Item 1. Financial Statements

NVR, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(unaudited)
						June 30, 2022						December 31, 2021
ASSETS
Homebuilding:
Cash and cash equivalents						$	1,483,445					$	2,545,069
Restricted cash						60,695						60,730
Receivables						29,007						18,552
Inventory:
Lots and housing units, covered under sales agreements with customers						2,138,456						1,777,862
Unsold lots and housing units						177,372						127,434
Land under development						16,274						12,147
Building materials and other						46,643						29,923
						2,378,745						1,947,366
Contract land deposits, net						524,398						497,139
Property, plant and equipment, net						57,397						56,979
Operating lease right-of-use assets						68,323						59,010
Reorganization value in excess of amounts allocable to identifiable assets, net						41,580						41,580
Other assets						233,987						229,018
						4,877,577						5,455,443
Mortgage Banking:
Cash and cash equivalents						16,158						28,398
Restricted cash						3,403						2,519
Mortgage loans held for sale, net						335,624						302,192
Property and equipment, net						3,296						3,658
Operating lease right-of-use assets						13,405						9,758
Reorganization value in excess of amounts allocable to identifiable assets, net						7,347						7,347
Other assets						30,889						25,160
						410,122						379,032
Total assets						$	5,287,699					$	5,834,475

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, 2022						December 31, 2021
LIABILITIES AND SHAREHOLDERS' EQUITY
Homebuilding:
Accounts payable						$	417,771					$	336,560
Accrued expenses and other liabilities						388,179						435,860
Customer deposits						439,119						417,463
Operating lease liabilities						73,075						64,128
Senior notes						915,801						1,516,255
						2,233,945						2,770,266
Mortgage Banking:
Accounts payable and other liabilities						47,868						51,394
Operating lease liabilities						14,220						10,437
						62,088						61,831
Total liabilities						2,296,033						2,832,097
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, 2022 and December 31, 2021						206						206
Additional paid-in capital						2,498,123						2,378,191
Deferred compensation trust – 106,697 shares of NVR, Inc. common stock as of both June 30, 2022 and December 31, 2021						(16,710)						(16,710)
Deferred compensation liability						16,710						16,710
Retained earnings						10,907,253						10,047,839
Less treasury stock at cost – 17,271,177 and 17,107,889 shares as of June 30, 2022 and December 31, 2021, respectively						(10,413,916)						(9,423,858)
Total shareholders' equity						2,991,666						3,002,378
Total liabilities and shareholders' equity						$	5,287,699					$	5,834,475

See notes to condensed consolidated financial statements.

NVR, Inc.

Condensed Consolidated Statements of Income

(in thousands, except per share data)

(unaudited)

						Three Months Ended June 30,												Six Months Ended June 30,
						2022						2021						2022						2021
Homebuilding:
Revenues						$	2,610,062					$	2,224,560					$	4,919,289					$	4,188,271
Other income						3,896						1,632						5,235						3,218
Cost of sales						(1,924,727)						(1,721,673)						(3,576,092)						(3,299,126)
Selling, general and administrative						(132,432)						(113,406)						(261,942)						(234,825)
Operating income						556,799						391,113						1,086,490						657,538
Interest expense						(11,852)						(12,850)						(24,656)						(25,856)
Homebuilding income						544,947						378,263						1,061,834						631,682
Mortgage Banking:
Mortgage banking fees						48,881						59,038						118,063						136,773
Interest income						2,772						2,209						4,846						4,241
Other income						1,303						988						2,375						1,855
General and administrative						(23,486)						(22,613)						(46,394)						(44,269)
Interest expense						(405)						(420)						(767)						(811)
Mortgage banking income						29,065						39,202						78,123						97,789
Income before taxes						574,012						417,465						1,139,957						729,471
Income tax benefit (expense)						(140,698)						(96,170)						(280,543)						(159,414)
Net income						$	433,314					$	321,295					$	859,414					$	570,057
Basic earnings per share						$	131.84					$	88.69					$	257.65					$	156.27
Diluted earnings per share						$	123.65					$	82.45					$	240.05					$	145.53
Basic weighted average shares outstanding						3,287						3,623						3,336						3,648
Diluted weighted average shares outstanding						3,504						3,897						3,580						3,917

See notes to condensed consolidated financial statements.

NVR, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

						Six Months Ended June 30,
						2022						2021
Cash flows from operating activities:
Net income						$	859,414					$	570,057
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization						8,991						10,038
Equity-based compensation expense						31,755						27,850
Contract land deposit recoveries, net						(6,342)						(13,355)
Gain on sale of loans, net						(94,813)						(115,152)
Mortgage loans closed						(3,133,046)						(2,981,630)
Mortgage loans sold and principal payments on mortgage loans held for sale						3,195,784						3,194,279
Distribution of earnings from unconsolidated joint ventures						4,000						5,500
Net change in assets and liabilities:
Increase in inventory						(431,379)						(264,291)
Increase in contract land deposits						(20,917)						(24,318)
Increase in receivables						(16,394)						(4,327)
Increase in accounts payable and accrued expenses						25,716						7,943
Increase in customer deposits						21,656						124,685
Other, net						2,781						(16,259)
Net cash provided by operating activities						447,206						521,020
Cash flows from investing activities:
Investments in and advances to unconsolidated joint ventures						(9,222)						(659)
Purchase of property, plant and equipment						(8,751)						(6,620)
Proceeds from the sale of property, plant and equipment						346						657
Net cash used in investing activities						(17,627)						(6,622)
Cash flows from financing activities:
Purchase of treasury stock						(1,015,703)						(754,366)
Redemption of senior notes						(600,000)						—
Principal payments on finance lease liabilities						(723)						(661)
Proceeds from the exercise of stock options						113,822						95,673
Net cash used in financing activities						(1,502,604)						(659,354)
Net decrease in cash, restricted cash, and cash equivalents						(1,073,025)						(144,956)
Cash, restricted cash, and cash equivalents, beginning of the period						2,636,984						2,809,782
Cash, restricted cash, and cash equivalents, end of the period						$	1,563,959					$	2,664,826
Supplemental disclosures of cash flow information:
Interest paid during the period, net of interest capitalized						$	32,627					$	26,875
Income taxes paid during the period, net of refunds						$	291,721					$	172,563

See notes to condensed consolidated financial statements.

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars 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, 2021. 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, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

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, 2022 and 2021, 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, 2022 and December 31, 2021 was $258 and $268, respectively, and as of June 30, 2021 and December 31, 2020 was $273 and $269, 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 $439,119 and $417,463 as of June 30, 2022 and December 31, 2021, respectively. We expect that substantially all of the customer deposits held at December 31, 2021 will be recognized in revenue in 2022. Our contract assets consist of prepaid sales compensation and totaled approximately $24,400 and $25,200, as of June 30, 2022 and December 31, 2021, 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.

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars 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, 2022, we controlled approximately 127,700 lots under LPAs with third parties through deposits in cash and letters of credit totaling approximately $541,400 and $8,100, 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 and, in very limited circumstances, specific performance obligations. For the three and six months ended June 30, 2022, we recorded a net reversal of approximately $400 and $6,300, respectively, related to previously impaired lot deposits based on current market conditions. For the three and six months ended June 30, 2021, we recorded a net reversal of approximately $7,200 and $13,400, respectively, related to previously impaired lot deposits. Our contract land deposit asset is shown net of a $23,516 and $30,041 impairment reserve at June 30, 2022 and December 31, 2021, respectively.

In addition, we have certain properties under contract with land owners that are expected to yield approximately 23,900 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 totaling approximately $6,500 as of June 30, 2022, of which approximately $4,300 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 June 30, 2022 and December 31, 2021, our total risk of loss was as follows:

						June 30, 2022						December 31, 2021
Contract land deposits						$	547,914					$	527,180
Loss reserve on contract land deposits						(23,516)						(30,041)
Contract land deposits, net						524,398						497,139
Contingent obligations in the form of letters of credit						8,077						10,145
Total risk of loss						$	532,475					$	507,284

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 joint venture. 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, 2022, we had an aggregate investment totaling approximately $30,000 in five JVs that are expected to produce approximately 5,400 finished lots, of which approximately 5,050 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 $2,000 to one of the JVs at June 30, 2022.

We determined that we are not the primary beneficiary in four of the JVs because we and the other JV partner either share power or the other JV partner has the controlling financial interest. The aggregate investment in unconsolidated JVs was approximately $30,000 and $20,300 at June 30, 2022 and December 31, 2021, respectively, and is reported in the homebuilding “Other assets” line item on the accompanying condensed consolidated balance

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

sheets. None of the unconsolidated JVs had any indicators of impairment as of June 30, 2022. For the remaining JV, we concluded that we are the primary beneficiary because we have the controlling financial interest in the JV. All activities under the consolidated JV have been completed and we have no remaining investment in the JV. As of June 30, 2022, the JV had remaining balances of $258 in cash and $232 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 their 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.

As of June 30, 2022, we owned land parcels with a carrying value of $16,274 that we intend to develop into approximately 450 finished lots. We have additional funding commitments of approximately $1,800 under a joint development agreement related to one parcel, a portion of which we expect will be offset by development credits of approximately $600. None of the raw parcels had any indicators of impairment as of June 30, 2022.

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.

The following table reflects the changes in our capitalized interest during the three and six months ended June 30, 2022 and 2021:

						Three Months Ended June 30,												Six Months Ended June 30,
						2022						2021						2022						2021
Interest capitalized, beginning of period						$	640					$	829					$	593					$	1,025
Interest incurred						12,349						13,291						25,603						26,714
Interest charged to interest expense						(12,257)						(13,270)						(25,423)						(26,667)
Interest charged to cost of sales						(52)						(206)						(93)						(428)
Interest capitalized, end of period						$	680					$	644					$	680					$	644

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

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, 2022 and 2021:

						Three Months Ended June 30,												Six Months Ended June 30,
						2022						2021						2022						2021
Weighted average number of shares outstanding used to calculate basic EPS						3,286,574						3,622,635						3,335,644						3,647,874
Dilutive securities:
Stock options and restricted share units						217,730						274,074						244,445						269,230
Weighted average number of shares and share equivalents outstanding used to calculate diluted EPS						3,504,304						3,896,709						3,580,089						3,917,104

The following non-qualified stock options ("Options") and restricted stock units ("RSUs") issued under equity incentive plans were outstanding during the three and six months ended June 30, 2022 and 2021, but were not included in the computation of diluted EPS because the effect would have been anti-dilutive.

						Three Months Ended June 30,												Six Months Ended June 30,
						2022						2021						2022						2021
Anti-dilutive securities						217,662						18,182						189,988						19,002

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

7. Equity-Based Compensation

Our equity-based compensation plans provide for the granting of Options and RSUs to key management employees, including executive officers and members of our Board of Directors ("Directors"). The exercise price of Options granted is equal to the closing price of our common stock on the New York Stock Exchange (the “NYSE”) on the day prior to the date of grant. Options are granted for a 10-year term and typically vest in separate tranches over periods of 3 to 6 years. RSUs generally vest in separate tranches over periods of 2 to 6 years. Grants to key management employees are generally divided such that vesting for 50% of the grant is contingent solely on continued employment, while vesting for the remaining 50% of the grant is contingent upon both continued employment and the achievement of a performance metric based on our return on capital performance relative to a peer group during a 3-year period specified on the date of grant. Grants to directors generally vest solely on continued service as a Director.

During the second quarter of 2022, we issued 165,456 Options and 16,864 RSUs in a block grant to key management employees and Directors. Block grants are generally made once every four years. Option and RSU grants for the six month period ended June 30, 2022 totaled 168,366 and 17,694, respectively, and were granted under the NVR, Inc. 2014 Equity Incentive Plan (the "2014 Plan") and the NVR, Inc. 2018 Equity Incentive Plan (the "2018 Plan") as follows:

Options Granted						2014 Plan						2018 Plan
Options - service-only (1)						55,415						31,351
Options - performance-based (2)						55,415						26,185
Total Options Granted						110,830						57,536
RSUs Granted
RSUs - service-only (3)						—						8,870
RSUs - performance-based (4)						—						8,824
Total RSUs Granted						—						17,694

(1)Of the 86,766 service-only Options granted, 68,466 Options will vest over four years in 25% increments on December 31, 2024, 2025, 2026, and 2027; 16,090 Options will vest over two years in 50% increments on December 31, 2026 and 2027; and the remaining 2,210 Options will vest over two years in 50% increments on December 31, 2024 and 2025. Vesting for the Options is contingent solely upon continued employment or continued service as a Director.

(2)Of the 81,600 performance-based Options granted, 63,300 will vest over four years in 25% increments on December 31, 2024, 2025, 2026, and 2027; 16,090 Options will vest over two years in 50% increments on December 31, 2026 and 2027; and the remaining 2,210 Options will vest over two years in 50% increments on December 31, 2024 and 2025. Vesting for the performance-based Options is contingent upon both continued employment and the Company's return on capital performance during 2022 through 2024.

(3)Of the 8,870 service-only RSUs granted, 5,109 will vest over two years in 50% increments on December 31, 2024 and 2025; 3,119 RSUs will vest over four years in 25% increments on December 31, 2024, 2025, 2026, and 2027; and the remaining 642 RSUs will vest over two years in 50% increments on December 31, 2026 and 2027. Vesting for the RSUs is contingent solely upon continued employment.

(4)Of the 8,824 performance-based RSUs granted, 5,109 will vest over two years in 50% increments on December 31, 2024 and 2025; 3,119 RSUs will vest over four years in 25% increments on December 31, 2024, 2025, 2026, and 2027; and the remaining 596 RSUs will vest over two years in 50% increments on December 31, 2026 and 2027. Vesting for the performance-based RSUs is contingent upon both continued employment and the Company's return on capital performance during 2022 through 2024.

All Options were granted at an exercise price equal to the closing price of the Company’s common stock on the day prior to the date of grant, and expire ten years from the date of grant.

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

The following table provides additional information relative to our equity-based compensation plans for the six months ended June 30, 2022:

						Shares						Weighted Avg. Per Share Exercise Price						Weighted Avg. Remaining Contract Life (years)						Aggregate Intrinsic Value
Stock Options
Outstanding at December 31, 2021						534,695						$	2,424.62
Granted						168,366						4,487.97
Exercised						(43,719)						2,598.73
Forfeited						(11,450)						3,406.42
Outstanding at June 30, 2022						647,892						$	2,931.72					6.1						$	788,955
Exercisable at June 30, 2022						297,665						$	1,927.47					3.6						$	618,152
RSUs
Outstanding at December 31, 2021						16,564
Granted						17,694
Vested						—
Forfeited						(1,314)
Outstanding at June 30, 2022						32,944																		$	131,912
Vested, but not issued at June 30, 2022						—																		$	—

To estimate the grant-date fair value of our Options, we use the Black-Scholes option-pricing model (the “Pricing Model”). The Pricing Model estimates the per share fair value of an option on its date of grant based on the following factors: the Option’s exercise price; the price of the underlying stock on the date of grant; the estimated dividend yield; a risk-free interest rate; the estimated option term; and the expected volatility. For the risk-free interest rate, we use U.S. Treasury STRIPS which mature at approximately the same time as the Option’s expected holding term. For expected volatility, we have concluded that our historical volatility over the Option’s expected holding term provides the most reasonable basis for this estimate.

The fair value of the Options granted during the first six months of 2022 was estimated on the grant date using the Pricing Model, based on the following assumptions:

Estimated option life (years)						5.60
Risk free interest rate (range)						1.17%-3.07%
Expected volatility (range)						24.93%-30.52%
Expected dividend rate						—%
Weighted average grant-date fair value per share of options granted						$	1,434.57

The weighted average grant date fair value per share of $4,509.67 for the RSUs was the closing price of our common stock on the day immediately preceding the date of grant.

Compensation cost for Options and RSUs is recognized on a straight-line basis over the requisite service period for the entire award (from the date of grant through the period of the last separately vesting portion of the grant). For the recognition of equity-based compensation, the Options and RSUs that are subject to a performance condition are treated as a separate award from the “service-only” Options and RSUs, and compensation cost is recognized when it becomes probable that the stated performance target will be achieved. We currently believe that it is probable that the stated performance condition will be satisfied at the target level for all of our Options and

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

RSUs granted. Compensation cost is recognized within the income statement in the same expense line as the cash compensation paid to the respective employees.

We recognize forfeitures of equity-based awards as a reduction to compensation costs in the period in which they occur. During the three and six months ended June 30, 2022, we recognized $20,087 and $31,755 in equity-based compensation costs, respectively. During the three and six months ended June 30, 2021, we recognized $13,379 and $27,850 in equity-based compensation costs, respectively.

As of June 30, 2022, the total unrecognized compensation cost for all outstanding Options and RSUs equaled approximately $406,545. The unrecognized compensation cost will be recognized over each grant’s applicable vesting period with the latest vesting date being December 31, 2027. The weighted-average period over which the unrecognized compensation cost will be recorded is equal to approximately 2.8 years.

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

8. Shareholders’ Equity

A summary of changes in shareholders’ equity for the three months ended June 30, 2022 is presented below:

						Common Stock						Additional Paid-In Capital						Retained Earnings						Treasury Stock						Deferred Compensation Trust						Deferred Compensation Liability						Total
Balance, March 31, 2022						$	206					$	2,416,660					$	10,473,939					$	(10,165,206)					$	(16,710)					$	16,710					$	2,725,599
Net income						—						—						433,314						—						—						—						433,314
Purchase of common stock for treasury						—						—						—						(266,915)						—						—						(266,915)
Equity-based compensation						—						20,087						—						—						—						—						20,087
Proceeds from Options exercised						—						79,581						—						—						—						—						79,581
Treasury stock issued upon Option exercise						—						(18,205)						—						18,205						—						—						—
Balance, June 30, 2022						$	206					$	2,498,123					$	10,907,253					$	(10,413,916)					$	(16,710)					$	16,710					$	2,991,666

A summary of changes in shareholders’ equity for the six months ended June 30, 2022 is presented below:

						Common Stock						Additional Paid-In Capital						Retained Earnings						Treasury Stock						Deferred Compensation Trust						Deferred Compensation Liability						Total
Balance, December 31, 2021						$	206					$	2,378,191					$	10,047,839					$	(9,423,858)					$	(16,710)					$	16,710					$	3,002,378
Net income						—						—						859,414						—						—						—						859,414
Purchase of common stock for treasury						—						—						—						(1,015,703)						—						—						(1,015,703)
Equity-based compensation						—						31,755						—						—						—						—						31,755
Proceeds from Options exercised						—						113,822						—						—						—						—						113,822
Treasury stock issued upon Option exercise						—						(25,645)						—						25,645						—						—						—
Balance, June 30, 2022						$	206					$	2,498,123					$	10,907,253					$	(10,413,916)					$	(16,710)					$	16,710					$	2,991,666

We repurchased 61,078 and 207,132 shares of our outstanding common stock during the three and six months ended June 30, 2022, respectively. We settle Option exercises and vesting of RSUs by issuing shares of treasury stock. We issued 30,396 and 43,719 shares from the treasury account during the three and six months ended June 30, 2022, respectively, in settlement of Option exercises. 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 in thousands, except per share data)

(unaudited)

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 RSU 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

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 RSU 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 78,452 and 164,975 shares of our outstanding common stock during the three and six months ended June 30, 2021, respectively. We issued 18,033 and 48,588 shares from the treasury account during the three and six months ended June 30, 2021, respectively, in settlement of Option exercises and vesting of RSUs.

9. 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 in thousands, except per share data)

(unaudited)

The following table reflects the changes in our Warranty Reserve during the three and six months ended June 30, 2022 and 2021:

						Three Months Ended June 30,												Six Months Ended June 30,
						2022						2021						2022						2021
Warranty reserve, beginning of period						$	135,341					$	124,836					$	134,859					$	119,638
Provision						24,551						21,760						42,518						44,089
Payments						(21,652)						(19,094)						(39,137)						(36,225)
Warranty reserve, end of period						$	138,240					$	127,502					$	138,240					$	127,502

10. Segment Disclosures

Our homebuilding operations are aggregated geographically into four homebuilding reportable segments and our mortgage banking operations are 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.

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars 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,
						2022						2021						2022						2021
Revenues:
Homebuilding Mid Atlantic						$	1,208,312					$	1,048,416					$	2,350,020					$	1,984,556
Homebuilding North East						237,394						193,245						412,945						355,438
Homebuilding Mid East						521,038						478,179						982,442						903,132
Homebuilding South East						643,318						504,720						1,173,882						945,145
Mortgage Banking						48,881						59,038						118,063						136,773
Total consolidated revenues						$	2,658,943					$	2,283,598					$	5,037,352					$	4,325,044

						Three Months Ended June 30,												Six Months Ended June 30,
						2022						2021						2022						2021
Income before taxes:
Homebuilding Mid Atlantic						$	251,739					$	174,481					$	501,520					$	303,548
Homebuilding North East						41,297						21,510						67,225						36,737
Homebuilding Mid East						82,512						59,887						153,695						108,828
Homebuilding South East						150,822						78,919						264,276						135,584
Mortgage Banking						28,800						40,372						78,906						99,934
Total segment profit before taxes						555,170						375,169						1,065,622						684,631
Reconciling items:
Contract land deposit recoveries (1)						419						7,178						6,345						13,374
Equity-based compensation expense (2)						(20,087)						(13,379)						(31,755)						(27,850)
Corporate capital allocation (3)						77,512						63,032						147,256						124,583
Unallocated corporate overhead						(32,282)						(33,668)						(77,543)						(73,804)
Consolidation adjustments and other (4)						5,096						31,944						54,603						34,330
Corporate interest expense						(11,816)						(12,811)						(24,571)						(25,793)
Reconciling items sub-total						18,842						42,296						74,335						44,840
Consolidated income before taxes						$	574,012					$	417,465					$	1,139,957					$	729,471

(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)The increase in equity-based compensation expense for the three and six months ended June 30, 2022 was primarily attributable to a four year block grant of Options and RSUs in May 2022. See additional discussion of equity-based compensation in Note 7.

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

(3)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,
						2022						2021						2022						2021
Corporate capital allocation charge:
Homebuilding Mid Atlantic						$	37,121					$	31,135					$	71,208					$	61,731
Homebuilding North East						8,158						6,457						15,245						12,495
Homebuilding Mid East						12,875						11,066						24,292						21,690
Homebuilding South East						19,358						14,374						36,511						28,667
Total						$	77,512					$	63,032					$	147,256					$	124,583

(4)The change in consolidation adjustments and other for the three and six month periods of 2022 compared to the respective 2021 periods was primarily driven by changes in lumber prices in the respective periods. Our reportable segments' results include the intercompany profits of our production facilities for home packages delivered to our homebuilding divisions. Costs related to homes not yet settled are reversed through the consolidation adjustment and recorded in inventory. These costs are subsequently recorded through the consolidation adjustment when the respective homes are settled. The decrease in the three month period ended June 30, 2022 compared to the same period in 2021 was primarily due to lower lumber prices quarter over quarter. The increase for the six month period ended June 30, 2022 compared to the same period in 2021 was primarily attributable to the overall higher lumber costs year over year driven by higher lumber costs in the first quarter of 2022 compared to the first quarter of 2021.

						June 30, 2022						December 31, 2021
Assets:
Homebuilding Mid Atlantic						$	1,408,484					$	1,322,818
Homebuilding North East						286,776						235,048
Homebuilding Mid East						538,877						438,700
Homebuilding South East						780,118						629,198
Mortgage Banking						402,775						371,685
Total segment assets						3,417,030						2,997,449
Reconciling items:
Cash and cash equivalents						1,483,445						2,545,069
Deferred taxes						139,263						132,894
Intangible assets and goodwill						49,368						49,368
Operating lease right-of-use assets						68,323						59,010
Finance lease right-of-use assets						14,364						14,578
Contract land deposit reserve						(23,516)						(30,041)
Consolidation adjustments and other						139,422						66,148
Reconciling items sub-total						1,870,669						2,837,026
Consolidated assets						$	5,287,699					$	5,834,475

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

11. 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, 2022 and December 31, 2021. See Note 12 for a description of the redemption of our 3.95% Senior Noted due 2022. The estimated fair value is based on recent market prices of similar transactions, which is classified as Level 2 within the fair value hirarchy.

						June 30, 2022						December 31, 2021
Estimated Fair Values:
3.95% Senior Notes due 2022						$	—					$	610,452
3.00% Senior Notes due 2030						774,531						942,192
Total						$	774,531					$	1,552,644
Carrying Values:
3.95% Senior Notes due 2022						$	—					$	599,553
3.00% Senior Notes due 2030						915,801						916,702
Total						$	915,801					$	1,516,255

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars 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, 2022, there were rate lock commitments to extend credit to borrowers aggregating $2,670,889 and open forward delivery contracts aggregating $2,766,048, 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, 2022, the fair value of loans held for sale of $335,624 included on the accompanying condensed consolidated balance sheet was decreased by $11,777 from the aggregate principal balance of $347,401. As of

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

December 31, 2021, the fair value of loans held for sale of $302,192 was increased by $4,296 from the aggregate principal balance of $297,896.

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

						June 30, 2022						December 31, 2021
Rate lock commitments:
Gross assets						$	48,491					$	15,949
Gross liabilities						38,064						1,790
Net rate lock commitments						$	10,427					$	14,159
Forward sales contracts:
Gross assets						$	14,323					$	708
Gross liabilities						12,166						926
Net forward sales contracts						$	2,157					$	(218)

As of June 30, 2022, 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, 2021, 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 as of June 30, 2022 was as follows:

						Notional or Principal Amount						Assumed Gain From Loan Sale						Interest Rate Movement Effect						Servicing Rights Value						Security Price Change						Total Fair Value Measurement
Rate lock commitments						$	2,670,889					$	8,756					$	(30,908)					$	32,579					$	—					$	10,427
Forward sales contracts						$	2,766,048					—						—						—						2,157						2,157
Mortgages held for sale						$	347,401					1,336						(17,686)						4,573						—						(11,777)
Total fair value measurement												$	10,092					$	(48,594)					$	37,152					$	2,157					$	807

The total fair value measurement as of December 31, 2021 was $18,237. NVRM recorded a fair value adjustment to expense of $27,540 and $17,430 for the three and six months ended June 30, 2022, respectively. NVRM recorded a fair value adjustment to income of $1,692 and $2,240 for the three and six months ended June 30, 2021, respectively. Unrealized gains/losses from the change in the fair value measurements are included in earnings as a component of mortgage banking fees in the accompanying condensed consolidated statements of income. The fair value measurement will be impacted in the future by the change in the value of the servicing rights, interest rate movements, security price fluctuations, and the volume and product mix of NVRM’s closed loans and locked loan commitments.

12. Debt

During the second quarter of 2022, we redeemed the outstanding $600,000 principal amount of 3.95% Senior Notes due September 15, 2022, at par, plus accrued interest.

As of June 30, 2022, we had the following debt instruments outstanding:

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

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

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 $14,200 was outstanding at June 30, 2022. The Credit Agreement termination date is February 12, 2026. There was no debt outstanding under the Facility at June 30, 2022.

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.

At June 30, 2022, there were no borrowing base limitations reducing the amount available under the Repurchase Agreement. There was no debt outstanding under the Repurchase Agreement at June 30, 2022.

Effective July 20, 2022, NVRM entered into The Second Amended and Restated Master Repurchase Agreement with U.S. Bank National Association, as Agent and a Buyer (the "Amended MRA"), which replaced the Repurchase Agreement in its entirety. The Amended MRA provides for loan purchases up to $150,000, subject to certain sub-limits. Advances under the Amended MRA bear interest at the secured overnight financing rate published by the Board of Governors of the Federal Reserve System ("SOFR") plus the SOFR Margin of 1.70%, per annum. All other terms and conditions of the Amended MRA are materially consistent with the Repurchase Agreement. The Amended MRA expires on July 19, 2023.

13. 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.

14. 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 ROU assets and finance lease liabilities were $14,364 and $15,413, respectively, as of June 30, 2022, and $14,578 and $15,413, respectively, as of December 31, 2021. Our leases have remaining lease terms of up to 18.2 years, some of which include options to extend the lease 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.

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

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 June 30,												Six Months Ended June 30,
						2022						2021						2022						2021
Lease expense
Operating lease expense						$	8,529					$	7,911					$	16,630					$	15,488
Finance lease expense:
Amortization of ROU assets						473						445						937						888
Interest on lease liabilities						103						108						207						217
Short-term lease expense						6,491						5,861						12,823						11,751
Total lease expense						$	15,596					$	14,325					$	30,597					$	28,344

Other information related to leases was as follows:

						Three Months Ended June 30,												Six Months Ended June 30,
						2022						2021						2022						2021
Supplemental Cash Flows Information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases						$	6,935					$	6,878					$	14,104					$	13,688
Operating cash flows from finance leases						103						108						207						217
Financing cash flows from finance leases						367						331						723						661
ROU assets obtained in exchange for lease obligations:
Operating leases						$	18,073					$	16,558					$	23,886					$	19,571
Finance leases						$	451					$	—					$	723					$	89
																		June 30, 2022						December 31, 2021
Weighted-average remaining lease term (in years):
Operating leases																		6.2						6.3
Finance leases																		11.2						11.7
Weighted-average discount rate:
Operating leases																		3.1		%				3.0		%
Finance leases																		2.8		%				2.8		%

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

15. Income Taxes

Our effective tax rate for the three and six months ended June 30, 2022 was 24.5% and 24.6%, respectively, compared to 23.0% and 21.9% for the three and six months ended June 30, 2021, respectively. The increase in the effective tax rate in the three and six month periods of 2022 compared to the same periods in 2021 was primarily attributable to a lower income tax benefit recognized for excess tax benefits from stock option exercises, which totaled $8,744 and $17,190 for the three and six months ended June 30, 2022, respectively, and $11,213 and $28,590 for the three and six months ended June 30, 2021, respectively.