UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



	FORM 10-Q

(Mark One)



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

For the quarterly period ended June 30, ~~2017~~2018 or



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

For the transition period from ______to ______



	Commission File Number 001-36283

The New Home Company Inc.

(Exact Name of Registrant as Specified in Its Charter)



Delaware		27-0560089
(State or other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

85 Enterprise, Suite 450

Aliso Viejo, California 92656

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code (949) 382-7800



	Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ý No ¨

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



Large accelerated filer	¨	Non-accelerated filer ~~(Do not check if smaller reporting company)~~	¨	Accelerated filer	ý	Smaller reporting company	¨
						Emerging growth company	ý

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ý

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

Registrant’s shares of common stock outstanding as of ~~July 25, 2017: 20,875,666~~August 1, 2018: 20,855,778

THE NEW HOME COMPANY INC.

FORM 10-Q

INDEX




		Page Number

PART I Financial Information

Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of June 30, ~~2017~~2018 (Unaudited) and December 31, ~~2016~~2017	3
	Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, ~~2017~~2018 and ~~2016~~2017	4
	Unaudited Condensed Consolidated ~~Statement~~Statements of Equity for the Three and Six Months Ended June 30, ~~2017~~2018 and ~~2016~~2017	5
	Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, ~~2017~~2018 and ~~2016~~2017	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3536
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5056
Item 4.	Controls and Procedures	5157

Part II Other Information

Item 1.	Legal Proceedings	5258
Item 1A.	Risk Factors	5258
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5258
Item 3.	Defaults Upon Senior Securities	5259
Item 4.	Mine Safety Disclosures	5259
Item 5.	Other Information	5259
Item 6.	Exhibits	5660

	Signatures	5761

PART I – FINANCIAL INFORMATION



Item 1.1.	Financial Statements

THE NEW HOME COMPANY INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(InDollars in thousands, except ~~share and~~ par value amounts)


	June 30,		December 31,		June 30,		December 31,
	2017		2016		2018		2017
	(Unaudited)				(Unaudited)
Assets
Cash and cash equivalents	$	153,959	$	30,496	$	90,758	$	123,546
Restricted cash	88		585		567		424
Contracts and accounts receivable	18,321		27,833		20,370		23,224
Due from affiliates	2,062		1,138		212		1,060
Real estate inventories	365,400		286,928		469,738		416,143
Investment in and advances to unconsolidated joint ventures	55,864		50,857		58,501		55,824
Other assets	23,916		21,299		25,864		24,291
Total assets	$	619,610	$	419,136	$	666,010	$	644,512

Liabilities and equity
Accounts payable	$	34,215	$	33,094	$	28,978	$	23,722
Accrued expenses and other liabilities	19,473		23,418		23,796		38,054
Unsecured revolving credit facility	—		118,000		35,000		—
Senior notes, net	318,121		—		319,402		318,656
Total liabilities	371,809		174,512		407,176		380,432
Commitments and contingencies (Note 10)
Commitments and contingencies (Note 11)
Equity:
Stockholders' equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized, no shares outstanding	—		—		—		—
Common stock, $0.01 par value, 500,000,000 shares authorized, 20,875,666 and 20,712,166, shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively	209		207
Common stock, $0.01 par value, 500,000,000 shares authorized, 20,855,778 and 20,876,837, shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively					209		209
Additional paid-in capital	197,983		197,161		198,234		199,474
Retained earnings	49,518		47,155		60,312		64,307
Total stockholders' equity	247,710		244,523		258,755		263,990
Noncontrolling interest in subsidiary	91		101
Non-controlling interest in subsidiary					79		90
Total equity	247,801		244,624		258,834		264,080
Total liabilities and equity	$	619,610	$	419,136	$	666,010	$	644,512

See accompanying notes to the unaudited condensed consolidated financial statements.

THE NEW HOME COMPANY INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(InDollars in thousands, except ~~share and~~ per share amounts)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Revenues:
Home sales	$	96,929		$	78,836		$	166,335		$	121,139		$	117,460		$	96,929		$	196,897		$	166,335
Fee building, including management fees from unconsolidated joint ventures of $1,217, $2,537, $2,431 and $4,712, respectively	47,181			30,028			102,798			72,965
Fee building, including management fees from unconsolidated joint ventures of $672, $1,217, $1,652 and $2,431, respectively													38,095			47,181			81,889			102,798
	144,110			108,864			269,133			194,104			155,555			144,110			278,786			269,133
Cost of Sales:
Home sales	82,488			69,390			142,553			106,060			102,678			82,488			172,372			142,553
Home sales impairments	1,300			—			1,300			—			—			1,300			—			1,300
Fee building	45,899			28,317			99,825			69,231			37,038			45,899			79,737			99,825
	129,687			97,707			243,678			175,291			139,716			129,687			252,109			243,678

Gross Margin:
Home sales	13,141			9,446			22,482			15,079			14,782			13,141			24,525			22,482
Fee building	1,282			1,711			2,973			3,734			1,057			1,282			2,152			2,973
	14,423			11,157			25,455			18,813			15,839			14,423			26,677			25,455

Selling and marketing expenses	(6,376		)	(5,046		)	(11,377		)	(8,522		)	(9,466		)	(6,376		)	(16,105		)	(11,377		)
General and administrative expenses	(5,595		)	(5,833		)	(10,685		)	(11,008		)	(5,979		)	(5,595		)	(11,998		)	(10,685		)
Equity in net income of unconsolidated joint ventures	201			3,947			507			3,940
Equity in net income (loss) of unconsolidated joint ventures													(120		)	201			215			507
Other income (expense), net	(148		)	(286		)	(35		)	(395		)	(92		)	(148		)	(118		)	(35		)
Income before income taxes	2,505			3,939			3,865			2,828
Provision for income taxes	(988		)	(1,495		)	(1,512		)	(1,253		)
Net income	1,517			2,444			2,353			1,575
Net loss attributable to noncontrolling interest	—			65			10			120
Net income attributable to The New Home Company Inc.	$	1,517		$	2,509		$	2,363		$	1,695
Pretax income (loss)													182			2,505			(1,329		)	3,865
(Provision) benefit for income taxes													(67		)	(988		)	793			(1,512		)
Net income (loss)													115			1,517			(536		)	2,353
Net loss attributable to non-controlling interest													—			—			11			10
Net income (loss) attributable to The New Home Company Inc.													$	115		$	1,517		$	(525	)	$	2,363

Earnings per share attributable to The New Home Company Inc.:
Earnings (loss) per share attributable to The New Home Company Inc.:
Basic	$	0.07		$	0.12		$	0.11		$	0.08		$	0.01		$	0.07		$	(0.03	)	$	0.11
Diluted	$	0.07		$	0.12		$	0.11		$	0.08		$	0.01		$	0.07		$	(0.03	)	$	0.11
Weighted average shares outstanding:
Basic	20,869,429			20,709,139			20,819,288			20,654,998			20,958,991			20,869,429			20,942,601			20,819,288
Diluted	20,956,723			20,760,186			20,921,150			20,745,802			21,024,769			20,956,723			20,942,601			20,921,150

See accompanying notes to the unaudited condensed consolidated financial statements.

THE NEW HOME COMPANY INC.

CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF EQUITY

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

(Unaudited)


	Stockholders’ Equity											Noncontrolling Interest in Subsidiary				Total Equity			Stockholders’ Equity														Non-controlling Interest in Subsidiary			Total Equity
	Number of Shares of Common Stock	Common Stock		Additional Paid-in Capital			Retained Earnings		Total Stockholders’ Equity						Number of Shares of Common Stock					Common Stock			Additional Paid-in Capital			Retained Earnings			Total Stockholders’ Equity				Non-controlling Interest in Subsidiary			Total Equity
Balance at December 31, 2015	20,543,130	$	205	$	194,437		$	26,133	$	220,775		Noncontrolling Interest in Subsidiary	$	922		Total Equity		$	221,697
Net income (loss)	—	—		—			1,695		1,695			(120		)		1,575
Noncontrolling interest distribution	—	—		—			—		—			(725		)		(725		)
Stock-based compensation expense	—	—		1,742			—		1,742			—				1,742
Shares net settled with the Company to satisfy minimum employee personal income tax liabilities resulting from share based compensation plans	—	—		(647		)	—		(647		)	—				(647		)
Excess tax provision from stock-based compensation	—	—		(97		)	—		(97		)	—				(97		)
Shares issued through stock plans	168,822	2		(2		)	—		—			—				—
Balance at June 30, 2016	20,711,952	$	207	$	195,433		$	27,828	$	223,468		$	77			$	223,545

Balance at December 31, 2016	20,712,166	$	207	$	197,161		$	47,155	$	244,523		$	101			$	244,624		20,712,166		$	207		$	197,161		$	47,155		$	244,523		$	101		$	244,624
Net income (loss)	—	—		—			2,363		2,363			(10		)		2,353			—		—			—			2,363			2,363			(10		)	2,353
Stock-based compensation expense	—	—		1,306			—		1,306			—				1,306			—		—			1,306			—			1,306			—			1,306
Shares net settled with the Company to satisfy minimum employee personal income tax liabilities resulting from share based compensation plans	—	—		(584		)	—		(584		)	—				(584		)
Shares net settled with the Company to satisfy employee personal income tax liabilities resulting from share based compensation plans																			(55,407	)	—			(584		)	—			(584		)	—			(584		)
Shares issued through stock plans	163,500	2		100			—		102			—				102			218,907		2			100			—			102			—			102
Balance at June 30, 2017	20,875,666	$	209	$	197,983		$	49,518	$	247,710		$	91			$	247,801		20,875,666		$	209		$	197,983		$	49,518		$	247,710		$	91		$	247,801

Balance at December 31, 2017																			20,876,837		$	209		$	199,474		$	64,307		$	263,990		$	90		$	264,080
Adoption of ASC 606 and ASU 2018-07 (see Note 1)																			—		—			(18		)	(3,347		)	(3,365		)	—			(3,365		)
Net income (loss)																			—		—						(525		)	(525		)	(11		)	(536		)
Stock-based compensation expense																			—		—			1,704			—			1,704			—			1,704
Shares net settled with the Company to satisfy employee personal income tax liabilities resulting from share based compensation plans																			(86,182	)	—			(977		)	—			(977		)	—			(977		)
Repurchase of common stock																			(205,240	)	(2		)	(1,947		)	(123		)	(2,072		)	—			(2,072		)
Shares issued through stock plans																			270,363		2			(2		)	-			—			—			—
Balance at June 30, 2018																			20,855,778		$	209		$	198,234		$	60,312		$	258,755		$	79		$	258,834

See accompanying notes to the unaudited condensed consolidated financial statements.

THE NEW HOME COMPANY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(InDollars in thousands)

(Unaudited)


	Six Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2018			2017
Operating activities:
Net income	$	2,353		$	1,575
Adjustments to reconcile net income to net cash used in operating activities:
Net income (loss)							$	(536	)	$	2,353
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Deferred taxes	(54		)	(27		)	(1,481		)	(54		)
Amortization of equity based compensation	1,306			1,742			1,704			1,306
Excess income tax provision from stock-based compensation	—			97
Distributions of earnings from unconsolidated joint ventures	1,588			1,095			715			1,588
Inventory impairments	1,300			—			—			1,300
Abandoned project costs							43			206
Equity in net income of unconsolidated joint ventures	(507		)	(3,940		)	(215		)	(507		)
Deferred profit from unconsolidated joint ventures	497			332			136			497
Depreciation	236			251
Abandoned project costs	206			329
Depreciation and amortization							2,646			236
Net changes in operating assets and liabilities:
Restricted cash	497			104
Contracts and accounts receivable	9,573			9,164			2,854			9,573
Due from affiliates	(671		)	88			788			(671		)
Real estate inventories	(74,407		)	(164,464		)	(53,108		)	(74,407		)
Other assets	(2,900		)	(5,832		)	(6,095		)	(2,900		)
Accounts payable	1,160			3,737			5,256			1,160
Accrued expenses and other liabilities	(11,588		)	(9,711		)	(14,217		)	(11,588		)
Due to affiliates	—			(239		)
Net cash used in operating activities	(71,411		)	(165,699		)	(61,510		)	(71,908		)
Investing activities:
Purchases of property and equipment	(95		)	(296		)	(184		)	(95		)
Cash assumed from joint venture at consolidation	995			2,009			—			995
Contributions and advances to unconsolidated joint ventures	(8,517		)	(5,656		)	(8,954		)	(8,517		)
Distributions of capital from unconsolidated joint ventures	2,948			7,405
Net cash provided by (used in) investing activities	(4,669		)	3,462
Distributions of capital and repayment of advances from unconsolidated joint ventures							5,874			2,948
Interest collected on advances to unconsolidated joint ventures							178			—
Net cash used in investing activities							(3,086		)	(4,669		)
Financing activities:
Borrowings from credit facility	72,000			175,000			35,000			72,000
Repayments of credit facility	(190,000		)	(11,000		)	—			(190,000		)
Proceeds from senior notes	324,465			—			—			324,465
Borrowings from other notes payable	—			343
Repayments of other notes payable	—			(15,636		)
Payment of debt issuance costs	(6,440		)	(1,064		)	—			(6,440		)
Cash distributions to noncontrolling interest in subsidiary	—			(725		)
Minimum tax withholding paid on behalf of employees for stock awards	(584		)	(647		)
Excess income tax provision from stock-based compensation	—			(97		)
Repurchases of common stock							(2,072		)	—
Tax withholding paid on behalf of employees for stock awards							(977		)	(584		)
Proceeds from exercise of stock options	102			—			—			102
Net cash provided by financing activities	199,543			146,174			31,951			199,543
Net increase (decrease) in cash and cash equivalents	123,463			(16,063		)
Cash and cash equivalents – beginning of period	30,496			45,874
Cash and cash equivalents – end of period	$	153,959		$	29,811
Net (decrease) increase in cash, cash equivalents and restricted cash							(32,645		)	122,966
Cash, cash equivalents and restricted cash – beginning of period							123,970			31,081
Cash, cash equivalents and restricted cash – end of period							$	91,325		$	154,047

See accompanying notes to the unaudited condensed consolidated financial statements.

THE NEW HOME COMPANY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies

Organization

The New Home Company Inc. (the ~~“Company”~~"Company"), a Delaware corporation, and its subsidiaries are primarily engaged in all aspects of residential real estate development, including acquiring land and designing, constructing and selling homes in California and Arizona.

Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts have been eliminated upon consolidation.

The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles ~~(“GAAP”~~("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2017. The accompanying unaudited condensed financial statements include all adjustments (consisting of normal recurring entries) necessary for the fair presentation of our results for the interim period presented. Results for the interim period are not necessarily indicative of the results to be expected for the full year.

Unless the context otherwise requires, the terms ~~“we”~~"we", ~~“us”~~"us", ~~“our”~~"our" and ~~“the Company”~~"the Company" refer to the Company and its wholly owned subsidiaries, on a consolidated basis.

Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the accompanying condensed consolidated financial statements and notes. Accordingly, actual results could differ materially from these estimates.

~~Reclassifications~~ Reclassification

Certain items in the prior year unaudited condensed consolidated ~~statement~~statements of cash flows ~~related to capitalized selling and marketing expenses~~ have been reclassified to conform with current year presentation. ~~Effective July~~These reclassifications have not changed the results of operations of prior periods. On January 1, ~~2016, capitalized selling~~2018, the Company adopted Accounting Standards Update ("ASU") No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash ("ASU 2016-18") under the full retrospective method. As a result, the Company no longer presents transfers between cash and ~~marketing costs were reclassified to other assets from real estate inventories. Prior year periods have been reclassified to conform.~~ restricted cash in the consolidated statements of cash flows. Instead, restricted cash is included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the consolidated statements of cash flows. For additional detail on restricted cash, please see Note 1 - Restricted Cash.

Segment Reporting

Accounting Standards Codification ~~(“ASC”~~("ASC") 280, Segment Reporting (“("ASC ~~280”~~280") established standards for the manner in which public enterprises report information about operating segments. In accordance with ASC 280, we have determined that our homebuilding division and our fee building division are our operating segments, which are also our reportable segments.

Cash and Cash Equivalents

We define cash and cash equivalents as cash on hand, demand deposits with financial institutions, and short term liquid investments with a maturity date of less than three months from the date of purchase.

Restricted Cash

Restricted cash of ~~$0.1~~$0.6 million and ~~$0.6~~$0.4 million as of June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively, is held in accounts for payments of subcontractor costs incurred in connection with various fee building projects.

The table below shows the line items and amounts of cash and cash equivalents and restricted cash as reported within the Company's condensed consolidated balance sheets for each period shown that sum to the total of the same such amounts at the end of the periods shown in the accompanying condensed consolidated statements of cash flows.

THE NEW HOME COMPANY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



	Six Months Ended June 30,
	2018		2017
	(Dollars in thousands)
Cash and cash equivalents	$	90,758	$	153,959
Restricted cash	567		88
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows	$	91,325	$	154,047

Real Estate Inventories and Cost of Sales

We capitalize pre-acquisition, land, development and other allocated costs, including interest, property taxes and indirect construction costs. Pre-acquisition costs, including ~~non-refundable~~nonrefundable land deposits, are expensed to other income (expense), net if we determine continuation of the prospective project is not probable.

~~THE NEW HOME COMPANY INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Land, development and other common costs are typically allocated to real estate inventories using a methodology that approximates the relative-sales-value method. Home construction costs per production phase are recorded using the specific identification method. Cost of sales for homes closed includes the estimated total construction costs of each home at completion and an allocation of all applicable land acquisition, land development and related common costs (both incurred and estimated to be incurred) based upon the relative-sales-value of the home within each project. Changes in estimated development and common costs are allocated prospectively to remaining homes in the project.

In accordance with ~~Accounting Standards Codification ("ASC")~~ASC 360, Property, Plant and Equipment (“("ASC ~~360”~~360"), inventory is stated at cost, unless the carrying amount is determined not to be recoverable, in which case inventory is written down to its fair value. We review each real estate asset on a periodic basis or whenever indicators of impairment exist. Real estate assets include projects actively selling and projects under development or held for future development. Indicators of impairment include, but are not limited to, significant decreases in local housing market values and selling prices of comparable homes, significant decreases in gross margins or sales absorption rates, costs significantly in excess of budget, and actual or projected cash flow losses.

If there are indicators of impairment, we perform a detailed budget and cash flow review of the applicable real estate inventories to determine whether the estimated ~~remaining~~ undiscounted future cash flows of the project are more or less than the asset’s carrying value. If the estimated undiscounted ~~estimated~~ future cash flows ~~are more than~~exceed the asset’s carrying value, no impairment adjustment is required. However, if the estimated undiscounted ~~estimated~~ future cash flows are less than the asset’s carrying value, the ~~asset~~asset's fair value is determined and compared to the asset's carrying value. If the asset's carrying value exceeds the asset's fair value, it is deemed impaired and is written down to its fair value.

When estimating undiscounted ~~estimated~~ future cash flows of a project, we make various assumptions, including: (i) expected sales prices and sales incentives to be offered, including the number of homes available, pricing and incentives being offered by us or other builders in other projects, and future sales price adjustments based on market and economic trends; (ii) expected sales pace and cancellation rates based on local housing market conditions, competition and historical trends; (iii) costs expended to date and expected to be incurred including, but not limited to, land and land development costs, home construction costs, interest costs, indirect construction and overhead costs, and selling and marketing costs; (iv) alternative product offerings that may be offered that could have an impact on sales pace, sales price and/or building costs; and (v) alternative uses for the property.

Many assumptions are interdependent and a change in one may require a corresponding change to other assumptions. For example, increasing or decreasing sales absorption rates has a direct impact on the estimated per unit sales price of a home, and the level of time sensitive costs (such as indirect construction, overhead and carrying ~~costs), and selling and marketing costs (such as model maintenance costs and advertising~~ costs). Depending on the underlying objective of the project, assumptions could have a significant impact on the projected cash flow analysis. For example, if our objective is to preserve operating margins, our cash flow analysis will be different than if the objective is to increase the velocity of sales. These objectives may vary significantly from project to project and change over time.

If a real estate ~~assets are considered~~asset is deemed impaired, the impairment ~~adjustments are~~is calculated by determining the amount the asset's carrying value exceeds its fair value. We calculate the fair value of real estate ~~projects~~ using a land residual value analysis or a discounted cash flow analysis. Under the land residual value analysis, we estimate what a willing buyer would pay and what a willing seller would sell a parcel of land for (other than in a forced liquidation) in order to generate a market rate operating margin and return. Under the discounted cash flow method, the fair value is determined by calculating the present value of future cash flows using a risk adjusted discount rate. ~~Critical~~Some of the critical assumptions ~~that are included as part of these analyses~~involved with measuring the asset's fair value include estimating future ~~housing~~

THE NEW HOME COMPANY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

revenues, sales absorption rates, ~~land~~ development and construction costs, and ~~related carrying costs(including future capitalized interest), and all direct selling and marketing~~other applicable project costs. This evaluation and the assumptions used by management to determine future estimated cash flows and fair value require a substantial degree of judgment, especially with respect to real estate projects that have a substantial amount of development to be completed, have not started selling or are in the early stages of sales, or are longer in duration. Actual revenues, costs and time to complete and sell a community could vary from these estimates which could impact the calculation of fair value of the asset and the corresponding amount of impairment that is recorded in our results of operations. For the three and six months ended June 30, 2017, we recorded an impairment charge of $1.3 million relating to one community in Southern California. For additional detail regarding the impairment charge, please see Note 4.

~~THE NEW HOME COMPANY INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Capitalization of Interest

We follow the practice of capitalizing interest to real estate inventories during the period of development and to investments in unconsolidated joint ventures, when applicable, in accordance with ASC 835, Interest (“("ASC ~~835”~~835"). Interest capitalized as a cost component of real estate inventories is included in cost of home sales as related homes or lots are sold. To the extent interest is capitalized to investment in unconsolidated joint ventures, it is included as a reduction of income from unconsolidated joint ventures when the related homes or lots are sold to third parties. In instances where the Company purchases land from an unconsolidated joint venture, the pro rata share of interest capitalized to investment in unconsolidated joint ventures is added to the basis of the land acquired and recognized as a cost of sale upon the delivery of the related land to a third-party buyer. To the extent our debt exceeds our qualified assets as defined in ASC 835, we expense a portion of the interest incurred by us. Qualified assets represent projects that are actively selling or under development as well as investments in unconsolidated joint ventures accounted for under the equity method until such equity investees begin their principal operations.

Revenue Recognition

Effective January 1, 2018, we adopted the requirements of ASU 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASC 606") under the modified retrospective method. For additional detail on the new standard and the impact to our condensed consolidated financial statements, refer to "Recently Issued Accounting Standards" below. Under ASC 606, we recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To do this, the Company performs the following five steps as outlined in ASC 606: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation.

Home Sales and Profit Recognition

In accordance with ASC ~~360, revenue from~~606, home sales ~~and other real estate sales are recorded and a profit~~revenue is recognized when our performance obligations within the ~~respective homes~~underlying sales contracts are ~~closed under~~fulfilled. We consider our obligations fulfilled when closing conditions are complete, title has transferred to the full accrual method. Home sales and other real estate sales are closed when all conditions of escrow are met, including delivery of the home or other real estate asset, title passes, appropriate consideration is receivedhomebuyer, and collection of ~~associated receivables, if any,~~the purchase price is reasonably assured. Sales incentives are recorded as a reduction of revenues when the respective home is closed. The profit we record is based on the calculation of cost of sales, which is dependent on our allocation of costs, as described in more detail above in the section entitled ~~“Real~~"Real Estate Inventories and Cost of Sales.”" When it is determined that the earnings process is not complete, the ~~sale~~related revenue and ~~related~~ profit are deferred for recognition in future periods.

For periods prior to January 1, 2018, the company recognized home sales and other real estate sales revenue in accordance with ASC 360. Under ASC 360, revenue from home sales and other real estate sales was recorded and a profit was recognized when the sales process was complete under the full accrual method. The sales process was considered complete for home sales and other real estate sales when all conditions of escrow were met, including delivery of the home or other real estate asset, title passes, appropriate consideration is received and collection of associated receivables, if any, is reasonably assured.

Fee Building

The Company enters into fee building agreements to provide services whereby it builds homes on behalf of ~~independent~~ third-party property owners. The ~~independent~~ third-party property owner funds all project costs incurred by the Company to build and sell the homes. The Company primarily enters into cost plus fee contracts where it charges ~~independent~~ third-party property owners for all direct and indirect costs plus a ~~negotiated management fee. For these types of contracts, the Company recognizes revenue based on the actual total costs it has expended plus the applicable management~~ fee. The ~~management~~ fee is typically a per-unit fixed fee or based on a percentage of the cost or home sales revenue of the project, depending on the terms of the agreement with the ~~independent~~ third-party property owner. For these types of contracts, the Company recognizes revenue based on the actual total costs it has incurred plus the applicable fee. In accordance with ASC 606

THE NEW HOME COMPANY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

for periods after January 1, 2018 and ASC 605, Revenue Recognition (“("ASC ~~605”~~605")~~, revenues from~~ for prior periods, we apply the percentage-of-completion method, using the cost-to-cost approach, as it most accurately measures the progress of our efforts in satisfying our obligations within the fee building ~~services are recognized using a cost-to-cost approach in applying the percentage-of-completion method.~~agreements. Under this approach, revenue is earned in proportion to total costs incurred divided by total costs expected to be incurred. The total estimated cost plus the management fee represents the total contract value. The Company recognizes revenue based on the actual labor and other direct costs incurred, plus the portion of the management fee it has earned to date. In the course of providing ~~its~~fee building services, the Company routinely subcontracts for services and incurs other direct costs on behalf of the property owners. These costs are passed through to the property owners and, in accordance with ~~industry practice and~~ GAAP, are included in the Company’s revenue and cost of revenue. The Company recognizes revenue for any incentive compensation when such financial thresholds are probable of being met and such compensation is deemed to be collectible, generally at the date the amount is communicated to us by the independent third-party property owner.sales.

The Company also ~~enters into fee building~~provides construction management and ~~management contracts~~coordination services and sales and marketing services as part of agreements with third parties and its unconsolidated joint ~~ventures where it~~ventures. Within these agreements, the Company does not bear any financial risks. In certain contracts, the Company also provides ~~construction supervision~~project management and administrative services. For most services provided, the Company fulfills its related obligations as ~~well~~time-based measures, according to the input method guidance described in ASC 606. Accordingly, revenue is recognized on a straight-line basis as the Company's efforts are expended evenly throughout the performance period. The Company may also have an obligation to manage the home or lot sales process as part of providing sales and marketing services. This obligation is considered fulfilled when related homes or lots close escrow, as these events represent milestones reached according to the output method guidance described in ASC 606. Accordingly, revenue is recognized in the period that the corresponding lots or homes close escrow. Costs associated with these services ~~and does not bear financial risks for any~~are recognized as incurred. Prior to the adoption of ASC 606, the Company recognized revenues from these services ~~provided. In~~in accordance with ASC 605 ~~revenues from these services are recognized over~~under a proportional performance method or completed performance method. Under ASC 605, revenue iswas earned as services ~~are~~were provided in proportion to total services expected to be provided to the customer or on a straight line basis if the pattern of performance ~~cannot~~could not be determined. Costs are recognized as incurred. Revenue recognition for any portion of the fees earned from these services that are contingent upon a financial threshold or specific event is deferred until the threshold is achieved or the event occurs.

The Company’s fee building revenues have historically been concentrated with a small number of customers. For the three and six months ended June 30, ~~2017~~2018 and ~~2016,~~2017, one customer comprised ~~97%~~95%, ~~98%~~96%, ~~92%~~97%, and ~~94%~~98%, respectively, of fee building ~~revenue, respectively.~~revenue. The balance of the fee building revenues primarily represented management fees earned from unconsolidated joint ~~ventures.~~ventures and third-party customers. As of June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, one customer comprised ~~74%~~61% and ~~87%~~49% of contracts and accounts receivable, respectively, with the balance of accounts receivable primarily representing escrow receivables from home sales.

~~THE NEW HOME COMPANY INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Variable Interest Entities

The Company accounts for variable interest entities in accordance with ASC 810, Consolidation (“("ASC ~~810”~~810"). Under ASC 810, a variable interest entity ~~(“VIE”~~("VIE") is created when: (a) the equity investment at risk in the entity is not sufficient to permit the entity to finance its activities without additional subordinated financial support provided by other parties, including the equity holders; (b) the entity’s equity holders as a group either (i) lack the direct or indirect ability to make decisions about the entity, (ii) are not obligated to absorb expected losses of the entity or (iii) do not have the right to receive expected residual returns of the entity; or (c) the entity’s equity holders have voting rights that are not proportionate to their economic interests, and the activities of the entity involve or are conducted on behalf of the equity holder with disproportionately few voting rights.

Once we consider the sufficiency of equity and voting rights of each legal entity, we then evaluate the characteristics of the equity holders' interests, as a group, to see if they qualify as controlling financial interests. Our real estate joint ventures consist of limited partnerships and limited liability companies. For entities structured as limited partnerships or limited liability companies, our evaluation of whether the equity holders (equity partners other than us in each our joint ventures) lack the characteristics of a controlling financial interest includes the evaluation of whether the limited partners or non-managing members (the ~~noncontrolling~~non-controlling equity holders) lack both substantive participating rights and substantive kick-out rights, defined as follows:

•Participating rights - provide the ~~noncontrolling~~non-controlling equity holders the ability to direct significant financial and operational decision made in the ordinary course of business that most significantly influence the entity's economic performance.

•Kick-out rights - allow the ~~noncontrolling~~non-controlling equity holders to remove the general partner or managing member without cause.

If we conclude that any of the three characteristics of a VIE are met, including if equity holders lack the characteristics of a controlling financial interest because they lack both substantive participating rights and substantive kick-out rights, we conclude that the entity is a VIE and evaluate it for consolidation under the variable interest model.

THE NEW HOME COMPANY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

If an entity is deemed to be a VIE pursuant to ASC 810, the enterprise that has both (i) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (ii) the obligation to absorb the expected losses of the entity or right to receive benefits from the entity that could be potentially significant to the VIE is considered the primary beneficiary and must consolidate the VIE.

Under ASC 810, a ~~non-refundable~~nonrefundable deposit paid to an entity may be deemed to be a variable interest that will absorb some or all of the entity’s expected losses if they occur. Our land purchase and lot option deposits generally represent our maximum exposure to the land seller if we elect not to purchase the optioned property. In some instances, we may also expend funds for due diligence, development and construction activities with respect to optioned land prior to takedown. Such costs are classified as real estate inventories, which we would have to write off should we not exercise the option. Therefore, whenever we enter into a land option or purchase contract with an entity and make a ~~non-refundable~~nonrefundable deposit, a VIE may have been created.

As of June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the Company was not required to consolidate any VIEs. In accordance with ASC 810, we ~~perform~~reassess on an ongoing ~~reassessments of~~basis whether we are the primary beneficiary of a VIE.

~~Noncontrolling~~Non-controlling Interest

During 2013, the Company entered into a joint venture agreement with a third-party property owner. In accordance with ASC 810, the Company analyzed this arrangement and determined that it was not a VIE; however, the Company determined it was required to consolidate the joint venture as the Company has a controlling financial interest with the powers to direct the major decisions of the entity. As of June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the third-party investor had an equity balance of $0.1 million and $0.1 million, respectively.

Investments in and Advances to Unconsolidated Joint Ventures

We use the equity method to account for investments in homebuilding and land development joint ventures ~~that qualify~~when any of the following situations exist: 1) the joint venture qualifies as ~~VIEs where~~a VIE and we are not the primary beneficiary, ~~and other entities that~~2) we do not control the joint venture but have the ability to exercise significant influence over ~~the~~its operating and financial policies, ~~of the investee. The Company also uses the equity method when~~or 3) we function as the managing member or general partner of the joint venture and our joint venture partner has substantive participating rights or ~~where we~~ can ~~be replaced by our venture partner~~replace us as managing member or general partner without cause.

~~THE NEW HOME COMPANY INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

As of June 30, ~~2017,~~2018, the Company concluded that none of its joint ventures were VIEs and accounted for these entities under the equity method of accounting.

Under the equity method, we recognize our proportionate share of earnings and losses generated by the joint venture upon the delivery of lots or homes to third parties. Our proportionate share of intra-entity profits and losses are eliminated until the related asset has been sold by the unconsolidated joint venture to third parties. We classify cash distributions received from equity method investees using the cumulative earnings approach consistent with ASU No. 2016-15, Statement of Cash ~~Flows(Topic~~Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"). Under the cumulative earnings approach, distributions received are considered returns on investment and shall be classified as cash inflows from operating activities unless the cumulative distributions received exceed cumulative equity in earnings. When such an excess occurs, the current-period distribution up to this excess is considered a return of investment and shall be classified as cash inflows from investing activities. Our ownership interests in our unconsolidated joint ventures vary, but are generally less than or equal to 35%. The accounting policies of our joint ventures are consistent with those of the ~~Company.~~Company with an exception for the requirements of ASC 606 which our joint ventures had not adopted at June 30, 2018.

We review real estate inventory held by our unconsolidated joint ventures for impairment, consistent with how we review our real estate ~~inventories.~~inventories as described in more detail above in the section entitled "Real Estate Inventories and Cost of Sales." We also review our investments in and advances to unconsolidated joint ventures for evidence of other-than-temporary declines in value. To the extent we deem any portion of our investment in and advances to unconsolidated joint ventures as not recoverable, we impair our investment accordingly. For the three and six months ended June 30, ~~2017~~2018 and ~~2016,~~2017, no impairments related to investment in and advances to unconsolidated joint ventures were recorded.

THE NEW HOME COMPANY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Selling and Marketing Expense

~~Selling and marketing~~Effective January 1, 2018, costs incurred ~~to sell real estate projects~~for tangible assets directly used in the sales process such as our sales offices, design studios and model landscaping and furnishings are capitalized to other assets in the accompanying condensed consolidated balance sheets under ASC 340, Other Assets and Deferred Costs ("ASC 340"). These costs are depreciated to selling and marketing expenses generally over the shorter of 24 months or the actual estimated life of the selling community. All other selling and marketing costs, such as commissions and advertising, are expensed as incurred. Prior to January 1, 2018, the Company followed the guidance under ASC 970-340, Real Estate - Other Assets and Deferred Costs ("ASC 970"), and capitalized certain selling and marketing costs to other assets in the consolidated balance sheet if ~~they are~~the costs were reasonably expected to be recovered from the sale of the project or from incidental operations, and ~~are~~were incurred for tangible assets that ~~are~~were used directly through the selling period to aid in the sale of the project or services that ~~have~~had been performed to obtain regulatory approval of sales. These capitalizable selling and marketing costs ~~include,~~included, but ~~are~~were not limited to, model home design, model home decor and landscaping, and sales office/design studio setup. ~~All other selling and marketing~~These costs ~~such as commissions and advertising, are expensed in the period incurred and included in~~were amortized to selling and marketing expense inas the ~~accompanying condensed consolidated statements of operations.~~underlying homes were delivered.

Warranty Accrual

We offer warranties on our homes that generally cover various defects in workmanship or materials, or structural construction defects for one year. In addition, we ~~generally~~ provide a more limited warranty, which generally ranges from a minimum of two years up to the period covered by the applicable statute of repose, that covers certain defined construction defects. Estimated future direct warranty costs are accrued and charged to cost of sales in the period when the related homebuilding revenues are recognized. Amounts are accrued based upon the Company’s historical rates. In addition, the Company has received warranty payments from third-party property owners for certain of its fee building projects that have since closed-out where the Company has the contractual risk of construction. These payments are recorded as warranty accruals. We assess the adequacy of our warranty accrual on a quarterly basis and adjust the amounts recorded if necessary. Our warranty accrual is included in accrued expenses and other liabilities in the accompanying condensed consolidated balance sheets and adjustments to our warranty accrual are recorded through cost of sales.

Contracts and Accounts Receivable

Contracts and accounts receivable primarily represent the fees earned, but not collected, and reimbursable project costs incurred in connection with fee building agreements. The Company periodically evaluates the collectability of its contracts receivable, and, if it is determined that a receivable might not be fully collectible, an allowance is recorded for the amount deemed uncollectible. This allowance for doubtful accounts is estimated based on management’s evaluation of the contracts involved and the financial condition of its customers. Factors considered in such evaluations include, but are not limited to: (i) customer type; (ii) historical contract performance; (iii) historical collection and delinquency trends; (iv) customer credit worthiness; and (v) general economic conditions. In addition to contracts receivable, escrow receivables are included in contracts and accounts receivable in the accompanying condensed consolidated balance sheets. As of June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, no allowance was recorded related to contracts and accounts receivable.

Property, Equipment and ~~Equipment~~Capitalized Selling and Marketing Costs

Property, equipment and ~~equipment~~capitalized selling and marketing costs are recorded at cost and included in other assets in the accompanying condensed consolidated balance ~~sheets~~sheets. Property and equipment are depreciated to general and administrative expenses using the straight-line method over their estimated useful lives ranging from three to five years.

~~THE NEW HOME COMPANY INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Leasehold improvements are stated at cost and are amortized to general and administrative expenses using the straight-line method generally over the shorter of either their estimated useful lives or the term of the lease. Capitalized selling and marketing costs are depreciated using the straight-line method to selling and marketing expenses over the shorter of either 24 months or the actual estimated life of the selling community.

Income Taxes

Income taxes are accounted for in accordance with ASC 740, Income Taxes (“("ASC ~~740”~~740"). The consolidated provision for, or benefit from, income taxes is calculated using the asset and liability method, under which deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

Deferred tax assets are evaluated on a quarterly basis to determine if adjustments to the valuation allowance are required. In accordance with ASC 740, we assess whether a valuation allowance should be established based on the consideration of all

THE NEW HOME COMPANY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

available evidence using a ~~“more~~"more likely than ~~not”~~not" standard with respect to whether deferred tax assets will be realized. The ultimate realization of deferred tax assets depends primarily on the generation of future taxable income during the periods in which the differences become deductible. The value of our deferred tax assets will depend on applicable income tax rates. Judgment is required in determining the future tax consequences of events that have been recognized in our consolidated financial statements and/or tax returns. Differences between anticipated and actual outcomes of these future tax consequences could have a material impact on our consolidated financial statements.

ASC 740 defines the methodology for recognizing the benefits of uncertain tax return positions as well as guidance regarding the measurement of the resulting tax benefits. These provisions require an enterprise to recognize the financial statement effects of a tax position when it is more likely than not (defined as a likelihood of more than 50%), based on the technical merits, that the position will be sustained upon examination. In addition, these provisions provide guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The evaluation of whether a tax position meets the more-likely-than-not recognition threshold requires a substantial degree of judgment by management based on the individual facts and circumstances.

Stock-Based Compensation

We account for share-based awards in accordance with ASC 718, Compensation – Stock Compensation (“("ASC ~~718”~~718") and ASC 505-50, Equity – Equity Based Payments to Non-Employees (“("ASC ~~505-50”~~505-50").

ASC 718 requires that the cost resulting from all share-based payment transactions be recognized in a company's financial statements. ASC 718 requires all entities to apply a fair-value-based measurement method in accounting for share-based payment transactions with employees except for equity instruments held by employee share ownership plans.

On June 26, 2015, the Company entered into an agreement that transitioned Joseph Davis' role within the Company from Chief Investment Officer to a non-employee consultant to the Company. On February 16, 2017, the Company entered into an agreement that transitioned Wayne Stelmar's role within the Company from Chief Investment Officer to a non-employee consultant and non-employee director. Per the agreements, Mr. Davis' and Mr. Stelmar's outstanding equity awards will continue to vest in accordance with their original terms. Under ASC 505-50, if an employee becomes a non-employee and continues to vest in an award pursuant to the award's original terms, that award will be treated as an award to a non-employee prospectively, provided the individual is required to continue providing services to the employer (such as consulting services). Based on the terms and conditions of both Mr. Davis' and Mr. Stelmar's consulting agreements noted above, we ~~account~~accounted for their share-based awards in accordance with ASC ~~505-50.~~505-50 through March 31, 2018. ASC 505-50 ~~requires~~required that these awards be accounted for prospectively, such that the fair value of the awards will be re-measured at each reporting date until the earlier of (a) the performance commitment date or (b) the date the services required under the transition agreement with Mr. Davis or Mr. Stelmar have been completed. ASC 505-50 ~~requires~~required that compensation cost ultimately recognized in the Company's financial statements be the sum of (a) the compensation cost recognized during the period of time the individual was an employee (based on the grant-date fair value) plus (b) the fair value of the award determined on the measurement date determined in accordance with ASC 505-50 for the pro-rata portion of the vesting period in which the individual was a non-employee. Mr. Davis' outstanding awards fully vested during January 2017 and were fully expensed.

~~Beginning January 1, 2017,~~In June of 2018, the ~~Company adopted~~Financial Accounting Standards Board ("FASB") issued ASU No. ~~2016-09,~~ 2018-07,~~Compensation - Stock Compensation (Topic 718):~~ Improvements to ~~Employee~~Nonemployee Share-Based Payment Accounting (“("ASU ~~2016-09”~~2018-07")~~. ASU 2016-09 simplifies several aspects~~ which expanded the scope of ASC 718 to include share-based payments for acquiring goods and services from nonemployees, with certain exceptions. Under ASC 718, the measurement date for equity-classified, share-based awards is generally the grant date of the ~~accounting~~award. The Company early adopted ASU 2018-07 on April 1, 2018, at which time Mr. Stelmar's award was the only nonemployee award outstanding. In accordance with the transition guidance, the Company assessed Mr. Stelmar's award for ~~share-based payment transactions, including~~which a measurement date had not been established. The outstanding award was re-measured to fair value as of the ~~income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.~~April 1, 2018 adoption date. The adoption of ASU ~~2016-09 had no effect~~2018-07 provides administrative relief by fixing the remaining unamortized expense of the award and eliminating the requirement to quarterly re-measure the Company's one remaining nonemployee award. The Company adopted this standard on ~~beginning~~a modified retrospective basis booking a cumulative-effect adjustment of an $18,000 increase to retained earnings ~~or any other components~~and equal decrease to additional paid-in capital as of ~~equity or net assets.~~the beginning of the 2018 fiscal year. The ~~Company has elected~~remaining unamortized expense for Mr. Stelmar's award as of June 30, 2018 was $0.1 million.

Stock Retirement

When shares are retired, the Company’s policy is to ~~apply~~allocate the ~~amendments in ASC 2016-09 related~~excess of the repurchase price over the par value of shares acquired to ~~the presentation of excess income tax provisions on the statement of cash flows using a prospective~~both retained earnings and additional paid-in capital. The portion allocated to additional paid-in capital is

THE NEW HOME COMPANY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~transition method resulting in no adjustment~~determined by applying a percentage, which is determined by dividing the number of shares to be retired by the number of shares issued, to the ~~classification~~balance of additional paid-in capital as of the ~~prior year excess income tax provision from stock-based compensation in~~retirement date.

During the ~~accompanying condensed consolidated statement~~three and six months ended June 30, 2018, the Company repurchased and retired 205,240 shares of ~~cash flows.~~its common stock at an aggregate purchase price of $2.1 million. The shares were returned to the status of authorized but unissued.

Recently Issued Accounting Standards

The Company qualifies as an ~~“emerging~~"emerging growth ~~company”~~company" pursuant to the provisions of the Jumpstart Our Business Startups Act of 2012 (the ~~“JOBS Act”~~"JOBS Act"). Section 102 of the JOBS Act provides that an ~~“emerging~~"emerging growth ~~company”~~company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. As previously disclosed, the Company has chosen, irrevocably, to ~~“opt out”~~"opt out" of such extended transition period, and as a result, will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.

In May 2014, the ~~Financial Accounting Standards Board (“FASB”)~~FASB issued ~~Accounting Standards Update (“ASU”)~~ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) ~~(“ASU 2014-09”~~("ASC 606"), which supersedes existing accounting literature relating to how and when a company recognizes revenue. Under ~~ASU 2014-09,~~ASC 606, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services. Additionally, ~~ASU 2014-09~~ASC 606 supersedes existing ~~industry specific~~industry-specific accounting literature relating to how a company expenses certain selling and marketing costs. ~~In August 2015,~~Effective January 1, 2018, the ~~FASB issued ASU No. 2015-14,~~ ~~Revenue fromContracts with Customers (Topic 606): Deferral~~Company adopted the requirements of ~~the Effective Date~~, which delayed the effective date of ASU 2014-09 by one year. As a public company, ASU 2014-09 is effective for our interim and annual reporting periods beginning after December 15, 2017, and at that time, we expect to adopt the new standard underASC 606 using the modified retrospective approach.

Under the modified retrospective approach, ~~we will recognize~~the Company recognized the cumulative effect of initially applying the new standard as ~~an adjustment~~a $3.4 million, tax-effected decrease to the opening balance of retained ~~earnings. In anticipation~~earnings as of ~~this adoption, we have developed an implementation plan~~January 1, 2018. The comparative information has not been restated and ~~are working~~continues to ~~identify significant~~be reported as it was previously, under the appropriate accounting standards in effect for those periods. The adjustment to retained earnings related to a $4.7 million write-down of certain recoverable selling and marketing costs included in other assets that were formerly capitalized under ASC 970, but that no longer qualify for capitalization under the Company's accounting policy reflecting the changes ~~to our financial statements and accounting policies. At this time, we do not believe~~upon the adoption of ~~ASU 2014-09 will~~ASC 606. As a result of this write-down, the Company's deferred tax asset increased by $1.3 million. For the three and six months ended June 30, 2018, the Company expensed $0.9 million and $1.3 million, respectively, in selling and marketing costs that would have been capitalized and expensed over the underlying home closings under ASC 970. For the three and six months ended June 30, 2018, the Company depreciated $0.5 million and $0.8 million, respectively, less in selling and marketing expenses for its capitalized selling and marketing assets than it would have if these expenses were recognized as required by ASC 970. In addition, the accounting policy change resulted in the depreciation expense for capitalized selling and marketing assets to be included in the line item "depreciation and amortization" in the condensed consolidated statement of cash flows for the six months ended June 30, 2018, compared to netting the amortization expense in the net change to other assets line item. The adoption of ASC 606 did not have a material impact on other areas of the ~~amount~~Company's condensed consolidated balance sheet and statement of cash flows for the six months ended June 30, 2018 or the condensed consolidated statements of operations for the three and six months ended June 30, 2018.

In June 2018, the FASB issued ASU 2018-07, which was adopted by the Company on April 1, 2018 using the modified retrospective basis and resulted in a cumulative-effect adjustment of an $18,000 increase to retained earnings and an equal decrease to additional paid-in capital as of the beginning of the 2018 fiscal year. For further discussion of our ~~revenues. We will continue to evaluate the impact that~~ adoption of this ASU, 2014-09 will have on the timing of recognition of our revenues. Although we are still evaluating the accounting for selling and marketing costs under the new standard, adoption of ASU 2014-09 may impact the timing of recognition and classification of certain capitalized selling and marketing costs we incur to obtain sales contracts from our customers. Currently, these costs are capitalized and amortized to selling and marketing expenses as homes are delivered. Upon adoption of ASU 2014-09, portions of these costs may be expensed as incurred to selling and marketing expenses. The adoption of ASU 2014-09 by our unconsolidated joint ventures may impact the timing of recognition of income or loss allocations from these entities. We continue to evaluate the impact the adoption may have on other aspects of our business and on our consolidated financial statements and disclosures.

see “Stock-Based Compensation.”

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ~~(“ASU 2016-02”~~("ASC 842"). ~~ASU 2016-02~~ASC 842 will require organizations that lease assets (referred to as ~~“lessees”~~"lessees") to ~~recognize~~present lease assets and lease liabilities on the balance sheet at their gross value based on the ~~assets and liabilities for~~ the rights and obligations created by those leases. Under ~~ASU 2016-02,~~ASC 842, a lessee will be required to recognize assets and liabilities for leases with ~~lease terms of more~~greater than 12 ~~months.~~month terms. Lessor accounting remains substantially similar to current GAAP. ~~In addition,~~Additional disclosures ofincluding qualitative and quantitative information regarding leasing activities are ~~to be expanded to include qualitative along with specific quantitative information. ASU 2016-02~~also required. ASC 842 is effective for interim and annual reporting periods beginning after December 15, ~~2018. ASU 2016-02~~2018 and mandates a modified retrospective transition method. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), Targeted Improvements ("ASU 2018-11") which provides for an additional transition method that allows companies to apply the new lease standard at the adoption date, eliminating the requirement to apply the standard to the earliest period presented in the financial statements. The Company's lease ~~contracts~~agreements that will be impacted by ASC 842 primarily ~~consist of rental agreements for~~relate to our corporate headquarters, several other office ~~space~~locations and ~~copiers~~office or ~~printers~~construction equipment where we are the lessee. ~~The Company has begun the process of evaluating these lease contracts and believes~~We believe all applicable agreements would be considered operating leases. Upon adoption of ASC 842, we expect to add a right-of-use asset and a related lease liability to our consolidated balance ~~sheet. The Company will~~sheets. We expect to recognize lease expense on a straight-line ~~basis, consistent with our current policy for office rent. ASU 2016-02 is not expected to have a material impact on our consolidated financial statements.~~basis.

THE NEW HOME COMPANY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~In March 2016, the FASB issued ASU No. 2016-07,~~ ~~Investments- Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting~~ ("ASU 2016-07"), which eliminates the requirement to apply the equity method of accounting retrospectively when a reporting entity obtains significant influence over a previously held investment. Our adoption of ASU 2016-07 on January 1, 2017 did not have an effect on our condensed consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15. ASU 2016-15 provides guidance on how certain cash receipts and cash payments are to be presented and classified in the statement of cash flows. ASU 2016-15 is effective for interim and annual reporting periods beginning after December 15, ~~2017, and early adoption is permitted. We do not expect the~~2017. Our adoption of ASU 2016-15 toon January 1, 2018, did not have ~~a material effect~~an impact on our condensed consolidated financial statements and ~~disclosures.~~

~~THE NEW HOME COMPANY INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~In November 2016,~~disclosures as the ~~FASB issued ASU No. 2016-18,~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash~~ ~~("ASU 2016-18"). ASU 2016-16 requires that a statement of~~Company had previously classified cash ~~flows explain~~distributions received from equity method investees using the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted. The guidance is not expected to have a material impact on our consolidated financial statements.

~~In January 2017, the FASB issued ASU No. 2017-01,~~ ~~Business Combinations (Topic 805), Clarifying the Definition of a Business~~ ("ASU 2017-01"). ASU 2017-01 clarifies the definition of a business with the objective of addressing whether transactions involving in-substance nonfinancial assets, held directly or in a subsidiary, should be accounted for as acquisitions or disposals of nonfinancial assets or of businesses. ASU 2017-01 is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted for transactions, including acquisitions or dispositions, which occurred before the issuance date or effective date of the standard if the transactions were not reported in financial statements that have been issued or made available for issuance. The adoption of ASU 2017-01 is not expected to have a material effect on the Company’s consolidated financial statements.

cumulative earnings approach.

In February 2017, the FASB issued ASU No. 2017-05, Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets ("ASU 2017-05"). ASU 2017-05 clarifies the guidance for derecognition of nonfinancial assets and in-substance nonfinancial assets when the asset does not meet the definition of a business and is not a not-for-profit activity. We adopted ASU 2017-05 is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, but entities are required to adopt ASU 2017-05 at the same time they adopt ASU 2014-09. We expect to adopt the new standardon January 1, 2018 under the modified retrospective approach. ~~Under the modified retrospective approach, we will recognize the cumulative~~There was no effect of initially applying the new standard ~~as an adjustment~~and there was no impact to ~~the opening balance of retained earnings. We are still evaluating the effects ASU 2017-05 will have on~~ our condensed consolidated financial statements. We expect that adoption may decrease our accrued expenses and other liabilities due to certain non-financial assets that were previously exchanged for a noncontrolling interest in an unconsolidated joint venture.

In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718), Scope of Modification Accounting ("ASU 2017-09"). The guidance provides clarity and reduces diversity in practice and cost and complexity when accounting for a change to the terms or conditions of a share-based payment award. We adopted ASU 2017-09 ~~is effective for interim~~on January 1, 2018 and ~~annual reporting periods beginning after December 15, 2017. Early~~its adoption ~~is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements~~did not have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The adoption of ASU 2017-09 is not expected to have a materialan impact on our condensed consolidated financial statements.

In March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 ("ASU 2018-05"), which amends Income Taxes (Topic 740) by incorporating the Securities and Exchange Commission’s (“SEC”) Staff Accounting Bulletin 118 (“SAB 118”) issued on December 22, 2017. SAB 118 provides guidance on accounting for the effects of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). We recognized the income tax effects of the Tax Act in our 2017 financial statements in accordance with SAB 118. Please see Note 14 to our condensed consolidated financial statements for additional information.

~~THE NEW HOME COMPANY INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

2. Computation of Earnings (Loss) Per Share

The following table sets forth the components used in the computation of basic and diluted earnings ~~(loss)~~ per share for the three and six months ended June 30, ~~2017~~2018 and ~~2016:~~

2017:


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2018		2017		2018			2017
	(Dollars in thousands, except share and per share amounts)								(Dollars in thousands, except per share amounts)
Numerator:
Net income attributable to The New Home Company Inc.	$	1,517	$	2,509	$	2,363	$	1,695
Net income (loss) attributable to The New Home Company Inc.									$	115	$	1,517	$	(525	)	$	2,363

Denominator:
Basic weighted-average shares outstanding	20,869,429		20,709,139		20,819,288		20,654,998		20,958,991		20,869,429		20,942,601			20,819,288
Effect of dilutive shares:
Stock options and unvested restricted stock units	87,294		51,047		101,862		90,804		65,778		87,294		—			101,862
Diluted weighted-average shares outstanding	20,956,723		20,760,186		20,921,150		20,745,802		21,024,769		20,956,723		20,942,601			20,921,150

Basic earnings per share attributable to The New Home Company Inc.	$	0.07	$	0.12	$	0.11	$	0.08
Diluted earnings per share attributable to The New Home Company Inc.	$	0.07	$	0.12	$	0.11	$	0.08
Basic earnings (loss) per share attributable to The New Home Company Inc.									$	0.01	$	0.07	$	(0.03	)	$	0.11
Diluted earnings (loss) per share attributable to The New Home Company Inc.									$	0.01	$	0.07	$	(0.03	)	$	0.11

Antidilutive stock options and unvested restricted stock units not included in diluted earnings (loss) per share	22,077		888,953		846,725		867,272
Antidilutive stock options and unvested restricted stock units not included in diluted earnings per share									952,882		22,077		1,333,106			846,725

THE NEW HOME COMPANY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3. Contracts and Accounts Receivable

Contracts and accounts receivable consist of the following:


	June 30,			December 31,			June 30,			December 31,
	2017			2016			2018			2017
	(Dollars in thousands)						(Dollars in thousands)
Contracts receivable:
Costs incurred on fee building projects	$	99,825		$	178,103		$	79,737		$	184,827
Estimated earnings	2,973			8,404			2,152			5,497
	102,798			186,507			81,889			190,324
Less: amounts collected during the period	(89,321		)	(162,203		)	(69,557		)	(178,704		)
Contracts receivable	$	13,477		$	24,304		$	12,332		$	11,620

Contracts receivable:
Billed	$	—		$	—		$	—		$	—
Unbilled	13,477			24,304			12,332			11,620
	13,477			24,304			12,332			11,620
Accounts receivable:
Escrow receivables	4,721			3,385			7,157			11,554
Other receivables	123			144			881			50
Contracts and accounts receivable	$	18,321		$	27,833		$	20,370		$	23,224

Billed contracts receivable represent amounts billed to customers that have yet to be collected. Unbilled contracts receivable represents the contract revenue recognized but not yet ~~billable pursuant to contract terms or administratively not~~ invoiced. All unbilled receivables as of June 30, ~~2017~~2018 and December 31, ~~2016~~2017 are expected to be billed and collected within 30

~~THE NEW HOME COMPANY INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

days. Accounts payable at June 30, ~~2017~~2018 and December 31, ~~2016~~2017 includes ~~$12.1~~$10.8 million and ~~$22.8~~$11.3 million, respectively, related to costs incurred under the Company’s fee building contracts.

4. Real Estate Inventories ~~and Capitalized Interest~~

Real estate inventories are summarized as follows:


	June 30,		December 31,		June 30,		December 31,
	2017		2016		2018		2017
	(Dollars in thousands)				(Dollars in thousands)
Deposits and pre-acquisition costs	$	45,480	$	38,723	$	40,001	$	35,846
Land held and land under development	107,998		98,596		43,368		47,757
Homes completed or under construction	179,885		93,628		329,278		302,884
Model homes	32,037		55,981		57,091		29,656
	$	365,400	$	286,928	$	469,738	$	416,143

All of our deposits and pre-acquisition costs are ~~non-refundable,~~nonrefundable, except for refundable deposits of ~~$0.2~~$1.0 million and ~~$4.1~~$0.8 million as of June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.

Land held and land under development includes land costs and costs incurred during site development such as development, indirects, and permits. Homes completed or under construction and model homes ~~(except for capitalized selling and marketing costs, which are classified in other assets)~~ include all costs associated with home construction, including land, development, indirects, permits, materials and ~~labor.~~labor (except for capitalized selling and marketing costs, which are classified in other assets).

In accordance with ~~Accounting Standards Codification ("ASC")~~ASC 360,~~Property, Plant and Equipment~~ ~~(“ASC 360”),~~ inventory is stated at cost, unless the carrying amount is determined not to be recoverable, in which case inventory is written down to its fair value. We review each real estate asset at the community-level on a quarterly basis or whenever indicators of impairment exist. For the three and six months ended June 30, 2017, the Company recognized

THE NEW HOME COMPANY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

real estate-related impairments of $1.3 million in cost of sales resulting in a decrease of the same amount to pretax income ~~before income taxes~~(loss) for our homebuilding segment. Fair value for the homebuilding project impaired during ~~the~~2017 second quarter was calculated under a discounted cash flow ~~model.~~model with project cash flows discounted at an 8% rate. The following table summarizes inventory impairments recorded during the three and six months ended June 30, ~~2017~~2018 and ~~2016:~~2017:


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2018		2017		2018		2017
	(Dollars in Thousands)								(Dollars in Thousands)
Inventory impairments:
Home sales	$	1,300	$	—	$	1,300	$	—	$	—	$	1,300	$	—	$	1,300
Total inventory impairments	$	1,300	$	—	$	1,300	$	—	$	—	$	1,300	$	—	$	1,300

Remaining carrying value of inventory impaired at period end	$	12,550	$	—	$	12,550	$	—	$	—	$	12,550	$	—	$	12,550
Number of projects impaired during the period	1		—		1		—		—		1		—		1
Total number of projects subject to periodic impairment review during the year ⁽¹⁾	25		23		26		23
Total number of projects subject to periodic impairment review during the period ⁽¹⁾									26		25		26		26

⁽¹⁾ Represents the peak number of real estate projects that we had during each respective period. The number of projects outstanding at the end of each period

may be less than the number of projects listed herein.

The home sales impairments of $1.3 million related to homes completed or under construction for one active homebuilding community located in Southern California. This community was experiencing a slow monthly sales absorption

~~THE NEW HOME COMPANY INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

rate, and the Company determined that additional incentives were required to sell the remaining homes ~~and lots~~ at estimated aggregate sales prices that would be lower than its previous carrying value.

THE NEW HOME COMPANY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5. Capitalized Interest

Interest is capitalized to inventory and investment in unconsolidated joint ventures during development and other qualifying activities. Interest capitalized as a cost of inventory is included in cost of sales as related homes are closed. Interest capitalized to investment in unconsolidated joint ventures is amortized to equity in net income (loss) of unconsolidated joint ventures as related joint venture homes or lots ~~close.~~close, or in instances where lots are sold from the unconsolidated joint venture to the Company, the interest is added to the land basis and included in cost of sales when the related lots or homes are sold to third-party buyers. For the three and six months ended June 30, ~~2017~~2018 and ~~2016~~2017 interest incurred, capitalized and expensed was as follows:


	Three Months Ended June 30,						Six Months Ended June 30,						Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
	(Dollars in thousands)												(Dollars in thousands)
Interest incurred	$	6,401		$	1,689		$	8,437		$	2,970		$	6,612		$	6,401		$	13,328		$	8,437
Interest capitalized to inventory	(5,878		)	(1,689		)	(7,750		)	(2,970		)	(6,149		)	(5,878		)	(12,344		)	(7,750		)
Interest capitalized to investments in unconsolidated joint ventures	(523		)	—			(687		)	—
Interest capitalized to investment in unconsolidated joint ventures													(463		)	(523		)	(984		)	(687		)
Interest expensed	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—

Capitalized interest in beginning inventory	$	6,663		$	4,823		$	6,342		$	4,190		$	19,884		$	6,663		$	16,453		$	6,342
Interest capitalized as a cost of inventory	5,878			1,689			7,750			2,970			6,149			5,878			12,344			7,750
Capitalized interest transferred from investment in unconsolidated joint venture to inventory upon lot acquisition													5			—			5			—
Previously capitalized interest included in cost of sales	(1,720		)	(1,063		)	(3,271		)	(1,711		)	(3,750		)	(1,720		)	(6,514		)	(3,271		)
Capitalized interest in ending inventory	$	10,821		$	5,449		10,821			5,449			$	22,288		$	10,821		22,288			10,821

Capitalized interest in beginning investment in unconsolidated joint ventures	164			—			—			—			$	1,962		$	164		$	1,472		$	—
Interest capitalized to investments in unconsolidated joint ventures	523			—			687			—
Previously capitalized interest included in equity in net income of unconsolidated joint ventures	—			—			—			—
Capitalized interest in ending investments in unconsolidated joint ventures	687			—			687			—
Interest capitalized to investment in unconsolidated joint ventures													463			523			984			687
Capitalized interest transferred from investment in unconsolidated joint venture to inventory upon lot acquisition													(5		)	—			(5		)	—
Previously capitalized interest included in equity in net income (loss) of unconsolidated joint ventures													(18		)	—			(49		)	—
Capitalized interest in ending investment in unconsolidated joint ventures													2,402			687			2,402			687
Total capitalized interest in ending inventory and investments in unconsolidated joint ventures	$	11,508		$	5,449		$	11,508		$	5,449		$	24,690		$	11,508		$	24,690		$	11,508

Capitalized interest as a percentage of inventory	3.0		%	1.4		%	3.0		%	1.4		%	4.7		%	3.0		%	4.7		%	3.0		%
Interest included in cost of sales as a percentage of home sales revenue	1.8		%	1.3		%	2.0		%	1.4		%	3.2		%	1.8		%	3.3		%	2.0		%

Capitalized interest as a percentage of investments in and advances to unconsolidated joint ventures	1.2		%	—		%	1.2		%	—		%
Capitalized interest as a percentage of investment in and advances to unconsolidated joint ventures													4.1		%	1.2		%	4.1		%	1.2		%

THE NEW HOME COMPANY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5.6. Investments in and Advances to Unconsolidated Joint Ventures

As of June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the Company had ownership interests in ~~12 and 13, respectively,~~10 unconsolidated joint ventures with ownership percentages that generally ~~range~~ranged from 5% to 35%. The condensed combined balance sheets for our unconsolidated joint ventures accounted for under the equity method ~~are~~were as follows:


	June 30,			December 31,			June 30,			December 31,
	2017			2016			2018			2017
	(Dollars in thousands)						(Dollars in thousands)
Cash and cash equivalents	$	31,304		$	33,683		$	26,231		$	30,017
Restricted cash	16,176			8,374			15,048			15,041
Real estate inventories	407,239			386,487			439,013			396,850
Other assets	1,922			1,664			1,422			3,942
Total assets	$	456,641		$	430,208		$	481,714		$	445,850

Accounts payable and accrued liabilities	$	28,109		$	28,706		$	33,844		$	34,959
Notes payable	106,111			97,664			75,616			78,341
Total liabilities	134,220			126,370			109,460			113,300
The New Home Company's equity	49,226			46,857			56,099			50,523
Other partners' equity	273,195			256,981			316,155			282,027
Total equity	322,421			303,838			372,254			332,550
Total liabilities and equity	$	456,641		$	430,208		$	481,714		$	445,850
Debt-to-capitalization ratio	24.8		%	24.3		%	16.9		%	19.1		%
Debt-to-equity ratio	32.9		%	32.1		%	20.3		%	23.6		%

As of June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the Company had advances outstanding of approximately ~~$6.0 million~~$0 and ~~$4.0~~$3.8 million, respectively, to ~~these~~one of its unconsolidated joint ventures, which were included in the notes payable balances of the unconsolidated joint ventures in the table above. The advances ~~relate~~related to an unsecured promissory note entered into on October 31, 2016 and amended on February 3, 2017 with Encore McKinley Village LLC ("Encore McKinley"), an unconsolidated joint venture of the Company. The note ~~bears~~bore interest at 10% per annum and ~~matures on October 31, 2017, with~~was fully repaid during the ~~right to extend to October 31, 2018.~~2018 second quarter.

The condensed combined statements of operations for our unconsolidated joint ventures accounted for under the equity method ~~are~~were as follows:


	Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016		2017			2016		2018			2017			2018		2017
	(Dollars in thousands)										(Dollars in thousands)
Revenues	$	35,171		$	70,104	$	61,791		$	112,061	$	33,879		$	35,171		$	65,892	$	61,791
Cost of sales and expenses	35,825			59,909		63,309			99,725		34,165			35,825			65,374		63,309
Net (loss) income of unconsolidated joint ventures	$	(654	)	$	10,195	$	(1,518	)	$	12,336
Equity in net income of unconsolidated joint ventures reflected in the accompanying consolidated statements of operations	$	201		$	3,947	$	507		$	3,940
Net income (loss) of unconsolidated joint ventures											$	(286	)	$	(654	)	$	518	$	(1,518	)
Equity in net income (loss) of unconsolidated joint ventures reflected in the accompanying condensed consolidated statements of operations											$	(120	)	$	201		$	215	$	507

For the three and six months ended June 30, ~~2017~~2018 and ~~2016,~~2017, the Company earned $0.7 million, $1.7 million, $1.2 million, ~~$2.4 million, $2.5 million,~~ and ~~$4.7~~$2.4 million respectively, in management fees from its unconsolidated joint ventures. For additional detail regarding management fees, please see Note ~~11 to the unaudited condensed consolidated financial statements.~~12 - "Related Party Transactions."

During the 2017 second quarter, our Larkspur Land 8 Investors LLC unconsolidated joint venture ~~(Larkspur)~~("Larkspur") allocated $0.1 million of income to the Company from a reduction in cost to complete reserves, which was included in equity in net income (loss) of unconsolidated joint ventures in the accompanying condensed consolidated statements of operations, and our ~~outside~~ equity partner exited the joint venture. Upon the change in control, we were required to consolidate this venture as a wholly

THE NEW HOME COMPANY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

owned subsidiary and the Company assumed the cash, other assets, and accrued liabilities, including warranty and the remaining costs to complete reserves, of the joint venture. As part of this transaction, ~~and in accordance with ASC 805, Business Combinations,~~ the Company also recognized a gain of $0.3 million, which was included in equity in net income ~~of unconsolidated joint ventures in the accompanying condensed consolidated statements of operations, due to the purchase of our JV partner's interest for less than its carrying value.~~

During June 2016, our LR8 Investors LLC unconsolidated joint venture (LR8) made its final distributions, allocated $0.5 million of income to the Company from a reduction in warranty reserves, which was included in equity in net income of unconsolidated joint ventures in the accompanying condensed consolidated statements of operations, and our outside equity partner exited the joint venture. Upon the change in control, we were required to consolidate this venture as a wholly owned subsidiary and the Company assumed the cash, accounts receivable, accounts payable, and accrued liabilities, including the remaining warranty reserve, of the joint venture. As part of this transaction, and in accordance with ASC 805, Business Combinations, the Company also recognized a gain of $1.1 million, which was included in equity in net income(loss) of unconsolidated joint ventures in the accompanying condensed consolidated statements of operations, due to the purchase of our JV partner's interest for less than its carrying value.

6.7. Other Assets

Other assets consist of the following:


	June 30,		December 31,		June 30,		December 31,
	2017		2016		2018		2017
	(Dollars in thousands)				(Dollars in thousands)
Capitalized selling and marketing costs⁽¹⁾	$	11,878	$	10,101

Property, equipment and capitalized selling and marketing costs, net⁽¹⁾⁽²⁾					$	10,059	$	603
Deferred tax asset, net	8,488		8,434		7,798		6,317
Property and equipment, net of accumulated depreciation	716		857
Prepaid income taxes					1,251		—
Prepaid expenses	2,834		1,907		5,554		4,937
Warranty insurance receivable⁽³⁾					1,202		1,202
Capitalized selling and marketing costs⁽¹⁾⁽⁴⁾					—		11,232
	$	23,916	$	21,299	$	25,864	$	24,291

(1) The Company amortized $2.1 million, $3.2 million, $1.6 million, and $2.4 million of capitalized selling and marketing project costs to selling and marketing expenses during the three and six months ended June 30, 2017 and 2016, respectively.

(1)

Under the adoption of the requirements of ASC 606 on January 1, 2018, certain selling and marketing costs that were previously capitalized under former accounting guidance were written off. For the current year, remaining selling and marketing costs and those incurred during the first half of 2018 that are permitted to be capitalized under ASC 340 are included as "Property, equipment and capitalized selling and marketing costs, net" within "Other Assets." Under the modified retrospective adoption approach, the December 31, 2017 balance has not been restated. For more information on the adoption of ASC 606, please refer to Note 1.


(2)	The Company depreciated $1.5 million and $2.4 million of capitalized selling and marketing costs to selling and marketing expenses during the three and six months ended June 30, 2018.


(3)	Of the $1.2 million amount for December 2017, approximately $0.6 million related to 2016 estimated warranty insurance recoveries. For further discussion, please see Note 8.


(4)	The Company amortized $2.1 million and $3.2 million of capitalized selling and marketing costs to selling and marketing expenses during the three and six months ended June 30, 2017.

7.8. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consist of the following:


	June 30,		December 31,		June 30,		December 31,
	2017		2016		2018		2017
	(Dollars in thousands)				(Dollars in thousands)
Warranty accrual(1)	$	5,399	$	4,931	$	6,998	$	6,859
Accrued compensation and benefits	3,181		6,786		2,545		9,164
Accrued interest	6,872		648		6,176		6,217
Completion reserve	1,471		1,355		2,379		5,792
Income taxes payable	—		7,147		—		6,368
Deferred profit from unconsolidated joint ventures	460		957		—		136
Other accrued expenses	2,090		1,594		5,698		3,518
	$	19,473	$	23,418	$	23,796	$	38,054

(1)

Included in the amount at December 31, 2017 is approximately $1.2 million of additional warranty liabilities estimated to be covered by our insurance policies that were adjusted to present the warranty reserves and related estimated warranty insurance receivable on a gross basis at December 31, 2017. Of this amount, approximately $0.6 million related to 2016 estimated warranty insurance recoveries.

THE NEW HOME COMPANY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Changes in our warranty accrual are detailed in the table set forth below:


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
	(Dollars in thousands)												(Dollars in thousands)
Beginning warranty accrual for homebuilding projects	$	4,678		$	4,057		$	4,608		$	3,846		$	6,775		$	4,678		$	6,634		$	4,608
Warranty provision for homebuilding projects	331			493			602			805			470			331			986			602
Warranty assumed from joint venture at consolidation	358			469			358			469
Warranty assumed from joint ventures at consolidation													—			358			—			358
Warranty payments for homebuilding projects	(291		)	(145		)	(492		)	(246		)	(469		)	(291		)	(844		)	(492		)
Ending warranty accrual for homebuilding projects	5,076			4,874			5,076			4,874			6,776			5,076			6,776			5,076

Beginning warranty accrual for fee building projects	323			332			323			335			223			323			225			323
Warranty provision for fee building projects	—			—			—			—			—			—			—			—
Warranty efforts for fee building projects	—			(1		)	—			(4		)	(1		)	—			(3		)	—
Ending warranty accrual for fee building projects	323			331			323			331			222			323			222			323
Total ending warranty accrual	$	5,399		$	5,205		$	5,399		$	5,205		$	6,998		$	5,399		$	6,998		$	5,399

We maintain general liability insurance designed to protect us against a portion of our risk of loss from construction-related warranty and construction defect claims. Our warranty accrual and related estimated insurance recoveries are based on historical claim and expense data, and expected recoveries from insurance carriers are recorded based on actual insurance claims and amounts determined using our warranty accrual estimates, our insurance policy coverage limits for the applicable policy years and historical recovery rates. Because of the inherent uncertainty and variability in these assumptions, our actual insurance recoveries could differ significantly from amounts currently estimated.

8.9. Senior Notes and Unsecured Revolving Credit Facility

Notes payable consisted of the following:


	June 30,		December 31,		June 30,		December 31,
	2017		2016		2018		2017
	(Dollars in thousands)				(Dollars in thousands)
7.25% Senior Notes due 2022, net	$	318,121	$	—	$	319,402	$	318,656
Senior unsecured revolving credit facility	—		118,000
Unsecured revolving credit facility					35,000		—
Total Notes Payable	$	318,121	$	118,000	$	354,402	$	318,656

The carrying amount of our senior notes listed above at June 30, 2018 is net of the unamortized discount of ~~$2.5~~$1.9 million, unamortized premium of ~~$2.0~~$1.5 million, and ~~$6.4~~$5.2 million of unamortized debt issuance costs that are amortized and capitalized to interest costs on a straight-line basis over the respective terms of the ~~notes.~~notes which approximates the effective interest method. Debt issuance costs for the unsecured revolving credit facility are included in other assets and amortized and capitalized to interest costs on a straight-line basis over the term of the agreement.

On March 17, 2017, the Company completed the sale of $250 million in aggregate principal amount of 7.25% Senior Notes due 2022 (the "Existing Notes"), in a private placement. The Existing Notes were issued at an offering price of 98.961% of their face amount, which represents a yield to maturity of 7.50%. On May 4, 2017, the Company completed a tack-on private placement offering through the sale of an additional $75 million in aggregate principal amount of the 7.25% Senior Notes due 2022 ("Additional Notes"). The Additional Notes were issued at an offering price of 102.75% of their face amount plus accrued interest since March 17, 2017, which represented a yield to maturity of 6.438%. Net proceeds from the Existing Notes were used to repay all borrowings outstanding under the Company’s senior unsecured revolving credit facility with the remainder ~~to be~~ used for general corporate purposes. Net proceeds from the Additional Notes ~~will be~~were used for working capital, land

THE NEW HOME COMPANY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

acquisition and general corporate purposes. Interest on the Existing Notes and the Additional Notes ~~(collectively,~~(together, the ~~“Notes”~~"Notes") ~~will be~~is paid semiannually in arrears on April 1 and October ~~1, commencing October 1, 2017.~~1. The Notes ~~will mature on April 1, 2022.~~were exchanged in an exchange offer for Notes that are identical to the original Notes, except that they are registered under the Securities Act of 1933, as amended and are freely tradeable in accordance with applicable law.

The Notes are general senior unsecured obligations that rank equally in right of payment to all existing and future senior indebtedness, including borrowings under the Company's senior unsecured revolving credit facility. The Notes contain certain restrictive covenants, including a limitation on additional indebtedness and a limitation on restricted payments. Restricted payments include, among other things, dividends, investments in unconsolidated entities, and stock repurchases. Under the limitation on additional indebtedness, we are permitted to incur specified categories of indebtedness but are prohibited, aside from those exceptions, from incurring further indebtedness if we do not satisfy either a leverage condition or an interest coverage condition. Exceptions to the limitation include, among other things, borrowings of up to $260 million under existing or future bank credit facilities, non-recourse indebtedness, and indebtedness incurred for the purpose of refinancing or repaying certain existing indebtedness. Under the limitation on restricted payments, we are also prohibited from

~~THE NEW HOME COMPANY INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

making restricted payments, aside from certain exceptions, if we do not satisfy either condition. In addition, the amount of restricted payments that we can make is subject to an overall basket limitation, which builds based on, among other things, 50% of consolidated net income from January 1, 2017 and 100% of the net cash proceeds from qualified equity offerings. Exceptions to the foregoing limitations on our ability to make restricted payments include, among other things, investments in joint ventures and other investments up to 15% of our consolidated tangible net assets and a general basket of ~~$15,000,000.~~$15 million. The Notes are guaranteed, on an unsecured basis, jointly and severally, by all of the Company's 100% owned subsidiaries. See Note 1617 for information about the guarantees and supplemental financial statement information about our guarantor subsidiaries group and non-guarantor subsidiaries group. The Company executed registration rights agreements pursuant to which it agreed to register the Notes. If we fail to register the Notes by mid-November 2017, as set forth in the registration rights agreements, we have agreed to pay additional interest to the holders of the effected Notes at a rate of 0.25% per annum for the first 90-day period immediately following the occurrence of such default, which such rate increasing by an additional 0.25% per annum with respect to each subsequent 90-day period until all such defaults have been cured, up to a maximum additional interest rate of 1.0% per annum.

The Company's unsecured revolving credit facility ("Credit Facility") is with a bank group ~~with a total commitment of $260~~and matures on September 1, 2020. Total commitments under the Credit Facility are $200 million ~~and~~with an accordion feature that allows ~~borrowings~~the facility size thereunder to be increased up to an aggregate of ~~$350~~$300 million, subject to certain conditions, including the availability of bank ~~commitments, and a maturity date of April 30, 2019.~~commitments. As of June 30, ~~2017,~~2018, we had no$35 million of outstanding borrowings under the credit facility. ~~We may repay advances at any time without premium or penalty.~~ Interest is payable monthly and is charged at a rate of 1-month LIBOR plus a margin ranging from 2.25% to 3.00% depending on the Company’s leverage ratio as calculated at the end of each fiscal quarter. As of June 30, ~~2017,~~2018, the interest rate under the Credit Facility was ~~3.72%~~4.84%. Pursuant to the Credit Facility, the Company is required to maintain certain financial covenants as defined in the Credit Facility, including (i) a minimum tangible net worth; (ii) maximum leverage ratios; (iii) a minimum liquidity covenant; and (iv) a minimum fixed charge coverage ratio based on EBITDA (as detailed in the Credit Facility) to interest incurred. As of June 30, ~~2017,~~2018, the Company was in compliance with all financial covenants.

The Credit Facility also provides a $25 million sublimit for letters of credit, subject to conditions set forth in the agreement. As of June 30, 2018 and December 31, 2017, the Company had $3.4 million in outstanding letters of credit issued under the Credit Facility.

10. Fair Value Disclosures

ASC 820, Fair Value Measurements and Disclosures, defines fair value as the price that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at a measurement date and requires assets and liabilities carried at fair value to be classified and disclosed in the following three categories:



•	Level 1 – Quoted prices for identical instruments in active markets
•	Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are inactive; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets at measurement date
•	Level 3 – Valuations derived from techniques where one or more significant inputs or significant value drivers are unobservable in active markets at measurement date

Fair Value of Financial Instruments

The following table presents an estimated fair value of the Company's ~~senior notes measured on a recurring basis.~~Notes and Credit Facility. The ~~estimated value is based on~~Notes are classified as Level 2 ~~inputs, which~~and primarily reflect estimated prices ~~for our Notes~~ obtained from outside pricing sources. The Company's Credit Facility is classified as Level 3 within the fair value hierarchy. The Company had an outstanding balance of $35.0 million under its Credit Facility at June 30, 2018, and the estimated fair value of the outstanding balance approximated the carrying value due to the short-term nature of LIBOR contracts.

June 30, 2017 December 31, 2016
Carrying Amount Fair Value Carrying Amount Fair Value
(dollars in thousands)
7.25% Senior Notes due 2022, net ⁽¹⁾
$ 318,121
$ 334,750
$ —
$ —



	June 30, 2018				December 31, 2017
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Dollars in thousands)
7.25% Senior Notes due 2022, net ⁽¹⁾	$	319,402	$	332,313	$	318,656	$	336,375
Unsecured revolving credit facility	$	35,000	$	35,000	$	—	$	—

(1) The carrying value for the Senior Notes, as presented at June 30, 2018, is net of the unamortized discount of ~~$2.5~~$1.9 million, unamortized premium of ~~$2.0~~$1.5 million, and ~~$6.4~~$5.2 million of unamortized debt issuance costs. The carrying value for the Senior Notes, as presented at December 31, 2017, is net of the unamortized discount of $2.2 million, unamortized premium of $1.8 million, and $5.9 million of unamortized debt issuance costs. The unamortized discount, unamortized premium and debt issuance costs are not factored into the estimated fair value.

The Company determined that the fair value estimate of its unsecured revolving credit facility is classified as Level 3 within the fair value hierarchy. The Company had no outstanding balance on the revolving credit facility at June 30, 2017, and the estimated fair value of the outstanding revolving credit facility balance at December 31, 2016 approximated the carrying value due to the short-term nature of LIBOR contracts.

~~THE NEW HOME COMPANY INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

The Company considers the carrying value of cash and cash equivalents, restricted cash, contracts and accounts receivable, accounts payable, and accrued expenses and other liabilities to approximate the fair value of these financial instruments based on the short duration between origination of the instruments and their expected realization. The fair value of amounts due from affiliates is not determinable due to the related party nature of such amounts.

Non-Recurring Fair Value Adjustments

Nonfinancial assets and liabilities include items such as inventory and long-lived assets that are measured at cost when acquired and adjusted for impairment to fair value, if deemed necessary. For the three and six months ended June 30, 2017, the Company recognized a real estate-related impairment ~~adjustment~~adjustments of $1.3 ~~million.~~million related to one homebuilding community. The impairment adjustment was made using Level 3 inputs and ~~assumptions. The fair~~assumptions, and the carrying value of the real estate inventories subject to the 2017 impairment ~~adjustments~~adjustment was $12.6 million at June 30, 2017.

~~10.~~11. Commitments and Contingencies

From time-to-time, the Company is involved in various legal matters arising in the ordinary course of business. These claims and legal proceedings are of a nature that we believe are normal and incidental to a homebuilder. We make provisions for loss contingencies when they are probable and the amount of the loss can be reasonably estimated. Such provisions are assessed at least quarterly and adjusted to reflect the impact of any settlement negotiations, judicial and administrative rulings, advice of legal counsel, and other information and events pertaining to a particular case. In view of the inherent unpredictability of litigation, we generally cannot predict their ultimate resolution, related timing or eventual loss. At this time, we do not believe that our loss contingencies, individually or in the aggregate, are material to our consolidated financial statements.

As an owner and developer of real estate, the Company is subject to various environmental laws of federal, state and local governments. The Company is not aware of any environmental liability that could have a material adverse effect on its financial condition or results of operations. However, changes in applicable environmental laws and regulations, the uses and conditions of real estate in the vicinity of the Company’s real estate and other environmental conditions of which the Company is unaware with respect to the real estate could result in future environmental liabilities.

The Company has provided credit enhancements in connection with joint venture borrowings in the form of LTV maintenance agreements in order to secure the joint venture's performance under the loans and maintenance of certain LTV ratios. The Company has also entered into agreements with its partners in each of the unconsolidated joint ventures whereby the Company and its partners are apportioned liability under the LTV maintenance agreements according to their respective capital interest. In addition, the agreements provide the Company, to the extent its partner has an unpaid liability under such credit enhancements, the right to receive distributions from the unconsolidated joint venture that would otherwise be made to the partner. However, there is no guarantee that such distributions will be made or will be sufficient to cover the ~~share of the~~Company's liability ~~apportioned to us.~~under such LTV maintenance agreements. The loans underlying the LTV maintenance agreements comprise acquisition and development loans, construction revolvers and model home loans, and the agreements remain in force until the loans are satisfied. Due to the nature of the loans, the outstanding balance at any given time is subject to a number of factors including the status of site improvements, the mix of horizontal and vertical development underway, the timing of phase build outs, and the period necessary to complete the escrow process for homebuyers. As of June 30, ~~2017~~2018 and December 31, ~~2016, $61.0~~2017, $31.3 million and ~~$56.0~~$38.6 million, respectively, was outstanding under loans that are credit enhanced by the Company through LTV maintenance agreements. Under the terms of the joint venture agreements, the Company's proportionate share of LTV maintenance agreement liabilities was ~~$9.6~~$5.0 million and ~~$8.6~~$6.7 million, respectively, as of June 30, ~~2017~~2018 and December 31, ~~2016.~~2017. In addition, the Company has provided completion agreements regarding specific performance for certain projects whereby the Company is required to complete the given project with funds provided by the beneficiary of the agreement. If there are not adequate funds available under the specific project loans, the Company would then be subject to financial liability under such

THE NEW HOME COMPANY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

completion agreements. Typically, under such terms of the joint venture agreements, the Company has the right to apportion the respective share of any costs funded under such completion agreements to its partners. However, there is no guarantee that we will be able to recover against our partners for such amounts owed to us under the terms of such joint venture agreements. In connection with joint venture borrowings, the Company also selectively provides (a) an environmental indemnity provided to the lender that holds the lender harmless from and against losses arising from the discharge of hazardous materials from the property and non-compliance with applicable environmental laws; and (b) indemnification of the lender from ~~“bad~~"bad boy ~~acts”~~acts" of the unconsolidated ~~entity.~~entity such as fraud, misrepresentation, misapplication or non-payment of rents, profits, insurance, and condemnation proceeds, waste and mechanic liens, and bankruptcy.

We obtain surety bonds in the normal course of business to ensure completion of certain infrastructure improvements of our projects. As of June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the Company had outstanding surety bonds totaling ~~$47.5~~$50.8 million and ~~$44.0~~$52.1 million, respectively. The estimated remaining costs to complete of such improvements as of June 30, ~~2017~~2018 and December 31, ~~2016~~2017 were ~~$15.0~~$19.4 million and ~~$15.7~~$24.4 million, respectively. The beneficiaries of the bonds are various

~~THE NEW HOME COMPANY INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

municipalities and other organizations. In the event that any such surety bond issued by a third party is called because the required improvements are not completed, the Company could be obligated to reimburse the issuer of the bond.

~~On May 6, 2015,~~During the 2017 third quarter, the Company ~~entered into~~amended a ~~letter~~joint venture agreement pursuant to which it, among other things, agreed to acquire approximately 400 lots in Phase 1 of ~~credit facility~~the joint venture project and posted a $5.1 million nonrefundable deposit for the acquisition of such lots. The agreement ~~that~~ allows for the Company to enter the property in advance of the closing date to perform certain improvements, which it began in the 2018 second quarter and ~~certain affiliated unconsolidated joint ventures to issue up to $5.0 million in letters of credit.~~totaled $4.1 million. The agreement includes an option to increase this amount to $7.5 million, subject to certain conditions. As of June 30, 2017, our affiliated unconsolidated joint ventures had $1.8 million in outstanding letters of credit issued under this facility andrequired the Company ~~had no obligations associated with such outstanding JV letters~~to reimburse the joint venture for the costs of ~~credit.~~

these improvement which were estimated to be $17.0 million should the Company not acquire the lots. In July of 2018, the Company acquired these lots eliminating the potential reimbursement contingency.

~~11.~~

12. Related Party Transactions

During the three and six months ended June 30, ~~2017~~2018 and ~~2016,~~2017, the Company incurred construction-related costs on behalf of its unconsolidated joint ventures totaling ~~$1.7~~$1.5 million, ~~$4.0~~$3.6 million, $1.7 million and ~~$4.4~~$4.0 million, respectively. As of June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, $0.1 million and ~~$0.2~~$0.1 million, respectively, are included in due from affiliates in the accompanying condensed consolidated balance sheets related to such costs.

The Company has entered into agreements with its unconsolidated joint ventures to provide management services related to the underlying projects (collectively referred to as the ~~“Management Agreements”~~"Management Agreements"). Pursuant to the Management Agreements, the Company receives a management fee based on each project’s revenues. During the three and six months ended June 30, ~~2017~~2018 and ~~2016,~~2017, the Company earned $0.7 million, $1.7 million, $1.2 million ~~$2.4 million, $2.5 million~~ and ~~$4.7~~$2.4 million, respectively, in management fees, which have been recorded as fee building ~~revenue~~revenues in the accompanying condensed consolidated statements of operations. As of June 30, ~~2017~~2018 and December 31, ~~2016, $0.1 million~~2017, $24,000 and ~~$0.6~~$0.3 million, respectively, of management fees are included in due from affiliates in the accompanying condensed consolidated balance sheets.

One member of the Company's board of directors beneficially owns more than 10% of the Company's outstanding common stock through an affiliated entity, IHP Capital Partners VI, LLC, and is also affiliated with ~~an entity~~entities that ~~has~~have investments in two of the Company's unconsolidated joint ~~ventures.~~ventures, TNHC Meridian Investors LLC and TNHC Russell Ranch LLC ("Russell Ranch"). A ~~separate~~former member of the Company's board of directors is ~~also~~ affiliated with ~~an entity~~entities that ~~has~~have investments in three of the Company's unconsolidated joint ~~ventures.~~ventures, Arantine Hills Holdings LP ("Bedford"), Calabasas Village LP, and TNHC-TCN Santa Clarita, LP. As of June 30, ~~2017,~~2018, the Company's investment in these five unconsolidated joint ventures totaled ~~$24.1~~$41.2 million. During the 2017 second quarter, the Bedford joint venture agreement was amended to increase the Company's funding obligation by $4.0 million over the existing contribution cap. During the 2017 third quarter, the Company amended the Russell Ranch joint venture agreement pursuant to which it, among other things, agreed to acquire approximately 400 lots in Phase 1 of the project. At June 30, 2018, the Company had a $5.1 million nonrefundable deposit outstanding related to this purchase, which was subsequently applied to the purchase price of the land when it was fully taken down in July of 2018.

TL Fab LP, an affiliate of one of the Company's non-employee directors, was engaged by the Company and some of its unconsolidated joint ventures as a trade contractor to provide metal fabrication services. For the three and six months ended June 30, ~~2017~~2018 and ~~2016,~~2017, the Company incurred $0.1 million, ~~$0.3~~$0.2 million, $0.1 million and ~~$0.2~~$0.3 million, respectively, for these services. ~~The~~For the same periods, the Company's unconsolidated joint ventures incurred $0, $0.4 million, $0.3 million ~~$0.6 million, $0.2 million~~ and ~~$0.4~~$0.6 million, respectively, for these services. Of these costs, ~~$10,000~~$0 and ~~$33,000~~$10,700 was due to TL Fab LP from the Company at June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively, and ~~$130,000 and $14,000~~$0 was due to TL Fab LP from the Company's unconsolidated joint ventures at both June 30, ~~2017~~2018 and December 31, ~~2016, respectively.~~2017.

In its ordinary course of business, the Company enters into agreements to purchase lots from unconsolidated land development joint ventures of which it is a member. In accordance with ASC 360-20, Property, Plant and Equipment - Real

THE NEW HOME COMPANY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Estate Sales ("ASC 360-20"), the Company defers its portion of the underlying gain from the joint venture's sale of these lots. When the Company purchases lots directly from the joint venture, the deferred gain is recorded as a reduction to the Company's land basis on the purchased lots. In certain instances, a third party may purchase lots from our unconsolidated joint ventures with the intent to finish the ~~lots. Then,~~lots with the Company ~~has~~having an option to acquire these finished lots from the third party. In these instances, the Company defers its portion of the underlying gain and records the deferred gain as deferred profit from unconsolidated joint ventures included in accrued expenses and other liabilities in the accompanying condensed consolidated balance sheets. Once the lot is purchased by the Company, the pro-rata share of the previously deferred profit is recorded as a reduction to the Company's land basis in the purchased lots. In both instances, the gain is ultimately recognized when the Company delivers lots to third-party home buyers at the time of the home closing. At June 30, ~~2017~~2018 and December 31, ~~2016, $0.3 million~~2017, $0 and ~~$0.6~~$0.1 million, respectively, of deferred gain from lot sale transactions is included in accrued expenses and other liabilities in the accompanying condensed consolidated balance sheets as deferred profit from unconsolidated joint ~~ventures.~~ventures for lot transactions between the Company and its TNHC-HW Cannery LLC ("Cannery") unconsolidated joint venture. In addition, at June 30, ~~2017 and December 31, 2016, $0.8~~2018, $0.5 million ~~and $0.7 million, respectively,~~ of deferred gain from lot ~~sale~~transactions with the Cannery and Bedford unconsolidated joint ventures remained unrecognized and included as a reduction to land basis in the accompanying condensed consolidated balance sheets. At December 31, 2017, $0.5 million, of deferred gain from the Cannery lot transactions remained unrecognized and was included as a reduction to land basis in the accompanying condensed consolidated balance sheets.

The Company’s land purchase agreement with ~~one of its unconsolidated joint ventures, TNHC-HW~~the Cannery ~~LLC ("TNHC-HW Cannery"),~~ requires profit participation payments due upon the closing of each home. Payment amounts are calculated based upon a percentage of estimated net profits and are due every 90 days after the first home closing. During the six months ended June 30, 2017, the Company was refunded $0.2 million from ~~TNHC-HW~~the Cannery for profit participation overpayments from prior periods due to a modification of the underlying calculation related to profit ~~participation, and as~~participation. As of June 30, 2018 and December 31, 2017, no profit participation was due to ~~TNHC-HW~~the Cannery. Also per the purchase agreement, the Company ~~is due~~

~~THE NEW HOME COMPANY INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~$0.1~~was reimbursed $0.1 million in fee credits from ~~TNHC-HW~~the Cannery ~~LLC at~~during 2018. As of June 30, 2018 and December 31, 2017, $0 and $0.1 million, respectively, in fee credits was due to the Company from the Cannery, which is included in due from affiliates in the accompanying condensed consolidated balance sheets. As of December 31, 2016, $0.2 million of profit participation overpayments and $0.1 million in fee credits was due to the Company from TNHC-HW Cannery and included in due from affiliates in the accompanying consolidated balance sheets.

On June 18, 2015, the Company entered into an agreement that effectively transitioned Joseph Davis' role within the Company from that of Chief Investment Officer to that of a non-employee consultant to the Company effective June 26, 2015 ("Transition Date"). As of the Transition Date, Mr. Davis ceased being an employee of the Company and became an independent contractor performing consulting services. ~~Mr. Davis is expected to work approximately, but not more than, 20 consulting hours per month.~~ For his services, he is compensated $5,000 per month. His current agreement terminates on ~~July~~June 26, ~~2018~~2019 with the option to extend the agreement one year, if mutually consented to by the parties. Either party may terminate the agreement at any time for any or no reason. At June 30, ~~2017,~~2018, no fees were due to Mr. Davis for his consulting services.

~~On June 29, 2015,~~ Additionally, the Company ~~formed~~entered into a ~~new unconsolidated joint venture~~construction agreement effective September 7, 2017, with The Joseph and ~~received capital credit in excess~~Terri Davis Family Trust Dated August 25, 1999 ("Davis Family Trust") of ~~our contributed land basis. As~~which Joseph Davis is a ~~result,~~trustee. The agreement is a fee building contract pursuant to which the Company ~~recognized $1.6 million~~acts in ~~equity in net income~~the capacity of ~~unconsolidated joint ventures~~a general contractor to build a single family detached home on land owned by the Davis Family Trust. For its services, the Company will receive a contractor's fee and ~~deferred $0.4 million in profit from unconsolidated joint ventures related to this transaction for~~ the ~~year ended December 31, 2015.~~Davis Family Trust will reimburse the Company's field overhead costs. During the three and six months ended June 30, ~~2017, $34,000~~2018, the Company billed the Davis Family Trust $0.6 million and ~~$0.1~~$0.7 million, respectively, ofincluding reimbursable construction costs and the ~~previously deferred revenue was recognized as equity in net income of unconsolidated joint ventures, and at June 30, 2017, $0.2 million remained unrecognized and~~Company's contractor's fees which are included in ~~accrued expenses and other liabilities in the accompanying condensed consolidated balance sheets.~~

On January 15, 2016, the Company entered into an assignment and assumption of membership interest agreement (the “Buyout Agreement”) for its partner's interest in the TNHC San Juan LLC unconsolidated joint venture. Per the terms of the Buyout Agreement, the Company contributed $20.6 million to the joint venture, and the joint venture made a liquidating cash distribution to our partner for the same amount in exchange for its membership interest. Prior to the buyout, the Company accounted for its investment in TNHC San Juan LLC as an equity method investment. After the buyout, TNHC San Juan LLC is now a wholly owned subsidiary of the Company.

During June 2016, our LR8 Investors LLC unconsolidated joint venture (LR8) made its final distributions, allocated $0.5 million of income to the Company from a reduction in warranty reserves, which was included in equity in net income of unconsolidated joint venturesfee building revenues in the accompanying condensed consolidated statements of ~~operations,~~operations. Contractor's fees comprised $17,000 and our outside equity partner exited the joint venture. Upon the change in control, we were required to consolidate this venture as a wholly owned subsidiary and the Company assumed the cash, accounts receivable, accounts payable, and accrued liabilities, including the remaining warranty reserve,$17,100 of the joint venture. As part of this transaction, and in accordance with ASC 805, Business Combinations, the Company also recognized a gain of $1.1 million, which was included in equity in net income of unconsolidated joint ventures in the accompanying condensed consolidated statements of operations, due to the purchase of our JV partner's interesttotal billings for ~~less than its carrying value.~~

As of June 30, 2017 and December 31, 2016, the Company had advances outstanding of approximately $6.0 million and $4.0 million, respectively, to an unconsolidated joint venture, Encore McKinley Village. The note bears interest at 10% per annum and matures on October 31, 2017, with the right to extend to October 31, 2018. For the three and six months ended June 30, ~~2017, the~~2018, respectively. The Company ~~earned $0.1~~recorded $0.6 million and ~~$0.3~~$0.6 million ~~in interest income on~~for the ~~unsecured promissory note~~three and six months ended June 30, 2018, respectively, for the cost of this fee building revenue which isare included in ~~equity in net income~~fee building cost of ~~unconsolidated joint ventures~~sales in the accompanying condensed consolidated statements of operations. ~~As of~~At June 30, ~~2017~~2018 and December 31, ~~2016, $0.3 million and $44,000 of interest income~~2017, the Company was due to$48,000 and $0.5 million, respectively, from the ~~Company and~~Davis Family Trust for construction draws, which are included in due from affiliates in the accompanying condensed consolidated balance sheets.

On February 17, 2017, ~~(the "Transition Date"),~~ the Company entered into a consulting agreement that transitioned Mr. Stelmar's role from that of Chief Investment Officer to a non-employee consultant to the Company. While an employee of the Company, Mr. Stelmar served as an employee director of the Company's Board of Directors. The agreement ~~also~~ provides that effective upon Mr. Stelmar's termination of employment, he shall become a non-employee director and shall receive the compensation and be subject to the requirements of a non-employee director pursuant to the Company's policies. For his consulting services, Mr. Stelmar ~~will~~is compensated $6,000 per month. The current term is through August 17, 2019 and may be ~~compensated $16,800 per month for a term of one year from the Transition Date with the option to extend the agreement one year on each anniversary~~extended upon mutual consent of the ~~Transition Date if mutually consented to by the~~ parties. ~~Either party may terminate the agreement at any time for any or no reason.~~ Additionally, Mr. Stelmar's outstanding restricted stock unit equity award granted in 2016 will continue to vest in accordance with its original terms based on his continued provision of consulting services rather than continued employment. At June 30, 2018 and December 31, 2017, no fees were due to Mr. Stelmar for his consulting services.

On June 29, 2015, the Company formed a new unconsolidated joint venture, TNHC Tidelands LLC ("Tidelands"), and received capital credit in excess of our contributed land basis. As a result, the Company recognized $1.6 million in equity in net income (loss) of unconsolidated joint ventures and deferred $0.4 million in profit from unconsolidated joint ventures related to

THE NEW HOME COMPANY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

this transaction for the year ended December 31, 2015. During the three and six months ended June 30, 2017, $34,000 and $0.1 million, respectively, of the previously deferred revenue was recognized as equity in net income (loss) of unconsolidated joint ventures. During the third quarter of 2017, the Company acquired the remaining outside equity interest of the Tidelands joint venture. As part of this transaction, the remaining deferred profit was written off, and at December 31, 2017, no deferred profit remained unrecognized or was included in accrued expenses and other liabilities in the accompanying condensed consolidated balance sheets.

As of June 30, 2018 and December 31, 2017, the Company had advances outstanding of approximately $0 and $3.8 million, respectively, to an unconsolidated joint venture, Encore McKinley. The note bore interest at 10% per annum and was fully repaid during the 2018 second quarter. For the three and six months ended June 30, 2018 and 2017, the Company earned $49,000, $0.1 million, $0.1 million and $0.3 million, respectively, in interest income on the unsecured promissory note which is included in equity in net income (loss) of unconsolidated joint ventures in the accompanying condensed consolidated statements of operations. As of June 30, 2018 and December 31, 2017, $0 and $34,000, respectively, of interest income was due to the Company and included in due from affiliates in the accompanying condensed consolidated balance sheets.

~~THE NEW HOME COMPANY INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

owned subsidiary and the Company assumed the cash, other assets, and accrued liabilities, including warranty and the remaining costs to complete reserves, of the joint venture. As part of this transaction ~~and in accordance with ASC 805, Business Combinations,~~ the Company also recognized a gain of $0.3 million, which was included in equity in net income (loss) of unconsolidated joint ventures in the accompanying condensed consolidated statements of operations, due to the purchase of our JV partner's interest for less than its carrying value.

~~In April~~During 2017, the Company entered into ~~an agreement~~two transactions to purchase land from ~~an affiliate~~affiliates of ~~an entity that~~IHP Capital Partners VI, LLC, which owns more than 10% of the Company's outstanding common stock and is affiliated with one member of the Company's board of directors. The first agreement allows the Company the option to purchase ~~approximately 92~~ lots in Northern California in a phased takedown for a ~~total~~gross purchase price of $16.1 ~~million. The~~million with profit participation and master marketing fees due to the seller as outlined in the contract. As of June 30, 2018, the Company has ~~completed~~taken down approximately one-third of the ~~due diligence phase of this transaction, posted~~lots and has a ~~$0.5~~$0.6 million ~~non-refundable~~nonrefundable deposit ~~and expects to close~~outstanding on the ~~first phase of~~remaining lots. The second transaction allows the Company to purchase finished lots in Northern California which includes customary profit participation and is structured as a rolling option takedown. The total purchase price, including the ~~third quarter~~cost for the finished lot development and the rolling option, is expected to be approximately $56.2 million, and depends on timing of ~~2017.~~

~~During~~takedowns, as well as our obligation to pay certain fees and costs during the ~~2017 second quarter,~~option maintenance period. As of June 30, 2018, the Company ~~through~~has made a ~~wholly owned subsidiary,~~$0.3 million refundable deposit, reimbursed the owner $0.1 million for fees and costs, paid $1.5 million in option payments, and had not taken down any lots.

In the first quarter 2018, the Company entered into an ~~amendment to one of~~agreement with its ~~existing~~Bedford joint venture ~~agreements of an unconsolidated joint venture, TNHC Arantine Hills Holdings LP. Our joint venture partner in this joint venture, Arantine Hills Equity LP,~~that is affiliated with one former member of the ~~members of our~~Company's board of ~~directors. The amendment~~directors for the option to purchase lots in phased takedowns. As of June 30, 2018, the Company has made a $1.5 million nonrefundable deposit as consideration for this option, and a portion of the deposit will be applied to the ~~joint venture agreement provides for a pro rata increase~~purchase price across the phases. The gross purchase price of the land is $10.0 million with profit participation due to seller as outlined in the ~~maximum capital commitments of both partners.~~contract. The Company ~~increased its funding obligation by $4~~has taken down approximately one-fourth of the contracted lots and $1.1 million of the nonrefundable deposit remains outstanding.

FMR LLC beneficially owns over 10% of the ~~existing contribution cap. At~~Company's common stock, and an affiliate of FMR LLC ("Fidelity") provides investment management and record keeping services to the Company’s 401(k) Plan. For the three and six months ended June 30, 2018 and 2017, the ~~Company’s~~Company paid Fidelity approximately $5,000, $9,000, $4,000 and $7,000, respectively, for 401(k) Plan record keeping and investment management services. The participants in ~~this joint venture totaled $6.2 million.~~

the Company's 401(k) Plan paid Fidelity approximately $2,000, $4,000, $1,000 and $2,000 for the three and six ended June 30, 2018 and 2017, respectively, for record keeping and investment management services.

~~12.~~

13. Stock-Based Compensation

The Company's 2014 Long-Term Incentive Plan (the ~~“2014~~"2014 Incentive ~~Plan”~~Plan"), was adopted by our board of directors in January 2014. The 2014 Incentive Plan provides for the grant of equity-based awards, including options to purchase shares of common stock, stock appreciation rights, restricted and unrestricted stock awards, restricted stock units and performance awards. The 2014 Incentive Plan will automatically expire on the tenth anniversary of its effective date.

The number of shares of our common stock ~~that are~~ authorized to be issued under the 2014 Incentive Plan is 1,644,875 shares. To the extent that shares of the Company's common stock subject to an outstanding option, stock appreciation right, stock award or performance award granted under the 2014 Incentive Plan or any predecessor plan are not issued or delivered by

THE NEW HOME COMPANY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

reason of the expiration, termination, cancellation or forfeiture of such award or the settlement of such award in cash, then such shares of common stock generally shall again be available under the 2014 Incentive Plan.

At our 2016 Annual Meeting of Shareholders on May 24, 2016, our shareholders approved the Company's 2016 Incentive Award Plan (the "2016 Incentive Plan"). The 2016 Incentive Plan provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units and other stock- or cash-based awards. Non-employee directors of the Company and employees and consultants of the Company or any of its subsidiaries are eligible to receive awards under the 2016 Incentive Plan. ~~The~~On May 22, 2018, our shareholders approved the amended and restated 2016 Incentive Plan ~~authorizes~~which increased the number of shares authorized for issuance ofunder the plan from 800,000 ~~shares of common stock, subject~~ to ~~certain limitations.~~2,100,000 shares. The amended and restated 2016 Incentive Plan will expire on ~~February 23, 2026.~~April 4, 2028.

The Company has issued stock option and restricted stock unit awards under the 2014 Incentive Plan and restricted stock unit awards and performance share unit awards under the 2016 Incentive Plan. As of June 30, ~~2017, 32,830~~2018, 51,433 shares remain available for grant under the 2014 Incentive Plan and ~~464,928~~1,465,834 shares remain available for grant under the 2016 Incentive Plan. The exercise price of stock-based awards may not be less than the market value of the Company's common stock on the date of grant. The fair value for stock options is established at the date of grant using the Black-Scholes model for time-based vesting awards. The Company's stock option, ~~and~~ restricted stock unit awards, and performance share unit awards typically vest over a one to three year period and the stock options expire ten years from the date of grant.

~~THE NEW HOME COMPANY INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

A summary of the Company’s common stock option activity as of and for the six months ended June 30, ~~2017~~2018 and ~~2016~~2017 is presented below:


	Six Months Ended June 30,								Six Months Ended June 30,
	2017				2016				2018				2017
	Number of Shares		Weighted-Average Exercise Price per Share		Number of Shares		Weighted-Average Exercise Price per Share		Number of Shares		Weighted-Average Exercise Price per Share		Number of Shares		Weighted-Average Exercise Price per Share
Stock Option Activity
Outstanding Stock Option Activity
Outstanding, beginning of period	835,786		$	11.00	840,298		$	11.00	826,498		$	11.00	835,786		$	11.00
Granted	—		$	—	—		$	—	—		$	—	—		$	—
Exercised	(9,288	)	$	11.00	—		$	—	—		$	—	(9,288	)	$	11.00
Forfeited	—		$	—	(4,512	)	$	11.00	(5,028	)	$	11.00	—		$	—
Outstanding, end of period	826,498		$	11.00	835,786		$	11.00	821,470		$	11.00	826,498		$	11.00
Exercisable, end of period	826,498		$	11.00	44,442		$	11.00	821,470		$	11.00	826,498		$	11.00

A summary of the Company’s restricted stock unit activity as of and for the six months ended June 30, ~~2017~~2018 and ~~2016~~2017 is presented below:


	Six Months Ended June 30,								Six Months Ended June 30,
	2017				2016				2018				2017
	Number of Shares		Weighted-Average Grant-Date Fair Value per Share		Number of Shares		Weighted-Average Grant-Date Fair Value per Share		Number of Shares		Weighted-Average Grant-Date Fair Value per Share		Number of Shares		Weighted-Average Grant-Date Fair Value per Share
Restricted Stock Unit Activity
Outstanding, beginning of period	474,989		$	10.66	308,386		$	14.20	562,082		$	10.72	474,989		$	10.66
Granted	343,933		$	10.84	409,509		$	10.05	179,268		$	11.24	343,933		$	10.84
Vested	(209,619	)	$	10.76	(231,289	)	$	14.22	(270,363	)	$	11.02	(209,619	)	$	10.76
Forfeited	(26,194	)	$	10.82	(3,980	)	$	13.68	—		$	—	(26,194	)	$	10.82
Outstanding, end of period	583,109		$	10.72	482,626		$	10.67	470,987		$	10.74	583,109		$	10.72

THE NEW HOME COMPANY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A summary of the Company’s performance share unit activity as of and for the six months ended June 30, 2018 is presented below:



	Six Months Ended June 30,
	2018
	Number of Shares	Weighted-Average Grant-Date Fair Value per Share
Performance Share Unit Activity	—	$	—
Outstanding, beginning of period	—	$	—
Granted (at target)	125,422	$	11.68
Vested	—	$	—
Forfeited	—	$	—
Outstanding, end of period (at target)	125,422	$	11.68

The expense related to the Company's stock-based compensation programs, included in general and administrative expense in the accompanying condensed consolidated statements of operations, was as follows:


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2018		2017		2018		2017
	(Dollars in thousands)								(Dollars in thousands)
Expense related to:
Stock options	$	—	$	185	$	11	$	447	$	—	$	—	$	—	$	11
Restricted stock units	695		572		1,295		1,295		798		695		1,562		1,295
Performance share units									64		—		142		—
	$	695	$	757	$	1,306	$	1,742	$	862	$	695	$	1,704	$	1,306

We used the "simplified method" to establish the expected term of the common stock options granted by the Company. Our restricted stock unit awards and performance share unit awards are valued based on the closing price of our common stock on the date of grant. The number of performance share units that will vest ranges from 50%-150% of the target amount awarded based on actual cumulative earnings per share and return on equity growth from 2018-2019, subject to initial achievement of minimum thresholds. We evaluate the probability of achieving the performance targets established under each of the performance share unit awards quarterly and estimate the number of underlying units that are probable of being issued. Compensation expense for these awards is being recognized using the straight-line method over the requisite service period, subject to cumulative catch-up adjustments required as a result of changes in the number shares probable of being issued.

At June 30, ~~2017,~~2018, the amount of unearned stock-based compensation currently estimated to be expensed through ~~2020~~2021 is ~~$5.4~~$4.9 million. The weighted-average period over which the unearned stock-based compensation is expected to be recognized is ~~2.0~~1.8 years. If there are any modifications or cancellations of the underlying unvested awards, the Company may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense.

~~13.~~14. Income Taxes

The Company accounts for income taxes in accordance with ASC 740, which requires an asset and liability approach for measuring deferred taxes based on temporary differences between the financial statements and tax bases of assets and liabilities existing at each balance sheet date using enacted tax rates for the years in which taxes are expected to be paid or recovered.

For the three and six months ended June 30, ~~2017 and 2016,~~2018, the Company recorded a $0.1 million provision and an $0.8 million benefit for income taxes, respectively. Comparatively, the Company recorded respective tax provisions of $1.0 million and $1.5 million ~~respectively. For~~for the three and six months ended June 30, 2017 and 2016, the Company recorded a provision for income taxes of $1.5 million and $1.3 million, respectively. Included in the three and six month periods for 2016 is an allocation of income from LR8 of $0.5 million due to a reduction in the warranty reserve and a $1.1 million gain from the closeout of LR8 due to the purchase of our JV partner's interest for less than its carrying value, which resulted in a provision for income taxes of $0.6 million for the three and six month periods ended June 30, 2016 and did not impact our effective tax rate.2017. The Company's effective tax rate for the three and six months ended June 30, 2018, was 36.8% and 59.7%, respectively, and 24.7% and 30.0% before discrete items. For the three and six months ended June 30, 2017, the Company's effective tax rates were 39.4% and ~~2016 differs~~39.1%, respectively, and 38.0% and 38.1% before discrete items. Effective tax rate before discrete items is a non-GAAP measure, please see Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Provision (Benefit) for Income Taxes" for a reconciliation to effective tax rate, the nearest GAAP equivalent.

THE NEW HOME COMPANY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The effective tax rates for the three and six months ended June 30, 2018 differ from the ~~35%~~ federal statutory tax ~~rate~~rates due to state income taxes, ~~partially offset by~~estimated deduction limitations for executive compensation, and discrete items. Discrete items comprised $0.4 million of the tax benefit for the first half of 2018 and were primarily related to benefits from energy tax credits that were extended in February 2018 for 2017 closings and, to a lesser extent, an adjustment to the Company's deferred tax asset revaluation required as a result of the federal tax rate cut. The effective tax rates for the three and six months June 30, 2017 differ from the federal statutory tax rates due primarily to state income taxes, offset partially by the benefit from production activities.

Each quarter we assess our deferred tax asset to determine whether all or any portion of the asset is more likely than not unrealizable under ASC 740. We are required to establish a valuation allowance for any portion of the asset we conclude is more likely than not unrealizable. Our assessment considers, among other things, the nature, frequency and severity of prior cumulative losses, forecasts of future taxable income, the duration of statutory carryforward periods, our utilization experience with operating loss and tax credit carryforwards and the planning alternatives, to the extent these items are applicable.

~~THE NEW HOME COMPANY INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

The Company classifies any interest and penalties related to income taxes assessed as part of income tax expense. The Company has concluded that there were no significant uncertain tax positions requiring recognition in its financial statements, nor has the Company been assessed interest or penalties by any major tax jurisdictions related to any open tax periods.

With the enactment of the Tax Cuts and Jobs Act (the "Tax Act"), the corporate federal income tax rate dropped from a maximum of 35% to a flat 21% rate effective January 1, 2018. The SEC staff issued Staff Accounting Bulletin 118 ("SAB 118"), which provides guidance on accounting for the tax effects of the Tax Act and provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

As of December 31, 2017, we have completed the majority of our accounting for the tax effects of the Tax Act. As a result of the rate change, the Company was required to revalue its net deferred tax asset at December 31, 2017 and recorded a provisional adjustment to reduce its value by $3.2 million. The provisional amount recorded at December 31, 2017, is subject to revisions as we complete our analysis of the Tax Act, collect and prepare necessary data, and interpret any additional guidance issued by the U.S. Treasury Department, Internal Revenue Service, FASB, and other standard-setting and regulatory bodies. During the 2018 first quarter the Company recorded an immaterial adjustment to the provisional amount, and our accounting for the tax effects of the Tax Act will be completed during the one-year measurement period.

~~14.~~15. Segment Information

The Company’s operations are organized into two reportable segments: homebuilding and fee building. In determining the most appropriate reportable segments, we considered similar economic and other characteristics, including product types, average selling prices, gross margins, production processes, suppliers, subcontractors, regulatory environments, land acquisition results, and underlying demand and supply in accordance with ASC Topic 280, Segment Reporting.

Our homebuilding operations acquire and develop land and construct and sell single-family attached and detached

homes. Our fee building operations build homes and manage construction related activities on behalf of third-party property

owners and our joint ventures. In addition, our Corporate operations develop and implement strategic initiatives and support our operating segments by centralizing key administrative functions such as accounting, finance and treasury, information technology, insurance and risk management, litigation, marketing and human resources. A portion of the expenses incurred by Corporate are allocated to the fee building segment primarily based on its respective percentage of revenues. The assets of our fee building segment primarily consist of cash, restricted cash and accounts receivable. The majority of our Corporate personnel and resources are primarily dedicated to activities relating to our homebuilding segment, and, therefore, the balance of any unallocated Corporate expenses and assets are included in our homebuilding segment.

THE NEW HOME COMPANY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The reportable segments follow the same accounting policies as our consolidated financial statements described in Note 1. Operational results of each reportable segment are not necessarily indicative of the results that would have been achieved had the reportable segment been an independent, stand-alone entity during the periods presented. Financial information relating to reportable segments was as follows:


	Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended June 30,					Six Months Ended June 30,
	2017		2016		2017		2016			2018			2017		2018			2017
	(Dollars in thousands)									(Dollars in thousands)
Revenues:
Homebuilding	$	96,929	$	78,836	$	166,335	$	121,139		$	117,460		$	96,929	$	196,897		$	166,335
Fee building, including management fees	47,181		30,028		102,798		72,965			38,095			47,181		81,889			102,798
Total	$	144,110	$	108,864	$	269,133	$	194,104		$	155,555		$	144,110	$	278,786		$	269,133

Income (loss) before income taxes:
Pretax income (loss):
Homebuilding	$	1,223	$	2,228	$	892	$	(906	)	$	(875	)	$	1,223	$	(3,481	)	$	892
Fee building, including management fees	1,282		1,711		2,973		3,734			1,057			1,282		2,152			2,973
Total	$	2,505	$	3,939	$	3,865	$	2,828		$	182		$	2,505	$	(1,329	)	$	3,865


	June 30,		December 31,		June 30,		December 31,
	2017		2016		2018		2017
	(Dollars in thousands)				(Dollars in thousands)
Assets:
Homebuilding	$	605,358	$	393,095	$	652,444	$	631,087
Fee building	14,252		26,041		13,566		13,425
Total	$	619,610	$	419,136	$	666,010	$	644,512

~~THE NEW HOME COMPANY INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~15.~~16. Supplemental Disclosure of Cash Flow Information

The following table presents certain supplemental cash flow information:


	Six Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2018		2017
	(Dollars in thousands)				(Dollars in thousands)
Supplemental disclosures of cash flow information
Interest paid, net of amounts capitalized	$	—	$	—	$	—	$	—
Income taxes paid	$	8,750	$	8,150	$	7,000	$	8,750
Supplemental disclosures of non-cash transactions
Assets assumed from unconsolidated joint ventures	$	100	$	46,811	$	—	$	100
Liabilities and equity assumed from unconsolidated joint ventures	$	1,095	$	47,197	$	—	$	1,095
Contribution of real estate to unconsolidated joint ventures	$	1,013	$	—	$	—	$	1,013

THE NEW HOME COMPANY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~16.~~17. Supplemental Guarantor Information

The Company's 7.25% Senior Notes due 2022 (the "Notes") are guaranteed, on an unsecured basis, jointly and severally, by all of the Company's 100% owned subsidiaries (collectively, the "Guarantors"). The guarantees are full and unconditional. The Indenture governing the Notes provides that the guarantees of a Guarantor will be automatically and unconditionally released and discharged: (1) upon any sale, transfer, exchange or other disposition (by merger, consolidation or otherwise) of all of the equity interests of such Guarantor after which the applicable Guarantor is no longer a ~~“Restricted Subsidiary”~~"Restricted Subsidiary" (as defined in the Indenture), which sale, transfer, exchange or other disposition is made in compliance with applicable provisions of the Indenture; (2) upon the proper designation of such Guarantor as an ~~“Unrestricted Subsidiary”~~"Unrestricted Subsidiary" (as defined in the Indenture), in accordance with the Indenture; (3) upon request of the Company and certification in an officers’ certificate provided to the trustee that the applicable Guarantor has become an "Immaterial Subsidiary" (as defined in the indenture), so long as such Guarantor would not otherwise be required to provide a guarantee pursuant to the Indenture; provided that, if immediately after giving effect to such release the consolidated tangible assets of all Immaterial Subsidiaries that are not Guarantors would exceed 5.0% of consolidated tangible assets, no such release shall occur, (4) if the Company exercises its legal defeasance option or covenant defeasance option under the Indenture or if the obligations of the Company and the Guarantors are discharged in compliance with applicable provisions of the Indenture, upon such exercise or discharge; (5) unless a default has occurred and is continuing, upon the release or discharge of such Guarantor from its guarantee of any indebtedness for borrowed money of the Company and the Guarantors so long as such Guarantor would not then otherwise be required to provide a guarantee pursuant to the Indenture; or (6) upon the full satisfaction of the Company’s obligations under the Indenture; provided that in each case if such Guarantor has incurred any indebtedness in reliance on its status as a Guarantor in compliance with applicable provisions of the Indenture, such Guarantor’s obligations under such indebtedness, as the case may be, so incurred are satisfied in full and discharged or are otherwise permitted to be incurred by a Restricted Subsidiary (other than a Guarantor) in compliance with applicable provisions of the Indenture. The Company has determined that separate, full financial statements of the Guarantors would not be material to investors and, accordingly, supplemental financial information for the guarantors is presented.

As the guarantees were made in connection with the first and second quarter 2017 private offering of notes, the Guarantors’ condensed financial information is presented as if the guarantees existed during the period presented. If any subsidiaries are released from the guarantees in future periods, the changes are reflected prospectively.

~~THE NEW HOME COMPANY INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS


	June 30, 2017											June 30, 2018
	NWHM Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating Adjustments			Consolidated NWHM		NWHM Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating Adjustments			Consolidated NWHM
	(Dollars in thousands)											(Dollars in thousands)
Assets
Cash and cash equivalents	$	120,557	$	33,180	$	222	$	—		$	153,959	$	38,449	$	52,126	$	183	$	—		$	90,758
Restricted cash	—		88		—		—			88		—		567		—		—			567
Contracts and accounts receivable	14		19,667		7		(1,367		)	18,321		12		21,670		—		(1,312		)	20,370
Intercompany receivables	91,737		—		—		(91,737		)	—		158,687		—		—		(158,687		)	—
Due from affiliates	—		2,062		—		—			2,062		—		212		—		—			212
Real estate inventories	—		365,400		—		—			365,400		—		469,738		—		—			469,738
Investment in and advances to unconsolidated joint ventures	—		55,864		—		—			55,864		—		58,501		—		—			58,501
Investment in subsidiaries	345,376		—		—		(345,376		)	—		406,812		—		—		(406,812		)	—
Other assets	15,836		8,080		—		—			23,916		17,030		8,849		—		(15		)	25,864
Total assets	$	573,520	$	484,341	$	229	$	(438,480	)	$	619,610	$	620,990	$	611,663	$	183	$	(566,826	)	$	666,010

Liabilities and equity
Accounts payable	$	110	$	34,105	$	—	$	—		$	34,215	$	68	$	28,897	$	13	$	—		$	28,978
Accrued expenses and other liabilities	7,579		13,126		126		(1,358		)	19,473		7,765		17,255		91		(1,315		)	23,796
Intercompany payables	—		91,737		—		(91,737		)	—		—		158,687		—		(158,687		)	—
Due to affiliates	—		9		—		(9		)	—		—		12		—		(12		)	—
Unsecured revolving credit facility												35,000		—		—		—			35,000
Senior notes, net	318,121		—		—		—			318,121		319,402		—		—		—			319,402
Total liabilities	325,810		138,977		126		(93,104		)	371,809		362,235		204,851		104		(160,014		)	407,176
Stockholders' equity	247,710		345,364		12		(345,376		)	247,710		258,755		406,812		—		(406,812		)	258,755
Noncontrolling interest	—		—		91		—			91
Non-controlling interest in subsidiary												—		—		79		—			79
Total equity	247,710		345,364		103		(345,376		)	247,801		258,755		406,812		79		(406,812		)	258,834
Total liabilities and equity	$	573,520	$	484,341	$	229	$	(438,480	)	$	619,610	$	620,990	$	611,663	$	183	$	(566,826	)	$	666,010

December 31, 2016
NWHM Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Consolidating Adjustments Consolidated NWHM
(Dollars in thousands)
Assets
Cash and cash equivalents $ 16,385
$ 13,842
$ 269
$ —
$ 30,496
Restricted cash —
585
—
—
585
Contracts and accounts receivable 30
29,774
—
(1,971 ) 27,833
Intercompany receivables 73,972
—
—
(73,972 ) —
Due from affiliates —
1,138
—
—
1,138
Real estate inventories —
286,928
—
—
286,928
Investment in and advances to unconsolidated joint ventures —
50,857
—
—
50,857
Investment in subsidiaries 268,411
—
—
(268,411 ) —
Other assets 9,381
11,918
—
—
21,299
Total assets $ 368,179
$ 395,042
$ 269
$ (344,354 ) $ 419,136

Liabilities and equity
Accounts payable $ 167
$ 32,900
$ 27
$ —
$ 33,094
Accrued expenses and other liabilities 5,489
19,763
108
(1,942 ) 23,418
Intercompany payables —
73,972
—
(73,972 ) —
Due to affiliates —
29
—
(29 ) —
Unsecured revolving credit facility 118,000
—
—
—
118,000
Total liabilities 123,656
126,664
135
(75,943 ) 174,512
Stockholders' equity 244,523
268,378
33
(268,411 ) 244,523
Noncontrolling interest —
—
101
—
101
Total equity 244,523
268,378
$ 134
(268,411 ) 244,624
Total liabilities and equity $ 368,179
$ 395,042
$ 269
$ (344,354 ) $ 419,136

THE NEW HOME COMPANY INC.

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS~~

Three Months Ended June 30, 2017
NWHM Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Consolidating Adjustments Consolidated NWHM
(Dollars in thousands)
Revenues:
Home sales $ —
$ 96,929
$ —
$ —
$ 96,929
Fee Building —
47,181
—
—
47,181
—
144,110
—
—
144,110
Cost of Sales:
Home sales —
82,488
—
—
82,488
Home sales impairment —
1,300
—
—
1,300
Fee building 595
45,304
—
—
45,899
595
129,092
—
—
129,687

Gross Margin:
Home sales —
13,141
—
—
13,141
Fee building (595 ) 1,877
—
—
1,282
(595 ) 15,018
—
—
14,423
Selling and marketing expenses —
(6,376 ) —
—
(6,376 )
General and administrative expenses (375 ) (5,220 ) —
—
(5,595 )
Equity in net income of unconsolidated joint ventures —
201
—
—
201
Equity in net income of subsidiaries 2,022
—
—
(2,022 ) —
Other income (expense), net 26
(174 ) —
—
(148 )
Income before income taxes 1,078
3,449
—
(2,022 ) 2,505
Benefit (provision) for income taxes 439
(1,427 ) —
—
(988 )
Net income 1,517
2,022
—
(2,022 ) 1,517
Net loss attributable to noncontrolling interest —
—
—
—
—
Net income attributable to The New Home Company Inc. $ 1,517
$ 2,022
$ —
$ (2,022 ) $ 1,517

Three Months Ended June 30, 2016
NWHM Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Consolidating Adjustments Consolidated NWHM
(Dollars in thousands)
Revenues:
Home sales $ —
$ 77,486
$ 1,350
$ —
$ 78,836
Fee Building —
30,068
—
(40 ) 30,028
—
107,554
1,350
(40 ) 108,864
Cost of Sales:
Home sales —
68,152
1,238
—
69,390
Fee building 496
27,821
—
—
28,317
496
95,973
1,238
—
97,707

Gross Margin:
Home sales —
9,334
112
—
9,446
Fee building (496 ) 2,247
—
(40 ) 1,711
(496 ) 11,581
112
(40 ) 11,157
Selling and marketing expenses —
(4,820 ) (226 ) —
(5,046 )
General and administrative expenses (3,283 ) (2,550 ) —
—
(5,833 )
Equity in net income of unconsolidated joint ventures —
3,947
—
—
3,947
Equity in net income of subsidiaries 4,843
—
—
(4,843 ) —
Other income (expense), net (57 ) (229 ) (40 ) 40
(286 )
Income (loss) before income taxes 1,007
7,929
(154 ) (4,843 ) 3,939
Benefit (provision) for income taxes 1,502
(2,997 ) —
—
(1,495 )
Net income (loss) 2,509
4,932
(154 ) (4,843 ) 2,444
Net loss attributable to noncontrolling interest —
—
65
—
65
Net income (loss) attributable to The New Home Company Inc. $ 2,509
$ 4,932
$ (89 ) $ (4,843 ) $ 2,509

~~THE NEW HOME COMPANY INC.~~

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended June 30, 2017
NWHM Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Consolidating Adjustments Consolidated NWHM
(Dollars in thousands)
Revenues:
Home sales $ —
$ 166,335
$ —
$ —
$ 166,335
Fee Building —
102,798
—
—
102,798
—
269,133
—
—
269,133
Cost of Sales:
Home sales —
142,522
31
—
142,553
Home sales impairment —
1,300
—
—
1,300
Fee building 1,085
98,740
—
—
99,825
1,085
242,562
31
—
243,678

Gross Margin:
Home sales —
22,513
(31 ) —
22,482
Fee building (1,085 ) 4,058
—
—
2,973
(1,085 ) 26,571
(31 ) —
25,455
Selling and marketing expenses —
(11,377 ) —
—
(11,377 )
General and administrative expenses (1,154 ) (9,531 ) —
—
(10,685 )
Equity in net income of unconsolidated joint ventures —
507
—
—
507
Equity in net income of subsidiaries 3,694
—
—
(3,694 ) —
Other income (expense), net 44
(79 ) —
—
(35 )
Income (loss) before income taxes 1,499
6,091
(31 ) (3,694 ) 3,865
Benefit (provision) for income taxes 864
(2,376 ) —
—
(1,512 )
Net income (loss) 2,363
3,715
(31 ) (3,694 ) 2,353
Net loss attributable to noncontrolling interest —
—
10
—
10
Net income (loss) attributable to The New Home Company Inc. $ 2,363
$ 3,715
$ (21 ) $ (3,694 ) $ 2,363



	December 31, 2017
	NWHM Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating Adjustments			Consolidated NWHM
	(Dollars in thousands)
Assets
Cash and cash equivalents	$	99,586	$	23,772	$	188	$	—		$	123,546
Restricted cash	—		424		—		—			424
Contracts and accounts receivable	10		24,238		—		(1,024		)	23,224
Intercompany receivables	129,414		—		—		(129,414		)	—
Due from affiliates	—		1,060		—		—			1,060
Real estate inventories	—		416,143		—		—			416,143
Investment in and advances to unconsolidated joint ventures	—		55,824		—		—			55,824
Investment in subsidiaries	356,443		—		—		(356,443		)	—
Other assets	8,464		15,827		—		—			24,291
Total assets	$	593,917	$	537,288	$	188	$	(486,881	)	$	644,512

Liabilities and equity
Accounts payable	$	237	$	23,479	$	6	$	—		$	23,722
Accrued expenses and other liabilities	11,034		27,954		80		(1,014		)	38,054
Intercompany payables	—		129,414		—		(129,414		)	—
Due to affiliates	—		10		—		(10		)	—
Senior notes, net	318,656		—		—		—			318,656
Total liabilities	329,927		180,857		86		(130,438		)	380,432
Stockholders' equity	263,990		356,431		12		(356,443		)	263,990
Non-controlling interest in subsidiary	—		—		90		—			90
Total equity	263,990		356,431		$	102	(356,443		)	264,080
Total liabilities and equity	$	593,917	$	537,288	$	188	$	(486,881	)	$	644,512

SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS



	Three Months Ended June 30, 2018
	NWHM Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments		Consolidated NWHM
	(Dollars in thousands)
Revenues:
Home sales	$	—		$	117,460		$	—		$	—	$	117,460
Fee building	—			38,095			—			—		38,095
	—			155,555			—			—		155,555
Cost of Sales:
Home sales	—			102,680			(2		)	—		102,678
Fee building	—			37,038			—			—		37,038
	—			139,718			(2		)	—		139,716

Gross Margin:
Home sales	—			14,780			2			—		14,782
Fee building	—			1,057			—			—		1,057
	—			15,837			2			—		15,839
Selling and marketing expenses	—			(9,466		)	—			—		(9,466		)
General and administrative expenses	305			(6,281		)	(3		)	—		(5,979		)
Equity in net loss of unconsolidated joint ventures	—			(120		)	—			—		(120		)
Equity in net loss of subsidiaries	(58		)	—			—			58		—
Other income (expense), net	(35		)	(57		)	—			—		(92		)
Pretax income (loss)	212			(87		)	(1		)	58		182
(Provision) benefit for income taxes	(97		)	30			—			—		(67		)
Net income (loss)	115			(57		)	(1		)	58		115
Net loss attributable to non-controlling interest in subsidiary	—			—			—			—		—
Net income (loss) attributable to The New Home Company Inc.	$	115		$	(57	)	$	(1	)	$	58	$	115

THE NEW HOME COMPANY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


	Six Months Ended June 30, 2016															Three Months Ended June 30, 2017
	NWHM Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated NWHM			NWHM Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Consolidating Adjustments			Consolidated NWHM
	(Dollars in thousands)															(Dollars in thousands)
Revenues:
Home sales	$	—		$	115,982		$	5,157		$	—		$	121,139		$	—		$	96,929		$	—	$	—		$	96,929
Fee Building	—			73,120			—			(155		)	72,965
Fee building																—			47,181			—		—			47,181
	—			189,102			5,157			(155		)	194,104			—			144,110			—		—			144,110
Cost of Sales:
Home sales	—			101,422			4,638			—			106,060			—			82,488			—		—			82,488
Home sales impairments																—			1,300			—		—			1,300
Fee building	966			68,265			—			—			69,231			595			45,304			—		—			45,899
	966			169,687			4,638			—			175,291			595			129,092			—		—			129,687

Gross Margin:
Home sales	—			14,560			519			—			15,079			—			13,141			—		—			13,141
Fee building	(966		)	4,855			—			(155		)	3,734			(595		)	1,877			—		—			1,282
	(966		)	19,415			519			(155		)	18,813			(595		)	15,018			—		—			14,423
Selling and marketing expenses	—			(7,838		)	(684		)	—			(8,522		)	—			(6,376		)	—		—			(6,376		)
General and administrative expenses	(6,466		)	(4,542		)	—			—			(11,008		)	(375		)	(5,220		)	—		—			(5,595		)
Equity in net income of unconsolidated joint ventures	—			3,940			—			—			3,940			—			201			—		—			201
Equity in net income of subsidiaries	6,448			—			—			(6,448		)	—			2,022			—			—		(2,022		)	—
Other income (expense), net	(39		)	(369		)	(142		)	155			(395		)	26			(174		)	—		—			(148		)
Income (loss) before income taxes	(1,023		)	10,606			(307		)	(6,448		)	2,828
Pretax income (loss)																1,078			3,449			—		(2,022		)	2,505
Benefit (provision) for income taxes	2,718			(3,971		)	—			—			(1,253		)	439			(1,427		)	—		—			(988		)
Net income (loss)	1,695			6,635			(307		)	(6,448		)	1,575
Net loss attributable to noncontrolling interest	—			—			120			—			120
Net income (loss) attributable to The New Home Company Inc.	$	1,695		$	6,635		$	(187	)	$	(6,448	)	$	1,695
Net income																1,517			2,022			—		(2,022		)	1,517
Net loss attributable to non-controlling interest in subsidiary																—			—			—		—			—
Net income attributable to The New Home Company Inc.																$	1,517		$	2,022		$	—	$	(2,022	)	$	1,517



	Six Months Ended June 30, 2018
	NWHM Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments		Consolidated NWHM
	(Dollars in thousands)
Revenues:
Home sales	$	—		$	196,897		$	—		$	—	$	196,897
Fee building	—			81,889			—			—		81,889
	—			278,786			—			—		278,786
Cost of Sales:
Home sales	—			172,350			22			—		172,372
Fee building	—			79,737			—			—		79,737
	—			252,087			22			—		252,109

Gross Margin:
Home sales	—			24,547			(22		)	—		24,525
Fee building	—			2,152			—			—		2,152
	—			26,699			(22		)	—		26,677
Selling and marketing expenses	—			(16,105		)	—			—		(16,105		)
General and administrative expenses	(801		)	(11,194		)	(3		)	—		(11,998		)
Equity in net income of unconsolidated joint ventures	—			215			—			—		215
Equity in net loss of subsidiaries	(176		)	—			—			176		—
Other income (expense), net	76			(194		)	—			—		(118		)
Pretax income (loss)	(901		)	(579		)	(25		)	176		(1,329		)
Benefit for income taxes	376			417			—			—		793
Net income (loss)	(525		)	(162		)	(25		)	176		(536		)
Net loss attributable to non-controlling interest in subsidiary	—			—			11			—		11
Net income (loss) attributable to The New Home Company Inc.	$	(525	)	$	(162	)	$	(14	)	$	176	$	(525	)

THE NEW HOME COMPANY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



	Six Months Ended June 30, 2017
	NWHM Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated NWHM
	(Dollars in thousands)
Revenues:
Home sales	$	—		$	166,335		$	—		$	—		$	166,335
Fee building	—			102,798			—			—			102,798
	—			269,133			—			—			269,133
Cost of Sales:
Home sales	—			142,522			31			—			142,553
Home sales impairments	—			1,300			—			—			1,300
Fee building	1,085			98,740			—			—			99,825
	1,085			242,562			31			—			243,678

Gross Margin:
Home sales	—			22,513			(31		)	—			22,482
Fee building	(1,085		)	4,058			—			—			2,973
	(1,085		)	26,571			(31		)	—			25,455
Selling and marketing expenses	—			(11,377		)	—			—			(11,377		)
General and administrative expenses	(1,154		)	(9,531		)	—			—			(10,685		)
Equity in net income of unconsolidated joint ventures	—			507			—			—			507
Equity in net income of subsidiaries	3,694			—			—			(3,694		)	—
Other income (expense), net	44			(79		)	—			—			(35		)
Pretax income (loss)	1,499			6,091			(31		)	(3,694		)	3,865
Benefit (provision) for income taxes	864			(2,376		)	—			—			(1,512		)
Net income (loss)	2,363			3,715			(31		)	(3,694		)	2,353
Net loss attributable to non-controlling interest in subsidiary	—			—			10			—			10
Net income (loss) attributable to The New Home Company Inc.	$	2,363		$	3,715		$	(21	)	$	(3,694	)	$	2,363

THE NEW HOME COMPANY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30, 2017
NWHM Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Consolidating Adjustments Consolidated NWHM
(Dollars in thousands)
Net cash used in operating activities $ (21,176 ) $ (49,302 ) $ (47 ) $ (886 ) $ (71,411 )
Investing activities:
Purchases of property and equipment (40 ) (55 ) —
—
(95 )
Cash assumed from joint venture at consolidation —
995
—
—
995
Contributions and advances to unconsolidated joint venture —
(8,517 ) —
—
(8,517 )
Contributions to subsidiaries from corporate (94,035 ) —
—
94,035
—
Distributions of capital from subsidiaries 19,880
—
—
(19,880 ) —
Distributions of capital from unconsolidated joint ventures —
2,948
—
—
2,948
Net cash (used in) provided by investing activities $ (74,195 ) $ (4,629 ) $ —
$ 74,155
$ (4,669 )
Financing activities:
Proceeds from senior notes 324,465
—
—
—
324,465
Borrowings from credit facility 72,000
—
—
—
72,000
Repayments of credit facility (190,000 ) —
—
—
(190,000 )
Payment of debt issuance costs (6,440 ) —
—
—
(6,440 )
Contributions to subsidiaries from corporate —
94,035
—
(94,035 ) —
Distributions to corporate from subsidiaries —
(20,766 ) —
20,766
—
Minimum tax withholding paid on behalf of employees for stock awards (584 ) —
—
—
(584 )
Proceeds from exercise of stock options 102
—
—
—
102
Net cash provided by financing activities $ 199,543
$ 73,269
$ —
$ (73,269 ) $ 199,543
Net increase (decrease) in cash and cash equivalents 104,172
19,338
(47 ) —
123,463
Cash and cash equivalents – beginning of period 16,385
13,842
269
—
30,496
Cash and cash equivalents – end of period $ 120,557
$ 33,180
$ 222
$ —
$ 153,959



	Six Months Ended June 30, 2018
	NWHM Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated NWHM
	(Dollars in thousands)
Net cash used in operating activities	$	(39,156	)	$	(22,349	)	$	(5	)	$	—		$	(61,510	)
Investing activities:
Purchases of property and equipment	(22		)	(162		)	—			—			(184		)
Contributions and advances to unconsolidated joint ventures	—			(8,954		)	—			—			(8,954		)
Contributions to subsidiaries from corporate	(103,885		)	—			—			103,885			—
Distributions of capital from subsidiaries	49,975									(49,975		)	—
Distributions of capital and repayment of advances from unconsolidated joint ventures	—			5,874			—			—			5,874
Interest collected on advances to unconsolidated joint ventures	$	—		$	178		$	—		$	—		$	178
Net cash used in investing activities	$	(53,932	)	$	(3,064	)	$	—		$	53,910		$	(3,086	)
Financing activities:
Borrowings from credit facility	35,000			—			—			—			35,000
Contributions to subsidiaries from corporate	—			103,885			—			(103,885		)	—
Distributions to corporate from subsidiaries	—			(49,975		)	—			49,975			—
Repurchases of common stock	(2,072		)	—			—			—			(2,072		)
Tax withholding paid on behalf of employees for stock awards	(977		)	—			—			—			(977		)
Net cash provided by financing activities	$	31,951		$	53,910		$	—		$	(53,910	)	$	31,951
Net (decrease) increase in cash, cash equivalents and restricted cash	(61,137		)	28,497			(5		)	—			(32,645		)
Cash, cash equivalents and restricted cash – beginning of period	99,586			24,196			188			—			123,970
Cash, cash equivalents and restricted cash – end of period	$	38,449		$	52,693		$	183		$	—		$	91,325

THE NEW HOME COMPANY INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended June 30, 2016
NWHM Inc. Guarantor Subsidiaries Non-Guarantor Subsidiaries Consolidating Adjustments Consolidated NWHM
(Dollars in thousands)
Net cash used in operating activities $ (22,026 ) $ (144,949 ) $ 3,347
$ (2,071 ) $ (165,699 )
Investing activities:
Purchases of property and equipment (156 ) (140 ) —
—
(296 )
Cash assumed from joint venture at consolidation —
2,009
—
—
2,009
Contributions and advances to unconsolidated joint venture —
(5,656 ) —
—
(5,656 )
Contributions to subsidiaries from corporate (160,406 ) —
—
160,406
—
Distributions of capital from subsidiaries 18,929
725
—
(19,654 ) —
Distributions of capital from unconsolidated joint ventures —
7,405
—
—
7,405
Net cash (used in) provided by investing activities $ (141,633 ) $ 4,343
$ —
$ 140,752
$ 3,462
Financing activities:
Borrowings from senior notes and credit facility 175,000
—
—
—
175,000
Repayments of credit facility (11,000 ) —
—
—
(11,000 )
Borrowings from other notes payable —
—
343
—
343
Repayments of other notes payable —
(13,135 ) (2,501 ) —
(15,636 )
Payment of debt issuance costs (1,064 ) —
—
—
(1,064 )
Cash distributions to noncontrolling interest in subsidiary —
—
(725 ) —
(725 )
Contributions to subsidiaries from corporate —
160,406
—
(160,406 ) —
Distributions to corporate from subsidiaries —
(21,000 ) (725 ) 21,725
—
Minimum tax withholding paid on behalf of employees for stock awards (647 ) —
—
—
(647 )
Excess income tax provision from stock-based compensation (97 ) —
—
—
(97 )
Net cash provided by (used in) financing activities $ 162,192
$ 126,271
$ (3,608 ) $ (138,681 ) $ 146,174
Net decrease in cash and cash equivalents (1,467 ) (14,335 ) (261 ) —
(16,063 )
Cash and cash equivalents – beginning of period 18,129
27,140
605
—
45,874
Cash and cash equivalents – end of period $ 16,662
$ 12,805
$ 344
$ —
$ 29,811



	Six Months Ended June 30, 2017
	NWHM Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated NWHM
	(Dollars in thousands)
Net cash used in operating activities	$	(21,176	)	$	(49,799	)	$	(47	)	$	(886	)	$	(71,908	)
Investing activities:
Purchases of property and equipment	(40		)	(55		)	—			—			(95		)
Cash assumed from joint venture at consolidation	—			995			—			—			995
Contributions and advances to unconsolidated joint ventures	—			(8,517		)	—			—			(8,517		)
Contributions to subsidiaries from corporate	(94,035		)	—			—			94,035			—
Distributions of capital from subsidiaries	19,880			—			—			(19,880		)	—
Distributions of capital and repayment of advances from unconsolidated joint ventures	—			2,948			—			—			2,948
Net cash (used in) provided by investing activities	$	(74,195	)	$	(4,629	)	$	—		$	74,155		$	(4,669	)
Financing activities:
Borrowings from credit facility	72,000			—			—			—			72,000
Repayments of credit facility	(190,000		)	—			—			—			(190,000		)
Proceeds from senior notes	324,465			—			—			—			324,465
Payment of debt issuance costs	(6,440		)	—			—			—			(6,440		)
Contributions to subsidiaries from corporate	—			94,035			—			(94,035		)	—
Distributions to corporate from subsidiaries	—			(20,766		)	—			20,766			—
Tax withholding paid on behalf of employees for stock awards	(584		)	—			—			—			(584		)
Proceeds from exercise of stock options	$	102		$	—		$	—		$	—		102
Net cash provided by financing activities	$	199,543		$	73,269		$	—		$	(73,269	)	$	199,543
Net increase (decrease) in cash, cash equivalents and restricted cash	104,172			18,841			(47		)	—			122,966
Cash, cash equivalents and restricted cash – beginning of period	16,385			14,427			269			—			31,081
Cash, cash equivalents and restricted cash – end of period	$	120,557		$	33,268		$	222		$	—		$	154,047



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

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as ~~amended.~~amended (the "Exchange Act"). All statements contained in this quarterly report on Form 10-Q other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. These forward-looking statements are frequently accompanied by words such as ~~“believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “goal,” “plan”~~"believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect," "goal," "plan," "could," "can," "might," "should," and similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs.

These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in Part I, Item 1A, ~~“Risk Factors”~~"Risk Factors" and Part II, Item 7, ~~“Management's~~"Management's Discussion and Analysis of Financial Condition and Results of ~~Operations”~~Operations" in our annual report on Form 10-K for the year ended December 31, ~~2016~~2017 and Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Part II, Item 1A "Risk Factors" of this quarterly report on 10-Q. The following factors, among others, may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements:

Risks related to our business, including among other things:


◦	our geographic concentration primarily in California;


~~��~~◦	the cyclical nature of the homebuilding industry which is affected by general economic real estate and other business conditions;


◦	availability of land to acquire and our ability to acquire such land on favorable terms or at all;


◦	shortages of or increased prices for labor, land or raw materials used in housing construction;


◦	availability and skill of subcontractors at reasonable rates;


◦	employment-related liabilities with respect to our contractors' employees;


◦	the illiquid nature of real estate investments;


◦	~~economic changes either nationally or in~~ the ~~markets in which we operate, including declines in employment, volatility~~degree and nature of ~~mortgage interest rates and inflation;~~our competition;


◦	delays in the ~~degree and nature~~development of communities;


◦	increases in our ~~competition;~~cancellation rate;


◦	a large proportion of our fee building revenue being dependent upon one customer;


◦	~~delays in land development or home~~ construction ~~resulting from adverse weather conditions, regulatory approval delays, or other events outside our control;~~


◦	defect product liability and warranty claims, including the cost and availability of insurance;


◦	increased costs, delays in land development or home construction and reduced consumer demand resulting from adverse weather conditions or other events outside our control;


◦	increased cost and reduced consumer demand resulting from power, water and other natural resource shortages or price increases;


◦	because of the seasonal nature of our business, our quarterly operating results fluctuate;


◦	we may be unable to obtain suitable bonding for the development of our housing projects;


◦	inflation could adversely affect our business and financial results;


◦	a major health and safety incident relating to our business could be costly in terms of potential liabilities and reputational damage;


◦	negative publicity or poor relations with the residents of our communities could negatively impact sales, which could cause our revenues or results of operations to decline;


◦	information systems interruption or breach in security;


◦	we may incur a variety of costs to engage in future growth or expansion of our operations or acquisitions of businesses, and the anticipated benefits may never be realized;


◦	a reduction in our sales absorption levels may force us to incur and absorb additional community-level costs;


◦	future terrorist attacks against the United States or increased domestic or international instability could have an adverse effect on our operations;

Risks related to laws and regulations, including among other things:


◦	~~changes in, or the failure or inability to comply with, governmental laws and regulations; including environmental laws and regulations;~~


◦	mortgage financing, as well as our customer’s ability to obtain such financing, interest rate increases or changes in federal lending programs;


◦	changes in tax laws can increase the ~~timing~~after tax cost of ~~receipt~~owning a home, and further tax law changes or government fees could adversely affect demand for the homes we build, increase our costs, or negatively affect our operating results;


◦	new and existing laws and regulations, including environmental laws and regulations, or other governmental actions may increase our expenses, limit the number of ~~regulatory approvals and~~homes that we can build or delay the ~~opening~~completion of our projects;


◦	~~the impact of recent accounting standards;~~legislation relating to energy and climate change could increase our costs to construct homes;

Risks related to financing and indebtedness, including among other things:


◦	~~Volatility~~difficulty in obtaining sufficient capital could prevent us from acquiring land for our developments or increase costs and ~~uncertainty~~delays in the ~~credit markets and broader financial markets;~~completion of our development projects;


◦	our ~~liquidity~~level of indebtedness may adversely affect our financial position and ~~availability, terms~~prevent us from fulfilling our debt obligations, and ~~deployment of capital;~~we may incur additional debt in the future;


◦	~~issues concerning~~the significant amount and illiquid nature of our joint venture partnerships, in which we have less than a controlling interest;


◦	a breach of the covenants under the Indenture or any of the other agreements governing our ~~leverage,~~ indebtedness could result in an event of default under the Indenture or other such agreements;


◦	potential future downgrades of our credit ratings could adversely affect our access to capital and could otherwise have a material adverse effect on us;


◦	interest expense on debt ~~service obligations and restrictive covenants related~~we incur may limit our cash available to fund our ~~operations in our current or future financing arrangements, including under our unsecured credit facility and our senior notes;~~growth strategies;


◦	we may be unable to repurchase the Notes upon a change of control as required by the Indenture;

Risks related to our ~~structure~~organization and ~~ownership of our common stock,~~structure, including among other things:


◦	~~availability of qualified personnel and~~ our ~~ability to retain~~dependence on our key personnel;


◦	~~Our~~our charter and bylaws could prevent a third party from acquiring us or limit the price that investors might be willing to pay for shares of our common stock;


◦	the obligations associated with being a public company require significant resources and management attention;


◦	our status as an emerging growth company with a limited operating history;

Risks related to ownership of our common stock, including among other things:


◦	the price of our common stock is subject to volatility and our trading volume is relatively low;


◦	if securities or industry analysts do not publish, or cease publishing, research or reports about us, our business or our market, or if they change their recommendations regarding our common stock adversely, our stock price and trading volume could decline;


◦	we do not intend to pay dividends on our common stock for the foreseeable future;


◦	certain stockholders have rights to cause our Company to undertake securities offerings;


◦	our senior notes rank senior to our common stock upon bankruptcy or ~~liquidation.~~liquidation;


◦	certain large stockholders own a significant percentage of our shares and exert significant influence over us;


◦	Non-U.S. holders of our common stock may be subject to United States income tax on gain realized on the sale of disposition of such shares.

Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this quarterly report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

The forward-looking statements in this quarterly report on Form 10-Q speak only as of the date of this quarterly report on Form 10-Q, and we undertake no obligation to revise or publicly release any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Non-GAAP Measures

This quarterly report on Form 10-Q includes certain non-GAAP measures, including homebuilding gross margin before impairments ~~homebuilding~~(or home sales gross margin before ~~impairments percentage, adjusted homebuilding gross margin, adjusted~~impairments), homebuilding gross margin percentage before impairments, Adjusted EBITDA, Adjusted EBITDA margin percentage, the ratio of Adjusted EBITDA to total interest incurred, net debt, the ratio of net debt-to-capital, adjusted homebuilding gross margin (or homebuilding gross margin before impairments and interest

in cost of sales), adjusted homebuilding gross margin percentage and effective tax rate before discrete items. For a reconciliation of homebuilding gross margin before impairments (or home sales gross margin before impairments), homebuilding gross margin percentage before impairments, Adjusted EBITDA, Adjusted EBITDA margin percentage, and the ratio of Adjusted EBITDA to total interest ~~incurred. For a reconciliation of Adjusted EBITDA, Adjusted EBITDA margin percentage, the ratio of Adjusted EBITDA to total interest~~ incurred ~~homebuilding gross margin before impairments, and homebuilding gross margin before impairments percentage~~ to the comparable GAAP measures please see Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Selected Financial Information." For a reconciliation of net debt and ratio of net debt-to-capital to the comparable GAAP measures, please see Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Debt-to-Capital Ratios." For a reconciliation of adjusted homebuilding gross margin (or homebuilding gross margin excluding impairments and interest in cost of sales) and adjusted homebuilding gross margin percentage to ~~homebuilding gross margin under~~the comparable GAAP measures please see Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Homebuilding Gross Margin." For a reconciliation of ~~net debt-to-capital~~the effective tax rate before discrete items to the comparable GAAP measure please see Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations - ~~Liquidity and Capital Resources~~Results of Operations - ~~Debt-to-Capital Ratios.~~Provision (Benefit) for Income Taxes."

Selected Financial Information


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
	(Dollars in thousands)												(Dollars in thousands)
Revenues:
Home sales	$	96,929		$	78,836		$	166,335		$	121,139		$	117,460		$	96,929		$	196,897		$	166,335
Fee building, including management fees from unconsolidated joint ventures of $1,217, $2,537, $2,431 and $4,712, respectively	47,181			30,028			102,798			72,965
Fee building, including management fees from unconsolidated joint ventures of $672, $1,217, $1,652 and $2,431, respectively													38,095			47,181			81,889			102,798
	144,110			108,864			269,133			194,104			155,555			144,110			278,786			269,133
Cost of Sales:
Home sales	82,488			69,390			142,553			106,060			102,678			82,488			172,372			142,553
Home sales impairments	1,300			—			1,300			—			—			1,300			—			1,300
Fee building	45,899			28,317			99,825			69,231			37,038			45,899			79,737			99,825
	129,687			97,707			243,678			175,291			139,716			129,687			252,109			243,678
Gross Margin:
Home sales	13,141			9,446			22,482			15,079			14,782			13,141			24,525			22,482
Fee building	1,282			1,711			2,973			3,734			1,057			1,282			2,152			2,973
	14,423			11,157			25,455			18,813			15,839			14,423			26,677			25,455

Home sales gross margin	13.6		%	12.0		%	13.5		%	12.4		%	12.6		%	13.6		%	12.5		%	13.5		%
Home sales gross margin before impairments⁽¹⁾	14.9		%	12.0		%	14.3		%	12.4		%	12.6		%	14.9		%	12.5		%	14.3		%
Fee building gross margin	2.7		%	5.7		%	2.9		%	5.1		%	2.8		%	2.7		%	2.6		%	2.9		%

Selling and marketing expenses	(6,376		)	(5,046		)	(11,377		)	(8,522		)	(9,466		)	(6,376		)	(16,105		)	(11,377		)
General and administrative expenses	(5,595		)	(5,833		)	(10,685		)	(11,008		)	(5,979		)	(5,595		)	(11,998		)	(10,685		)
Equity in net income of unconsolidated joint ventures	201			3,947			507			3,940
Equity in net income (loss) of unconsolidated joint ventures													(120		)	201			215			507
Other income (expense), net	(148		)	(286		)	(35		)	(395		)	(92		)	(148		)	(118		)	(35		)
Income before income taxes	2,505			3,939			3,865			2,828
Provision for income taxes	(988		)	(1,495		)	(1,512		)	(1,253		)
Net income	1,517			2,444			2,353			1,575
Net loss attributable to noncontrolling interest	—			65			10			120
Net income attributable to The New Home Company Inc.	$	1,517		$	2,509		$	2,363		$	1,695
Pretax income (loss)													182			2,505			(1,329		)	3,865
(Provision) benefit for income taxes													(67		)	(988		)	793			(1,512		)
Net income (loss)													115			1,517			(536		)	2,353
Net loss attributable to non-controlling interest													—			—			11			10
Net income (loss) attributable to The New Home Company Inc.													$	115		$	1,517		$	(525	)	$	2,363

Interest incurred	$	6,401		$	1,689		$	8,437		$	2,970		$	6,612		$	6,401		$	13,328		$	8,437
Adjusted EBITDA⁽²⁾	$	6,304		$	3,213		$	11,265		$	4,016		$	6,564		$	6,304		$	10,127		$	11,265
Adjusted EBITDA margin percentage(2)	4.4		%	3.0		%	4.2		%	2.1		%	4.2		%	4.4		%	3.6		%	4.2		%

							LTM⁽³⁾ Ended June 30,												LTM⁽³⁾ Ended June 30,
							2017			2016									2018			2017
Interest incurred							$	12,951		$	5,766								$	26,869		$	12,951
Adjusted EBITDA⁽²⁾							$	50,393		$	37,662								$	49,007		$	50,393
Adjusted EBITDA margin percentage⁽²⁾							6.5		%	7.9		%							6.4		%	6.5		%
Ratio of Adjusted EBITDA to total interest incurred⁽²⁾							3.9x			6.5x									1.8x			3.9x


(1)	Home sales gross margin before impairments (also referred to as homebuilding gross margin before impairments) is a non-GAAP measure. The table below reconciles this non-GAAP financial measure to homebuilding gross margin, the nearest GAAP equivalent.


	Three Months Ended June 30,								Six Months Ended June 30,								Three Months Ended June 30,								Six Months Ended June 30,
	2017		%		2016		%		2017		%		2016		%		2018		%		2017		%		2018		%		2017		%
	(Dollars in thousands)																(Dollars in thousands)
Home sales revenue	$	96,929	100.0	%	$	78,836	100.0	%	$	166,335	100.0	%	$	121,139	100.0	%	$	117,460	100.0	%	$	96,929	100.0	%	$	196,897	100.0	%	$	166,335	100.0	%
Cost of home sales	83,788		86.4	%	69,390		88.0	%	143,853		86.5	%	106,060		87.6	%	102,678		87.4	%	83,788		86.4	%	172,372		87.5	%	143,853		86.5	%
Homebuilding gross margin	13,141		13.6	%	9,446		12.0	%	22,482		13.5	%	15,079		12.4	%	14,782		12.6	%	13,141		13.6	%	24,525		12.5	%	22,482		13.5	%
Add: Home sales impairments	1,300		1.3	%	—		—	%	1,300		0.8	%	—		—	%	—		—	%	1,300		1.3	%	—		—	%	1,300		0.8	%
Homebuilding gross margin before impairments⁽¹⁾	$	14,441	14.9	%	$	9,446	12.0	%	$	23,782	14.3	%	$	15,079	12.4	%	$	14,782	12.6	%	$	14,441	14.9	%	$	24,525	12.5	%	$	23,782	14.3	%

(2)

Adjusted EBITDA, Adjusted EBITDA margin percentage and ratio of Adjusted EBITDA to total interest incurred are non-GAAP measures. Adjusted EBITDA margin percentage is calculated as a percentage of total revenue. Management believes that Adjusted EBITDA, which is a non-GAAP measure, assists investors in understanding and comparing the operating characteristics of homebuilding activities by eliminating many of the differences in companies' respective capitalization, interest costs, tax position and inventory impairments. Due to the significance of the GAAP components excluded, Adjusted EBITDA should not be considered in isolation or as an alternative to net income, cash flows from operations or any other performance measure prescribed by GAAP. The table below reconciles net income (loss), calculated and presented in accordance with GAAP, to Adjusted ~~EBITDA, Adjusted EBITDA margin percentage and ratio of Adjusted EBITDA to total interest incurred.~~EBITDA.


	Three Months Ended June 30,						Six Months Ended June 30,						LTM⁽³⁾ Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,						LTM⁽²⁾ Ended June 30,
	2017			2016			2017			2016			2017			2016			2018			2017			2018			2017			2018			2017
	(Dollars in thousands)																		(Dollars in thousands)
Net income (loss)	$	1,517		$	2,444		$	2,353		$	1,575		$	21,704		$	18,133		$	115		$	1,517		$	(536	)	$	2,353		$	14,252		$	21,704
Add:
Interest amortized to cost of sales and other expense	1,720			1,063			3,271			1,711			6,891			3,827
Interest amortized to cost of sales and equity in net income (loss) of unconsolidated joint ventures																			3,768			1,720			6,563			3,271			14,349			6,891
Provision (benefit) for income taxes	988			1,495			1,512			1,253			13,283			10,761			67			988			(793		)	1,512			13,085			13,283
Depreciation and amortization	113			126			236			251			496			492			1,624			113			2,646			236			2,859			496
Amortization of equity-based compensation	695			757			1,306			1,742			3,035			4,391			862			695			1,704			1,306			3,201			3,035
Cash distributions of income from unconsolidated joint ventures	—			1,095			1,588			1,095			4,235			12,120			—			—			715			1,588			715			4,235
Non-cash impairments and abandonments	1,472			180			1,506			329			5,257			521
Noncash impairments and abandonments																			8			1,472			43			1,506			1,120			5,257
Less:
Gain from notes payable principal reduction	—			—			—			—			(250		)	—			—			—			—			—			—			(250		)
Equity in income of unconsolidated joint ventures	(201		)	(3,947		)	(507		)	(3,940		)	(4,258		)	(12,583		)
Equity in net income (loss) of unconsolidated joint ventures																			120			(201		)	(215		)	(507		)	(574		)	(4,258		)
Adjusted EBITDA	$	6,304		$	3,213		$	11,265		$	4,016		$	50,393		$	37,662		$	6,564		$	6,304		$	10,127		$	11,265		$	49,007		$	50,393
Total Revenue	$	144,110		$	108,864		$	269,133		$	194,104		$	769,485		$	475,707		$	155,555		$	144,110		$	278,786		$	269,133		$	760,819		$	769,485
Adjusted EBITDA margin percentage	4.4		%	3.0		%	4.2		%	2.1		%	6.5		%	7.9		%	4.2		%	4.4		%	3.6		%	4.2		%	6.4		%	6.5		%
Interest incurred	$	6,401		$	1,689		$	8,437		$	2,970		$	12,951		$	5,766		$	6,612		$	6,401		$	13,328		$	8,437		$	26,869		$	12,951
Ratio of Adjusted EBITDA to total interest incurred													3.9x			6.5x
Ratio of Adjusted LTM⁽³⁾ EBITDA to total interest incurred																															1.8x			3.9x


(3)	"LTM" indicates amounts for the trailing 12 months.

Overview

~~Solid buyer demand for~~The Company continued to make progress with its growth strategy to expand its offerings to include more affordably priced product and grow its community count. Net new ~~homes continued into~~home orders were up 98% during the ~~2017~~2018 second quarter ~~building on~~over the prior year period as a ~~strong~~result of a 100% increase in average active selling communities. Also, contributing to the order growth were three new communities that opened during the quarter including our first ~~quarter. Consolidated revenues increased 32% year-over-year~~community located in the Inland Empire in Southern California, a market we expect to ~~$144.1 million, while home sales~~grow into a meaningful part of our business, and ~~fee building revenue increased 23% and 57%, respectively. In addition,~~ our second wholly owned ~~operating margins improved both sequentially and year-over-year. Homebuilding gross margin~~Arizona community located in Gilbert, AZ. Ending community count for the ~~2017~~2018 second quarter ~~increased 160 basis points~~rose 122% to ~~13.6%~~20 communities compared to nine communities a year ago. The increase in orders from our wider portfolio of communities drove a 66% increase in ending backlog units at June 30, 2018 as compared to June 30, 2017.

During the 2018 second quarter, the Company continued to see the impact of the product mix shift resulting from the Company's strategic broadening of its portfolio to include more affordably-priced product. As anticipated with this change, the average selling price of homes delivered and of homes in backlog for the 2018 second quarter declined 20% and 48%, ~~which included a $1.3 million non-cash inventory impairment charge,~~respectively, from ~~12.0% in~~ the prior year period. ~~Excluding inventory impairments, our homebuilding gross margin increased 290 basis points to 14.9%*, while our~~The reduction in the average selling ~~general and administrative ("SG&A") expenses as~~price of homes delivered was more than offset by a ~~percentage of~~52% increase in homes delivered, resulting in a 21% increase in home sales ~~revenue improved 140 basis points year-over-year. Our~~revenues during the 2018 second quarter. The decline in average selling price of homes in backlog at June 30, 2018 from the product mix shift drove a 14% decrease in backlog dollar value.

As a result of these activities, the Company generated net income ~~was~~of $0.1 million, or $0.01 per diluted share, compared to net income of $1.5 million, or $0.07 ~~per diluted share, for the 2017 second quarter versus $2.5 million, or $0.12~~ per diluted share, in the prior year period. The year-over-year decrease in net income was ~~primarily~~largely due to a ~~$3.7 million reduction~~140 basis point increase in ~~income from joint ventures,~~selling and marketing expenses as a ~~$1.3 million~~percentage of home sales revenue, a 100 basis point decline in home sales gross margin, and a decrease in fee building revenues and joint venture ~~management fee~~income. These items were partially offset by a 21% increase in home sales revenue and a ~~$1.3 million pretax impairment~~70 basis point decrease in general and administrative expenses as a percentage of homes sales revenue.

Continued investment in California and Arizona, where housing fundamentals were solid, drove wholly owned lot count up 77% year-over-year at one homebuilding community. These decreases were largely offset by the increase in our consolidated revenues and the improvements in our homebuilding gross margin before impairments* and the reduction in our SG&A expense rate as noted above.

We continued to execute on our strategy to further diversify our home offerings to include more affordable price points. As expected, our average selling price for homes delivered was $1.5 million, a reduction of 17% from the prior year period. Additionally, solid order demand boosted the dollar value of our backlog to $339.4 million, a 22% increase over the prior year second quarter, and was the highest quarter end backlog value in our history. This growth in backlog resulted from a 53% year-over-year increase in net new orders and was driven largely by a 74% improvement in our monthly sales absorption rate of 3.3 sales per community versus 1.9 in the prior year period. As a result of the strong absorption pace coupled with the timing of new community openings and project close-outs, our wholly-owned community count decreased to nine at the end of the 2017 second quarter, which was consistent with our expectations. We anticipate that our community count will expand meaningfully over the next two quarters as we anticipate opening nine new communities in the second half of 2017, six of which are expected to be priced at or below $750,000.

At the same time, the Company improved its liquidity by issuing $75 million of 7.25% senior unsecured notes due 2022 in a tack-on private offering during the 2017 second quarter. The notes were issued at a premium to yield 6.44%.June 30, 2018. The Company ended the quarter with ~~$154~~$91 million in cash and cash equivalents, no$354.4 million in debt, of which $35.0 million was outstanding under its ~~$260~~$200 million ~~unsecured~~ revolving credit facility, a debt-to-capital ratio of ~~56.2%~~57.8%, and a net debt-to-capital ratio of ~~39.8%~~50.4%*. ~~In addition,~~The 2018 second quarter also marked the Company's initial repurchases of common stock under its previously announced stock repurchase plan. The Company ~~improved its lot portfolio by growing its wholly-owned lot count by 23% to 1,821 lots,~~repurchased 205,240 shares of ~~which 62% were controlled through option contracts.~~common stock for approximately $2.1 million, or an average price of $10.08 per share.

*~~Homebuilding gross margin before impairments and net~~Net debt-to-capital ratio ~~are~~is a non-GAAP ~~measures.~~measure. For a reconciliation to the appropriate GAAP ~~measures,~~measure, please see Item 2, "Management's ~~Discussion and Analysis of Financial Condition and Results of Operations - Homebuilding Gross Margin." and~~

~~"Management's~~ Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Debt-to-Capital Ratios."

Results of Operations

Net New Home Orders


	Three Months Ended June 30,				Increase/(Decrease)				Six Months Ended June 30,				Increase/(Decrease)				Three Months Ended June 30,				Increase/(Decrease)				Six Months Ended June 30,				Increase/(Decrease)
	2017		2016		Amount		%		2017		2016		Amount		%		2018		2017		Amount		%		2018		2017		Amount		%

Net new home orders:
Southern California	44		39		5		13	%	100		66		34		52	%	104		44		60		136	%	173		100		73		73	%
Northern California	54		25		29		116	%	124		54		70		130	%	77		54		23		43	%	147		124		23		19	%
Total	98		64		34		53	%	224		120		104		87	%
Arizona																	13		—		13		NA		15		—		15		NA
Total net new home orders																	194		98		96		98	%	335		224		111		50	%

Selling communities at end of period:	Selling communities at end of period:																Selling communities at end of period:
Southern California									6		7		(1	)	(14	)%									11		6		5		83	%
Northern California									3		5		(2	)	(40	)%									7		3		4		133	%
Total									9		12		(3	)	(25	)%
Arizona																									2		—		2		NA
Total selling communities																	Total selling communities								20		9		11		122	%

Average selling communities																	20		10		10		100	%	19		13		6		46	%
Monthly sales absorption rate per community ⁽¹⁾	3.3		1.9		1.4		74	%	3.0		1.9		1.1		58	%	3.2		3.3		(0.1	)	(3	)%	3.0		3.0		—		—	%
Cancellation rate	10	%	6	%	4	%	N/A		8	%	13	%	(5	)%	N/A		6	%	10	%	(4	)%	NA		6	%	8	%	(2	)%	NA

(1) Monthly sales absorption represents the number of net new home orders divided by the number of average selling communities for the period.

Net new home orders for the 2018 second quarter increased 98% as compared to the same period in 2017 as a result of a 100% increase in average selling communities, offset by a slight decrease in the monthly sales absorption rate. Demand was strongest in Northern California with monthly sales of 3.7 per community for the 2018 second quarter largely attributable to strong order activity in two Bay Area communities. Southern California saw an increase in its monthly absorption rate to 3.1 sales per community in the 2018 second quarter compared to 2.8 in the 2017 period. The improvement was primarily attributable to an increase in more affordable product that generally sells at a faster pace than higher-priced product. Arizona contributed 2.2 sales per month in the 2018 second quarter.

Net new home orders for the ~~2017 second quarter increased 53% as~~six months ended June 30, 2018 were up 50% compared to the ~~same~~2017 period, ~~in 2016 primarily due to an~~resulting largely from a 46% increase in average selling communities from 13 to 19. Buyer demand for the first half of 2018 was solid with a year-to-date monthly ~~sales absorption rate. The improvement in~~ absorption rate ~~was driven by solid order activity in both Southern and Northern California. Southern California experienced monthly absorption~~ of ~~2.8~~3.0, consistent with the prior period. Monthly sales per community ~~which represented a year-over-year increase of 33%.~~for the six months ended June 30, 2018 were up slightly in both Northern and Southern California ~~experienced broad based demand over multiple communities during the 2017 second quarter which resulted in a monthly~~due to strong Bay Area activity and product price diversification, respectively, offset by lower sales absorption ~~rate of 3.9 compared to 1.8~~ in ~~the prior year period.~~ Arizona as communities ramp up starting operations.

The Company continued to experience modest cancellation ~~rates during 2017~~activity with a ~~10%~~ cancellation rate of 6% for the three months ended June 30, 2018 as compared to 10% in the prior year period, and a cancellation rate of 6% for the six months ended June 30, 2018 as compared to 8% for the same period in 2017. We believe our cancellation rate is one of the ~~lower rates~~lowest in the industry due to many factors, including loan prequalifying buyers before ratifying sales contracts, the high level of personalized options that our homebuyers select, which ~~we believe~~ creates emotional attachment, and a higher proportion of affluent buyers with strong credit profiles.

~~Net new home orders for the six months ended~~ ~~June 30, 2017~~ were up 87% over the prior year period primarily due to a an increase in monthly absorption rates in both Southern California and Northern California. Monthly absorption for Southern California increased to 2.5 sales per community for the six months ended ~~June 30, 2017~~ ~~from 1.9 sales per community for the six months ended June 30, 2016. In Northern California, the monthly absorption rate was 3.5 for the first half of 2017 compared to 1.7 for the same period in 2016.~~

Backlog


	As of June 30,																As of June 30,
	2017					2016					% Change						2018					2017					% 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)
Southern California	99	$	278,513	$	2,813	89	$	249,433	$	2,803	11	%	12	%	—	%	139	$	141,718	$	1,020	99	$	278,513	$	2,813	40	%	(49	)%	(64	)%
Northern California	86	60,899		708		36	28,567		794		139	%	113	%	(11	)%	153	131,859		862		86	60,899		708		78	%	117	%	22	%
Arizona																	15	17,354		1,157		—	—		—		NA		NA		NA
Total	185	$	339,412	$	1,835	125	$	278,000	$	2,224	48	%	22	%	(17	)%	307	$	290,931	$	948	185	$	339,412	$	1,835	66	%	(14	)%	(48	)%

Backlog reflects the number of homes, net of cancellations, for which we have entered into a sales ~~contract~~contracts with ~~a customer,~~customers, but for which we have not yet delivered the ~~home.~~homes. The dollar value of backlog was up 22% year-over-year to $339.4 million primarily due to a 48% increase in the number of homes in backlog, which was partially offset by a 17% decrease in average selling price in backlog due to a product mix shift. The increase in the number of homes in backlog as of June 30, ~~2017~~2018 was up 66% as compared to the prior year period primarily due to a 50% increase in net orders resulting from a higher average community count and to a lesser extent, higher beginning unit backlog at December 31, 2017. Conversely, the dollar value of backlog was ~~largely the~~down 14% year-over-year to $290.9 million primarily due to a 48% decrease in average selling price, as a result of ~~a higher monthly sales absorption rate.~~ increased order activity from new communities with more affordable product.

The ~~higher dollar value and~~year-over-year decline in the Company's average selling price of homes in backlog was driven primarily by the mix of homes in backlog in Southern California as we expand our product offerings to include more affordably-priced communities. The 2017 second quarter backlog included homes from two higher-priced luxury communities located in Newport Coast, CA that closed out in 2017. The decline in Southern California backlog ~~as compared to~~value was partially offset by a 117% increase in Northern California ~~was due to higher-priced communities~~backlog value. Northern California backlog units and average selling prices were up year-over-year 78% and 22%, respectively, primarily resulting from our Bay Area townhome community in Milpitas that opened in the ~~Newport Coast area~~2017 third quarter with average selling prices of ~~Southern California where we have two coastal luxury communities where average home prices in backlog range from $4.7 million to $7.8~~approximately $1.1 million.

Lots Owned and Controlled


	June 30,		Increase/(Decrease)				June 30,		Increase/(Decrease)
	2017	2016	Amount		%		2018	2017	Amount	%
Lots Owned:
Southern California	402	226	176		78	%	505	402	103	26	%
Northern California	285	249	36		14	%	314	285	29	10	%
Arizona							299	—	299	NA
Total	687	475	212		45	%	1,118	687	431	63	%
Lots Controlled: ⁽¹⁾
Southern California	564	631	(67	)	(11	)%	807	564	243	43	%
Northern California	303	379	(76	)	(20	)%	959	303	656	217	%
Arizona	267	—	267		NA		343	267	76	28	%
Total	1,134	1,010	124		12	%	2,109	1,134	975	86	%
Total Lots Owned and Controlled - Wholly Owned	1,821	1,485	336		23	%	3,227	1,821	1,406	77	%
Fee Building ⁽²⁾	1,043	1,001	42		4	%	1,078	1,043	35	3	%
Total Lots Owned and Controlled	2,864	2,486	378		15	%	4,305	2,864	1,441	50	%


(1)	Includes lots that we control under purchase and sale agreements or option agreements subject to customary conditions and have not yet closed. There can be no assurance that such acquisitions will occur.


(2)	Lots owned by third party property owners for which we perform general contracting or construction management services.

Consistent with our focus on growing our wholly owned business, the Company increased the number of wholly owned lots owned and controlled by ~~23%~~77% year-over-year to ~~1,821~~3,227 lots, ~~62%~~65% of which were controlled through option contracts. The increase in wholly owned lots owned and controlled was primarily due to ~~our planned expansion~~an increase in ~~Arizona where we entered into~~lots controlled in Northern California with contracts ~~on three land parcels which totaled 267 aggregate lots.~~for two new developments including multiple planning areas, one for 418 lots in Vacaville, CA and a second for 394 lots in a masterplan development in Folsom, CA.

The increase in fee building lots at June 30, ~~2017~~2018 as compared to the prior year period was primarily attributable to ~~the Company being awarded~~new contracts ~~for five new fee building communities totaling 587 lots from its largest customer~~entered into during the ~~2017 second quarter. This lot increase was largely offset by the record level of fee building homes delivered during the~~last twelve months ended June 30, ~~2017.~~

2018, for 704 lots, including construction management contracts the company entered into with a new customer during the 2018 second quarter totaling 165 lots across five communities, largely offset by the delivery of 669 homes to customers in the same period.

Home Sales Revenue and New Homes Delivered


	Three Months Ended June 30,																Three Months Ended June 30,
	2017					2016					% Change						2018					2017					% 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)
Southern California	27	$	67,279	$	2,492	20	$	54,900	$	2,745	35	%	23	%	(9	)%	61	$	87,278	$	1,431	27	$	67,279	$	2,492	126	%	30	%	(43	)%
Northern California	37	29,650		801		23	23,936		1,041		61	%	24	%	(23	)%	36	30,182		838		37	29,650		801		(3	)%	2	%	5	%
Total	64	$	96,929	$	1,515	43	$	78,836	$	1,833	49	%	23	%	(17	)%	97	$	117,460	$	1,211	64	$	96,929	$	1,515	52	%	21	%	(20	)%

	Six Months Ended June 30,																Six Months Ended June 30,
	2017					2016					% Change						2018					2017					% 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)
Southern California	49	$	111,202	$	2,269	31	$	84,208	$	2,716	58	%	32	%	(16	)%	105	$	131,858	$	1,256	49	$	111,202	$	2,269	114	%	19	%	(45	)%
Northern California	69	55,133		799		40	36,931		923		73	%	49	%	(13	)%	76	65,039		856		69	55,133		799		10	%	18	%	7	%
Total	118	$	166,335	$	1,410	71	$	121,139	$	1,706	66	%	37	%	(17	)%	181	$	196,897	$	1,088	118	$	166,335	$	1,410	53	%	18	%	(23	)%

New home deliveries increased ~~49% during~~52% for the ~~2017~~2018 second quarter as compared to the ~~same period in 2016.~~prior year period. The increase in deliveries was the result of a higher number of homes in backlog at ~~December 31, 2016 and an increase in net new home orders during~~ the ~~period. Additionally, home sales revenue increased 23% during~~beginning of the ~~2017 second quarter as compared to the prior year~~ period primarily due to the increase in new home deliveries, and was partially offset by a 17% decline in average sales price per delivery for the period. The year-over-year decrease in average sales price was driven by a product mix shift for both Southern California and Northern California, which is consistent with the Company's strategy to expand its product portfolio to include more affordable-priced homes. The average selling price for Southern California during the 2017 second quarter was influenced by deliveries from our higher-priced luxury product in Newport Coast, but was partially offset by two lower-priced communities in Irvine, CA. The decrease in average selling price for Northern California during the 2017 second quarter was largely due to an increase in deliveries from our lower-priced townhome community in Davis, CA.

New home deliveries increased 66% for the six months ended June 30, 2017 compared to the six months ended June 30, 2016. The increase in deliveries was the result of a higher number of homes in backlog at December 31, 2016 and an increase in net new home orders during the period. Home sales revenue for the ~~first half of 2017~~three months ended June 30, 2018 increased ~~37%~~21% compared to the same period in ~~2016~~2017 primarily due to anthe 52% increase in new home deliveries, which was partially offset ~~partially~~ by a ~~17% decline in~~20% lower average sales price per delivery for the period. The year-over-year decrease in average sales price related to the strategic broadening of the Company's portfolio, particularly in Southern California, to include more affordably-priced product as well as the overall growth in community count. Additionally, the average selling price for Southern California during the 2017 second quarter was influenced by deliveries from higher-priced luxury product from two communities in Newport Coast, CA.

New home deliveries increased 53% for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 due to a higher number of homes in backlog at December 31, 2017 and an increase in net new home orders during the 2018 six month period. Home sales revenue for the six months ended June 30, 2018 increased 18% compared to the same 2017 period primarily due to an increase in new home deliveries, which was partially offset by a 23% lower average sales price per delivery for the period. The year-over-year decrease in average sales price related to the product mix shift ~~for both Southern California and Northern California as deliveries from lower-priced communities increased in proportion to total new home deliveries.~~discussed above.

Homebuilding Gross Margin

Homebuilding gross margin for the 2018 second quarter was 12.6% versus 13.6% in the prior period. The 100 basis point decline in home sales gross margin was primarily due to a product mix shift and higher interest costs. Before impairments, home sales gross margin declined 230 basis points during the second quarter of 2018 compared with the 2017 period, reflecting $1.3 million of impairment charges in the 2017 second quarter ~~was 13.6%, which included a $1.3 million non-cash inventory impairment charge isolated~~relating to one ~~homebuilding~~ community in Southern California ~~due to slow monthly sales absorption and our determination that additional incentives would be required,~~ compared to ~~12.0% for~~no impairments in the ~~same period~~2018 period. The mix shift included deliveries from three lower margin close-out communities in ~~2016. Homebuilding gross margin before impairments for~~Southern California in the 2018 second quarter, while the 2017 second quarter was ~~14.9% versus 12.0%~~positively impacted by deliveries from two higher-margin communities in Newport Coast, CA and one community in the ~~prior year period. The 290 basis point improvement in~~Bay Area. Adjusted homebuilding gross margin ~~before impairments~~ for the ~~2017~~2018 second quarter, ~~was primarily due to a~~

~~change in product mix, including the favorable impact of higher margins from our Crystal Cove communities located in Newport Coast, CA. Excluding home sales~~excluding impairments and interest in cost of home sales, was 15.8% compared to 16.7% in the ~~adjusted homebuilding gross margin percentages for the three months ended June 30, 2017 and June 30, 2016 were 16.7% and 13.3%, respectively.~~prior year period. Homebuilding gross margin before impairments and adjusted homebuilding gross margin are non-GAAP measures. See the table below reconciling these non-GAAP financial measures to homebuilding gross margin, the nearest GAAP equivalent.

Homebuilding gross margin for the six months ended June 30, ~~2017~~2018 was ~~13.5%~~12.5%, ~~which included a $1.3 million non-cash inventory impairment related to one homebuilding community in Southern California,~~ compared to ~~12.4%~~13.5% for ~~the prior year~~2017 period. ~~Excluding the inventory impairment charge,~~The decrease in homebuilding gross margin ~~before impairments for~~was primarily due to changes in product mix and higher interest costs. As discussed above, during the first ~~half~~six months of 2017, ~~was 14.3%~~the Company incurred $1.3 million of impairment charges versus ~~12.4% for~~no impairment

charges during the first six months of 2018. Before impairments, home sales gross margin declined 180 basis during the first six months of 2018 compared to the same period in ~~2016. The 190 basis point improvement in homebuilding gross margin before impairments was primarily due to a change in product mix.~~2017. Excluding home sales impairments and interest in cost of home sales, the adjusted homebuilding gross margin percentages for the six months ended June 30, 2018 and 2017 were 15.8% and ~~June 30, 2016 were~~ 16.3%~~, and 13.9%~~, respectively.


	Three Months Ended June 30,								Six Months Ended June 30,								Three Months Ended June 30,								Six Months Ended June 30,
	2017		%		2016		%		2017		%		2016		%		2018		%		2017		%		2018		%		2017		%
	(Dollars in thousands)																(Dollars in thousands)
Home sales revenue	$	96,929	100.0	%	$	78,836	100.0	%	$	166,335	100.0	%	$	121,139	100.0	%	$	117,460	100.0	%	$	96,929	100.0	%	$	196,897	100.0	%	$	166,335	100.0	%
Cost of home sales	83,788		86.4	%	69,390		88.0	%	143,853		86.5	%	106,060		87.6	%	102,678		87.4	%	83,788		86.4	%	172,372		87.5	%	143,853		86.5	%
Homebuilding gross margin	13,141		13.6	%	9,446		12.0	%	22,482		13.5	%	15,079		12.4	%	14,782		12.6	%	13,141		13.6	%	24,525		12.5	%	22,482		13.5	%
Add: Home sales impairments	1,300		1.3	%	—		—	%	1,300		0.8	%	—		—	%	—		—	%	1,300		1.3	%	—		—	%	1,300		0.8	%
Homebuilding gross margin before impairments⁽¹⁾	14,441		14.9	%	9,446		12.0	%	23,782		14.3	%	15,079		12.4	%	14,782		12.6	%	14,441		14.9	%	24,525		12.5	%	23,782		14.3	%
Add: Interest in cost of home sales	1,720		1.8	%	1,063		1.3	%	3,271		2.0	%	1,711		1.5	%	3,750		3.2	%	1,720		1.8	%	6,514		3.3	%	3,271		2.0	%
Adjusted homebuilding gross margin⁽¹⁾	$	16,161	16.7	%	$	10,509	13.3	%	$	27,053	16.3	%	$	16,790	13.9	%	$	18,532	15.8	%	$	16,161	16.7	%	$	31,039	15.8	%	$	27,053	16.3	%

(1)

Homebuilding gross margin before impairments and adjusted homebuilding gross margin (or homebuilding gross margin before impairments and interest in cost of sales) are non-GAAP financial measures. We believe this information is meaningful as it isolates the impact that home sales impairments and leverage have on homebuilding gross margin and permits investors to make better comparisons with our competitors who also break out and adjust gross margins in a similar fashion.

Fee Building


	Three Months Ended June 30,								Six Months Ended June 30,								Three Months Ended June 30,								Six Months Ended June 30,
	2017		%		2016		%		2017		%		2016		%		2018		%		2017		%		2018		%		2017		%
	(Dollars in thousands)																(Dollars in thousands)
Fee building revenues	$	47,181	100.0	%	$	30,028	100.0	%	$	102,798	100.0	%	$	72,965	100.0	%	$	38,095	100.0	%	$	47,181	100.0	%	$	81,889	100.0	%	$	102,798	100.0	%
Cost of fee building	45,899		97.3	%	28,317		94.3	%	99,825		97.1	%	69,231		94.9	%	37,038		97.2	%	45,899		97.3	%	79,737		97.4	%	99,825		97.1	%
Fee building gross margin	$	1,282	2.7	%	$	1,711	5.7	%	$	2,973	2.9	%	$	3,734	5.1	%	$	1,057	2.8	%	$	1,282	2.7	%	$	2,152	2.6	%	$	2,973	2.9	%

Our fee building revenues include (i) billings to ~~independent~~ third-party land owners for general contracting services and (ii) management fees from our unconsolidated joint ventures and third-party land owners for construction and sales management services. Cost of fee building includes (i) labor, subcontractor, and other indirect construction and development costs that are reimbursable by the land owner and (ii) general and administrative, or G&A, expenses that are attributable to fee building activities and joint venture management overhead. Besides allocable G&A expenses, there are no other material costs associated with management fees from our unconsolidated joint ventures.

Billings to land owners for general contracting services are a function of construction activity and reimbursable costs are incurred as homes are started. The total billings and reimbursable costs are driven by the pace at which the land owner executes its development plan. Management fees from our unconsolidated joint ventures are collected over the project's life and ~~increase~~ as homes and lots are delivered. Construction and sales management fees from third-party customers are collected over the life of the contract and increase as homes are delivered.

For ~~the three months ended June 30, 2017,~~2018 second quarter, fee building revenues ~~increased 57%~~decreased 19% from the prior year period primarily due to ~~an increase~~a decrease in costs incurred from fee building activity resulting from a ~~higher~~lower number of homes under construction during the period. Included in fee building revenues for the three months ended June 30, ~~2017~~2018 and ~~2016~~2017 were (i) ~~$46.0~~$36.7 million and ~~$27.5~~$46.0 million of billings to land owners, respectively, and (ii) ~~$1.2~~$1.4 million and ~~$2.5~~$1.2 million of management fees from our unconsolidated joint ventures ~~respectively. The decrease in management fees from JVs was primarily the result of fewer deliveries~~ and ~~lower revenues from~~

~~JV communities, which is consistent with the Company’s strategic shift to emphasize wholly owned operations.~~third-party land owners, respectively. Our fee building revenues have historically been concentrated with a small number of customers. For the three months ended June 30, ~~2017~~2018 and ~~2016,~~2017, one customer comprised ~~97%~~95% and ~~92%~~97%, respectively, of fee building ~~revenue, respectively.~~revenue.

~~For the three months ended June 30, 2017,~~The cost of fee building ~~increased due to~~decreased in the ~~increase in fee building activity,~~2018 second quarter compared to the same ~~periods during 2016.~~period in 2017 due to the decrease in fee building activity. The amount of G&A expenses included in the cost of fee building was $1.8 million and $2.3 million for

the three months ended June 30, 2018 and ~~$2.2 million~~2017, respectively. Fee building gross margin percentage increased to 2.8% for the three months ended June 30, ~~2017 and 2016, respectively. Fee building gross margin percentage decreased to~~2018 from 2.7% ~~for the three months ended June 30, 2017 from 5.7%~~ in the prior year ~~period. The overall decrease~~period due to lower allocated G&A expenses partially offset by changes in certain fee building ~~gross margins was largely due~~business agreements from a percentage of cost fee to a ~~decrease in management fees received from joint ventures.~~per-unit fixed fee arrangement.

For the six months ended June 30, ~~2017,~~2018, fee building revenues ~~increased 41%~~decreased 20% from the prior year period primarily due to ~~an increase~~a decrease in costs incurred from fee building activity resulting from a ~~higher~~lower number of homes under construction during the period. Included in fee building revenues for the six months ended ~~periods~~June 30, 2018 and 2017 were (i) ~~$100.4~~$79.5 million and ~~$68.3~~$100.4 million of billings to land owners, respectively, and (ii) $2.4 million and ~~$4.7~~$2.4 million of management fees from our unconsolidated joint ventures ~~respectively. The decrease in management fees from JVs was primarily the result of fewer deliveries~~ and ~~lower revenues from JV communities.~~third-party land owners, respectively. For the six months ended June 30, ~~2017~~2018 and ~~2016,~~2017, one customer comprised ~~98%~~96% and ~~94%~~98%, respectively, of fee building ~~revenue, respectively.~~revenue.

For the six months ended June 30, ~~2017,~~2018, cost of fee building ~~increased~~decreased due to the ~~increase~~decrease in fee building activity, compared to the same ~~periods~~period during ~~2016.~~2017. The amount of G&A expenses included in the cost of fee building was ~~$4.6~~$3.4 million and ~~$4.4~~$4.6 million for the six months ended June 30, ~~2017~~2018 and ~~2016,~~2017, respectively. Fee building gross margin percentage decreased to ~~2.9%~~2.6% for the six months ended June 30, ~~2017~~2018 from ~~5.1%~~2.9% in the ~~prior year period. The overall decrease~~2017 period due lower fee revenue and a change in the fee building ~~gross margins was largely due to a decrease in management fees received from joint ventures.~~business arrangements discussed above, partially offset by lower allocated G&A expenses.

Selling, General and Administrative Expenses

Three Months Ended
June 30, As a Percentage of Home Sales Revenue Six Months Ended
June 30, As a Percentage of Home Sales Revenue

2017 2016 2017 2016 2017 2016 2017 2016
(Dollars in thousands)
Selling and marketing expenses $ 6,376
$ 5,046
6.6 % 6.4 % $ 11,377
$ 8,522
6.8 % 7.0 %
General and administrative expenses (“G&A”) 5,595
5,833
5.8 % 7.4 % 10,685
11,008
6.4 % 9.1 %
Total selling, marketing and G&A (“SG&A”) $ 11,971
$ 10,879
12.4 % 13.8 % $ 22,062
$ 19,530
13.3 % 16.1 %



	Three Months Ended June 30,				As a Percentage of Home Sales Revenue				Six Months Ended June 30,				As a Percentage of Home Sales Revenue
	Three Months Ended June 30,				As a Percentage of Home Sales Revenue				Six Months Ended June 30,				As a Percentage of Home Sales Revenue
	2018		2017		2018		2017		2018		2017		2018		2017
	(Dollars in thousands)
Selling and marketing expenses	$	9,466	$	6,376	8.0	%	6.6	%	$	16,105	$	11,377	8.2	%	6.8	%
General and administrative expenses ("G&A")	5,979		5,595		5.1	%	5.8	%	11,998		10,685		6.1	%	6.4	%
Total selling, marketing and G&A ("SG&A")	$	15,445	$	11,971	13.1	%	12.4	%	$	28,103	$	22,062	14.3	%	13.3	%

During the ~~2017~~2018 second quarter, our SG&A ~~operating leverage improved significantly, resulting in~~rate as a ~~140 basis point reduction in our SG&A expense ratio compared to the 2016 second quarter. The improvement was largely attributable to the increase in~~percentage of home sales revenue ~~which~~increased 70 basis points to 13.1%, from 12.4% for the same period in 2017. The increase was ~~driven by an~~primarily due to higher selling and marketing costs resulting from the ramp up of new communities and higher co-broker commissions. In addition, the increase also included a net $0.4 million increase in ~~new~~selling and marketing expenses in the 2018 second quarter related to accounting changes from the adoption of ASC 606, the updated revenue recognition standard. Partially offsetting the increases was a 70 basis point improvement in G&A rate for the 2018 second quarter primarily attributable to increased home ~~deliveries and lower G&A expenses.~~sales revenue.

For the six months ended June 30, ~~2017,~~2018, our SG&A expense ratio was 14.3% compared to 13.3%~~, a 280 basis point improvement from 16.1%~~ for the same period in ~~2016.~~2017. The ~~improvement~~increase was largely attributable to ~~the increase in home sales revenue, which was driven by~~higher selling and marketing costs due to new community ramp up and an increase in ~~new home deliveries~~co-broker commissions. The impact of the adoption of ASC 606 was a net increase of $0.5 million to selling and marketing expenses for the six months ended June 30, 2018. These increases were partially offset by a lower G&A ~~expenses.~~rate as a percentage of home sales revenues.

Equity in Net Income (Loss) of Unconsolidated Joint Ventures

As of June 30, ~~2017~~2018 and ~~2016,~~2017, we had ownership interests in 10 and 12 unconsolidated joint ~~ventures.~~ventures, respectively. We own interests in our unconsolidated joint ventures that generally range from 5% to 35% and these interests vary by entity.

The ~~Company's~~Company’s share of joint venture loss was $0.1 million for the 2018 second quarter compared to its share of $0.2 million in income for the ~~three months ended June 30,~~ 2017 was $0.2 million as compared to $3.9 million for the same period in 2016. The decrease in the Company's share of income was largely due to the close out of an unconsolidated joint venture known as "LR8" in the 2016 second quarter, which produced an income allocation of $0.5 million prior to close out and a gain of $1.1 million due to the purchase of our joint venture partner's interest for less than its carrying value. Additionally, a reduction in joint venture revenues from decreased home deliveries and lot sales, lower gross margins from joint venture home sales and timing of recognition of income due to joint venture distribution waterfalls also contributed to the year-over-year decrease in the Company's share of joint venture income. The decrease in joint venture homes sales gross margin was primarily due to increased deliveries in the 2017 second quarter from five Sacramento communities with lower margins than the communities that were delivering in the 2016 second quarter, which included our higher-margin Orchard Park project in the Bay Area, which delivered its last home in the 2017 first quarter. The decrease in the Company's share of joint venture income was partially offset by the close out of an unconsolidated joint venture known as "Larkspur" in the 2017 secondperiod.

quarter, which produced an income allocation of $0.1 million prior to close out and a gain of $0.3 million due to the purchase of our JV partner's interest for less than its carrying value as part of a negotiated transaction. The joint venture close outs mentioned are discussed in further detail within Note 11, "Related Party Transactions," in our accompanying Condensed Consolidated Financial Statements.

~~The Company's share of joint venture income for the six months ended June 30, 2017 was $0.5 million as compared to $3.9 million for the same period in 2016~~. The decrease in the Company's share of income was largely due to the close out of the LR8 unconsolidated joint venture in the 2016 second quarter noted above. Additionally, a reduction in joint venture revenues from decreased home deliveries and lot sales, lower gross margins from joint venture home sales and timing of recognition of income due to joint venture distribution waterfalls also contributed to the year-over-year decrease in the Company's share of joint venture income. The decrease in joint venture homes sales gross margin was primarily due to a mix shift in deliveries, including deliveries in the 2017 period from five Sacramento communities with lower margins that did not have deliveries in 2016 as well as the close out of our higher-margin Orchard Park project in the Bay Area, which delivered its last home in the 2017 first quarter. The decrease in the Company's share of joint venture income was partially offset by the close out of the Larkspur unconsolidated joint venture in the 2017 second quarter, which produced an income allocation of $0.1 million prior to close out and a gain of $0.3 million due to the purchase of our JV partner's interest for less than its carrying value as part of a negotiated transaction. The joint venture close outs mentioned are discussed in further detail within Note 11, "Related Party Transactions," in our accompanying Condensed Consolidated Financial Statements.

The following sets forth supplemental operational and financial information about our unconsolidated joint ventures. Such information is not included in our financial data for GAAP purposes, but is recognized in our results as a component of equity in net income (loss) of unconsolidated joint ventures. This data is included for informational purposes only.


	Three Months Ended June 30,										Six Months Ended June 30,											Three Months Ended June 30,												Six Months Ended June 30,
	Three Months Ended June 30,					Increase/(Decrease)										Increase/(Decrease)						Three Months Ended June 30,						Increase/(Decrease)						Six Months Ended June 30,					Increase/(Decrease)
	2017			2016		Amount			%		Six Months Ended June 30,	2017			2016			Amount			%		2018			2017				Amount			%		2018		2017				Amount			%
	(Dollars in thousands)																					(Dollars in thousands)
Unconsolidated Joint Ventures
Unconsolidated Joint Ventures - Homebuilding																						Unconsolidated Joint Ventures - Homebuilding
Operational Data
Net new home orders	54			30		24			80	%	93			76			17			22	%	42			54				(12		)	(22	)%	78		93				(15		)	(16	)%
New homes delivered	33			55		(22		)	(40	)%	65			100			(35		)	(35	)%	36			33				3			9	%	68		65				3			5	%
Average sales price of homes delivered	Average sales price of homes delivered										$	914		$	859		$	55		6	%	$	832		$	1,038			$	(206	)	(20	)%	$	900	$	914			$	(14	)	(2	)%

Home sales revenue	$	34,240		$	47,698	$	(13,458	)	(28	)%	$	59,386		$	85,899		$	(26,513	)	(31	)%	$	29,938		$	34,240			$	(4,302	)	(13	)%	$	61,178	$	59,386			$	1,792		3	%
Land sales revenue	931			22,406		(21,475		)	(96	)%	2,405			26,162			(23,757		)	(91	)%	3,941			931				3,010			323	%	4,714		2,405				2,309			96	%
Total revenue	$	35,171		$	70,104	$	(34,933	)	(50	)%	$	61,791		$	112,061		$	(50,270	)	(45	)%	$	33,879		$	35,171			$	(1,292	)	(4	)%	$	65,892	$	61,791			$	4,101		7	%
Net income (loss)	$	(654	)	$	10,195	$	(10,849	)	(106	)%	$	(1,518	)	$	12,336		$	(13,854	)	(112	)%	$	(286	)	$	(654	)		$	368		56	%	$	518	$	(1,518	)		$	2,036		134	%

Selling communities at end of period	Selling communities at end of period										8			3			5			167	%	Selling communities at end of period												7		8				(1		)	(13	)%
Backlog (dollar value)	Backlog (dollar value)										$	70,941		$	71,970		$	(1,029	)	(1	)%	Backlog (dollar value)												$	70,851	$	70,941			$	(90	)	—	%
Backlog (homes)	Backlog (homes)										90			76			14			18	%	Backlog (homes)												90		90				—			—	%
Average sales price of backlog	Average sales price of backlog										$	788		$	947		$	(159	)	(17	)%	Average sales price of backlog												$	787	$	788			$	(1	)	—	%

Homebuilding lots owned and controlled	Homebuilding lots owned and controlled										520			610			(90		)	(15	)%	Homebuilding lots owned and controlled												273		520				(247		)	(48	)%
Land development lots owned and controlled	Land development lots owned and controlled										2,415			2,512			(97		)	(4	)%	Land development lots owned and controlled												2,305		2,415				(110		)	(5	)%
Total lots owned and controlled	Total lots owned and controlled										2,935			3,122			(187		)	(6	)%	Total lots owned and controlled												2,578		2,935				(357		)	(12	)%

Provision (Benefit) for Income Taxes

For the three and six months ended June 30, ~~2017 and 2016,~~2018, the Company recorded a $0.1 million provision and an $0.8 million benefit for income taxes, respectively. Comparatively, the Company recorded respective tax provisions of $1.0 million and $1.5 million ~~respectively. For~~for the three and six months ended June 30, 2017 and 2016, the Company recorded a provision for income taxes of $1.5 million and $1.3 million, respectively. Included in the three and six month periods for 2016 is an allocation of income from LR8 of $0.5 million due to a reduction in the warranty reserve and a $1.1 million gain from the closeout of LR8 due to the purchase of our JV partner's interest for less than its carrying value, which resulted in a provision for income taxes of $0.6 million for the three and six month periods ended June 30, 2016 and did not impact our effective tax rate.2017. The Company's effective tax rate for the three and six months ended June 30, 2018, was 36.8% and 59.7%, respectively, and 24.7% and 30.0% before discrete items. For the three and six months ended June 30, 2017, the Company's effective tax rates were 39.4% and ~~2016 differs~~39.1%, respectively, and 38.0% and 38.1% before discrete items. Effective tax rate before discrete items is a non-GAAP measure, please see the table below for a reconciliation to effective tax rate, the nearest GAAP equivalent. The year-over-year decreases of effective tax rates before discrete items for the three and six month periods were the result of the Tax Cuts and Jobs Act ("Tax Act") enacted in December 2017 that reduced the corporate federal tax rate from a maximum of 35% to a flat 21% rate, effective for 2018.

The Tax Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. In accordance with ASC 740, Income Taxes ("ASC 740"), the consolidated provision for income taxes is calculated using the asset and liability method, under which deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. As a result of the reduction in the corporate income tax rate from 35% to 21% under the Tax Act, the Company revalued its net deferred tax asset at December 31, 2017 and recorded a noncash, provisional charge of $3.2 million, which was included in the tax provision for fiscal 2017. The Company is currently analyzing the effects

of the Tax Act and will update this provisional rate as it completes its analysis. During the 2018 first quarter, the Company recorded an immaterial adjustment to the provisional amount and no such adjustment was made in the 2018 second quarter. Our accounting for the tax effects of the Tax Act will be completed during the one-year measurement period from the date of the Tax Act enactment, as allowed by the SEC.

As part of the Tax Act, the Company will no longer be able to take certain tax deductions for production activities that reduced our effective tax rate in prior years. Additionally, the Company will be subject to increased deduction limitations on certain executive compensation.



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
	(Dollars in thousands)
Effective tax rate for The New Home Company Inc.:
Pretax income (loss)	$	182		$	2,505		$	(1,329	)	$	3,865
(Provision) benefit for income taxes	$	(67	)	$	(988	)	$	793		$	(1,512	)
Effective tax rate⁽¹⁾	36.8		%	39.4		%	59.7		%	39.1		%

Effective tax rate for The New Home Company Inc. before discrete items:
(Provision) benefit for income taxes	$	(67	)	$	(988	)	$	793		$	(1,512	)
Adjustment for discrete items	22			36			(394		)	40
(Provision) benefit for income taxes before discrete items	$	(45	)	$	(952	)	$	399		$	(1,472	)
Effective tax rate for The New Home Company Inc. before discrete items⁽¹⁾	24.7		%	38.0		%	30.0		%	38.1		%

⁽¹⁾Effective tax rate is computed by dividing the (provision) benefit for income taxes by pretax income (loss)

Liquidity and Capital Resources

Overview

Our principal sources of capital for the six months ended June 30, ~~2017~~2018 were ~~proceeds from the sale of our senior notes due 2022,~~ cash generated from home sales activities, ~~advances~~borrowing from our ~~unsecured revolving~~ credit facility, distributions from our unconsolidated joint ventures, and management fees from our fee building agreements. Our principal uses of capital for the six months ended June 30, ~~2017~~2018 were land purchases, land development, home construction, ~~repayments on our revolving credit facility,~~ contributions and advances to our unconsolidated joint ventures, repurchases of the Company's common stock and payment of operating expenses and ~~the payment of~~ routine liabilities.

Cash flows for each of our communities depend on their stage in the development cycle, and can differ substantially from reported earnings. Early stages of development or expansion require significant cash outlays for land acquisitions, entitlements and other approvals, and construction of model homes, roads, utilities, general landscaping and other amenities. Because these costs are a component of our real estate inventories and not recognized in our consolidated statement of operations until a home is delivered, we incur significant cash outlays prior to our recognition of earnings. In the later stages of community development, cash inflows may significantly exceed earnings reported for financial statement purposes, as the cash ~~outflow~~outflows associated with home and land construction was previously incurred. From a liquidity standpoint, we are actively acquiring and developing lots to increase our lot supply and community count. As we continue to expand our business, we expect cash outlays for land purchases, land development and home construction to exceed our cash generated by operations.

We ended the second quarter of ~~2017~~2018 with ~~$154.0~~$90.8 million of cash and cash equivalents, a ~~$123.5~~$32.8 million ~~increase~~decrease from December 31, ~~2016,~~2017, primarily ~~as a result~~due to land acquisition and development and home construction costs in excess of proceeds from home sales during the ~~issuance~~first half of ~~our senior notes due 2022.~~2018. We expect to generate cash from the sale of our inventory, but intend to redeploy the net cash generated from the sale of inventory to acquire and develop strategic, well-positioned lots that represent opportunities to generate future income and cash flows.

As of June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, we had ~~$12.1~~$10.8 million and ~~$22.8~~$11.3 million, respectively, in accounts payable that related to costs incurred under our fee building agreements. Funding to pay these amounts is the obligation of the ~~independent~~ third-party land owner, which is generally funded on a monthly basis. Similarly, contracts and accounts receivable and due from affiliates as of the same dates included ~~$13.5~~$12.3 million and ~~$24.3~~$11.6 million, respectively, related to the payment of the above payables.

We intend to utilize both debt and equity as part of our ongoing financing strategy, coupled with redeployment of cash flows from continuing operations, to provide us with the financial flexibility to operate our business. In that regard, we expect to employ prudent levels of leverage to finance the acquisition and development of our lots and construction of our homes. As of June 30, ~~2017,~~2018, we had outstanding borrowings of $325 million in aggregate principal related to our senior ~~notes.~~notes and $35 million under our credit facility. We will consider a number of factors when evaluating our level of indebtedness and when making decisions regarding the incurrence of new indebtedness, including the purchase price of assets to be acquired with debt financing, the estimated market value of our assets and the ability of particular assets, and our company as a whole, to generate cash flow to cover the expected debt service. In addition, our debt contains certain financial covenants that limits the amount of leverage we can maintain.

We intend to finance future acquisitions and developments with what we believe to be the most advantageous source of capital available to us at the time of the transaction, which may include unsecured corporate level debt, property-level debt, and other public, private or bank debt, or common and preferred equity. ~~Additionally, we have an existing effective shelf registration statement that allows us to issue equity, debt or hybrid securities up to $349.7 million as of June 30, 2017.~~

Senior Notes Due 2022

On March 17, 2017, the Company completed the sale of $250 million in aggregate principal amount of 7.25% Senior Unsecured Notes due 2022 (the "Existing Notes"), in a private placement. The Notes were issued at an offering price of 98.961% of their face amount, which represents a yield to maturity of 7.50%. On May 4, 2017, the Company completed a tack-on private placement offering through the sale of an additional $75 million in aggregate principal amount of the 7.25% Senior Notes due 2022 ("Additional Notes"). The Additional Notes were issued at an offering price of 102.75% of their face amount plus accrued interest since March 17, 2017, which represented a yield to maturity of 6.438%. Net proceeds from the Existing Notes were used to repay all borrowings outstanding under the Company’s senior unsecured revolving credit facility with the remainder ~~to be~~ used for general corporate purposes. Net proceeds from the Additional Notes ~~will be~~were used for working capital, land acquisition and general corporate purposes. Interest on the Existing Notes and the Additional Notes ~~(collectively,~~(together, the ~~“Notes”~~"Notes") ~~will be paid~~is payable semiannually in arrears on April 1 and October ~~1, commencing October 1, 2017.~~1. The Notes will mature on April 1, 2022.

The Notes were exchanged in an exchange offer for Notes that are identical to the original Notes, except that they are registered under the Securities Act of 1933, as amended and are freely tradeable in accordance with applicable law.

The Notes contain certain restrictive covenants, including a limitation on additional indebtedness and a limitation on restricted payments. Restricted payments include, among other things, dividends, investments in unconsolidated entities, and stock repurchases. Under the limitation on additional indebtedness, we are permitted to incur specified categories of indebtedness but are prohibited, aside from those exceptions, from incurring further indebtedness if we do not satisfy either a leverage condition or an interest coverage condition. The leverage and interest coverage conditions are summarized in the table below, as described and defined further in the indenture for the Notes. Exceptions to the additional indebtedness limitation include, among other things, borrowings of up to $260 million under existing or future bank credit facilities, non-recourse indebtedness, and indebtedness incurred for the purpose of refinancing or repaying certain existing indebtedness. Under the limitation on restricted payments, we are also prohibited from making restricted payments, aside from certain exceptions, if we do not satisfy either condition. In addition, the amount of restricted payments that we can make is subject to an overall basket limitation, which builds based on, among other things, 50% of consolidated net income from January 1, 2017 and 100% of the net cash proceeds from qualified equity offerings. Exceptions to the foregoing limitations on our ability to make restricted payments include, among other things, investments in joint ventures and other investments up to 15% of our consolidated tangible net assets and a general basket of ~~$15,000,000.~~$15 million. The Notes are guaranteed by all of the Company's 100% owned subsidiaries, for more information about these guarantees, please see Note ~~16.~~17 of the notes to our condensed consolidated financial statements.



	June 30, ~~2017~~2018
Financial Conditions	Actual	Requirement

Fixed Charge Coverage Ratio: EBITDA to Consolidated Interest ~~Incurred~~Incurred; or	~~3.9~~1.8	> 2.0 : 1.0
Leverage Ratio: Indebtedness to Tangible Net Worth	~~1.29~~1.37	< 2.25 : 1.0

As of June 30, ~~2017,~~2018, we were able to satisfy ~~both~~ the leverage ~~condition and the interest coverage~~ condition. ~~The foregoing conditions are further defined and described in the indenture for the Notes.~~

Senior Unsecured Revolving Credit Facility

~~We have a senior~~The Company's unsecured revolving credit facility ~~(the “Credit Facility”~~("Credit Facility") is with a bank group ~~with total~~and matures on September 1, 2020. Total commitments ~~of $260~~under the Credit Facility are $200 million ~~and~~with an accordion feature that allows the facility size thereunder to be increased up to an aggregate of ~~$350~~$300 million, subject to certain conditions, including the availability of bank ~~commitments, and a maturity date of April 30, 2019. A portion of the net proceeds from the sale of our senior notes due 2022 was used to repay the outstanding balance of the Credit Facility, and as~~commitments.

As of June 30, ~~2017~~2018, we had $35 million outstanding borrowings under the ~~balance was zero. We may repay advances at any time without premium or penalty.~~Credit Facility. Interest is payable monthly and is charged at a rate of 1-month LIBOR plus a margin ranging from 2.25% to 3.00% depending on the Company’s leverage ratio as calculated at the end of each fiscal quarter. As of June 30, ~~2017,~~2018, the interest rate under the ~~facility was 3.72%.~~

~~Under our~~ Credit Facility ~~we are~~was 4.84%. Pursuant to the Credit Facility, the Company is required to ~~comply with~~maintain certain financial covenants as defined in the Credit Facility, including, but not limited to, those ~~summarized~~listed in the ~~table below, and as described and defined further in the Credit Facility:~~following table.


	June 30, 2017					June 30, 2018
Financial Covenants	Actual			Covenant Requirement		Actual			Covenant Requirement
	(Dollars in thousands)					(Dollars in thousands)
Unencumbered Liquid Assets	$	153,959		$	8,239
Unencumbered Liquid Assets (Minimum Liquidity Covenant)						$	90,758		$	10,000	⁽¹⁾
EBITDA to Interest Incurred(2)	3.9			> 1.5 : 1.0		1.82			> 1.75 : 1.0
Tangible Net Worth	$	247,710		$	176,341	$	258,755		$	187,395
Leverage Ratio	42		%	< 65%		51		%	< 65%
Adjusted Leverage Ratio ⁽¹⁾⁽³⁾	33		%	< 50%		NA			NA

~~(1) Adjusted Leverage Ratio is computed as total joint venture debt divided by total joint venture equity.~~

(1)

So long as the Company is in compliance with the interest coverage test, the minimum unencumbered liquid assets that the Company must maintain as of the quarter end measurement date is $10 million. If the Company is not in compliance with the interest coverage test, the minimum liquidity requirement as of each quarter end measurement date is not less than the trailing 12 month consolidated interest incurred. As of June 30, 2018, the trailing 12 month consolidated interest incurred totaled $26.9 million.


(2)	If the test is not met, it will not be considered an event of default so long as the Company maintains unrestricted cash equal to not less than the trailing 12 month consolidated interest incurred.

(3)

Adjusted Leverage Ratio is computed as total joint venture debt divided by total joint venture equity. The Adjusted Leverage Ratio requirement ceases to apply as of and after the fiscal quarter in which consolidated tangible net worth is at least $250 million. During any period when the Adjusted Leverage Ratio ceases to apply, consolidated tangible net worth shall be reduced by an adjustment equal to the aggregate amount of investments in and advance to unconsolidated joint ventures that exceed 35% of consolidated tangible net worth as calculated without giving effect to this adjustment (the "Adjustment Amount"). As of September 30, 2017, the Company's consolidated tangible net worth exceeded $250 million and therefore the Adjusted Leverage Ratio ceased to apply. In addition, the Adjustment Amount was considered in the calculation of consolidated tangible net worth.

As of June 30, ~~2017,~~2018, we were in compliance with all financial covenants under our Credit Facility.

Stock Repurchase Program

On May 10, 2018, our board of directors approved a stock repurchase program (the "Repurchase Program") authorizing the repurchase of the Company's common stock with an aggregate value of up to $15 million. Repurchases of the Company's common stock may be made in open-market transactions, effected through a broker-dealer at prevailing market prices, in privately negotiated transactions, in block trades or by other means in accordance with federal securities laws, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934. The Repurchase Program does not obligate the Company to repurchase any particular amount or number of shares of common stock, and it may be modified, suspended or discontinued at any time. The timing and amount of repurchases are determined by the Company’s management at its discretion and be based on a variety of factors, such as the market price of the Company’s common stock, corporate and contractual requirements, general market and economic conditions and legal requirements. As of June 30, 2018, the Company had repurchased and retired 205,240 shares totaling $2.1 million and had remaining authorization to purchase $12.9 million of common shares.

Debt-to-Capital Ratios

We believe that debt-to-capital ratios provide useful information to the users of our financial statements regarding our financial position and leverage. Net debt-to-capital ratio is a non-GAAP financial measure. See the table below reconciling this non-GAAP measure to debt-to-capital ratio, the nearest GAAP equivalent.


	June 30,			December 31,			June 30,			December 31,
	2017			2016			2018			2017
	(Dollars in thousands)						(Dollars in thousands)
Total debt, net	$	318,121		$	118,000		$	354,402		$	318,656
Equity, exclusive of noncontrolling interest	247,710			244,523
Equity, exclusive of non-controlling interest							258,755			263,990
Total capital	$	565,831		$	362,523		$	613,157		$	582,646
Ratio of debt-to-capital ⁽¹⁾	56.2		%	32.5		%	57.8		%	54.7		%

Total debt, net	$	318,121		$	118,000		$	354,402		$	318,656
Less: cash, cash equivalents and restricted cash	154,047			31,081			91,325			123,970
Net debt	164,074			86,919			263,077			194,686
Equity, exclusive of noncontrolling interest	247,710			244,523
Equity, exclusive of non-controlling interest							258,755			263,990
Total capital	$	411,784		$	331,442		$	521,832		$	458,676
Ratio of net debt-to-capital ⁽²⁾	39.8		%	26.2		%	50.4		%	42.4		%


(1)	The ratio of debt-to-capital is computed as the quotient obtained by dividing total debt, net by ~~the~~total capital (the sum of total debt, net plus ~~equity,~~equity), exclusive of ~~noncontrolling~~non-controlling interest.

(2)

The ratio of net debt-to-capital is computed as the quotient obtained by dividing net debt (which is total debt, net less cash, cash equivalents and restricted cash to the extent necessary to reduce the debt balance to zero) by total capital, exclusive of ~~noncontrolling~~non-controlling interest. The most directly comparable GAAP financial measure is the ratio of debt-to-capital. We believe the ratio of net debt-to-capital is a relevant financial measure for investors to understand the leverage employed in our operations and as an indicator of our ability to obtain financing. We believe that by deducting our cash from our debt, we provide a measure of our indebtedness that takes into account our cash liquidity. We believe this provides useful information as the ratio of debt-to-capital does not take into account our liquidity and we believe that the ratio net of cash provides supplemental information by which our financial position may be considered. Investors may also find this to be helpful when comparing our leverage to the leverage of our competitors that present similar information. See the table above reconciling this non-GAAP financial measure to the ratio of debt-to-capital.

Cash Flows — Six Months Ended June 30, ~~2017~~2018 Compared to Six Months Ended June 30, ~~2016~~2017

For the six months ended June 30, ~~2017~~2018 as compared to the six months ended June 30, ~~2016~~2017, the comparison of cash flows is as follows:

Net cash used in operating activities was ~~$71.4~~$61.5 million for the six months ended June 30, ~~2017~~2018 versus ~~$165.7~~$71.9 million for the six months ended June 30, ~~2016.~~2017. The year-over-year change was primarily a result of a net decrease in cash ~~outflows for~~outflow related to real estate inventories to $53.1 million for the first half of 2018 compared to $74.4 million infor the 2017 ~~period compared to $164.5 million in~~period. Partially offsetting the ~~2016 period. While land deposit and land acquisition spend decreased, the Company continued to make significant investments in~~positive impact from real estate inventories aswas a decrease in cash ~~outflows for real estate inventories were offset~~inflows of $6.7 million due to the timing of accounts receivable collections in the ~~2017 second quarter by increased home deliveries as compared to the prior year period and a greater utilization of rolling option takedowns.~~2018 period.

Net cash used in investing activities was $3.1 million for the six months ended June 30, 2018 compared to $4.7 million for the six months ended June 30, ~~2017~~2017. The decrease is primarily due to a reduction of net contributions and advances to unconsolidated joint ventures. Net contributions and advances were $3.1 million in the first half of 2018 compared to ~~$3.5~~$5.6 million during the same period in 2017. Net contributions were down year-over-year due to the partial repayment of an advance from an unconsolidated joint venture in the 2018 period.

Net cash provided by ~~investing~~financing activities was $32.0 million for the six months ended June 30, 2016. For the six months ended June 30, 2017, our net contributions and advances to unconsolidated joint ventures were $5.6 million compared to a net distribution from unconsolidated joint ventures of $1.7 million during the six months ended June 30, 2016 and was the primary reason net cash used in investing activities increased. The reduction in distributions from unconsolidated joint ventures primarily related to the reduction in revenues, new home deliveries, and the completion of certain joint venture communities.

~~Net cash provided by financing activities was~~2018 versus $199.5 million for the six months ended June 30, 2017. The higher amount in 2017 ~~versus $146.2~~reflects the net proceeds from the issuance of $325 million ~~for the six months ended June 30, 2016. The increase was primarily due to an increase in net borrowings, in particular the sale~~ of our Senior Notes due 2022.

Off-Balance Sheet Arrangements and Contractual Obligations

Option Contracts

In the ordinary course of business, we enter into land option contracts in order to procure lots for the construction of our homes. We are subject to customary obligations associated with entering into contracts for the purchase of land and improved lots. These purchase contracts typically require a cash deposit and the purchase of properties under these contracts is generally contingent upon satisfaction of certain requirements by the sellers, including obtaining applicable property and development entitlements. We also utilize option contracts with land sellers as a method of acquiring land in staged takedowns, to help us manage the financial and market risk associated with land holdings, to reduce the use of funds from our corporate financing sources, and to enhance our return on ~~equity.~~capital. Option contracts generally require a ~~non-refundable~~nonrefundable deposit for the right to acquire lots over a specified period of time at pre-determined prices. We generally have the right at our discretion to terminate our obligations under both purchase contracts and option contracts by forfeiting our cash deposit with no further financial responsibility to the land seller. In some instances, we may also expend funds for due diligence and development activities with respect to our option contracts prior to purchase which we would have to write off should we not purchase the land. As of June 30, ~~2017,~~2018, we had ~~$39.3~~$31.7 million of ~~non-refundable~~nonrefundable and ~~$0.2~~$1.0 million of refundable cash deposits pertaining to land option contracts and purchase contracts with an estimated aggregate remaining purchase price of ~~$402.8~~$302.9 million, ~~(net~~net of ~~deposits)~~deposits ("Aggregate Remaining Purchase Price"). These cash deposits are included as a component of our real estate inventories ~~on the~~in our condensed consolidated balance sheets. In addition, the Company has agreed to liquidated damages of up to $9.1 million should the Company not fulfill its obligations under a contract to control $53.1 million of land under an option contract, which is included in the Aggregate Remaining Purchase Price noted above.

Our utilization of land option contracts is dependent on, among other things, the availability of land sellers willing to enter into option arrangements, the availability of capital to financial intermediaries to finance the development of optioned lots, general housing market conditions, and local market dynamics. Options may be more difficult to procure from land sellers in strong housing markets and are more prevalent in certain geographic regions.

Joint Ventures

We enter into land development and homebuilding joint ventures from time to time as means of:

leveraging our capital base

accessing larger or ~~highly~~ desirable lot positions

expanding our market opportunities

managing financial and market risk associated with land holdings

establishing strategic alliances

These joint ventures have historically obtained secured acquisition, development and/or construction financing which reduces the use of funds from our corporate financing sources.

The Company has provided credit enhancements in connection with joint venture borrowings in the form of loan-to-value ~~(“LTV”~~("LTV") maintenance agreements in order to secure the joint venture's performance under the loans and maintenance of certain LTV ratios. The Company has also entered into agreements with its partners in each of the unconsolidated joint ventures whereby the Company and its partners are apportioned liability under the LTV maintenance agreements according to their respective capital interest. In addition, the agreements provide the Company, to the extent its partner has an unpaid liability under such credit enhancements, the right to receive distributions from the unconsolidated joint venture that would otherwise be made to the partner. However, there is no guarantee that such distributions will be made or will be sufficient to cover the ~~share of the~~Company's liability ~~apportioned to us.~~under such LTV maintenance agreements. The loans underlying the LTV maintenance agreements comprise acquisition and development loans, construction revolvers and model home loans, and the agreements remain in force until the loans are satisfied. Due to the nature of the loans, the outstanding balance at any given time is subject to a number of factors including the status of site improvements, the mix of horizontal and vertical development underway, the timing of phase build outs, and the period necessary to complete the escrow process for homebuyers. As of June 30, ~~2017~~2018 and December 31, ~~2016, $61.0~~2017, $31.3 million and ~~$56.0~~$38.6 million, respectively, was outstanding under loans that are credit enhanced by the Company through LTV maintenance agreements. Under the terms of the joint venture agreements, the Company's proportionate share of LTV maintenance agreement liabilities was ~~$9.6~~$5.0 million and ~~$8.6~~$6.7 million, respectively, as of June 30, ~~2017~~2018 and December 31, ~~2016.~~2017. In addition, the Company has provided completion agreements regarding specific performance for certain projects whereby the Company is required to complete the given project with funds provided by the beneficiary of the agreement. If there are not adequate funds available under the specific project loans, the Company would then be subject to financial liability under such completion guaranties. Typically, under such terms of the joint venture agreements, the Company has the right to apportion the respective share of any costs funded under such completion guaranties to its partners. However, there is no guarantee that we will be able to recover against our partners for such amounts owed to us under the terms of such joint venture agreements. In connection with joint venture borrowings, the Company also selectively provides (a) an environmental indemnity provided to

the lender that holds the lender harmless from and against losses arising from the discharge of hazardous materials from the property and non-compliance with applicable environmental laws; and (b) indemnification of the lender from ~~“bad~~"bad boy ~~acts”~~acts" of the unconsolidated ~~entity.~~entity such as fraud, misrepresentation, misapplication or non-payment of rents, profits, insurance, and condemnation proceeds, waste and mechanic liens, and bankruptcy.

For more information about our off-balance sheet arrangements, please see Note 11 to our condensed consolidated financial statements.

As of June 30, ~~2017,~~2018, we held ~~ownership~~membership interests in 1210 unconsolidated joint ventures, ~~eight~~six of which related to homebuilding activities and four related to land development as noted below. We were a party to ~~four~~two loan-to-value maintenance agreements related to unconsolidated joint ventures as of June 30, ~~2017.~~2018. The following table reflects certain financial and other information related to our unconsolidated joint ventures as of June 30, ~~2017:~~2018:


			June 30, 2017																	June 30, 2018
	Year Formed	Location		Total Joint Venture						NWHM Equity ₍₂₎		Debt-to-Total Capitalization		Loan-to- Value Maintenance Agreement	Future Capital Commitment₍₃₎		Lots Owned and Controlled	Year Formed	Location		Total Joint Venture						NWHM Equity ₍₂₎		Debt-to-Total Capital-ization		Loan-to- Value Maintenance Agreement	Future Capital Commitment₍₃₎		Lots Owned and Controlled
Joint Venture (Project Name)	Year Formed	Location	Ownership %	Assets		Debt⁽¹⁾		Equity		NWHM Equity ₍₂₎		Debt-to-Total Capitalization		Loan-to- Value Maintenance Agreement	Future Capital Commitment₍₃₎		Lots Owned and Controlled	Year Formed	Location	Ownership %	Assets		Debt⁽¹⁾		Equity		NWHM Equity ₍₂₎		Debt-to-Total Capital-ization		Loan-to- Value Maintenance Agreement	Future Capital Commitment₍₃₎		Lots Owned and Controlled
				(Dollars in 000's)																	(Dollars in 000's)
TNHC-HW San Jose LLC (Orchard Park)	2012	San Jose, CA	15%	4,810		—		2,415		724		—	%	N/A	—		—	2012	San Jose, CA	15%	2,408		—		543		163		—	%	N/A	—		—
TNHC-TCN Santa Clarita LP (Villa Metro)⁽⁴⁾	2012	Santa Clarita, CA	10%	1,565		—		806		202		—	%	N/A	—		—	2012	Santa Clarita, CA	10%	1,288		—		723		181		—	%	N/A	—		—
TNHC Newport LLC (Meridian)⁽⁴⁾	2013	Newport Beach, CA	12%	3,864		—		1,524		270		—	%	N/A	—		—	2013	Newport Beach, CA	12%	2,234		—		1,615		292		—	%	N/A	—		—
Encore McKinley Village LLC (McKinley Village)	2013	Sacramento, CA	10%	90,180		29,920		56,068		5,605		35	%	Yes	—		305	2013	Sacramento, CA	10%	80,888		18,866		56,913		5,693		25	%	Yes	—		201
TNHC Russell Ranch LLC (Russell Ranch)⁽⁶⁾⁽⁵⁾	2013	Folsom, CA	35%	60,905		20,000		35,856		12,550		36	%	No	19,706		870	2013	Folsom, CA	35%	104,330		24,523		72,177		27,048		25	%	No	11,333		870
TNHC-HW Foster City LLC (Foster Square)⁽⁵⁾	2013	Foster City, CA	35%	3,069		—		1,615		750		—	%	N/A	—		—	2013	Foster City, CA	35%	1,793		—		1,006		468		—	%	N/A	—		—
Calabasas Village LP (Avanti)⁽⁴⁾	2013	Calabasas, CA	10%	55,170		12,510		39,425		4,933		24	%	Yes	1,000		42	2013	Calabasas, CA	10%	40,547		9,510		29,993		2,998		24	%	No	—		22
TNHC-HW Cannery LLC (Cannery Park)⁽⁶⁾⁽⁵⁾	2013	Davis, CA	35%	13,043		—		8,676		3,036		—	%	N/A	—		110	2013	Davis, CA	35%	7,803		—		6,119		2,141		—	%	N/A	—		16
Arantine Hills Holdings LP (Bedford Ranch)⁽⁴⁾⁽⁶⁾	2014	Corona, CA	5%	123,847		—		123,267		6,160		—	%	N/A	2,950		1,435
TNHC Tidelands LLC (Tidelands)	2015	San Mateo, CA	20%	31,764		12,774		18,161		4,750		41	%	Yes	—		35
Arantine Hills Holdings LP (Bedford)⁽⁴⁾⁽⁵⁾																		2014	Corona, CA	5%	183,236		—		170,974		8,549		—	%	N/A	1,080		1,419
TNHC Mountain Shadows LLC (Mountain Shadows)	2015	Paradise Valley, AZ	25%	63,836		30,907		30,071		7,977		51	%	Yes	—		66	2015	Paradise Valley, AZ	25%	57,187		22,717		32,191		8,566		41	%	Yes	—		50
DMB/TNHC LLC (Sterling at Silverleaf)	2016	Scottsdale, AZ	50%	4,588		—		4,537		2,269		—	%	N/A	232		72
Total Unconsolidated Joint Ventures	Total Unconsolidated Joint Ventures			$	456,641	$	106,111	$	322,421	$	49,226	25	%		$	23,888	2,935	Total Unconsolidated Joint Ventures			$	481,714	$	75,616	$	372,254	$	56,099	17	%		$	12,413	2,578

(1)

The carrying value of the debt is presented net of $0.2 million in unamortized debt issuance costs. Scheduled maturities of the unconsolidated joint venture debt as of June 30, ~~2017~~2018 are as follows: ~~$54.3~~$35.0 million ~~matures in 2017, $16.5~~ matures in 2018 and ~~$35.7~~$40.8 million matures in 2019. ~~Projects at McKinley Village and~~The Mountain Shadows ~~have~~project has multiple debt instruments, some of which do not have LTV maintenance agreements.

(2)

Represents the Company's equity in unconsolidated joint ventures. Equity does not include ~~$6.0 million in advances to unconsolidated joint ventures and $0.7~~$2.4 million of interest capitalized to certain investments in unconsolidated joint ventures which along with equity, are included in investments in and advances to unconsolidated joint ventures in the accompanying condensed consolidated balance sheets.


(3)	Estimated future capital commitment represents our proportionate share of estimated future contributions to the respective unconsolidated joint ventures as of June 30, ~~2017.~~2018. Actual contributions may differ materially.


(4)	Certain current and former members of the Company's board of directors are affiliated with entities that have an investment in these joint ventures. See Note 12 to the condensed consolidated financial statements.


(5)	~~The debt associated with this joint venture consists of a land seller note.~~


~~(6)~~	Land development joint venture.

As of June 30, ~~2017,~~2018, the unconsolidated joint ventures were in compliance with their respective loan covenants, where applicable, and we were not required to make any loan-to-value maintenance related payments during the three and six months ended June 30, ~~2017.~~2018.

Seasonality

Historically, the homebuilding industry experiences seasonal fluctuations in quarterly operating results and capital requirements. We typically experience the highest new home order activity in spring and summer, although this activity is also highly dependent on the number of active selling communities, timing of new community openings and other market factors. Since it typically takes five to nine months to construct a new ~~single-family~~ home, we typically deliver more homes in the second half of the year as spring and summer home orders convert to home deliveries. Because of this seasonality, home starts, construction costs and related cash outflows have historically been highest in the second and third quarters, and a higher level of cash receipts from home deliveries occurs during the second half of the year. We expect this seasonal pattern to continue over the long-term, although it may be affected by volatility in the homebuilding industry.

Critical Accounting 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.

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, ~~2016.~~2017 with the exception of our critical accounting policies for "Home Sales Revenue and Cost of Home Sales" and "Fee Building" which were updated upon the Company's adoption of ASU 2014-09, Revenue from Contracts with Customers (Topic 606) on January 1, 2018. Please see below for the updated policies.

Homes Sales Revenue and Cost of Homes Sales

In accordance with ASC 606, homebuilding revenue is recognized when our performance obligations within the underlying sales contracts are fulfilled. We consider our obligations fulfilled when closing conditions are complete, title has transferred to the homebuyer, and collection of the purchase price is reasonably assured. Sales incentives are recorded as a reduction of revenues when the respective home is closed. Cost of sales is recorded based upon total estimated costs to be allocated to each home within a community. Any changes to the estimated costs are allocated to the remaining undelivered lots and homes within their respective community. The estimation and allocation of these costs requires a substantial degree of judgment by management.

The estimation process involved in determining relative sales or fair values is inherently uncertain because it involves estimating future sales values of homes before sale and delivery. Additionally, in determining the allocation of costs to a particular land parcel or individual home, we rely on project budgets that are based on a variety of assumptions, including assumptions about construction schedules and future costs to be incurred. It is common that actual results differ from budgeted amounts for various reasons, including construction delays, increases in costs that have not been committed or unforeseen issues encountered during construction that fall outside the scope of existing contracts, or costs that come in less than originally anticipated. While the actual results for a particular construction project are accurately reported over time, a variance between the budget and actual costs could result in the understatement or overstatement of costs and have a related impact on gross margins between reporting periods. To reduce the potential for such variances, we have procedures that have been applied on a consistent basis, including assessing and revising project budgets on a periodic basis, obtaining commitments from subcontractors and vendors for future costs to be incurred, and utilizing the most recent information available to estimate costs. We believe that these policies and procedures provide for reasonably dependable estimates for purposes of calculating amounts to be relieved from inventories and expensed to cost of sales in connection with the delivery of homes.

Fee Building

The Company enters into fee building agreements to provide services whereby it builds homes on behalf of third-party property owners. The third-party property owner funds all project costs incurred by the Company to build and sell the homes. The Company primarily enters into cost plus fee contracts where it charges third-party property owners for all direct and indirect costs plus a fee. The fee is typically a per-unit fixed fee or based on a percentage of the cost or home sales revenue of the project depending on the terms of the agreement with the third-party property owner. For these types of contracts, the Company recognizes revenue based on the actual total costs it has incurred plus the applicable fee. In accordance with ASC 606, we apply the percentage-of-completion method, using the cost-to-cost approach, as it most accurately measures the progress of our efforts in satisfying our obligations within the fee building agreements. Under this approach, revenue is earned

in proportion to total costs incurred, divided by total costs expected to be incurred. In the course of providing fee building services, the Company routinely subcontracts for services and incurs other direct costs on behalf of the property owners. These costs are passed through to the property owners and, in accordance with GAAP, are included in the Company’s revenue and cost of sales.

The Company also provides construction management and coordination services and sales and marketing services as part of agreements with third parties and its unconsolidated joint ventures. Within these agreements, the Company does not bear any financial risks. In certain contracts, the Company also provides project management and administrative services. For most services provided, the Company fulfills its related obligations as time-based measures, according to the input method guidance described in ASC 606. Accordingly, revenue is recognized on a straight-line basis as the Company's efforts are expended evenly throughout the performance period. The Company may also have an obligation to manage the home or lot sales process as part of providing sales and marketing services. This obligation is considered fulfilled when related homes or lots close escrow, as these events represent milestones reached according to the output method guidance described in ASC 606. Accordingly, revenue is recognized in the period that the corresponding lots or homes close escrow. Costs associated with these services are recognized as incurred.

Recently Issued Accounting Standards

The portion of Note 1 to the accompanying notes to unaudited condensed consolidated financial statements under the heading "Recently Issued Accounting Standards" included in this quarterly report on Form 10-Q is incorporated herein by reference.

JOBS Act

We qualify as an "emerging growth company" pursuant to the provisions of the JOBS Act. For as long as we are an "emerging growth company," we may ~~elect~~take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies," including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our ~~annual~~periodic reports and proxy statements, ~~and~~ exemptions from the requirements of holding shareholder advisory "say-on-pay" votes on executive compensation and shareholder advisory votes on golden parachute compensation.

In addition, Section 107 of the JOBS Act also provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. An "emerging growth company" can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we have chosen to "opt out" of such extended transition period and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.



Item 3.	Quantitative and Qualitative Disclosures About Market Risk

Information about our market risk is disclosed in Part II, Item 7A, of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016,~~2017, and is incorporated herein by reference.

In addition, on March 17, 2017, the Company completed the sale of $250 million in aggregate principal amount of 7.25% Senior Notes due 2022 (the "Notes"), in a private placement. The Notes were issued at an offering price of 98.961% of their face amount, which represents a yield to maturity of 7.50%. On May 4, 2017, the Company completed a tack-on private placement through the sale of an additional $75 million in aggregate principal amount of the 7.25% Senior Notes due 2022 ("Additional Notes"). The Additional Notes were issued at an offering price of 102.75% of their face amount plus accrued interest since March 17, 2017, which represents a yield to maturity of 6.438%. The Notes represent fixed-rate debt. For fixed-rate debt, changes in interest rates generally affect the fair market value of the debt instrument, but not our earnings or cash flow. For a discussion regarding the fair value of the Notes, see Note 9, “Fair Value Disclosures” to our consolidated financial statements included elsewhere in this report, which is incorporated herein by reference. Furthermore, we intend to register the Notes later this year pursuant to our obligations under two registration rights agreements entered into with Credit Suisse Securities (USA) LLC, acting as representative of the initial purchasers of the Notes. If we fail to register the Notes by mid-November, 2017, as set forth in the registration rights agreements, we have agreed to pay additional interest to the holders of the effected Notes at a rate of 0.25% per annum for the first 90-day period immediately following the occurrence of such default, with such rate increasing by an additional 0.25% per annum with respect to each subsequent 90-day period until all such defaults have been cured, up to a maximum additional interest rate of 1.0% per annum.

~~We do not believe that the future market rate risks related to the above Notes will have a material adverse impact on our financial position, results of operations or liquidity.~~



Item 4.	Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure based on the definition of "disclosure controls and procedures" in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Our disclosure controls and procedures are designed to provide a reasonable level of assurance of reaching our desired disclosure control objectives. In designing ~~and evaluating~~ controls and procedures specified in the SEC's rules and forms, and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily iswas required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error and mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of controls.

At the end of the period being reported upon, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, ~~2017.~~2018.

~~Change~~Changes in Internal Controls

There was no change in the Company’s internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

We are involved in various claims and litigation arising in the ordinary course of business. We do not believe that any such claims and litigation will materially affect our results of operations or financial position. For more information regarding how we account for legal proceedings, see Note 10, “Commitments and Contingencies,” to our Condensed Consolidated Financial Statements included elsewhere in this report, which is incorporated herein by reference.

Item 1A. Risk Factors

The following Risk ~~Factors~~Factor under the heading ~~“Risks~~"Risks Related to Ownership of Our Indebtedness” below amend and restate the Risk Factors set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 under the headings “Our level of indebtedness may adversely affect our financial position and prevent us from fulfilling our debt obligations; “Our current financing arrangements contain, and our future financing arrangements will likely contain, restrictive covenants relating to our operations”; and “Interest expense on debt we incur may limit our cash available to fund our growth strategies.”

~~Risks Related to Our Indebtedness~~

~~Our level of indebtedness may adversely affect our financial condition and prevent us from fulfilling our debt obligations, and we may incur additional debt in the future.~~

The homebuilding industry is capital intensive and requires significant up-front expenditures to secure land and pursue development and construction on such land. Accordingly, we incur substantial indebtedness to finance our homebuilding activities. On March 17, 2017, the Company completed the sale of $250 million in aggregate principal amount of 7.25% Senior Notes due 2022 (the “Notes”), in a private placement. The Notes were issued at an offering price of 98.961% of their face amount, which represents a yield to maturity of 7.50%. On May 4, 2017, the Company completed a tack-on private placement offering through the sale of an additional $75 million in aggregate principal amount of the 7.25% Senior Notes due 2022 ("Additional Notes"). The Additional Notes were issued at an offering price of 102.75% of their face amount plus accrued interest since March 17, 2017, which represented a yield to maturity of 6.438%. As of June 30, 2017, we had approximately $318.1 million in aggregate principal amount of debt outstanding, net of the unamortized discount of $2.5 million, unamortized premium of $2.0 million, and $6.4 million of debt issuance costs. In addition, we have $260.0 million in debt commitments under our revolving credit facility, of which no indebtedness is outstanding or utilized to provide letters of credit and $260.0 million is available for borrowing, subject to satisfaction of the financial covenants and borrowing base requirements in our revolving credit facility. Moreover, the terms of the indenture governing the Notes and our revolving credit facility permit us to incur additional debt, in each case, subject to certain restrictions. Incurring substantial debt subjects us to many risks that, if realized, would adversely affect us, including the risk that:

our ability to obtain additional financing as needed for working capital, land acquisition costs, building costs, other capital expenditures, or general corporate purposes, or to refinance existing indebtedness before its scheduled maturity, may be limited;

~~our debt may increase our vulnerability to adverse economic and industry conditions with no assurance that investment yields will increase with higher financing costs;~~

we may be required to dedicate a portion of our cash flow from operations to payments on our debt, thereby reducing funds available for other purposes such as land and lot acquisition, development and construction activities;

~~our cash flow from operations may be insufficient to make required payments of principal of and interest on the debt, which would likely result in acceleration of the maturity of such debt;~~

~~we may be put at a competitive disadvantage and reduce our flexibility in planning for, or responding to, changing conditions in our industry, including increased competition; and~~

~~the terms of any refinancing may not be as favorable as the terms of the debt being refinanced.~~

Our ability to meet our expenses depends, to a large extent, on our future performance, which will be affected by financial, business, economic and other factors. We will not be able to control many of these factors, such as economic conditions in the markets where we operate and pressure from competitors. If we do not have sufficient funds, we may be required to refinance all or part of our existing debt, sell assets or borrow additional funds. We cannot guarantee that we will be able to do so on terms acceptable to us, if at all. If we are unable to refinance our debt on acceptable terms, we may be forced to dispose of our assets on disadvantageous terms, potentially resulting in losses. To the extent we cannot meet any future debt service obligations, we may lose some or all of our assets that may be pledged to secure our obligations to foreclosure. Also, debt agreements may contain specific cross-default provisions with respect to specified other indebtedness, giving the lenders the right to declare a default if we are in default under other loans in some circumstances. Defaults under

~~our debt agreements could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.~~

~~Our current financing arrangements contain, and our future financing arrangements likely will contain, restrictive covenants relating to our operations.~~

Our current financing arrangements, including the Indenture governing the Notes, contain covenants (financial and otherwise) affecting our ability to incur additional debt, make certain investments, reduce liquidity below certain levels, make distributions to our stockholders and otherwise affect our operating policies. These restrictions limit our ability to, among other things:

~~incur or guarantee additional indebtedness or issue certain equity interests;~~

~~pay dividends or distributions, repurchase equity or prepay subordinated debt;~~

~~make certain investments;~~

~~sell assets;~~

~~incur liens;~~

~~create certain restrictions on the ability of restricted subsidiaries to transfer assets;~~

~~enter into transactions with affiliates;~~

~~create unrestricted subsidiaries; and~~

~~consolidate, merge or sell all or substantially all of our assets.~~

In addition, our revolving credit facility contains a maximum leverage ratio of 65%, which, as defined in our credit agreement, is calculated on a net debt basis after a minimum liquidity threshold. Our leverage ratio as of June 30, 2017, as calculated under our revolving credit facility, was approximately 42%. Failure to have sufficient borrowing base availability in the future or to be in compliance with our maximum leverage ratio under our revolving credit facility could have a material adverse effect on our operations and financial condition.

~~A breach of the covenants under the Indenture or any of the other agreements governing our indebtedness could result in an event of default under the Indenture or other such agreements.~~

A default under the Indenture governing the Notes or our revolving credit facility or other agreements governing our indebtedness may allow our creditors to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In addition, an event of default under the credit agreement governing our revolving credit facility would permit the lenders thereunder to terminate all commitments to extend further credit under our revolving credit facility. Furthermore, if we were unable to repay the amounts due and payable under any future secured credit facilities, those lenders could proceed against the collateral granted to them to secure that indebtedness. In the event our lenders or the holders of our notes accelerate the repayment of our borrowings, we cannot assure you that we and our subsidiaries would have sufficient assets to repay such indebtedness. As a result of these restrictions, we may be:

~~limited in how we conduct our business;~~

~~unable to raise additional debt or equity financing to operate during general economic or business downturns; or~~

~~unable to compete effectively or to take advantage of new business opportunities. These restrictions may affect our ability to grow in accordance with our plans.~~

~~Potential future downgrades of our credit ratings could adversely affect our access to capital and could otherwise have a material adverse effect on us.~~

Rating agencies may elect in the future to downgrade our corporate credit rating or any rating of the notes due to deterioration in our homebuilding operations, credit metrics or other earnings-based metrics, as well as our leverage or a significant decrease in our tangible net worth. These ratings and our current credit condition affect, among other things, our ability to access new capital, especially debt, and negative changes in these ratings may result in more stringent covenants and higher interest rates under the terms of any new debt. Our credit ratings could be downgraded or rating agencies could issue adverse commentaries in the future, which could have a material adverse effect on our business, results of operations, financial condition and liquidity. In particular, a weakening of our financial condition, including a significant increase in our leverage or decrease in our profitability or cash flows, could adversely affect our ability to obtain necessary funds, result in a credit rating downgrade or change in outlook, or otherwise increase our cost of borrowing.

~~Interest expense on debt we incur may limit our cash available to fund our growth strategies.~~

~~As of June 30, 2017, we had approximately~~ ~~$318.1 million in aggregate principal amount of debt outstanding, net of the unamortized discount of $2.5 million, unamortized premium of $2.0 million, and $6.4 million of debt issuance costs. In addition, we have $260.0 million in debt commitments under our revolving credit facility, of which no indebtedness is~~

outstanding or utilized to provide letters of credit and $260.0 million is available for borrowing, subject to satisfaction of the financial covenants and borrowing base requirements in our senior unsecured revolving credit facility. As part of our financing strategy, in addition to our sale of the Notes, we may incur a significant amount of additional debt. Our revolving credit facility has, and any additional debt we subsequently incur may have, a floating rate of interest. Our Notes have a fixed rate of interest. We may incur fixed rate debt in the future that may be at a higher interest rate than our floating rate debt. Higher interest rates could increase debt service requirements on our current floating rate debt and on any floating or fixed rate debt we subsequently incur, and could reduce funds available for operations, future business opportunities or other purposes. If we need to repay existing debt during periods of rising interest rates, we could be required to refinance our then-existing debt on unfavorable terms or liquidate one or more of our assets to repay such debt at times that may not permit realization of a favorable return on such assets and could result in a loss. The occurrence of either such event or both could materially and adversely affect our business, prospects, liquidity, financial condition and results of operations.

~~We may be unable to repurchase the Notes upon a change of control as required by the Indenture.~~

Upon the occurrence of certain specific kinds of change of control events, we must offer to repurchase the notes at 101% of their principal amount, plus accrued and unpaid interest thereon. In such circumstances, we cannot assure you that we would have sufficient funds available to repay all of our indebtedness that would become payable upon a change of control and to repurchase all of the notes. Our failure to purchase the notes would be a default under the Indenture.

~~We could incur additional interest expense if we are not able to register our $325 million aggregate principal amount of 7.25% Senior Notes due 2022 in a timely manner.~~

The Notes were sold on March 17, 2017 and May 4, 2017 in private transactions exempt from the registration requirements of the Securities Act of 1933. We agreed to register the Notes under two registration rights agreements entered into with Credit Suisse Securities (USA) LLC, acting as representative of the initial purchasers of the Notes. If the Notes have not been registered within 240 days after March 17, 2017, the Company will incur additional interest expense in the amount of 0.25% per annum during the 90-day period immediately following the occurrence of any Registration Default. Additional interest expense shall increase by 0.25% per annum at the end of each subsequent 90-day period, up to a maximum additional interest rate of 1.0% per annum. As of June 30, 2017, the Notes have not yet been registered under the Securities Act, but the Company intends to file for registration during the third quarter of 2017.

~~The following risk factor~~Common Stock" is added ~~to the Risk Factors set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 under the heading “Risks Related to Laws and Regulations”~~

~~We may be unable to find and retain suitable contractors and subcontractors at reasonable rates.~~

The enactment of federal, state or local statutes, ordinances, rules or regulations requiring the payment of prevailing wages on private residential developments would materially increase our costs of development and construction. In January 2017, a bill was introduced in the California State Assembly that may require developers and homebuilders of private residential projects to comply with the requirements for “public works” projects in the state, including the payment of prevailing wages. Most of our business is conducted in California, and it is possible that depending upon how such bill is interpreted that the passage of this bill would materially increase our costs of development and construction, which could materially and adversely affect our financial condition and results of operations. Access to qualified labor at reasonable rates may also be affected by other circumstances beyond our control, including: (i) shortages of qualified tradespeople, such as carpenters, roofers, electricians and plumbers; (ii) high inflation; (iii) changes in laws relating to employment and union organizing activity; (iv) changes in trends in labor force migration; and (v) increases in contractor, subcontractor and professional services costs. The inability to contract with skilled contractors and subcontractors at reasonable rates on a timely basis could materially and adversely affect our financial condition and results of operations.

~~Other than the items set forth above, there have been no material changes~~ to the risk factors disclosed under Part I, Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

Risks Related to Ownership of Our Common Stock

Non-U.S. holders may be subject to United States federal income tax on gain realized on the sale or

disposition of shares of our common stock.

We believe that we are a “United States real property holding corporation,” or USRPHC, for United States

federal income tax purposes. If we are a USRPHC, Non-U.S. Holders (as defined below) may be subject to United States federal income tax (including withholding tax) upon a sale or disposition of our common stock, if (i) our common stock is not regularly traded on an established securities market, or (ii) our common stock is regularly traded on an established securities market, and the Non-U.S. Holder owned, actually or constructively, common stock with a fair market value of more than 5% of the total fair market value of such common stock throughout the shorter of the five-year period ending on the date of the sale or other disposition or the Non-U.S. Holder’s holding period for such common stock.

For purposes of this discussion, a “Non-U.S. Holder” is any beneficial owner of our common stock that is neither a “U.S. person” nor an entity treated as a partnership for U.S. federal income tax purposes. A U.S. person is any person that, for U.S. federal income tax purposes, is or is treated as any of the following:

an individual who is a citizen or resident of the United States;

a corporation created or organized under the laws of the United States, any state thereof, or the District of Columbia;

an estate, the income of which is subject to U.S. federal income tax regardless of its source; or

a trust that (1) is subject to the primary supervision of a U.S. court and the control of one or more “United States persons” (within the meaning of Section 7701(a)(30) of the Code), or (2) has a valid election in effect to be treated as a United States person for U.S. federal income tax purposes.

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

~~None.~~

Purchases of Equity Securities by the Issuer



	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs⁽¹⁾	Approximate dollar value of shares that may be purchased under the plans or programs (in thousands)⁽¹⁾
April 1, 2018 to April 30, 2018	—	$	—	—	—
May 1, 2018 to May 31, 2018	125,364	$	10.09	125,364	$	13,735
June 1, 2018 to June 30, 2018	79,876	$	10.06	79,876	$	12,932
Total	205,240	$	10.08	205,240

(1) On May 10, 2018, our board of directors approved a stock repurchase program (the "Repurchase Program") authorizing the repurchase of the Company's common stock with an aggregate value of up to $15 million. The ~~Company~~Repurchase Program was announced on May 14, 2018. Repurchases of the Company's common stock may be made in open-market transactions, effected through a broker-dealer at prevailing market prices, in privately negotiated transactions, in block trades or by other means in accordance with federal securities laws, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934. The board of directors did not ~~make~~fix any ~~purchases of its common stock during~~expiration date for the ~~three months ended June 30, 2017.~~Repurchase Program.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits



Exhibit Number		Exhibit Description

3.1		Amended and Restated Certificate of Incorporation of The New Home Company Inc. (incorporated by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for the year ended December 31, 2013)

3.2		State of Delaware Certificate of Change of Registered Agent and/or Registered Office (incorporated by reference to Exhibit 3.1 of the Company's Current Report on ~~From~~Form 8-K filed on August 1, 2016)

3.3		Amended and Restated Bylaws of The New Home Company Inc. (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K filed on August 1, 2016)

4.1		Specimen Common Stock Certificate of The New Home Company Inc. (incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-1 (Amendment No. 10, filed on January 24, 2014))

4.2		Investor Rights Agreement among The New Home Company Inc., TNHC Partners LLC, IHP Capital Partners VI, LLC, ~~Watt/~~WATT/TNHC LLC, TCN/TNHC LP and collectively H. Lawrence Webb, Wayne J. Stelmar, Joseph D. Davis and Thomas Redwitz (incorporated by reference to Exhibit 4.2 of the Company's Annual Report on Form 10-K for the year ended December 31, 2013)

4.3		~~Indenture, dated as of March 17, 2017, among the Company, the Guarantors and U.S. Bank National Association, as trustee, including form of 7.25% Senior Notes due 2022 (incorporated by reference~~ Amendment No. 1 to ~~Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 20, 2017)~~

~~4.4~~		~~Form of 7.250% Senior Notes due 2022 (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on March 20, 2017)~~

4.5*		~~First Supplemental Indenture dated as of April 28, 2017 between the Company and U.S. Bank National Association.~~

~~4.6~~		Officers' Certificate, dated May 4, 2017, delivered pursuant to the Indenture, and setting forth the terms of the Additional Notes 7.25% Senior Notes due 2022 (incorporated by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on May 5, 2017).

10.1*		~~Letter agreement re: Arantine Hills Holdings LP - funding Excess Shortfall among TNHC-Arantine GP LLC, TNHC Land Company LLC and Arantine Hills Equity LP dated as of June 28, 2017~~

~~10.2~~		~~Registration~~Investor Rights Agreement ~~dated~~among The New Home Company Inc., IHP Capital Partners VI, LLC, WATT/TNHC LLC, TCN/TNHC LP, H. Lawrence Webb, Wayne J. Stelmar, Joseph D. Davis and Thomas Redwitz in their individual capacities and as ~~of May 4, 2017, between the Company, the Guarantors and Credit Suisse Securities (USA)~~successors in interest to TNHC Partners LLC (incorporated by reference to Exhibit 10.1 toof the Company's Current Report on Form 8-K filed on May ~~5, 2017)~~23, 2018)

10.1*†		Second Amendment to Restated Consulting Agreement, dated May 18, 2018, among The New Home Company Inc., Mendocino Group, Inc. and Joseph Davis
10.2		The New Home Company Inc. Amended and Restated 2016 Incentive Award Plan (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on May 23, 2018)

31.1*		Chief Executive Officer Section 302 Certification of Periodic Report ~~dated July 27, 2017~~

31.2*		Chief Financial Officer Section 302 Certification of Periodic Report ~~dated July 27, 2017~~

32.1**		Chief Executive Officer Section 906 Certification of Periodic Report ~~dated July 27, 2017~~

32.2**		Chief Financial Officer Section 906 Certification of Periodic Report ~~dated July 27, 2017~~

101*		The following materials from The New Home Company Inc.’s ~~Annual~~Quarterly Report on Form 10-Q for the quarter ended June 30, ~~2017,~~2018, formatted in eXtensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statement of Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to Unaudited Condensed Consolidated Financial Statements.



*	Filed herewith
**	Furnished herewith. The information in Exhibits 32.1 and 32.2 shall not be deemed "filed" for purposes of Section 18 of the ~~Securities and~~ Exchange Act, ~~of 1934, as amended (the "Exchange Act"),~~ or otherwise subject to the liabilities of that section, nor shall they be deemed incorporated by reference in any filing under the Securities Act, ~~of 1933, as amended,~~ or the Exchange Act (including this Report), unless the Registrant specifically incorporates the foregoing information into those documents by reference.
†	Management Contract or Compensatory Plan or Arrangement

SIGNATURES

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




				The New Home Company Inc.

				By:		/s/ H. Lawrence Webb
						H. Lawrence Webb
						Chief Executive Officer

				By:		/s/ John M. Stephens
						John M. Stephens
						Chief Financial Officer

Date: ~~July 27, 2017~~August 3, 2018

5761



	June 30, 2017				December 31, 2016
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(dollars in thousands)
7.25% Senior Notes due 2022, net ⁽¹⁾	$	318,121	$	334,750	$	—	$	—



	Three Months Ended June 30, 2016
	NWHM Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Consolidated NWHM
	(Dollars in thousands)
Revenues:
Home sales	$	—		$	77,486		$	1,350		$	—		$	78,836
Fee Building	—			30,068			—			(40		)	30,028
	—			107,554			1,350			(40		)	108,864
Cost of Sales:
Home sales	—			68,152			1,238			—			69,390
Fee building	496			27,821			—			—			28,317
	496			95,973			1,238			—			97,707

Gross Margin:
Home sales	—			9,334			112			—			9,446
Fee building	(496		)	2,247			—			(40		)	1,711
	(496		)	11,581			112			(40		)	11,157
Selling and marketing expenses	—			(4,820		)	(226		)	—			(5,046		)
General and administrative expenses	(3,283		)	(2,550		)	—			—			(5,833		)
Equity in net income of unconsolidated joint ventures	—			3,947			—			—			3,947
Equity in net income of subsidiaries	4,843			—			—			(4,843		)	—
Other income (expense), net	(57		)	(229		)	(40		)	40			(286		)
Income (loss) before income taxes	1,007			7,929			(154		)	(4,843		)	3,939
Benefit (provision) for income taxes	1,502			(2,997		)	—			—			(1,495		)
Net income (loss)	2,509			4,932			(154		)	(4,843		)	2,444
Net loss attributable to noncontrolling interest	—			—			65			—			65
Net income (loss) attributable to The New Home Company Inc.	$	2,509		$	4,932		$	(89	)	$	(4,843	)	$	2,509