Item 1. Financial Statements

NVR, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(unaudited)
						September 30, 2021						December 31, 2020
ASSETS
Homebuilding:
Cash and cash equivalents						$	2,681,110					$	2,714,720
Restricted cash						41,820						28,912
Receivables						22,525						18,299
Inventory:
Lots and housing units, covered under sales agreements with customers						1,697,959						1,484,936
Unsold lots and housing units						130,427						123,197
Land under development						8,151						62,790
Building materials and other						26,988						38,159
						1,863,525						1,709,082
Contract land deposits, net						453,255						387,628
Property, plant and equipment, net						55,253						57,786
Operating lease right-of-use assets						60,605						53,110
Reorganization value in excess of amounts allocable to identifiable assets, net						41,580						41,580
Other assets						211,557						203,399
						5,431,230						5,214,516
Mortgage Banking:
Cash and cash equivalents						21,999						63,547
Restricted cash						2,860						2,334
Mortgage loans held for sale, net						287,525						449,760
Property and equipment, net						3,948						4,544
Operating lease right-of-use assets						10,747						12,439
Reorganization value in excess of amounts allocable to identifiable assets, net						7,347						7,347
Other assets						23,238						22,654
						357,664						562,625
Total assets						$	5,788,894					$	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)
						September 30, 2021						December 31, 2020
LIABILITIES AND SHAREHOLDERS' EQUITY
Homebuilding:
Accounts payable						$	329,863					$	339,867
Accrued expenses and other liabilities						416,266						440,671
Customer deposits						381,594						240,758
Operating lease liabilities						66,002						59,357
Senior notes						1,516,544						1,517,395
						2,710,269						2,598,048
Mortgage Banking:
Accounts payable and other liabilities						50,077						62,720
Operating lease liabilities						11,497						13,299
						61,574						76,019
Total liabilities						2,771,843						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 September 30, 2021 and December 31, 2020						206						206
Additional paid-in capital						2,349,000						2,214,426
Deferred compensation trust – 106,697 shares of NVR, Inc. common stock as of both September 30, 2021 and December 31, 2020						(16,710)						(16,710)
Deferred compensation liability						16,710						16,710
Retained earnings						9,713,258						8,811,120
Less treasury stock at cost – 17,042,644 and 16,859,753 shares as of September 30, 2021 and December 31, 2020, respectively						(9,045,413)						(7,922,678)
Total shareholders' equity						3,017,051						3,103,074
Total liabilities and shareholders' equity						$	5,788,894					$	5,777,141

See notes to condensed consolidated financial statements.

NVR, Inc.

Condensed Consolidated Statements of Income

(in thousands, except per share data)

(unaudited)

						Three Months Ended September 30,												Nine Months Ended September 30,
						2021						2020						2021						2020
Homebuilding:
Revenues						$	2,336,615					$	1,920,751					$	6,524,886					$	5,065,216
Other income						1,496						1,988						4,714						9,732
Cost of sales						(1,817,939)						(1,536,044)						(5,117,065)						(4,115,280)
Selling, general and administrative						(112,226)						(105,741)						(347,051)						(318,610)
Operating income						407,946						280,954						1,065,484						641,058
Interest expense						(12,838)						(11,309)						(38,694)						(26,689)
Homebuilding income						395,108						269,645						1,026,790						614,369
Mortgage Banking:
Mortgage banking fees						59,025						69,261						195,798						127,692
Interest income						2,336						2,222						6,577						6,545
Other income						1,022						887						2,877						2,215
General and administrative						(22,959)						(20,180)						(67,228)						(57,149)
Interest expense						(405)						(378)						(1,216)						(1,009)
Mortgage banking income						39,019						51,812						136,808						78,294
Income before taxes						434,127						321,457						1,163,598						692,663
Income tax expense						(102,046)						(64,991)						(261,460)						(96,419)
Net income						$	332,081					$	256,466					$	902,138					$	596,244
Basic earnings per share						$	93.25					$	69.19					$	249.30					$	161.85
Diluted earnings per share						$	86.44					$	65.11					$	231.75					$	153.03
Basic weighted average shares outstanding						3,561						3,706						3,619						3,684
Diluted weighted average shares outstanding						3,842						3,939						3,893						3,896

See notes to condensed consolidated financial statements.

NVR, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

						Nine Months Ended September 30,
						2021						2020
Cash flows from operating activities:
Net income						$	902,138					$	596,244
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization						14,720						16,801
Equity-based compensation expense						42,859						35,565
Contract land deposit and other (recoveries) impairments, net						(17,474)						32,751
Gain on sale of loans, net						(162,729)						(100,348)
Mortgage loans closed						(4,599,324)						(3,663,220)
Mortgage loans sold and principal payments on mortgage loans held for sale						4,918,464						3,914,000
Distribution of earnings from unconsolidated joint ventures						7,500						—
Net change in assets and liabilities:
Increase in inventory						(154,443)						(416,488)
(Increase) decrease in contract land deposits						(48,153)						4,585
Increase in receivables						(2,349)						(3,060)
(Decrease) increase in accounts payable and accrued expenses						(44,970)						109,921
Increase in customer deposits						140,836						79,236
Other, net						(14,783)						(26,647)
Net cash provided by operating activities						982,292						579,340
Cash flows from investing activities:
Investments in and advances to unconsolidated joint ventures						(861)						(435)
Purchase of property, plant and equipment						(11,946)						(12,329)
Proceeds from the sale of property, plant and equipment						821						665
Net cash used in investing activities						(11,986)						(12,099)
Cash flows from financing activities:
Purchase of treasury stock						(1,152,855)						(216,582)
Proceeds from senior notes						—						923,905
Debt issuance costs						—						(4,750)
Principal payments on finance lease liabilities						(1,008)						(665)
Proceeds from the exercise of stock options						121,835						162,522
Net cash (used in) provided by financing activities						(1,032,028)						864,430
Net (decrease) increase in cash, restricted cash, and cash equivalents						(61,722)						1,431,671
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						$	2,748,060					$	2,592,475
Supplemental disclosures of cash flow information:
Interest paid during the period, net of interest capitalized						$	39,473					$	24,957
Income taxes paid during the period, net of refunds						$	289,850					$	86,214

See notes to condensed consolidated financial statements.

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 nine months ended September 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 nine months ended September 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 September 30, 2021 and December 31, 2020 was $271 and $269, respectively, and as of September 30, 2020 and December 31, 2019 was $271 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 $381,594 and $240,758 as of September 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 $24,300 and $22,500, as of September 30, 2021 and December 31, 2020, respectively. Prepaid sales compensation is included in homebuilding “Other assets” on the accompanying condensed consolidated balance sheets.

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

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

(unaudited)

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.

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 September 30, 2021, we controlled approximately 116,550 lots under LPAs with third parties through deposits in cash and letters of credit totaling approximately $483,600 and $10,700, 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 nine month periods ended September 30, 2021, we recorded a net reversal of approximately $4,100 and $17,500, respectively, related to previously impaired lot deposits as market conditions have improved. For the three month period ended September 30, 2020, we recorded a net reversal of approximately $4,800 related to previously impaired lot deposits. For the nine months ended September 30, 2020, we incurred net pre-tax lot deposit charges of approximately $32,500. Our contract land deposit is shown net of a $34,704 and $52,205 impairment reserve at September 30, 2021 and December 31, 2020, respectively.

In addition, we have certain properties under contract with land owners that are expected to yield approximately 12,500 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 $4,400 and $100, respectively, as of September 30, 2021, of which approximately $3,300 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 September 30, 2021 and December 31, 2020, our total risk of loss was as follows:

						September 30, 2021						December 31, 2020
Contract land deposits						$	487,959					$	439,833
Loss reserve on contract land deposits						(34,704)						(52,205)
Contract land deposits, net						453,255						387,628
Contingent obligations in the form of letters of credit						10,755						8,249
Total risk of loss						$	464,010					$	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.

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

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

(unaudited)

At September 30, 2021, we had an aggregate investment totaling approximately $20,800 in four JVs that are expected to produce approximately 2,300 finished lots, of which approximately 1,950 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 $2,900 to one of the JVs at September 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 $20,800 and $23,600 at September 30, 2021 and December 31, 2020, respectively, and is reported in the “Other assets” line item on the accompanying condensed consolidated balance sheets. None of the unconsolidated JVs had any indicators of impairment as of September 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 September 30, 2021, we had no investment remaining in the JV and the JV had remaining balances of $271 in cash and $250 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 2021, we had the following significant 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.

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

As of September 30, 2021, we directly owned two separate raw land parcels with a carrying value of $8,151 that are expected to produce approximately 100 finished lots. We have additional funding commitments of approximately $2,700 under a joint development agreement related to one parcel, a portion of which we expect will be offset by development credits of approximately $800. None of the raw parcels had any indicators of impairment as of September 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

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

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

(unaudited)

respective lots. Interest incurred in excess of the interest capitalizable based on the level of qualified assets is expensed in the period incurred.

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

						Three Months Ended September 30,												Nine Months Ended September 30,
						2021						2020						2021						2020
Interest capitalized, beginning of period						$	644					$	2,673					$	1,025					$	3,499
Interest incurred						13,263						11,792						39,977						28,092
Interest charged to interest expense						(13,243)						(11,687)						(39,910)						(27,698)
Interest charged to cost of sales						(100)						(370)						(528)						(1,485)
Interest capitalized, end of period						$	564					$	2,408					$	564					$	2,408

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 nine months ended September 30, 2021 and 2020:

						Three Months Ended September 30,												Nine Months Ended September 30,
						2021						2020						2021						2020
Weighted average number of shares outstanding used to calculate basic EPS						3,561						3,706						3,619						3,684
Dilutive securities:
Stock options and restricted share units						281						233						274						212
Weighted average number of shares and share equivalents outstanding used to calculate diluted EPS						3,842						3,939						3,893						3,896

The following non-qualified stock options ("Options") issued under equity incentive plans were outstanding during the three and nine months ended September 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 September 30,												Nine Months Ended September 30,
						2021						2020						2021						2020
Anti-dilutive securities						16						21						22						30

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

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

(unaudited)

7. Shareholders’ Equity

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

						Common Stock						Additional Paid-In Capital						Retained Earnings						Treasury Stock						Deferred Compensation Trust						Deferred Compensation Liability						Total
Balance, June 30, 2021						$	206					$	2,314,564					$	9,381,177					$	(8,653,659)					$	(16,710)					$	16,710					$	3,042,288
Net income						—						—						332,081						—						—						—						332,081
Purchase of common stock for treasury						—						—						—						(398,489)						—						—						(398,489)
Equity-based compensation						—						15,009						—						—						—						—						15,009
Proceeds from Options exercised						—						26,162						—						—						—						—						26,162
Treasury stock issued upon option exercise and restricted share vesting						—						(6,735)						—						6,735						—						—						—
Balance, September 30, 2021						$	206					$	2,349,000					$	9,713,258					$	(9,045,413)					$	(16,710)					$	16,710					$	3,017,051

A summary of changes in shareholders’ equity for the nine months ended September 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						—						—						902,138						—						—						—						902,138
Purchase of common stock for treasury						—						—						—						(1,152,855)						—						—						(1,152,855)
Equity-based compensation						—						42,859						—						—						—						—						42,859
Proceeds from Options exercised						—						121,835						—						—						—						—						121,835
Treasury stock issued upon option exercise and restricted share vesting						—						(30,120)						—						30,120						—						—						—
Balance, September 30, 2021						$	206					$	2,349,000					$	9,713,258					$	(9,045,413)					$	(16,710)					$	16,710					$	3,017,051

We repurchased approximately 80 and 245 shares of our common stock during the three and nine months ended September 30, 2021, respectively. We settle Option exercises and vesting of RSUs by issuing shares of treasury stock. Approximately 13 and 62 shares were issued from the treasury account during the three and nine months ended September 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.

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

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

(unaudited)

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

						Common Stock						Additional Paid-In Capital						Retained Earnings						Treasury Stock						Deferred Compensation Trust						Deferred Compensation Liability						Total
Balance, June 30, 2020						$	206					$	2,151,623					$	8,249,650					$	(7,789,067)					$	(16,710)					$	16,710					$	2,612,412
Net income						—						—						256,466						—						—						—						256,466
Equity-based compensation						—						13,639						—						—						—						—						13,639
Proceeds from Options exercised						—						36,476						—						—						—						—						36,476
Treasury stock issued upon option exercise and restricted share vesting						—						(13,531)						—						13,531						—						—						—
Balance, September 30, 2020						$	206					$	2,188,207					$	8,506,116					$	(7,775,536)					$	(16,710)					$	16,710					$	2,918,993

A summary of changes in shareholders’ equity for the nine months ended September 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						—						—						596,244						—						—						—						596,244
Deferred compensation activity, net						—						—						—						—						202						(202)						—
Purchase of common stock for treasury						—						—						—						(216,582)						—						—						(216,582)
Equity-based compensation						—						35,565						—						—						—						—						35,565
Proceeds from Options exercised						—						162,522						—						—						—						—						162,522
Treasury stock issued upon option exercise and restricted share vesting						—						(65,287)						—						65,287						—						—						—
Balance, September 30, 2020						$	206					$	2,188,207					$	8,506,116					$	(7,775,536)					$	(16,710)					$	16,710					$	2,918,993

We repurchased approximately 58 shares of our common stock during the nine months ended September 30, 2020, all of which were repurchased in the first quarter. Approximately 29 and 143 shares were issued from the treasury account during the three and nine months ended September 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.

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 Warranty Reserve during the three and nine months ended September 30, 2021 and 2020:

						Three Months Ended September 30,												Nine Months Ended September 30,
						2021						2020						2021						2020
Warranty reserve, beginning of period						$	127,502					$	111,219					$	119,638					$	108,053
Provision						22,789						20,894						66,878						48,992
Payments						(20,188)						(18,564)						(56,413)						(43,496)
Warranty reserve, end of period						$	130,103					$	113,549					$	130,103					$	113,549

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 (collectively, the “Senior Notes”), which are not charged to the operating segments because the charges are included in the corporate capital allocation discussed above.

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 September 30,												Nine Months Ended September 30,
						2021						2020						2021						2020
Revenues:
Homebuilding Mid Atlantic						$	1,082,710					$	949,472					$	3,067,267					$	2,563,375
Homebuilding North East						213,087						157,973						568,524						362,328
Homebuilding Mid East						503,232						404,992						1,406,364						1,025,642
Homebuilding South East						537,586						408,314						1,482,731						1,113,871
Mortgage Banking						59,025						69,261						195,798						127,692
Total consolidated revenues						$	2,395,640					$	1,990,012					$	6,720,684					$	5,192,908

						Three Months Ended September 30,												Nine Months Ended September 30,
						2021						2020						2021						2020
Income before taxes:
Homebuilding Mid Atlantic						$	222,504					$	104,700					$	526,052					$	284,440
Homebuilding North East						33,885						14,272						70,622						31,081
Homebuilding Mid East						81,021						45,109						189,849						103,575
Homebuilding South East						100,688						52,554						236,272						142,463
Mortgage Banking						40,249						52,890						140,183						80,461
Total segment profit before taxes						478,347						269,525						1,162,978						642,020
Reconciling items:
Contract land deposit recoveries (impairments) (1)						4,126						4,867						17,500						(31,208)
Equity-based compensation expense						(15,009)						(13,639)						(42,859)						(35,565)
Corporate capital allocation (2)						64,055						60,662						188,638						177,184
Unallocated corporate overhead						(27,801)						(26,915)						(101,605)						(87,912)
Consolidation adjustments and other (3)						(56,786)						38,244						(22,456)						54,769
Corporate interest expense						(12,805)						(11,287)						(38,598)						(26,625)
Reconciling items sub-total						(44,220)						51,932						620						50,643
Consolidated income before taxes						$	434,127					$	321,457					$	1,163,598					$	692,663

(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 September 30,												Nine Months Ended September 30,
						2021						2020						2021						2020
Corporate capital allocation charge:
Homebuilding Mid Atlantic						$	31,057					$	31,383					$	92,788					$	92,720
Homebuilding North East						6,719						5,793						19,214						17,142
Homebuilding Mid East						11,114						10,386						32,804						29,436
Homebuilding South East						15,165						13,100						43,832						37,886
Total						$	64,055					$	60,662					$	188,638					$	177,184

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

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

(unaudited)

(3) The decrease in consolidation adjustments and other for the three and nine month periods of 2021 compared to the respective 2020 periods is driven by changes in lumber prices in 2021. Our reportable segments' results include the intercompany profits of our production facilities for home packages delivered to our homebuilding divisions. For homes not yet settled, these intercompany profits are reversed through the consolidation adjustments. Due to the significantly higher lumber prices in the first half of 2021, the previously reversed intercompany profits were recognized in the third quarter through the consolidation adjustment as homes were settled, and our consolidated homebuilding margins were negatively impacted by the higher lumber costs.

						September 30, 2021						December 31, 2020
Assets:
Homebuilding Mid Atlantic						$	1,183,206					$	1,140,910
Homebuilding North East						230,813						202,591
Homebuilding Mid East						432,723						377,448
Homebuilding South East						581,646						494,295
Mortgage Banking						350,317						555,278
Total segment assets						2,778,705						2,770,522
Reconciling items:
Cash and cash equivalents						2,681,110						2,714,720
Deferred taxes						136,446						132,980
Intangible assets and goodwill						49,562						49,678
Operating lease right-of-use assets						60,605						53,110
Finance lease right-of-use assets						14,706						15,772
Contract land deposit reserve						(34,704)						(52,205)
Consolidation adjustments and other						102,464						92,564
Reconciling items sub-total						3,010,189						3,006,619
Consolidated assets						$	5,788,894					$	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 September 30, 2021 and December 31, 2020. The estimated fair value is based on recent market prices of similar

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

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

(unaudited)

transactions, which is classified as Level 2 within the fair value hierarchy.

						September 30, 2021						December 31, 2020
Estimated Fair Values:
3.95% Senior Notes due 2022						$	614,568					$	630,000
3.00% Senior Notes due 2030						941,697						982,620
Total						$	1,556,265					$	1,612,620
Carrying Values:
3.95% Senior Notes due 2022						$	599,396					$	598,925
3.00% Senior Notes due 2030						917,148						918,470
Total						$	1,516,544					$	1,517,395

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 September 30, 2021, there were rate lock commitments to extend credit to borrowers aggregating $961,557 and open forward delivery contracts aggregating $1,107,575, 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.

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

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

(unaudited)

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 September 30, 2021, the fair value of loans held for sale of $287,525 included on the accompanying condensed consolidated balance sheet has been increased by $2,687 from the aggregate principal balance of $284,838. 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.

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

						September 30, 2021						December 31, 2020
Rate lock commitments:
Gross assets						$	11,540					$	10,844
Gross liabilities						3,578						87
Net rate lock commitments						$	7,962					$	10,757
Forward sales contracts:
Gross assets						$	3,800					$	1
Gross liabilities						397						5,217
Net forward sales contracts						$	3,403					$	(5,216)

As of September 30, 2021 the net rate lock commitments and the net forward sales contracts are reported in mortgage banking "Other assets" on the accompanying condensed consolidated balance sheets. As of 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".

The fair value measurement adjustment as of September 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						$	961,557					$	1,912					$	(2,466)					$	8,516					$	—					$	7,962
Forward sales contracts						$	1,107,575					—						—						—						3,403						3,403
Mortgages held for sale						$	284,838					858						(1,174)						3,003						—						2,687
Total fair value measurement												$	2,770					$	(3,640)					$	11,519					$	3,403					$	14,052

The total fair value measurement adjustment as of December 31, 2020 was $15,583. NVRM recorded a fair value adjustment to expense of $3,771 and $1,531 for the three and nine months ended September 30, 2021, respectively. NVRM recorded a fair value adjustment to income of $1,735 for the three months ended September 30, 2020, and a fair value adjustment to expense of $1,968 for the nine months ended September 30, 2020. Unrealized gains/losses from the change in the fair value measurements are included in earnings as a component of mortgage banking fees in the accompanying condensed consolidated statements of income. The fair value measurement will be impacted in the future by the change in the value of the servicing rights, interest rate movements, security price fluctuations, and the volume and product mix of NVRM’s closed loans and locked loan commitments.

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

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

(unaudited)

11. Debt

As of September 30, 2021, we had the following debt instruments outstanding:

3.95% Senior Notes due 2022 ("2022 Senior Notes")

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

3.00% Senior Notes due 2030 ("2030 Senior Notes")

The 2030 Senior Notes have an aggregate principal balance of $900,000 and mature on May 15, 2030. The 2030 Senior Notes bear interest at 3.00%, payable semi-annually in arrears on May 15 and November 15. The 2030 Senior Notes were issued in three separate issuances, $600,000 issued at a discount to yield 3.02%, and the two additional issuances totaling $300,000 issued at a premium to yield 2.00%. The 2030 Senior Notes have been reflected net of the unamortized discount or premium, as applicable, and the unamortized debt issuance costs in the accompanying condensed consolidated balance sheet.

Credit Agreement

We have an unsecured Credit Agreement (the “Credit Agreement”), which provides for aggregate revolving loan commitments of $300,000 (the “Facility”). Under the Credit Agreement, we may request increases of up to $300,000 to the Facility in the form of revolving loan commitments or term loans to the extent that new or existing lenders agree to provide additional revolving loan or term loan commitments. The Credit Agreement provides for a $100,000 sublimit for the issuance of letters of credit, of which approximately $15,600 was outstanding at September 30, 2021. The Credit Agreement termination date is February 12, 2026. There was no debt outstanding under the Facility at September 30, 2021.

Repurchase Agreement

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

In July 2021, NVRM entered into the Thirteenth Amendment to the Repurchase Agreement, which extended the term of the Repurchase Agreement through July 20, 2022. All other terms and conditions under the amended Repurchase Agreement remained materially consistent. At September 30, 2021, there were no borrowing base limitations reducing the amount available under the Repurchase Agreement. There was no debt outstanding under the Repurchase Agreement at September 30, 2021.

12. Commitments and Contingencies

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

13. Leases

We have operating leases for our corporate and division offices, production facilities, model homes, and certain office and production equipment. Additionally, we have finance leases for certain plant equipment and one of our production facilities which are recorded in homebuilding "Property, plant and equipment, net" and "Accrued expenses and other liabilities" on the accompanying condensed consolidated balance sheets. Our finance lease

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

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

(unaudited)

ROU assets and finance lease liabilities were $14,706 and $15,441, respectively, as of September 30, 2021, and $15,772 and $16,173, respectively, as of December 31, 2020. Our leases have remaining lease terms of up to 18.9 years, some of which include options to extend the leases for up to 20 years, and some of which include options to terminate the lease.

We recognize operating lease expense on a straight-line basis over the lease term. We have elected to use the portfolio approach for certain equipment leases which have similar lease terms and payment schedules. Additionally, for certain equipment we account for the lease and non-lease components as a single lease component. Our sublease income is de minimis.

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

The components of lease expense were as follows:

						Three Months Ended September 30,												Nine Months Ended September 30,
						2021						2020						2021						2020
Lease expense
Operating lease expense						$	7,906					$	7,689					$	23,395					$	23,542
Finance lease expense:
Amortization of ROU assets						454						327						1,342						874
Interest on lease liabilities						107						70						324						170
Short-term lease expense						6,001						5,625						17,752						18,236
Total lease expense						$	14,468					$	13,711					$	42,813					$	42,822

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

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

(unaudited)

Other information related to leases was as follows:

						Three Months Ended September 30,												Nine Months Ended September 30,
						2021						2020						2021						2020
Supplemental Cash Flows Information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases						$	7,143					$	7,339					$	20,831					$	20,733
Operating cash flows from finance leases						107						70						324						170
Financing cash flows from finance leases						347						253						1,008						665
ROU assets obtained in exchange for lease obligations:
Operating leases						$	3,711					$	1,806					$	23,282					$	7,491
Finance leases						$	187					$	9,056					$	276					$	9,496
																		September 30, 2021						December 31, 2020
Weighted-average remaining lease term (in years):
Operating leases																		6.7						4.7
Finance leases																		11.9						12.5
Weighted-average discount rate:
Operating leases																		3.0		%				3.4		%
Finance leases																		2.8		%				2.8		%

14. Income Taxes

Our effective tax rate for the three and nine months ended September 30, 2021 was 23.5% and 22.5%, respectively, compared to 20.2% and 13.9% for the three and nine months ended September 30, 2020, respectively. The increase in the effective tax rate in the three and nine month periods of 2021 compared to the same periods in 2020 is primarily attributable to the impact of the income tax benefit recognized related to excess tax benefits from stock option exercises totaling $9,244 and $37,834 for the three and nine months ended September 30, 2021, respectively, and $17,834 and $80,343 for the three and nine months ended September 30, 2020, respectively.