nvr-20210630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended June 30, 2021


☐			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: 1-12378

NVR, Inc.

(Exact name of registrant as specified in its charter)


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

11700 Plaza America Drive, Suite 500

Reston, Virginia 20190

(703) 956-4000

(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)

Not Applicable

(Former name, former address, and former fiscal year if changed since last report)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.01 per share

NVR

New York Stock Exchange

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

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

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

As of July 30, 2021 there were 3,563,782 total shares of common stock outstanding.

NVR, Inc.

FORM 10-Q

TABLE OF CONTENTS


		Page
PART I	FINANCIAL INFORMATION	1

Item 1.	Condensed Consolidated Financial Statements	1
	Condensed Consolidated Balance Sheets (unaudited)	1
	Condensed Consolidated Statements of Income (unaudited)	3
	Condensed Consolidated Statements of Cash Flows (unaudited)	4
	Notes to Condensed Consolidated Financial Statements (unaudited)	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	34
Item 4.	Controls and Procedures	34

PART II	OTHER INFORMATION	35
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 6.	Exhibits	36

	SIGNATURE	37

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements


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

	June 30, 2021		December 31, 2020
ASSETS
Homebuilding:
Cash and cash equivalents	$	2,597,565	$	2,714,720
Restricted cash	42,543		28,912
Receivables	24,484		18,299
Inventory:
Lots and housing units, covered under sales agreements with customers	1,792,293		1,484,936
Unsold lots and housing units	131,668		123,197
Land under development	7,794		62,790
Building materials and other	41,618		38,159
	1,973,373		1,709,082

Contract land deposits, net	425,301		387,628
Property, plant and equipment, net	54,379		57,786
Operating lease right-of-use assets	61,740		53,110
Reorganization value in excess of amounts allocable to identifiable assets, net	41,580		41,580
Other assets	215,168		203,399
	5,436,133		5,214,516
Mortgage Banking:
Cash and cash equivalents	20,757		63,547
Restricted cash	3,688		2,334
Mortgage loans held for sale, net	344,680		449,760
Property and equipment, net	4,236		4,544
Operating lease right-of-use assets	11,627		12,439
Reorganization value in excess of amounts allocable to identifiable assets, net	7,347		7,347
Other assets	25,968		22,654
	418,303		562,625
Total assets	$	5,854,436	$	5,777,141

See notes to condensed consolidated financial statements.


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

	June 30, 2021		December 31, 2020
LIABILITIES AND SHAREHOLDERS' EQUITY
Homebuilding:
Accounts payable	$	380,957	$	339,867
Accrued expenses and other liabilities	419,454		440,671
Customer deposits	365,443		240,758
Operating lease liabilities	67,413		59,357
Senior notes	1,516,830		1,517,395
	2,750,097		2,598,048
Mortgage Banking:
Accounts payable and other liabilities	49,605		62,720
Operating lease liabilities	12,446		13,299
	62,051		76,019
Total liabilities	2,812,148		2,674,067

Commitments and contingencies

Shareholders' equity:
Common stock, $0.01 par value; 60,000,000 shares authorized; 20,555,330 shares issued as of both June 30, 2021 and December 31, 2020	206		206
Additional paid-in capital	2,314,564		2,214,426
Deferred compensation trust – 106,697 shares of NVR, Inc. common stock as of both June 30, 2021 and December 31, 2020	(16,710)		(16,710)
Deferred compensation liability	16,710		16,710
Retained earnings	9,381,177		8,811,120
Less treasury stock at cost – 16,976,140 and 16,859,753 shares as of June 30, 2021 and December 31, 2020, respectively	(8,653,659)		(7,922,678)
Total shareholders' equity	3,042,288		3,103,074
Total liabilities and shareholders' equity	$	5,854,436	$	5,777,141

See notes to condensed consolidated financial statements.

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NVR, Inc.

Condensed Consolidated Statements of Income

(in thousands, except per share data)

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Homebuilding:
Revenues	$	2,224,560	$	1,588,758	$	4,188,271	$	3,144,465
Other income	1,632		2,408		3,218		7,744
Cost of sales	(1,721,673)		(1,284,493)		(3,299,126)		(2,579,236)
Selling, general and administrative	(113,406)		(102,702)		(234,825)		(212,869)
Operating income	391,113		203,971		657,538		360,104
Interest expense	(12,850)		(9,166)		(25,856)		(15,380)
Homebuilding income	378,263		194,805		631,682		344,724

Mortgage Banking:
Mortgage banking fees	59,038		31,610		136,773		58,431
Interest income	2,209		1,854		4,241		4,323
Other income	988		679		1,855		1,328
General and administrative	(22,613)		(18,758)		(44,269)		(36,969)
Interest expense	(420)		(359)		(811)		(631)
Mortgage banking income	39,202		15,026		97,789		26,482

Income before taxes	417,465		209,831		729,471		371,206
Income tax expense	(96,170)		(45,756)		(159,414)		(31,428)

Net income	$	321,295	$	164,075	$	570,057	$	339,778

Basic earnings per share	$	88.69	$	44.56	$	156.27	$	92.52

Diluted earnings per share	$	82.45	$	42.50	$	145.53	$	87.56

Basic weighted average shares outstanding	3,623		3,682		3,648		3,673

Diluted weighted average shares outstanding	3,897		3,861		3,917		3,881

See notes to condensed consolidated financial statements.

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NVR, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Six Months Ended June 30,
	2021		2020
Cash flows from operating activities:
Net income	$	570,057	$	339,778
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	10,038		11,254
Equity-based compensation expense	27,850		21,926
Contract land deposit and other (recoveries) impairments, net	(13,355)		37,453
Gain on sale of loans, net	(115,152)		(41,574)
Mortgage loans closed	(2,981,630)		(2,280,199)
Mortgage loans sold and principal payments on mortgage loans held for sale	3,194,279		2,491,119
Distribution of earnings from unconsolidated joint ventures	5,500		—
Net change in assets and liabilities:
Increase in inventory	(264,291)		(255,852)
(Increase) decrease in contract land deposits	(24,318)		16,020
Increase in receivables	(4,327)		(2,825)
Increase in accounts payable and accrued expenses	7,943		26,512
Increase in customer deposits	124,685		26,130
Other, net	(16,259)		(19,073)
Net cash provided by operating activities	521,020		370,669

Cash flows from investing activities:
Investments in and advances to unconsolidated joint ventures	(659)		(38)

Purchase of property, plant and equipment	(6,620)		(8,217)
Proceeds from the sale of property, plant and equipment	657		449
Net cash used in investing activities	(6,622)		(7,806)

Cash flows from financing activities:
Purchase of treasury stock	(754,366)		(216,582)
Proceeds from senior notes	—		598,860
Debt issuance costs	—		(3,582)

Principal payments on finance lease liabilities	(661)		(412)
Proceeds from the exercise of stock options	95,673		126,046
Net cash (used in) provided by financing activities	(659,354)		504,330

Net (decrease) increase in cash, restricted cash, and cash equivalents	(144,956)		867,193
Cash, restricted cash, and cash equivalents, beginning of the period	2,809,782		1,160,804

Cash, restricted cash, and cash equivalents, end of the period	$	2,664,826	$	2,027,997

Supplemental disclosures of cash flow information:
Interest paid during the period, net of interest capitalized	$	26,875	$	12,593
Income taxes paid during the period, net of refunds	$	172,563	$	11,740

See notes to condensed consolidated financial statements.

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NVR, Inc.

Notes to Condensed Consolidated Financial Statements

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

(unaudited)

1. Significant Accounting Policies

Basis of Presentation

The accompanying unaudited, condensed consolidated financial statements include the accounts of NVR, Inc. (“NVR”, the “Company”, "we", "us" or "our") and its subsidiaries and certain other entities in which the Company is deemed to be the primary beneficiary (see Notes 2 and 3 to the accompanying condensed consolidated financial statements). Intercompany accounts and transactions have been eliminated in consolidation. The statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Because the accompanying condensed consolidated financial statements do not include all of the information and footnotes required by GAAP, they should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020. In the opinion of management, all adjustments (consisting only of normal recurring accruals except as otherwise noted herein) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

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

For the three and six months ended June 30, 2021 and 2020, comprehensive income equaled net income; therefore, a separate statement of comprehensive income is not included in the accompanying condensed consolidated financial statements.

Cash and Cash Equivalents

The beginning-of-period and end-of-period cash, restricted cash, and cash equivalent balances presented on the accompanying condensed consolidated statements of cash flows includes cash related to a consolidated joint venture which is included in homebuilding "Other assets" on the accompanying condensed consolidated balance sheets. The cash related to this consolidated joint venture as of June 30, 2021 and December 31, 2020 was $273 and $269, respectively, and as of June 30, 2020 and December 31, 2019 was $272 and $281, respectively.

Revenue Recognition

Homebuilding revenue is recognized on the settlement date at the contract sales price, when control is transferred to our customers. Our contract liabilities, which consist of deposits received from customers on homes not settled, were $365,443 and $240,758 as of June 30, 2021 and December 31, 2020, respectively. We expect that substantially all of the customer deposits held at December 31, 2020 will be recognized in revenue in 2021. Our contract assets consist of prepaid sales compensation and totaled approximately $25,400 and $22,500, as of June 30, 2021 and December 31, 2020, respectively. Prepaid sales compensation is included in homebuilding “Other assets” on the accompanying condensed consolidated balance sheets.

2. Variable Interest Entities ("VIEs")

Fixed Price Finished Lot Purchase Agreements (“LPAs”)

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

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NVR, Inc.

Notes to Condensed Consolidated Financial Statements

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

(unaudited)

The deposit placed by us pursuant to the LPA is deemed to be a variable interest in the respective development entities. Those development entities are deemed to be VIEs. Therefore, the development entities with which we enter into LPAs, including the joint venture limited liability corporations discussed below, are evaluated for possible consolidation by us. We have concluded that we are not the primary beneficiary of the development entities with which we enter into LPAs, and therefore, we do not consolidate any of these VIEs.

As of June 30, 2021, we controlled approximately 112,000 lots under LPAs with third parties through deposits in cash and letters of credit totaling approximately $460,900 and $6,900, respectively. Our sole legal obligation and economic loss for failure to perform under these LPAs is limited to the amount of the deposit pursuant to the liquidated damage provisions contained in the LPAs. For the three and six month periods ended June 30, 2021, we recorded a net reversal of approximately $7,200 and $13,400, respectively, related to previously impaired lot deposits as market conditions have improved. For the three and six months ended June 30, 2020, we recorded pre-tax charges of approximately $900 and $37,300, respectively, related to the impairment of deposits under LPAs due primarily to deteriorating market conditions in certain of our markets related to the COVID-19 pandemic. Our contract land deposit is shown net of a $38,831 and $52,205 impairment reserve at June 30, 2021 and December 31, 2020, respectively.

In addition, we have certain properties under contract with land owners that are expected to yield approximately 9,000 lots, which are not included in the number of total lots controlled. Some of these properties may require rezoning or other approvals to achieve the expected yield. These properties are controlled with deposits in cash and letters of credit totaling approximately $3,200 and $100, respectively, as of June 30, 2021, of which approximately $2,800 is refundable if certain contractual conditions are not met. We generally expect to assign the raw land contracts to a land developer and simultaneously enter into an LPA with the assignee if the project is determined to be feasible.

Our total risk of loss related to contract land deposits is limited to the amount of the deposits pursuant to the liquidated damages provision of the LPAs. As of June 30, 2021 and December 31, 2020, our total risk of loss was as follows:


	June 30, 2021		December 31, 2020
Contract land deposits	$	464,132	$	439,833
Loss reserve on contract land deposits	(38,831)		(52,205)
Contract land deposits, net	425,301		387,628
Contingent obligations in the form of letters of credit	7,002		8,249
Total risk of loss	$	432,303	$	395,877

3. Joint Ventures

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

At June 30, 2021, we had an aggregate investment totaling approximately $21,700 in four JVs that are expected to produce approximately 2,350 finished lots, of which approximately 2,000 lots were controlled by us and the remaining approximately 350 lots were either under contract with unrelated parties or not currently under contract. We had additional funding commitments totaling approximately $3,100 to one of the JVs at June 30, 2021. We have determined that we are not the primary beneficiary of three of the JVs because we either share power with the other JV partner or the other JV partner has the controlling financial interest. The aggregate investment in unconsolidated JVs was approximately $21,700 and $23,600 at June 30, 2021 and December 31, 2020, respectively, and is reported in the “Other assets” line item on the accompanying condensed consolidated

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NVR, Inc.

Notes to Condensed Consolidated Financial Statements

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

(unaudited)

balance sheets. None of the unconsolidated JVs had any indicators of impairment as of June 30, 2021. For the remaining JV, we have concluded that we are the primary beneficiary because we have the controlling financial interest in the JV. As of December 31, 2020, all activities under the consolidated JV had been completed. As of June 30, 2021, we had no investment remaining in the JV and the JV had remaining balances of $273 in cash and $252 in accrued expenses, which are included in homebuilding "Other assets" and "Accrued expenses and other liabilities," respectively, in the accompanying condensed consolidated balance sheets.

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

We classify distributions received from unconsolidated JVs using the cumulative earnings approach. As a result, distributions received up to the amount of cumulative earnings recognized by us are reported as distributions of earnings and those in excess of that amount are reported as a distribution of capital. These distributions are classified within the accompanying condensed consolidated statements of cash flows as cash flows from operating activities and investing activities, respectively.

4. Land Under Development

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

During the second quarter of 2021, we had the following land under development transactions:

–Sold a land parcel to a developer for approximately $45,800, which approximated our carrying value of the property as of the sale date. In conjunction with the sale, we entered into an LPA with the developer for the option to purchase the finished lots expected to be developed from the parcel.

–Completed the development of one land parcel and transferred development costs totaling approximately $16,500 to inventory which is reported in "Unsold lots and housing units" in the accompanying condensed consolidated balance sheet as of June 30, 2021.

–Purchased a raw land parcel for approximately $7,200, which is expected to produce approximately 80 lots.

As of June 30, 2021, we directly owned two separate raw land parcels with a carrying value of $7,794 that are expected to produce approximately 100 finished lots. We have additional funding commitments of approximately $5,100 under a joint development agreement related to one parcel, a portion of which we expect will be offset by development credits of approximately $2,800. None of the raw parcels had any indicators of impairment as of June 30, 2021.

5. Capitalized Interest

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

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NVR, Inc.

Notes to Condensed Consolidated Financial Statements

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

(unaudited)

The following table reflects the changes in our capitalized interest during the three and six months ended June 30, 2021 and 2020:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Interest capitalized, beginning of period	$	829	$	3,034	$	1,025	$	3,499
Interest incurred	13,291		9,665		26,714		16,300
Interest charged to interest expense	(13,270)		(9,525)		(26,667)		(16,011)
Interest charged to cost of sales	(206)		(501)		(428)		(1,115)
Interest capitalized, end of period	$	644	$	2,673	$	644	$	2,673

6. Earnings per Share

The following weighted average shares and share equivalents were used to calculate basic and diluted earnings per share ("EPS") for the three and six months ended June 30, 2021 and 2020:


	Three Months Ended June 30,		Six Months Ended June 30,
	2021	2020	2021	2020
Weighted average number of shares outstanding used to calculate basic EPS	3,623	3,682	3,648	3,673
Dilutive securities:
Stock options and restricted share units	274	179	269	208
Weighted average number of shares and share equivalents outstanding used to calculate diluted EPS	3,897	3,861	3,917	3,881

The following non-qualified stock options ("Options") issued under equity incentive plans were outstanding during the three and six months ended June 30, 2021 and 2020, but were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive.


	Three Months Ended June 30,		Six Months Ended June 30,
	2021	2020	2021	2020
Anti-dilutive securities	18	330	19	244

7. Shareholders’ Equity

A summary of changes in shareholders’ equity for the three months ended June 30, 2021 is presented below:


	Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock		Deferred Compensation Trust		Deferred Compensation Liability		Total
Balance, March 31, 2021	$	206	$	2,272,006	$	9,059,882	$	(8,285,587)	$	(16,710)	$	16,710	$	3,046,507

Net income	—		—		321,295		—		—		—		321,295

Purchase of common stock for treasury	—		—		—		(376,941)		—		—		(376,941)
Equity-based compensation	—		13,379		—		—		—		—		13,379
Proceeds from Options exercised	—		38,048		—		—		—		—		38,048
Treasury stock issued upon option exercise and restricted share vesting	—		(8,869)		—		8,869		—		—		—
Balance, June 30, 2021	$	206	$	2,314,564	$	9,381,177	$	(8,653,659)	$	(16,710)	$	16,710	$	3,042,288

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NVR, Inc.

Notes to Condensed Consolidated Financial Statements

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

(unaudited)

A summary of changes in shareholders’ equity for the six months ended June 30, 2021 is presented below:


	Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock		Deferred Compensation Trust		Deferred Compensation Liability		Total
Balance, December 31, 2020	$	206	$	2,214,426	$	8,811,120	$	(7,922,678)	$	(16,710)	$	16,710	$	3,103,074

Net income	—		—		570,057		—		—		—		570,057

Purchase of common stock for treasury	—		—		—		(754,366)		—		—		(754,366)
Equity-based compensation	—		27,850		—		—		—		—		27,850
Proceeds from Options exercised	—		95,673		—		—		—		—		95,673
Treasury stock issued upon option exercise and restricted share vesting	—		(23,385)		—		23,385		—		—		—
Balance, June 30, 2021	$	206	$	2,314,564	$	9,381,177	$	(8,653,659)	$	(16,710)	$	16,710	$	3,042,288

We repurchased approximately 78 and 165 shares of our common stock during the three and six months ended June 30, 2021, respectively. We settle Option exercises and vesting of RSUs by issuing shares of treasury stock. Approximately 18 and 49 shares were issued from the treasury account during the three and six months ended June 30, 2021, respectively, in settlement of Option exercises and vesting of RSUs. Shares are relieved from the treasury account based on the weighted average cost basis of treasury shares.

A summary of changes in shareholders’ equity for the three months ended June 30, 2020 is presented below:


	Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock		Deferred Compensation Trust		Deferred Compensation Liability		Total
Balance, March 31, 2020	$	206	$	2,127,315	$	8,085,575	$	(7,796,177)	$	(16,912)	$	16,912	$	2,416,919


Net income	—		—		164,075		—		—		—		164,075
Deferred compensation activity, net	—		—		—		—		202		(202)		—

Equity-based compensation	—		14,434		—		—		—		—		14,434
Proceeds from Options exercised	—		16,984		—		—		—		—		16,984
Treasury stock issued upon option exercise and restricted share vesting	—		(7,110)		—		7,110		—		—		—
Balance, June 30, 2020	$	206	$	2,151,623	$	8,249,650	$	(7,789,067)	$	(16,710)	$	16,710	$	2,612,412

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NVR, Inc.

Notes to Condensed Consolidated Financial Statements

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

(unaudited)

A summary of changes in shareholders’ equity for the six months ended June 30, 2020 is presented below:


	Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock		Deferred Compensation Trust		Deferred Compensation Liability		Total
Balance, December 31, 2019	$	206	$	2,055,407	$	7,909,872	$	(7,624,241)	$	(16,912)	$	16,912	$	2,341,244


Net income	—		—		339,778		—		—		—		339,778
Deferred compensation activity, net	—		—		—		—		202		(202)		—
Purchase of common stock for treasury	—		—		—		(216,582)		—		—		(216,582)
Equity-based compensation	—		21,926		—		—		—		—		21,926
Proceeds from Options exercised	—		126,046		—		—		—		—		126,046
Treasury stock issued upon option exercise and restricted share vesting	—		(51,756)		—		51,756		—		—		—
Balance, June 30, 2020	$	206	$	2,151,623	$	8,249,650	$	(7,789,067)	$	(16,710)	$	16,710	$	2,612,412

We repurchased approximately 58 shares of our common stock during the six months ended June 30, 2020, all of which were repurchased in the first quarter. Approximately 15 and 114 shares were issued from the treasury account during the three and six months ended June 30, 2020, respectively, in settlement of Option exercises and vesting of RSUs.

8. Product Warranties

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

The following table reflects the changes in our Warranty Reserve during the three and six months ended June 30, 2021 and 2020:


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Warranty reserve, beginning of period	$	124,836	$	107,032	$	119,638	$	108,053
Provision	21,760		15,677		44,089		28,098
Payments	(19,094)		(11,490)		(36,225)		(24,932)
Warranty reserve, end of period	$	127,502	$	111,219	$	127,502	$	111,219

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NVR, Inc.

Notes to Condensed Consolidated Financial Statements

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

(unaudited)

9. Segment Disclosures

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


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

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

Assets not allocated to the operating segments are not included in either the operating segment’s corporate capital allocation charge or the CODM’s evaluation of the operating segment’s performance. We record charges on contract land deposits when it is determined that it is probable that recovery of the deposit is impaired. For segment reporting purposes, impairments on contract land deposits are generally charged to the operating segment upon the termination of an LPA with the developer, or the restructuring of an LPA resulting in the forfeiture of the deposit. Mortgage banking profit before tax consists of revenues generated from mortgage financing, title insurance and closing services, less the costs of such services and general and administrative costs. Mortgage banking operations are not charged a corporate capital allocation charge.

In addition to the corporate capital allocation and contract land deposit impairments discussed above, the other reconciling items between segment profit and consolidated profit before tax include unallocated corporate overhead (including all management incentive compensation), equity-based compensation expense, consolidation adjustments and external corporate interest expense. Our overhead functions such as accounting, treasury and human resources are centrally performed and these costs are not allocated to our operating segments. Consolidation adjustments consist of such items necessary to convert the reportable segments’ results, which are predominantly maintained on a cash basis, to a full accrual basis for external financial statement presentation purposes, and are not allocated to our operating segments. External corporate interest expense primarily consists of interest charges on our 3.95% Senior Notes due 2022 and 3.00% Senior Notes due 2030 (the “Senior Notes”), which are not charged to the operating segments because the charges are included in the corporate capital allocation discussed above.

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NVR, Inc.

Notes to Condensed Consolidated Financial Statements

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

(unaudited)

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Revenues:
Homebuilding Mid Atlantic	$	1,048,416	$	839,845	$	1,984,556	$	1,613,903
Homebuilding North East	193,245		98,219		355,438		204,355
Homebuilding Mid East	478,179		299,955		903,132		620,650
Homebuilding South East	504,720		350,739		945,145		705,557
Mortgage Banking	59,038		31,610		136,773		58,431
Total consolidated revenues	$	2,283,598	$	1,620,368	$	4,325,044	$	3,202,896


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Income before taxes:
Homebuilding Mid Atlantic	$	174,481	$	98,067	$	303,548	$	179,740
Homebuilding North East	21,510		6,658		36,737		16,809
Homebuilding Mid East	59,887		27,302		108,828		58,466
Homebuilding South East	78,919		42,765		135,584		89,909
Mortgage Banking	40,372		15,692		99,934		27,571
Total segment profit before taxes	375,169		190,484		684,631		372,495
Reconciling items:
Contract land deposit recoveries (impairments) (1)	7,178		(460)		13,374		(36,075)
Equity-based compensation expense	(13,379)		(14,434)		(27,850)		(21,926)
Corporate capital allocation (2)	63,032		59,870		124,583		116,521
Unallocated corporate overhead	(33,668)		(23,288)		(73,804)		(60,927)
Consolidation adjustments and other (3)	31,944		6,803		34,330		16,456
Corporate interest expense	(12,811)		(9,144)		(25,793)		(15,338)
Reconciling items sub-total	42,296		19,347		44,840		(1,289)
Consolidated income before taxes	$	417,465	$	209,831	$	729,471	$	371,206

(1)This item represents changes to the contract land deposit impairment reserve, which are not allocated to the reportable segments. See further discussion of lot deposit impairment charges in Note 2.

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Corporate capital allocation charge:
Homebuilding Mid Atlantic	$	31,135	$	31,581	$	61,731	$	61,336
Homebuilding North East	6,457		5,790		12,495		11,349
Homebuilding Mid East	11,066		9,687		21,690		19,050
Homebuilding South East	14,374		12,812		28,667		24,786
Total	$	63,032	$	59,870	$	124,583	$	116,521

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NVR, Inc.

Notes to Condensed Consolidated Financial Statements

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

(unaudited)

(3) The increase in consolidation adjustments and other for the three and six month periods of 2021 compared to the 2020 period relates primarily to the significant increase in lumber prices during the second half of 2020 through the first half of 2021. Our reportable segments' results include the intercompany profits of our production facilities, which were negatively impacted by the increase in lumber costs. The increase in lumber costs related to homes not yet settled is reversed through the consolidation adjustment. As the homes currently in inventory are settled in subsequent quarters, our consolidated homebuilding margins will be negatively impacted by the higher lumber costs.


	June 30, 2021		December 31, 2020
Assets:
Homebuilding Mid Atlantic	$	1,196,515	$	1,140,910
Homebuilding North East	246,296		202,591
Homebuilding Mid East	442,110		377,448
Homebuilding South East	566,547		494,295
Mortgage Banking	410,956		555,278
Total segment assets	2,862,424		2,770,522
Reconciling items:
Cash and cash equivalents	2,597,565		2,714,720
Deferred taxes	137,037		132,980
Intangible assets and goodwill	49,601		49,678
Operating lease right-of-use assets	61,740		53,110
Finance lease right-of-use assets	14,973		15,772
Contract land deposit reserve	(38,831)		(52,205)
Consolidation adjustments and other	169,927		92,564
Reconciling items sub-total	2,992,012		3,006,619
Consolidated assets	$	5,854,436	$	5,777,141

10. Fair Value

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

Financial Instruments

The following table presents the estimated fair values and carrying values of our Senior Notes as of June 30, 2021 and December 31, 2020. The estimated fair value is based on recent market prices of similar transactions, which is classified as Level 2 within the fair value hierarchy.


	June 30, 2021		December 31, 2020
Estimated Fair Values:
3.95% Senior Notes due 2022	$	620,220	$	630,000
3.00% Senior Notes due 2030	953,730		982,620
Total	$	1,573,950	$	1,612,620
Carrying Values:
3.95% Senior Notes due 2022	$	599,238	$	598,925
3.00% Senior Notes due 2030	917,592		918,470
Total	$	1,516,830	$	1,517,395

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NVR, Inc.

Notes to Condensed Consolidated Financial Statements

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

(unaudited)

Except as otherwise noted below, we believe that insignificant differences exist between the carrying value and the fair value of our financial instruments, which consist primarily of cash equivalents, due to their short term nature.

Derivative Instruments and Mortgage Loans Held for Sale

In the normal course of business, our wholly-owned mortgage subsidiary, NVR Mortgage Finance, Inc. (“NVRM”), enters into contractual commitments to extend credit to our homebuyers with fixed expiration dates. The commitments become effective when the borrowers "lock-in" a specified interest rate within time frames established by NVRM. All mortgagors are evaluated for credit worthiness prior to the extension of the commitment. Market risk arises if interest rates move adversely between the time of the "lock-in" of rates by the borrower and the sale date of the loan to a broker/dealer. To mitigate the effect of the interest rate risk inherent in providing rate lock commitments to borrowers, NVRM enters into optional or mandatory delivery forward sale contracts to sell whole loans and mortgage-backed securities to broker/dealers. The forward sales contracts lock in an interest rate and price for the sale of loans similar to the specific rate lock commitments. NVRM does not engage in speculative or trading derivative activities. Both the rate lock commitments to borrowers and the forward sale contracts to broker/dealers are undesignated derivatives and, accordingly, are marked to fair value through earnings. At June 30, 2021, there were rate lock commitments to extend credit to borrowers aggregating $1,130,241 and open forward delivery contracts aggregating $1,263,416, which hedge both the rate lock commitments and closed loans held for sale.

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

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

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

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

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

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

Mortgage loans held for sale are recorded at fair value when closed, and thereafter are carried at the lower of cost or fair value, net of deferred origination costs, until sold. Fair value is measured using Level 2 inputs. As of June 30, 2021, the fair value of loans held for sale of $344,680 included on the accompanying condensed consolidated balance sheet has been increased by $4,699 from the aggregate principal balance of $339,981. As of December 31, 2020, the fair value of loans held for sale of $449,760 were increased by $10,042 from the aggregate principal balance of $439,718.

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NVR, Inc.

Notes to Condensed Consolidated Financial Statements

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

(unaudited)

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


	June 30, 2021		December 31, 2020
Rate lock commitments:
Gross assets	$	15,267	$	10,844
Gross liabilities	539		87
Net rate lock commitments	$	14,728	$	10,757
Forward sales contracts:
Gross assets	$	335	$	1
Gross liabilities	1,939		5,217
Net forward sales contracts	$	(1,604)	$	(5,216)

As of June 30, 2021 and December 31, 2020, the net rate lock commitments are reported in mortgage banking "Other assets" and the net forward sales contracts are reported in mortgage banking "Accrued expenses and other liabilities" on the accompanying condensed consolidated balance sheets.

The fair value measurement adjustment as of June 30, 2021 was as follows:


	Notional or Principal Amount		Assumed Gain/(Loss) From Loan Sale		Interest Rate Movement Effect		Servicing Rights Value		Security Price Change		Total Fair Value Measurement Gain/(Loss)
Rate lock commitments	$	1,130,241	$	4,469	$	1,942	$	8,317	$	—	$	14,728