~short-term financing, represented by our 5⅝% senior notes due 2020; (4)~~ our Revolving Credit Facility (defined below); and ~~(5)~~(4) our Mortgage Repurchase Facility (defined below). Because of our current balance of cash, cash equivalents, marketable securities, ability to access the capital markets, and available capacity under both our Revolving Credit Facility and Mortgage Repurchase Facility, we believe that our capital resources are adequate to satisfy our short and long-term capital requirements, including meeting future payments on our senior notes as they become due. See "Forward-Looking Statements" below.

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

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Senior Notes, Revolving Credit Facility and Mortgage Repurchase Facility

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

Revolving Credit Facility. We have an unsecured revolving credit agreement (“Revolving Credit Facility”) with a group of lenders which may be used for general corporate purposes. This agreement was amended on November 1, 2018 to (1) extend the Revolving Credit Facility maturity to December 18, 2023, (2) increase the aggregate commitment from $700 million to $1.0 billion (the “Commitment”) and (3) provide that the aggregate amount of the commitments may increase to an amount not to exceed $1.5 billion upon our request, subject to receipt of additional commitments from existing or additional lenders and, in the case of additional lenders, the consent of the co-administrative agents. As defined in the Revolving Credit Facility, interest rates on base rate borrowings are equal to the highest of (1) 0.0%, (2) a prime rate, (3) a federal funds effective rate plus 1.50%, and (4) a specified eurocurrency rate plus 1.00% and, in each case, plus a margin that is determined based on our credit ratings and leverage ratio. Interest rates on eurocurrency borrowings are equal to a specified eurocurrency rate plus a margin that is determined based on our credit ratings and leverage ratio. At any time at which our leverage ratio, as of the last day of the most recent calendar quarter, exceeds 55%, the aggregate principal amount of all consolidated senior debt borrowings outstanding may not exceed the borrowing base. There is no borrowing base requirement if our leverage ratio, as of the last day of the most recent calendar quarter, is 55% or less.

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

We incur costs associated with unused commitment fees pursuant to the terms of the Revolving Credit Facility. At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, there were ~~$26.0~~$25.7 million and ~~$27.8~~$23.5 million, respectively, in letters of credit outstanding, which reduced the amounts available to be borrowed under the Revolving Credit Facility. We had $15.0 million outstanding under the Revolving Credit Facility as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018.~~2019. As of ~~June 30, 2019,~~March 31, 2020, availability under the Revolving Credit Facility was approximately ~~$959.0~~$959.3 million.

Mortgage Repurchase Facility. HomeAmerican has a Master Repurchase Agreement (the “Mortgage Repurchase Facility”) with U.S. Bank National Association (“USBNA”). Effective May 23, 2019, the Mortgage Repurchase Facility was amended to extend its termination date to May 21, 2020. We are currently in negotiations to extend the Mortgage Repurchase Facility. The Mortgage Repurchase Facility provides liquidity to HomeAmerican by providing for the sale of up to an aggregate of $75 million (subject to increase by up to $75 million under certain conditions) of eligible mortgage loans to USBNA with an agreement by HomeAmerican to repurchase the mortgage loans at a future date. Until such mortgage loans are transferred back to HomeAmerican, the documents relating to such loans are held by USBNA, as custodian, pursuant to the Custody Agreement (“Custody Agreement”), dated as of November 12, 2008, by and between HomeAmerican and USBNA. In the event that an eligible mortgage loan becomes ineligible, as defined under the Mortgage Repurchase Facility, HomeAmerican may be required to repurchase the ineligible mortgage loan immediately. The maximum aggregate commitment of the Mortgage Repurchase Facility was temporarily increased on ~~June 27, 2019~~March 30, 2020 from $75 million to ~~$100~~$110 million effective through ~~July 25, 2019.~~April 27, 2020. The Mortgage Repurchase Facility also had a temporary increase in the maximum aggregate commitment from $75 million to ~~$130~~$150 million on December ~~27, 2018~~24, 2019 effective through January ~~25, 2019.~~22, 2020. At ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, HomeAmerican had ~~$83.0~~$108.7 million and ~~$116.8~~$149.6 million, respectively, of mortgage loans that HomeAmerican was obligated to repurchase under the Mortgage Repurchase Facility. Mortgage loans that HomeAmerican is obligated to repurchase under the Mortgage Repurchase Facility are accounted for as a debt financing arrangement and are reported as mortgage repurchase facility in the consolidated balance sheets. Advances under the Mortgage Repurchase Facility carry a price range that is based on a LIBOR rate or successor benchmark rate.

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Dividends

During the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ we paid dividends of ~~$0.30~~$0.33 per share and ~~$0.28~~$0.30 per share, respectively.

MDC Common Stock Repurchase Program

At ~~June 30, 2019,~~March 31, 2020, we were authorized to repurchase up to 4,000,000 shares of our common stock. We did not repurchase any shares of our common stock during the three months ended ~~June 30, 2019.~~March 31, 2020.

Consolidated Cash Flow

During the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, we ~~generated $55.7~~used $37.2 million of cash ~~from~~for operating activities ~~primarily due to: 1) net income~~compared with cash provided by operating activities of ~~$95.1~~$54.3 million ~~2) a net~~in the prior year period. Cash used to increase housing completed or under construction was $178.9 million for the three months ended March 31, 2020, as homes in inventory increased by 508 homes from December 31, 2019. Cash provided by the decrease in ~~mortgage loans held-for-sale of $39.9~~housing completed or under construction was $2.1 million ~~3) a net~~in the prior year period as homes in inventory increased only marginally. Cash provided by the decrease in land and land under development was $29.1 million for the three months ended March 31, 2020, as home starts outnumbered lot acquisitions during the quarter due to the slowdown in land acquisition during the quarter as a result of ~~$24.4~~the pandemic. Cash used to increase land and land under development was $18.5 million ~~4) non-cash add-backs~~in the prior year period primarily due to ~~net income related to depreciation~~increased land development spend. Cash provided from the sale of mortgage loans for the three months ended March 31, 2020 and ~~stock-based compensation totaling $18.3~~2019, was $63.1 million and ~~5) a decrease in our net deferred tax assets~~$38.4 million resulting from increased loan activity during the month of $7.8 million. These amounts were partially offset by: 1) a net increase in housing completed or under construction of $118.5 million, 2) net gains on marketable equity securities of $7.2 million and 3) a net increase in prepaid and other assets of $4.2 million.December.

During the ~~six~~three months ended ~~June 30, 2019, we~~March 31, 2020, net cash used ~~$13.9 million of cash for~~in investing activities ~~due~~was $7.0 million. This primarily relates to ~~the~~cash used to purchase ~~of $13.9 million in~~ property and ~~equipment.~~equipment, which remained consistent year-over-year.

During the ~~six~~three months ended ~~June 30, 2019, we~~March 31, 2020, net cash used ~~$52.1 million of cash for~~in financing activities ~~primarily related~~was $5.4 compared with cash use of $42.0 million in the prior year period. The primary driver of this decrease in cash used in financing activities is due to ~~dividend payments totaling $35.6~~net proceeds from the issuance of senior notes of $48.1 million ~~and net~~during the three months ended March 31, 2020. This was slightly offset by an increase in payments on ~~our~~the mortgage repurchase facility ~~of $33.8 million. These amounts were slightly offset~~driven by the increased proceeds ~~of $17.3 million~~ from the ~~exercise~~sale of ~~stock options.~~mortgage loans noted above. Cash used to fund dividend payments increased slightly year-over-year as a result of the 10% increase in the cash dividend announced in January 2020.

Off-Balance Sheet Arrangements

Lot Option Purchase Contracts. In the ordinary course of business, we enter into lot option purchase contracts in order to procure lots for the construction of homes. Lot option contracts enable us to control lot positions with a minimal capital investment, which substantially reduces the risks associated with land ownership and development. At ~~June 30, 2019,~~March 31, 2020, we had deposits of ~~$26.2~~$27.1 million in the form of cash and ~~$5.5~~$9.3 million in the form of letters of credit that secured option contracts to purchase ~~6,454~~8,533 lots for a total estimated purchase price of ~~$512.8~~$498.5 million.

Surety Bonds and Letters of Credit. At ~~June 30, 2019,~~March 31, 2020, we had outstanding surety bonds and letters of credit totaling ~~$244.8~~$284.0 million and ~~$89.6~~$96.6 million, respectively, including ~~$63.6~~$70.9 million in letters of credit issued by HomeAmerican. The estimated cost to complete obligations related to these bonds and letters of credit was approximately ~~$123.3~~$152.4 million and ~~$43.0~~$51.2 million, respectively. We expect that the obligations secured by these performance bonds and letters of credit generally will be performed in the ordinary course of business and in accordance with the applicable contractual terms. To the extent that the obligations are performed, the related performance bonds and letters of credit should be released and we should not have any continuing obligations. However, in the event any such performance bonds or letters of credit are called, our indemnity obligations could require us to reimburse the issuer of the performance bond or letter of credit.

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

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IMPACT OF INFLATION, CHANGING PRICES AND ECONOMIC CONDITIONS

The impact of inflation and changing prices have not changed materially from the disclosure in our December 31, ~~2018~~2019 Annual Report on Form 10-K.

OTHER

Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q, as well as statements made by us in periodic press releases, oral statements made by our officials in the course of presentations about the Company and conference calls in connection with quarterly earnings releases, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding our business, financial condition, results of operations, cash flows, strategies and prospects. These forward-looking statements may be identified by terminology such as “likely,” “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained in this Report are reasonable, we cannot guarantee future results. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from those expressed or implied by the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in subsequent reports on Forms 10-K, 10-Q and 8-K should be considered. Additionally, information about issues that could lead to material changes in performance and risk factors that have the potential to affect us is contained under the caption “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 and Item 1A of Part II of this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

The market value and/or income derived from our equity securities may go up or down, sometimes rapidly or unpredictably. Equity securities may decline in value due to factors affecting equity securities markets generally, particular industries represented in those markets, or the issuer itself. The values of equity securities may decline due to general market conditions that are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. They may also decline due to factors that affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. The value of equity securities may also decline for a number of other reasons that directly relate to the issuer, such as management performance, financial leverage, the issuer’s historical and prospective earnings, the value of its assets and reduced demand for its goods and services. Equity securities generally have greater price volatility than bonds and other debt securities.

As of ~~June 30, 2019,~~March 31, 2020, our cash and cash equivalents included ~~U.S. government securities,~~ commercial bank deposits, money market funds and time deposits, with maturities of three months or less. As of ~~June 30, 2019,~~March 31, 2020, our marketable securities included holdings in common stock and exchange traded funds.

We are exposed to market risks related to fluctuations in interest rates on mortgage loans held-for-sale, mortgage interest rate lock commitments and debt. Derivative instruments utilized in the normal course of business by HomeAmerican include interest rate lock commitments and forward sales of mortgage-backed securities, which are used to manage the price risk on fluctuations in interest rates on our mortgage loans in inventory and interest rate lock commitments to originate mortgage loans. Such contracts are the only significant financial derivative instruments utilized by MDC. HomeAmerican’s mortgage loans in process for which a rate and price commitment had been made to a borrower that had not closed at ~~June 30, 2019~~March 31, 2020 had an aggregate principal balance of ~~$148.3~~$221.0 million, all of which were under interest rate lock commitments at an average interest rate of ~~3.95%~~3.35%. In addition, HomeAmerican had mortgage loans held-for-sale with an aggregate principal balance of ~~$105.4~~$129.5 million at ~~June 30, 2019,~~March 31, 2020, of which ~~$11.4~~$43.7 million had not yet been committed to a mortgage purchaser and had an average interest rate of ~~4.22%~~3.27%. In order to hedge the changes in fair value of interest rate lock commitments and mortgage loans held-for-sale which had not yet been committed to a mortgage purchaser, HomeAmerican had forward sales of securities totaling ~~$105.0~~$162.0 million and ~~$65.5~~$108.5 million at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

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HomeAmerican provides mortgage loans that generally are sold forward and subsequently delivered to a third-party purchaser between 10 and 35 days. Forward commitments are used for non-trading purposes to sell mortgage loans and hedge price risk due to fluctuations in interest rates on rate-locked mortgage loans in process that have not closed. Due to this economic hedging philosophy, the market risk associated with these mortgages is limited. For forward sales commitments, as well as commitments to originate mortgage loans that are still outstanding at the end of a reporting period, we record the fair value of the derivatives in the consolidated statements of operations and comprehensive income with an offset to either derivative assets or liabilities, depending on the nature of the change.

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

Item 4. Controls and Procedures

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

(b) Changes in internal control over financial reporting - There were no changes in our internal control over financial reporting that occurred during the quarter ended ~~June 30, 2019~~March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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M.D.C. HOLDINGS, INC.

FORM 10-Q

PART II

Item 1.Legal Proceedings

~~Legal Proceedings~~

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

~~Item 1A.~~

~~Risk Factors~~

~~There have been no significant changes~~Item 1A.Risk Factors

In addition to the other information set forth in this Form 10-Q, you should carefully consider the risk factors ~~previously identified as being attendant to our business~~that appeared under Item 1A. Risk Factors in ~~our~~the Company’s 2019 Annual Report on Form 10-K. There are no material changes from the risk factors included within the Company’s 2019 Annual Report on Form 10-K, other than the risk described below.

The recent global Coronavirus/COVID-19 pandemic could harm business and results of operations of the Company.

Demand for our homes is dependent on a variety of macroeconomic factors, such as employment levels, availability of financing for homebuyers, interest rates, consumer confidence, wage growth, household formations, levels of new and existing homes for sale, cost of land, labor and construction materials, demographic trends and housing demand. These factors, in particular consumer confidence, can be significantly and adversely affected by a variety of factors beyond our control. In response to the ~~year~~pandemic, many state and local governments have instituted restrictions that have substantially limited the operations of non-essential businesses and the activities of individuals. There is significant uncertainty around the extent and duration of these restrictions as well as their ultimate impact on the U.S. economy and consumer confidence. The degree to which the pandemic will impact our financial results in the coming periods depends on future developments, which are highly uncertain and cannot be predicted at this time, including new information that may emerge concerning the severity of the pandemic and the actions taken to contain or treat the virus. As a result of the pandemic, our sales centers and model homes have experienced a significant decline in traffic and cancellations of sales contracts have increased. If the pandemic continues to cause significant negative impacts to the U.S. economy and consumer confidence, our results of operations, financial condition and cash flows will be significantly and adversely impacted.

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

The following table provides information about our repurchase of common stock during the three months ended ~~December~~March 31, ~~2018. For a more complete discussion of other risk factors that affect our business, see “Risk Factors” in our Form 10-K for the year ended December 31, 2018, which include the following:~~2020:

Period:	Total Number of Shares Purchased ⁽¹⁾		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan or Program⁽²⁾		Maximum Number of Shares that may yet be Purchased under the Plan or Program ⁽²⁾
January 1 to January 31, 2020		-		N/A		-		4,000,000
February 1 to February 29, 2020		14,376	$	42.14		-		4,000,000
March 1 to March 31, 2020		-		N/A		-		4,000,000

●(1)

~~Changes in general economic, real estate and other business conditions may have an adverse effect on~~Represents shares of common stock withheld by us to cover withholding taxes due, at the ~~homebuilding and mortgage industries, which could have a negative impact on our business.~~election of certain holders of nonvested shares, with market value approximating the amount of withholding taxes due.

●(2)

~~Increased competition levels in the homebuilding and mortgage lending industries could have a negative impact on our homebuilding and mortgage operations.~~

●

~~If land is not available at reasonable prices or terms, we could be required~~We are authorized to ~~scale back our operations in a given market and/or we may operate at lower levels of profitability.~~

●

~~Supply shortages and other risks related~~repurchase up to ~~the demand for skilled labor and building materials could increase costs and delay deliveries.~~

●

If mortgage interest rates rise, if down payment requirements are increased, if loan limits are decreased, or if mortgage financing otherwise becomes less available, it could adversely affect our business.

●

~~Changes to tax laws, incentives or credits currently available to our customers may negatively impact our business.~~

●

~~A decline in the market value~~4,000,000 shares of our ~~homes or carrying value~~common stock. There were no shares of ~~our land would have a negative impact on our business.~~

●

~~Natural disasters could cause an increase in home construction costs, as well as delays, and could negatively impact our business.~~

●

~~Changes in energy prices or regulations may have an adverse effect on our cost of building homes.~~

●

~~We have financial needs that we meet through~~MDC common stock repurchased under this repurchase program during the ~~capital markets, including the debt and secondary mortgage markets, and disruptions in these markets could have an adverse impact on the results of our business.~~

●

Our business is subject to numerous federal, state and local laws and regulations concerning land development, construction of homes, sales, mortgage lending, environmental and other aspects of our business. These laws and regulations could give rise to additional liabilities or expenditures, or restrictions on our business.

●

~~In the ordinary course of business, we are required to obtain surety bonds, the unavailability of which could adversely affect our business.~~

●

~~Decreases in the market value of our investments in marketable securities could have an adverse impact on our business.~~

●

~~Product liability litigation and warranty claims that arise in the ordinary course of business may be costly.~~

●

~~Repurchase requirements associated with HomeAmerican’s sale of mortgage loans, could negatively impact our business.~~three month period ended March 31, 2020.

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●

~~Because of the seasonal nature of our business, our quarterly operating results can fluctuate.~~

●

~~We are dependent on the services of key employees, and the loss of their services could hurt our business.~~

●

~~The interests of certain controlling shareholders may be adverse to~~ ~~other~~ ~~investors~~.

●

~~Information technology failures and data security breaches could harm our business.~~

~~Item 2.~~

~~Unregistered Sales of Equity Securities and Use of Proceeds~~

~~The Company did not repurchase any shares during the three months ended June 30, 2019. Additionally, there were no sales of unregistered equity securities during the period.~~

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~~Table of Contents~~

Item 6.

Exhibits

4.11

~~10.1~~

~~Fourth Amendment to~~Supplemental Indenture (3.850% Senior Notes due 2030), dated as of January 9, 2020, among the ~~M.D.C. Holdings, Inc. 2011 Equity Incentive Plan~~Company, the guarantors named therein and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit ~~10.1~~4.2 of the Company's Current Report on Form 8-K filed ~~May 1, 2019)~~January 9, 2020). *

31.1

~~10.2~~

M.D.C. Holdings, Inc. 2011 Equity Incentive Plan, as amended (incorporated by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K filed May 1, 2019). *

~~10.3~~

Third Amendment to Amended and Restated Master Repurchase Agreement between HomeAmerican Mortgage Corporation, as Seller, and U.S. Bank National Association, as Agent and Buyer, dated as of May 23, 2019 (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed May 24, 2019). *

~~31.1~~

Certification of Chief Executive Officer required by 17 CFR 240.13a-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

~~31.2~~

Certification of Chief Financial Officer required by 17 CFR 240.13a-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

~~32.1~~

Certification of Chief Executive Officer required by 17 CFR 240.13a-14(b), pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

~~32.2~~

Certification of Chief Financial Officer required by 17 CFR 240.13a-14(b), pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101

~~101~~

The following financial statements, formatted in ~~XBRL:~~Inline Extensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, (ii) Consolidated Statements of Operations for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ (iii) Consolidated Statements of Changes in Stockholders’ Equity for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ (iv) Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018;~~2019; and (v) Notes to the Unaudited Consolidated Financial Statements, tagged as blocks of text.

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

____________________

* Incorporated by reference.

SIGNATURE

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

Date: ~~July 31, 2019~~ May 5, 2020	M.D.C. HOLDINGS, INC. ~~(Registrant)~~
	(Registrant)


	By:	/s/ Robert N. Martin
		Robert N. Martin
		Senior Vice President, Chief Financial Officer and Principal Accounting Officer (principal financial officer and duly authorized officer)

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


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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.01 par value	552676108	~~New York Stock Exchange~~
~~5⅝% Senior Notes due February 2020~~	~~552676AP3~~	New York Stock Exchange
6% Senior Notes due January 2043	552676AQ1	New York Stock Exchange

Large Accelerated Filer	☒	Accelerated Filer	☐
Non-Accelerated Filer	☐	Smaller Reporting Company	☐
Emerging growth company	☐

	June 30,		December 31,		March 31,		December 31,
	2019		2018		2020		2019
	(Dollars in thousands, except				(Dollars in thousands, except
	per share amounts)				per share amounts)
ASSETS
Homebuilding:
Cash and cash equivalents	$	390,061	$	414,724	$	386,704	$	424,186
Restricted cash		12,911		6,363		15,762		14,279
Trade and other receivables		54,780		52,982		69,301		65,829
Inventories:
Housing completed or under construction		1,071,181		952,436		1,215,214		1,036,191
Land and land under development		1,156,009		1,180,558		1,301,433		1,330,384
Total inventories		2,227,190		2,132,994		2,516,647		2,366,575
Property and equipment, net		62,888		58,167		62,316		60,414
Operating lease right-of-use asset		31,600		-
Deferred tax asset, net		29,441		37,178		20,660		21,768
Prepaid and other assets		47,176		45,794		78,002		78,358
Total homebuilding assets		2,856,047		2,748,202		3,149,392		3,031,409
Financial Services:
Cash and cash equivalents		56,829		49,052		22,159		35,747
Marketable securities		48,105		40,879		43,985		56,747
Mortgage loans held-for-sale, net		109,337		149,211		133,921		197,021
Other assets		15,779		13,733		24,255		17,432
Total financial services assets		230,050		252,875		224,320		306,947
Total Assets	$	3,086,097	$	3,001,077	$	3,373,712	$	3,338,356
LIABILITIES AND EQUITY
Homebuilding:
Accounts payable	$	58,986	$	50,505	$	97,980	$	87,364
Accrued liabilities		186,500		196,247
Operating lease liability		32,240		-
Accrued and other liabilities						233,034		245,940
Revolving credit facility		15,000		15,000		15,000		15,000
Senior notes, net		988,683		987,967		1,036,900		989,422
Total homebuilding liabilities		1,281,409		1,249,719		1,382,914		1,337,726
Financial Services:
Accounts payable and accrued liabilities		60,498		58,543		70,977		68,529
Mortgage repurchase facility		83,039		116,815		108,744		149,616
Total financial services liabilities		143,537		175,358		179,721		218,145
Total Liabilities		1,424,946		1,425,077		1,562,635		1,555,871
Stockholders' Equity
Preferred stock, $0.01 par value; 25,000,000 shares authorized; none issued or outstanding		-		-		-		-
Common stock, $0.01 par value; 250,000,000 shares authorized; 61,922,406 and 56,615,352 issued and outstanding at June 30, 2019 and December 31, 2018, respectively		619		566
Common stock, $0.01 par value; 250,000,000 shares authorized; 63,052,495 and 62,574,961 issued and outstanding at March 31, 2020 and December 31, 2019, respectively						631		626
Additional paid-in-capital		1,333,095		1,168,442		1,361,362		1,348,733
Retained earnings		327,437		406,992		449,084		433,126
Total Stockholders' Equity		1,661,151		1,576,000		1,811,077		1,782,485
Total Liabilities and Stockholders' Equity	$	3,086,097	$	3,001,077	$	3,373,712	$	3,338,356

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

	For the quarterly period ended March 31, 2020

			Page No.

Part I. Financial Information:

	Item 1.	Unaudited Consolidated Financial Statements:

		Consolidated Balance Sheets at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019	1

		Consolidated Statements of Operations and Comprehensive Income for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	2

		Consolidated Statements of Changes in Stockholders’ Equity for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	3

		Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~	54

		Notes to Unaudited Consolidated Financial Statements	65

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3028

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4442

	Item 4.	Controls and Procedures	4543

Part II. Other Information:

	Item 1.	Legal Proceedings	4644

	Item 1A.	Risk Factors	4644

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4744

	Item 6.	Exhibits	45

	~~Item 6.~~		~~Exhibits~~Signature	4845

	~~Signature~~		48

	Six-Month Period Ended June 30, 2019															Three-Month Period Ended March 31, 2020
											Accumulated
						Additional					Other										Additional
	Common Stock					Paid-in		Retained			Comprehensive					Common Stock					Paid-in		Retained
	Shares			Amount		Capital		Earnings			Income		Total			Shares			Amount		Capital		Earnings			Total
Balance at December 31, 2018		56,615,352		$	566	$	1,168,442	$	406,992		$	-	$	1,576,000
Balance at December 31, 2019																	62,574,961		$	626	$	1,348,733	$	433,126		$	1,782,485
Cumulative effect of newly adopted accounting standards (Note 2)		-			-		-		(67	)		-		(67	)		-			-		-		(34	)		(34	)
Balance at January 1, 2019		56,615,352			566		1,168,442		406,925			-		1,575,933
Balance at January 1, 2020																	62,574,961			626		1,348,733		433,092			1,782,451
Net Income		-			-		-		40,550			-		40,550			-			-		-		36,760			36,760
Shares issued upon exercise of stock options and awards of restricted stock		372,344			4		7,083		-			-		7,087
Cash dividends declared		-			-		-		(17,019	)		-		(17,019	)
Stock dividend declared		4,534,908			45		138,950		(139,091	)				(96	)
Stock-based compensation expense		-			-		4,251		-			-		4,251
Forfeiture of restricted stock		(1,714	)		-		-		-			-		-
Balance at March 31, 2019		61,520,890		$	615	$	1,318,726	$	291,365		$	-	$	1,610,706
Net Income		-			-		-		54,593			-		54,593
Shares issued upon exercise of stock options and awards of restricted stock		405,094			4		10,237		-			-		10,241
Shares issued under stock-based compensation programs, net																	477,582			5		8,189		-			8,194
Cash dividends declared		-			-		-		(18,521	)		-		(18,521	)		-			-		-		(20,768	)		(20,768	)
Stock-based compensation expense		-			-		4,132		-			-		4,132			-			-		4,440		-			4,440
Forfeiture of restricted stock		(3,578	)		-		-		-			-		-			(48	)		-		-		-			-
Balance at June 30, 2019		61,922,406		$	619	$	1,333,095	$	327,437		$	-	$	1,661,151
Balance at March 31, 2020																	63,052,495		$	631	$	1,361,362	$	449,084		$	1,811,077

	Three-Month Period Ended March 31, 2019

						Additional
	Common Stock					Paid-in		Retained
	Shares			Amount		Capital		Earnings			Total
Balance at December 31, 2018		56,615,352		$	566	$	1,168,442	$	406,992		$	1,576,000
Cumulative effect of newly adopted accounting standards		-			-		-		(67	)		(67	)
Balance at January 1, 2019		56,615,352			566		1,168,442		406,925			1,575,933
Net Income		-			-		-		40,550			40,550
Shares issued under stock-based compensation programs, net		372,344			4		7,083		-			7,087
Cash dividends declared		-			-		-		(17,019	)		(17,019	)
Stock dividend declared		4,534,908			45		138,950		(139,091	)		(96	)
Stock-based compensation expense		-			-		4,251		-			4,251
Forfeiture of restricted stock		(1,714	)		-		-		-			-
Balance at March 31, 2019		61,520,890		$	615	$	1,318,726	$	291,365		$	1,610,706

	Six-Month Period Ended June 30, 2018
											Accumulated
						Additional					Other
	Common Stock					Paid-in		Retained			Comprehensive
	Shares			Amount		Capital		Earnings			Income			Total
Balance at December 31, 2017		56,123,228		$	561	$	1,144,570	$	258,164		$	3,992		$	1,407,287
Cumulative effect of newly adopted accounting standards		-			-		-		5,766			(3,992	)		1,774
Balance at January 1, 2018		56,123,228			561		1,144,570		263,930			-			1,409,061
Net Income		-			-		-		38,764			-			38,764
Shares issued upon exercise of stock options and awards of restricted stock		97,783			1		281		-			-			282
Cash dividends declared		-			-		-		(16,865	)		-			(16,865	)
Stock-based compensation expense		-			-		1,251		-			-			1,251
Forfeiture of restricted stock		(1,368	)		-		-		-			-			-
Balance at March 31, 2018		56,219,643		$	562	$	1,146,102	$	285,829		$	-		$	1,432,493
Net Income		-			-		-		63,899			-			63,899
Shares issued upon exercise of stock options and awards of restricted stock		216,850			2		5,551		-			-			5,553
Cash dividends declared					-		-		(16,928	)		-			(16,928	)
Stock-based compensation expense					-		4,824		-			-			4,824
Forfeiture of restricted stock		(504	)		-		-		-			-			-
Balance at June 30, 2018		56,435,989		$	564	$	1,156,477	$	332,800		$	-		$	1,489,841

		Fair Value
Financial Instrument	Hierarchy	June 30, 2019		December 31, 2018
		(Dollars in thousands)
Cash and cash equivalents
Debt securities (available-for-sale)	Level 1	$	34,868	$	34,866

Marketable securities
Equity securities	Level 1	$	48,105	$	40,879

Mortgage loans held-for-sale, net	Level 2	$	109,337	$	149,211

	June 30, 2019
	Amortized Cost Basis		OTTI		Net Amortized Cost		Fair Value
	(Dollars in thousands)
Financial Services
Cash and cash equivalents
Debt securities	$	34,868	$	-	$	34,868	$	34,868

	June 30, 2019				December 31, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Dollars in thousands)
$250 Million 5⅝% Senior Notes due February 2020, net	$	249,371	$	253,175	$	248,850	$	253,413
$250 Million 5½% Senior Notes due January 2024, net		248,895		267,121		248,789		242,983
$500 Million 6% Senior Notes due January 2043, net		490,417		467,200		490,328		386,552
Total	$	988,683	$	987,496	$	987,967	$	882,948

	March 31, 2020				December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Dollars in thousands)
$250 Million 5.625% Senior Notes due February 2020, net	$	-	$	-	$	249,909	$	250,400
$250 Million 5.500% Senior Notes due January 2024, net		249,060		228,750		249,005		272,083
$300 Million 3.850% Senior Notes due January 2030, net		297,285		270,750		-		-
$500 Million 6.000% Senior Notes due January 2043, net		490,555		466,250		490,508		528,542
Total	$	1,036,900	$	965,750	$	989,422	$	1,051,025

	Year Ended		Year Ended
	December 31,		December 31,
	(Dollars in thousands)		(Dollars in thousands)
2019 (excluding the six months ended June 30, 2019)	$	3,017
2020		6,438
2020 (excluding the three months ended March 31, 2020)			$	5,112
2021		6,191		7,009
2022		5,881		6,670
2023		5,281		5,718
2024				5,307
Thereafter		13,162		9,529
Total operating lease payments	$	39,970	$	39,345

Less: Interest		6,630		6,073
Present value of operating lease liabilities ¹	$	33,340	$	33,272


¹~~Financial~~Homebuilding and financial services operating lease liabilities of $32.2 million and $1.1 million, respectively, are included as a component of accrued and other liabilities and accounts payable and accrued liabilities, respectively, in the homebuilding and financial services section of our consolidated balance sheet at ~~June 30, 2019.~~March 31, 2020.

						Threshold Goal				Target Goal				Maximum Goal
Awardee	Date of Award	Performance Period	Base Period	Base Period Revenues		PSUs		Home Sale Revenues		PSUs		Home Sale Revenues		PSUs		Home Sale Revenues		Fair Value per Share		Maximum Potential Expense to be Recognized*
CEO		July 1, 2016	July 1, 2015				61,236				122,472				244,944					$	4,815
COO	July 25, 2016	to	to		$1.975 billion		61,236		$2.074 billion		122,472		$2.173 billion		244,944		$2.370 billion	$	19.66		4,815
CFO		June 30, 2019	June 30, 2016				15,309				30,618				61,236						1,204
																				$	10,834

CEO		April 1, 2017	April 1, 2016				64,152				128,304				256,608					$	7,142
COO	June 20, 2017	to	to		$2.426 billion		64,152		$2.547 billion		128,304		$2.669 billion		256,608		$2.911 billion	$	27.83		7,142
CFO		March 31, 2020	March 31, 2017				16,038				32,076				64,152						1,786
																				$	16,070

CEO		April 1, 2018	April 1, 2017				64,800				129,600				259,200					$	6,629
COO	May 23, 2018	to	to		$2.543 billion		64,800		$2.670 billion		129,600		$2.797 billion		259,200		$3.052 billion	$	25.57		6,629
CFO		March 31, 2021	March 31, 2018				16,200				32,400				64,800						1,657
																				$	14,915

	June 30, 2019											March 31, 2020
					Non-											Non-
			Guarantor		Guarantor		Eliminating			Consolidated				Guarantor		Guarantor		Eliminating			Consolidated
	MDC		Subsidiaries		Subsidiaries		Entries			MDC		MDC		Subsidiaries		Subsidiaries		Entries			MDC
	(Dollars in thousands)											(Dollars in thousands)
ASSETS
Homebuilding:
Cash and cash equivalents	$	384,094	$	5,967	$	-	$	-		$	390,061	$	380,318	$	6,386	$	-	$	-		$	386,704
Restricted cash		-		12,911		-		-			12,911		-		15,762		-		-			15,762
Trade and other receivables		1,203		53,577		-		-			54,780		694		68,607		-		-			69,301
Inventories:
Housing completed or under construction		-		1,071,181		-		-			1,071,181		-		1,215,214		-		-			1,215,214
Land and land under development		-		1,156,009		-		-			1,156,009		-		1,301,433		-		-			1,301,433
Total inventories		-		2,227,190		-		-			2,227,190		-		2,516,647		-		-			2,516,647

Intercompany receivables		1,959,457		7,632		-		(1,967,089	)		-		2,265,553		5,919		-		(2,271,472	)		-
Investment in subsidiaries		331,164		-		-		(331,164	)		-		279,593		-		-		(279,593	)		-
Property and equipment, net		23,830		39,058		-		-			62,888		23,033		39,283		-		-			62,316
Operating lease right-of-use asset		25,333		6,267		-		-			31,600
Deferred tax asset, net		29,765		-		-		(324	)		29,441		18,962		-		-		1,698			20,660
Prepaid and other assets		11,678		35,498		-		-			47,176		32,961		45,041		-		-			78,002
Total homebuilding assets		2,766,524		2,388,100		-		(2,298,577	)		2,856,047		3,001,114		2,697,645		-		(2,549,367	)		3,149,392

Financial Services:
Cash and cash equivalents		-		-		56,829		-			56,829		-		-		22,159		-			22,159
Marketable securities		-		-		48,105		-			48,105		-		-		43,985		-			43,985
Intercompany receivables		-		-		22,199		(22,199	)		-		-		-		64,666		(64,666	)		-
Mortgage loans held-for-sale, net		-		-		109,337		-			109,337		-		-		133,921		-			133,921
Other assets		-		-		15,455		324			15,779		-		-		25,953		(1,698	)		24,255
Total financial services assets		-		-		251,925		(21,875	)		230,050		-		-		290,684		(66,364	)		224,320
Total Assets	$	2,766,524	$	2,388,100	$	251,925	$	(2,320,452	)	$	3,086,097	$	3,001,114	$	2,697,645	$	290,684	$	(2,615,731	)	$	3,373,712

LIABILITIES AND EQUITY

Homebuilding:
Accounts payable	$	5	$	58,981	$	-	$	-		$	58,986	$	515	$	97,465	$	-	$	-		$	97,980
Accrued liabilities		46,771		136,774		-		2,955			186,500
Operating lease liabilities		25,973		6,267		-		-			32,240
Accrued and other liabilities													67,874		162,742		-		2,418			233,034
Advances and notes payable to parent and subsidiaries		28,941		1,950,653		-		(1,979,594	)		-		69,748		2,254,742		-		(2,324,490	)		-
Revolving credit facility		15,000		-		-		-			15,000		15,000		-		-		-			15,000
Senior notes, net		988,683		-		-		-			988,683		1,036,900		-		-		-			1,036,900
Total homebuilding liabilities		1,105,373		2,152,675		-		(1,976,639	)		1,281,409		1,190,037		2,514,949		-		(2,322,072	)		1,382,914

Financial Services:
Accounts payable and other liabilities		-		-		63,453		(2,955	)		60,498		-		-		73,395		(2,418	)		70,977
Advances and notes payable to parent and subsidiaries		-		-		9,694		(9,694	)		-		-		-		11,648		(11,648	)		-
Mortgage repurchase facility		-		-		83,039		-			83,039		-		-		108,744		-			108,744
Total financial services liabilities		-		-		156,186		(12,649	)		143,537		-		-		193,787		(14,066	)		179,721
Total Liabilities		1,105,373		2,152,675		156,186		(1,989,288	)		1,424,946		1,190,037		2,514,949		193,787		(2,336,138	)		1,562,635

Equity:
Total Stockholders' Equity		1,661,151		235,425		95,739		(331,164	)		1,661,151		1,811,077		182,696		96,897		(279,593	)		1,811,077
Total Liabilities and Stockholders' Equity	$	2,766,524	$	2,388,100	$	251,925	$	(2,320,452	)	$	3,086,097	$	3,001,114	$	2,697,645	$	290,684	$	(2,615,731	)	$	3,373,712

	Three Months Ended June 30, 2019
							Non-
				Guarantor			Guarantor			Eliminating			Consolidated
	MDC			Subsidiaries			Subsidiaries			Entries			MDC
	(Dollars in thousands)
Homebuilding:
Revenues	$	-		$	732,844		$	-		$	-		$	732,844
Cost of sales		-			(590,172	)		-			-			(590,172	)
Inventory impairments		-			-			-			-			-
Gross margin		-			142,672			-			-			142,672
Selling, general, and administrative expenses		(14,128	)		(68,459	)		-			(125	)		(82,712	)
Equity income of subsidiaries		63,399			-			-			(63,399	)		-
Interest and other income		2,719			366			-			(321	)		2,764
Other expense		8			(1,118	)		-			-			(1,110	)
Homebuilding pretax income (loss)		51,998			73,461			-			(63,845	)		61,614
Financial Services:
Financial services pretax income		-			-			12,271			446			12,717
Income before income taxes		51,998			73,461			12,271			(63,399	)		74,331
(Provision) benefit for income taxes		2,595			(19,502	)		(2,831	)		-			(19,738	)
Net income	$	54,593		$	53,959		$	9,440		$	(63,399	)	$	54,593
Other comprehensive income related to available-for-sale securities, net of tax		-			-			-			-			-
Comprehensive income	$	54,593		$	53,959		$	9,440		$	(63,399	)	$	54,593

	Three Months Ended June 30, 2018
							Non-									Three Months Ended March 31, 2020
				Guarantor			Guarantor			Eliminating			Consolidated									Non-
	MDC			Subsidiaries			Subsidiaries			Entries			MDC						Guarantor			Guarantor			Eliminating			Consolidated
	(Dollars in thousands)															MDC			Subsidiaries			Subsidiaries			Entries			MDC
Homebuilding:																(Dollars in thousands)
Revenues	$	-		$	749,608		$	-		$	-		$	749,608		$	-		$	697,085		$	-		$	-		$	697,085
Cost of sales		-			(606,403	)		-			-			(606,403	)		-			(558,647	)		-			-			(558,647	)
Inventory impairments		-			(200	)		-			-			(200	)		-			-			-			-			-
Gross margin		-			143,005			-			-			143,005
Gross profit																	-			138,438			-			-			138,438
Selling, general, and administrative expenses		(16,619	)		(64,729	)		-			(223	)		(81,571	)		(10,782	)		(78,408	)		-			(131	)		(89,321	)
Equity income of subsidiaries		75,341			-			-			(75,341	)		-			43,236			-			-			(43,236	)		-
Interest and other income		1,783			292			2			(303	)		1,774			1,783			291			-			(185	)		1,889
Other expense		8			(879	)		-			-			(871	)		8			(1,345	)		-			-			(1,337	)
Homebuilding pretax income (loss)		60,513			77,689			2			(75,867	)		62,337			34,245			58,976			-			(43,552	)		49,669
Financial Services:
Financial services pretax income		-			-			13,753			526			14,279			-			-			(1,423	)		316			(1,107	)
Income before income taxes		60,513			77,689			13,755			(75,341	)		76,616			34,245			58,976			(1,423	)		(43,236	)		48,562
(Provision) benefit for income taxes		3,386			(12,867	)		(3,236	)		-			(12,717	)		2,515			(14,333	)		16			-			(11,802	)
Net income	$	63,899		$	64,822		$	10,519		$	(75,341	)	$	63,899		$	36,760		$	44,643		$	(1,407	)	$	(43,236	)	$	36,760
Other comprehensive income related to available-for-sale securities, net of tax		-			-			-			-			-			-			-			-			-			-
Comprehensive income	$	63,899		$	64,822		$	10,519		$	(75,341	)	$	63,899		$	36,760		$	44,643		$	(1,407	)	$	(43,236	)	$	36,760

	Three Months Ended March 31, 2019
							Non-
				Guarantor			Guarantor			Eliminating			Consolidated
	MDC			Subsidiaries			Subsidiaries			Entries			MDC
Homebuilding:	(Dollars in thousands)
Revenues	$	-		$	647,278		$	-		$	-		$	647,278
Cost of sales		-			(524,552	)		-			-			(524,552	)
Inventory impairments		-			(610	)		-			-			(610	)
Gross profit		-			122,116			-			-			122,116
Selling, general, and administrative expenses		(17,438	)		(64,701	)		-			(122	)		(82,261	)
Equity income of subsidiaries		52,165			-			-			(52,165	)		-
Interest and other income		2,409			155			-			(173	)		2,391
Other expense		7			(1,198	)		-			-			(1,191	)
Homebuilding pretax income (loss)		37,143			56,372			-			(52,460	)		41,055
Financial Services:
Financial services pretax income		-			-			14,256			295			14,551
Income before income taxes		37,143			56,372			14,256			(52,165	)		55,606
(Provision) benefit for income taxes		3,407			(15,264	)		(3,199	)		-			(15,056	)
Net income	$	40,550		$	41,108		$	11,057		$	(52,165	)	$	40,550
Other comprehensive income related to available-for-sale securities, net of tax		-			-			-			-			-
Comprehensive income	$	40,550		$	41,108		$	11,057		$	(52,165	)	$	40,550

	Six Months Ended June 30, 2019
							Non-
				Guarantor			Guarantor			Eliminating			Consolidated
	MDC			Subsidiaries			Subsidiaries			Entries			MDC
	(Dollars in thousands)
Homebuilding:
Revenues	$	-		$	1,380,122		$	-		$	-		$	1,380,122
Home and land cost of sales		-			(1,114,724	)		-			-			(1,114,724	)
Inventory impairments		-			(610	)		-			-			(610	)
Gross margin		-			264,788			-			-			264,788
Selling, general, and administrative expenses		(31,566	)		(133,160	)		-			(247	)		(164,973	)
Equity income of subsidiaries		115,564			-			-			(115,564	)		-
Interest and other income		5,128			521			-			(494	)		5,155
Other expense		15			(2,316	)		-			-			(2,301	)
Homebuilding pretax income (loss)		89,141			129,833			-			(116,305	)		102,669
Financial Services:
Financial services pretax income		-			-			26,527			741			27,268
Income before income taxes		89,141			129,833			26,527			(115,564	)		129,937
(Provision) benefit for income taxes		6,002			(34,766	)		(6,030	)		-			(34,794	)
Net income	$	95,143		$	95,067		$	20,497		$	(115,564	)	$	95,143
Other comprehensive income related to available for sale securities, net of tax		-			-			-			-			-
Comprehensive income	$	95,143		$	95,067		$	20,497		$	(115,564	)	$	95,143

	Six Months Ended June 30, 2018
							Non-
				Guarantor			Guarantor			Eliminating			Consolidated
	MDC			Subsidiaries			Subsidiaries			Entries			MDC
	(Dollars in thousands)
Homebuilding:
Revenues	$	-		$	1,357,296		$	-		$	-		$	1,357,296
Home and land cost of sales		-			(1,103,035	)		-			-			(1,103,035	)
Inventory impairments		-			(750	)		-			-			(750	)
Gross margin		-			253,511			-			-			253,511
Selling, general, and administrative expenses		(29,427	)		(123,058	)		-			(427	)		(152,912	)
Equity income of subsidiaries		122,510			-			-			(122,510	)		-
Interest and other income		3,556			610			4			(537	)		3,633
Other expense		15			(1,449	)		-			-			(1,434	)
Other-than-temporary impairment of marketable securities		-			-			-			-			-
Homebuilding pretax income (loss)		96,654			129,614			4			(123,474	)		102,798
Financial Services:
Financial services pretax income		-			-			23,386			964			24,350
Income before income taxes		96,654			129,614			23,390			(122,510	)		127,148
(Provision) benefit for income taxes		6,009			(24,959	)		(5,535	)		-			(24,485	)
Net income	$	102,663		$	104,655		$	17,855		$	(122,510	)	$	102,663
Other comprehensive income related to available for sale securities, net of tax		-			-			-			-			-
Comprehensive income	$	102,663		$	104,655		$	17,855		$	(122,510	)	$	102,663