filings.toolsItem 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands, except per share data)
Forward-Looking Statements
Some of the statements in this Quarterly Report on Form 10-Q, as well as statements made by us in periodic press releases or other public communications, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Certain, but not necessarily all, of such forward-looking statements can be identified by the use of forward-looking terminology, such as “believes,” “expects,” “may,” “will,” “should” or “anticipates” or the negative thereof or other comparable terminology. All statements other than of historical facts are forward-looking statements. Forward-looking statements contained in this document may include those regarding market trends, our financial position and financial results, business strategy, the impact of the COVID-19 pandemic on our business and customers, supply chain disruptions, the outcome of pending litigation, investigations or similar contingencies, projected plans and objectives of management for future operations. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results or performance to be materially different from future results, performance or achievements expressed or implied by the forward-looking statements. Such risk factors include, but are not limited to the following: the economic impact of COVID-19 and related supply chain disruption; general economic and business conditions (on both a national and regional level); interest rate changes; access to suitable financing by us and our customers; increased regulation in the mortgage banking industry; the ability of our mortgage banking subsidiary to sell loans it originates into the secondary market; competition; the availability and cost of land and other raw materials used by us in our homebuilding operations; shortages of labor; weather related slow-downs; building moratoriums; governmental regulation; fluctuation and volatility of stock and other financial markets; mortgage financing availability; and other factors over which we have little or no control. We undertake no obligation to update such forward-looking statements except as required by law. For additional information regarding risk factors, see Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Unless the context otherwise requires, references to “NVR,” “we,” “us,” or “our” include NVR and its consolidated subsidiaries.
Results of Operations for the Three and Six Months Ended June 30, 2022 and 2021
Business Environment and Current Outlook
During the second quarter of 2022, we began to experience a rapid decline in demand for new homes. Home affordability during the second quarter was negatively impacted by rising mortgage interest rates and higher home prices. In addition to affordability issues, current market conditions including a high rate of inflation and the possibility of a recession have contributed to lower consumer confidence levels. We also continue to face higher costs for certain materials and labor as strong demand in prior quarters has resulted in increased construction activity and demand for building materials and contractor labor. These factors along with the ongoing effects of the COVID-19 pandemic have led to supply chain disruptions and longer construction cycle times. We expect to continue to face these disruptions throughout 2022, and we continue to work closely with our suppliers and trade partners to manage these disruptions.
We expect that demand for new homes may continue to be negatively impacted by lower consumer confidence, affordability issues, high inflation and the possibility of a recession. We also expect to continue to face cost pressures related to building materials, labor and land costs, which will impact profit margins based on our ability to manage these costs while balancing sales pace and pricing. Although we are unable to predict the extent to which this will impact our operational and financial performance, we believe that we are well positioned to take advantage of opportunities that may arise from future economic and homebuilding market volatility due to the strength of our balance sheet and our disciplined lot acquisition strategy.
Business
Our primary business is the construction and sale of single-family detached homes, townhomes and condominiums, all of which are primarily constructed on a pre-sold basis. To fully serve customers of our homebuilding operations, we also operate a mortgage banking and title services business. We primarily conduct our operations in mature markets. Additionally, we generally grow our business through market share gains in our existing markets and by expanding into markets contiguous to our current active markets. Our four homebuilding reportable segments consist of the following regions:
| 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 |
Our lot acquisition strategy is predicated upon avoiding the financial requirements and risks associated with direct land ownership and development. We generally do not engage in land development (see discussion below of our land development activities). Instead, we typically acquire finished building lots from various third party land developers pursuant to fixed price finished lot purchase agreements (“LPAs”). These LPAs require deposits, typically ranging up to 10% of the aggregate purchase price of the finished lots, in the form of cash or letters of credit that may be forfeited if we fail to perform under the LPA. This strategy has allowed us to maximize inventory turnover, which we believe enables us to minimize market risk and to operate with less capital, thereby enhancing rates of return on equity and total capital.
In addition to constructing homes primarily on a pre-sold basis and utilizing what we believe is a conservative lot acquisition strategy, we focus on obtaining and maintaining a leading market position in each market we serve. This strategy allows us to gain valuable efficiencies and competitive advantages in our markets, which we believe contributes to minimizing the adverse effects of regional economic cycles and provides growth opportunities within these markets. Our continued success is contingent upon our ability to control an adequate supply of finished lots on which to build.
In certain specific strategic circumstances, we deviate from our historical lot acquisition strategy and engage in joint venture arrangements with land developers or directly acquire raw ground already zoned for its intended use for development. Once we acquire control of raw ground, we determine whether to sell the raw parcel to a developer and enter into an LPA with the developer to purchase the finished lots or to hire a developer to develop the land on our behalf. While joint venture arrangements and direct land development activity are not our preferred method of acquiring finished building lots, we may enter into additional transactions in the future on a limited basis where there exists a compelling strategic or prudent financial reason to do so. We expect, however, to continue to acquire substantially all our finished lot inventory using LPAs with forfeitable deposits.
As of June 30, 2022, we controlled approximately 133,200 lots as described below.
Lot Purchase Agreements
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. Included in the number of controlled lots are approximately 4,400 lots for which we have recorded a contract land deposit impairment reserve of approximately $23,500 as of June 30, 2022.
Joint Venture Limited Liability Corporations (“JVs”)
We had an aggregate investment totaling approximately $30,000 in five JVs, expected to produce approximately 5,400 lots. Of the lots to be produced by the JVs, approximately 5,050 lots were controlled by us and approximately 350 were either under contract with unrelated parties or currently not under contract. We had additional funding commitments totaling approximately $2,000 to one of the JVs at June 30, 2022.
Land Under Development
We owned land with a carrying value of approximately $16,300 that we intend to develop into approximately 450 finished lots. We had 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.
See Notes 2, 3 and 4 to the condensed consolidated financial statements included herein for additional information regarding LPAs, JVs and land under development, respectively.
Raw Land Purchase Agreements
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. As of June 30, 2022, these properties are controlled with deposits in cash totaling approximately $6,500, 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.
Key Financial Results
Our consolidated revenues for the second quarter of 2022 totaled $2,658,943, a 16% increase from the second quarter of 2021. Net income for the second quarter ended June 30, 2022 was $433,314, or $123.65 per diluted share, increases of 35% and 50% when compared to net income and diluted earnings per share in the second quarter of 2021, respectively. Our homebuilding gross profit margin percentage increased to 26.3% in the second quarter of 2022 from 22.6% in the second quarter of 2021. New orders, net of cancellations (“New Orders”) decreased by 16% in the second quarter of 2022 compared to the second quarter of 2021. The average sales price for New Orders in the second quarter of 2022 was $471.6, an increase of 7% compared to the second quarter of 2021.
Homebuilding Operations
The following table summarizes the results of operations and other data for our homebuilding operations:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Financial Data: | ||||||||||||||||||||||||||
| Revenues | $ | 2,610,062 | $ | 2,224,560 | $ | 4,919,289 | $ | 4,188,271 | ||||||||||||||||||
| Cost of sales | $ | 1,924,727 | $ | 1,721,673 | $ | 3,576,092 | $ | 3,299,126 | ||||||||||||||||||
| Gross profit margin percentage | 26.3 | % | 22.6 | % | 27.3 | % | 21.2 | % | ||||||||||||||||||
| Selling, general and administrative expenses | $ | 132,432 | $ | 113,406 | $ | 261,942 | $ | 234,825 | ||||||||||||||||||
| Operating Data: | ||||||||||||||||||||||||||
| New orders (units) | 4,663 | 5,521 | 10,590 | 11,835 | ||||||||||||||||||||||
| Average new order price | $ | 471.6 | $ | 440.2 | $ | 468.3 | $ | 424.4 | ||||||||||||||||||
| Settlements (units) | 5,820 | 5,685 | 11,034 | 10,757 | ||||||||||||||||||||||
| Average settlement price | $ | 448.4 | $ | 391.3 | $ | 445.8 | $ | 389.3 | ||||||||||||||||||
| Backlog (units) | 12,286 | 12,627 | ||||||||||||||||||||||||
| Average backlog price | $ | 473.9 | $ | 428.5 | ||||||||||||||||||||||
| New order cancellation rate | 14.3 | % | 8.3 | % | 12.1 | % | 9.0 | % |
Consolidated Homebuilding - Three Months Ended June 30, 2022 and 2021
Homebuilding revenues increased 17% in the second quarter of 2022 compared to the same period in 2021, as a result of a 2% increase in settlements and a 15% increase in the average settlement price. The increase in settlements was attributable to a 5% higher backlog unit balance entering the second quarter of 2022 compared to the same period in 2021, offset partially by a lower backlog turnover rate quarter over quarter attributable in part to the impact of supply chain issues on our construction cycle times. The increase in the average settlement price was
primarily attributable to a 14% higher average sales price of units in backlog entering the second quarter of 2022 compared to the same period of 2021.
Gross profit margin percentage in the second quarter of 2022 increased to 26.3%, from 22.6% in the second quarter of 2021. Gross profit margins were favorably impacted by the increase in the average settlement price attributable to improved pricing power in prior quarters, offset partially by higher material and labor costs.
New Orders decreased 16% while the average sales price of New Orders increased 7% in the second quarter of 2022 compared to the second quarter of 2021. New Orders were negatively impacted by a significant increase in mortgage interest rates during the quarter, which resulted in a decline in affordability and in turn, led to lower absorption rates quarter over quarter. Additionally, New Orders were negatively impacted by an increase in the cancellation rate in the second quarter of 2022 compared to the same period in 2021. The increase in the average sales price of New Orders was primarily attributable to significant price appreciation resulting from strong demand in prior quarters.
Selling, general and administrative (“SG&A”) expense in the second quarter of 2022 increased by approximately $19,000 compared to the second quarter of 2021, but as a percentage of revenue remained flat at 5.1% in each quarter. The increase in SG&A expense was due primarily to a $10,100 increase in personnel costs attributable to both increased headcount and to a $7,800 increase in equity-based compensation. The increase in equity-based compensation was due to a block grant of non-qualified stock options ("Options") and restricted share units ("RSUs") in the second quarter of 2022 to key management employees and directors, as further discussed in Note 7 in the accompanying condensed consolidated financial statements.
Consolidated Homebuilding - Six Months Ended June 30, 2022 and 2021
Homebuilding revenues increased 17% in the first six months of 2022 compared to the same period in 2021, as a result of a 3% increase in settlements and a 15% increase in the average settlement price. The increase in settlements was attributable to a 10% higher backlog unit balance entering 2022 compared to the same period in 2021, offset partially by a lower backlog turnover rate year over year attributable in part to the impact of supply chain issues on our construction cycle times. The increase in the average settlement price was primarily attributable to a 15% higher average sales price of units in backlog entering 2022 compared to the same period of 2021.
Gross profit margin percentage in the first six months of 2022 increased to 27.3%, from 21.2% in the first six months of 2021. Gross profit margins were favorably impacted by the increase in the average settlement price attributable to improved pricing power in prior quarters, offset partially by higher material and labor costs year over year.
New Orders decreased 11% while the average sales price of New Orders increased 10% in the first six months of 2022 compared to the same period in 2021. New Orders were negatively impacted by a 6% decrease in the average number of active communities year over year. Additionally, the significant increase in mortgage interest rates during the first six months of 2022 resulted in a decline in affordability and in turn, led to lower absorption rates year over year. The increase in the average sales price of New Orders was primarily attributable to significant price appreciation resulting from strong demand in prior quarters.
SG&A expense in the first six months of 2022 increased by approximately $27,100 compared to the same period in 2021, but as a percentage of revenue decreased to 5.3% in 2022 from 5.6% in 2021 due to improved leveraging of SG&A costs. The increase in SG&A expense was due primarily to an increase of approximately $18,200 in personnel costs attributable to both increased headcount and to an increase of approximately $5,300 in equity-based compensation. As noted in the quarterly SG&A discussion above, the increase in equity-based compensation was due to a block grant of Options and RSUs in the second quarter of 2022.
Our backlog represents homes sold but not yet settled with our customers. As of June 30, 2022, our backlog decreased on a unit basis by 3% to 12,286 units and increased on a dollar basis by 8% to $5,821,745 when compared to 12,627 units and $5,410,376, respectively, as of June 30, 2021. The decrease in backlog units was primarily attributable to an 11% decrease in New Orders in the six-month period ended June 30, 2022 compared to the same period in 2021. Backlog dollars were higher due primarily to a 10% increase in the average sales price of New Orders during the six-month period ended June 30, 2022 compared to the same period in 2021.
Our backlog may be impacted by customer cancellations for various reasons that are beyond our control, such as failure to obtain mortgage financing, inability to sell an existing home, job loss, or a variety of other reasons. In any period, a portion of the cancellations that we experience are related to new sales that occurred during the same period, and a portion are related to sales that occurred in prior periods and therefore appeared in the opening backlog for the current period. Calculated as the total of all cancellations during the period as a percentage of gross sales during that same period, our cancellation rate was approximately 12% and 9% in the first six months of 2022 and 2021, respectively. During the most recent four quarters, approximately 3% of a reporting quarter’s opening backlog cancelled during the fiscal quarter. We can provide no assurance that our historical cancellation rates are indicative of the actual cancellation rate that may occur during the remainder of 2022 or future years. Other than those units that are cancelled, and subject to potential construction delays resulting from continued supply chain and/or COVID-19 related disruptions, we expect to settle substantially all of our June 30, 2022 backlog within the next twelve months.
The backlog turnover rate is impacted by various factors, including, but not limited to, changes in New Order activity, internal production capacity, external subcontractor capacity, building material supply chain disruptions and other external factors over which we do not exercise control.
Reportable Segments
Homebuilding segment profit includes all revenues and income generated from the sale of homes, less the cost of homes sold, SG&A expenses, and a corporate capital allocation charge determined by corporate management. The corporate capital allocation charge eliminates 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 to determine whether the operating segment is providing the desired rate of return after covering our cost of capital.
We record charges on contract land deposits when we determine 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. We evaluate our entire net contract land deposit portfolio for impairment each quarter. For presentation purposes below, the contract land deposit reserve at June 30, 2022 and December 31, 2021 has been allocated to the respective year’s reportable segments to show contract land deposits on a net basis. The net contract land deposit balances below also include approximately $8,100 and $10,100 at June 30, 2022 and December 31, 2021, respectively, of letters of credit issued as deposits in lieu of cash.
The following tables summarize certain homebuilding operating activity by reportable segment for the three and six months ended June 30, 2022 and 2021.
Selected Segment Financial Data:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||
| Mid Atlantic | $ | 1,208,312 | $ | 1,048,416 | $ | 2,350,020 | $ | 1,984,556 | ||||||||||||||||||
| North East | 237,394 | 193,245 | 412,945 | 355,438 | ||||||||||||||||||||||
| Mid East | 521,038 | 478,179 | 982,442 | 903,132 | ||||||||||||||||||||||
| South East | 643,318 | 504,720 | 1,173,882 | 945,145 |
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Gross profit margin: | ||||||||||||||||||||||||||
| Mid Atlantic | $ | 323,986 | $ | 235,944 | $ | 642,200 | $ | 427,246 | ||||||||||||||||||
| North East | 59,162 | 36,090 | 100,866 | 65,037 | ||||||||||||||||||||||
| Mid East | 115,849 | 89,702 | 217,256 | 167,206 | ||||||||||||||||||||||
| South East | 194,236 | 112,859 | 346,335 | 202,589 |
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Gross profit margin percentage: | ||||||||||||||||||||||||||
| Mid Atlantic | 26.8 | % | 22.5 | % | 27.3 | % | 21.5 | % | ||||||||||||||||||
| North East | 24.9 | % | 18.7 | % | 24.4 | % | 18.3 | % | ||||||||||||||||||
| Mid East | 22.2 | % | 18.8 | % | 22.1 | % | 18.5 | % | ||||||||||||||||||
| South East | 30.2 | % | 22.4 | % | 29.5 | % | 21.4 | % |
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Segment profit: | ||||||||||||||||||||||||||
| Mid Atlantic | $ | 251,739 | $ | 174,481 | $ | 501,520 | $ | 303,548 | ||||||||||||||||||
| North East | 41,297 | 21,510 | 67,225 | 36,737 | ||||||||||||||||||||||
| Mid East | 82,512 | 59,887 | 153,695 | 108,828 | ||||||||||||||||||||||
| South East | 150,822 | 78,919 | 264,276 | 135,584 |
Operating Activity:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
| Units | Average Price | Units | Average Price | Units | Average Price | Units | Average Price | |||||||||||||||||||||||||||||||||||||||||||
| New orders, net of cancellations: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Mid Atlantic | 1,860 | $ | 535.1 | 2,090 | $ | 535.4 | 4,167 | $ | 531.8 | 4,381 | $ | 518.1 | ||||||||||||||||||||||||||||||||||||||
| North East | 441 | $ | 503.7 | 394 | $ | 499.3 | 901 | $ | 513.5 | 834 | $ | 486.3 | ||||||||||||||||||||||||||||||||||||||
| Mid East | 1,114 | $ | 410.5 | 1,320 | $ | 375.7 | 2,648 | $ | 403.6 | 3,115 | $ | 361.1 | ||||||||||||||||||||||||||||||||||||||
| South East | 1,248 | $ | 420.0 | 1,717 | $ | 360.3 | 2,874 | $ | 421.6 | 3,505 | $ | 348.7 | ||||||||||||||||||||||||||||||||||||||
| Total | 4,663 | $ | 471.6 | 5,521 | $ | 440.2 | 10,590 | $ | 468.3 | 11,835 | $ | 424.4 |
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
| Units | Average Price | Units | Average Price | Units | Average Price | Units | Average Price | |||||||||||||||||||||||||||||||||||||||||||
| Settlements: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Mid Atlantic | 2,292 | $ | 527.1 | 2,224 | $ | 471.4 | 4,472 | $ | 525.5 | 4,234 | $ | 468.7 | ||||||||||||||||||||||||||||||||||||||
| North East | 472 | $ | 503.0 | 433 | $ | 446.3 | 820 | $ | 503.6 | 805 | $ | 441.5 | ||||||||||||||||||||||||||||||||||||||
| Mid East | 1,356 | $ | 384.2 | 1,404 | $ | 340.6 | 2,566 | $ | 382.8 | 2,667 | $ | 338.6 | ||||||||||||||||||||||||||||||||||||||
| South East | 1,700 | $ | 378.4 | 1,624 | $ | 310.7 | 3,176 | $ | 369.6 | 3,051 | $ | 309.8 | ||||||||||||||||||||||||||||||||||||||
| Total | 5,820 | $ | 448.4 | 5,685 | $ | 391.3 | 11,034 | $ | 445.8 | 10,757 | $ | 389.3 |
| As of June 30, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Units | Average Price | Units | Average Price | ||||||||||||||||||||
| Backlog: | |||||||||||||||||||||||
| Mid Atlantic | 4,613 | $ | 541.1 | 4,626 | $ | 517.7 | |||||||||||||||||
| North East | 1,050 | $ | 519.3 | 979 | $ | 485.7 | |||||||||||||||||
| Mid East | 3,109 | $ | 399.0 | 3,322 | $ | 364.8 | |||||||||||||||||
| South East | 3,514 | $ | 438.2 | 3,700 | $ | 359.0 | |||||||||||||||||
| Total | 12,286 | $ | 473.9 | 12,627 | $ | 428.5 |
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| New order cancellation rate: | ||||||||||||||||||||||||||
| Mid Atlantic | 15.2 | % | 7.8 | % | 12.5 | % | 8.7 | % | ||||||||||||||||||
| North East | 9.8 | % | 6.6 | % | 9.0 | % | 8.9 | % | ||||||||||||||||||
| Mid East | 17.0 | % | 10.4 | % | 14.1 | % | 9.3 | % | ||||||||||||||||||
| South East | 11.7 | % | 7.5 | % | 10.5 | % | 9.2 | % |
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Average active communities: | ||||||||||||||||||||||||||
| Mid Atlantic | 155 | 153 | 153 | 156 | ||||||||||||||||||||||
| North East | 38 | 32 | 36 | 33 | ||||||||||||||||||||||
| Mid East | 121 | 126 | 125 | 133 | ||||||||||||||||||||||
| South East | 92 | 109 | 91 | 110 | ||||||||||||||||||||||
| Total | 406 | 420 | 405 | 432 |
Homebuilding Inventory:
| June 30, 2022 | December 31, 2021 | |||||||||||||
| Sold inventory: | ||||||||||||||
| Mid Atlantic | $ | 945,903 | $ | 867,892 | ||||||||||
| North East | 197,451 | 154,053 | ||||||||||||
| Mid East | 425,800 | 342,011 | ||||||||||||
| South East | 540,641 | 439,892 | ||||||||||||
| Total (1) | $ | 2,109,795 | $ | 1,803,848 |
| June 30, 2022 | December 31, 2021 | |||||||||||||
| Unsold lots and housing units inventory: | ||||||||||||||
| Mid Atlantic | $ | 114,633 | $ | 87,412 | ||||||||||
| North East | 18,007 | 14,656 | ||||||||||||
| Mid East | 17,822 | 12,892 | ||||||||||||
| South East | 25,488 | 14,193 | ||||||||||||
| Total (1) | $ | 175,950 | $ | 129,153 |
(1) The reconciling items between segment inventory and consolidated inventory include certain consolidation adjustments 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. These consolidation adjustments are not allocated to our operating segments.
Lots Controlled and Land Deposits:
| June 30, 2022 | December 31, 2021 | |||||||||||||
| Total lots controlled: | ||||||||||||||
| Mid Atlantic | 48,900 | 47,900 | ||||||||||||
| North East | 11,600 | 11,900 | ||||||||||||
| Mid East | 23,700 | 23,700 | ||||||||||||
| South East | 49,000 | 41,400 | ||||||||||||
| Total | 133,200 | 124,900 |
| June 30, 2022 | December 31, 2021 | |||||||||||||
| Contract land deposits, net: | ||||||||||||||
| Mid Atlantic | $ | 247,884 | $ | 257,244 | ||||||||||
| North East | 56,289 | 51,257 | ||||||||||||
| Mid East | 53,815 | 52,537 | ||||||||||||
| South East | 174,487 | 146,246 | ||||||||||||
| Total | $ | 532,475 | $ | 507,284 |
Mid Atlantic
Three Months Ended June 30, 2022 and 2021
The Mid Atlantic segment had an approximate $77,300, or 44%, increase in segment profit in the second quarter of 2022 compared to the second quarter of 2021. The increase in segment profit was driven by an increase in segment revenues of approximately $159,900, or 15%, coupled with an increase in gross profit margins. Segment revenues increased due to increases in settlements and the average settlement price of 3% and 12%, respectively. The increases in settlements and the average settlement price were primarily attributable to a 6% higher backlog unit balance and a 10% higher average sales price of units in backlog entering the second quarter of 2022 compared to backlog entering the second quarter of 2021. The Mid Atlantic segment’s gross profit margin percentage increased to 26.8% in the second quarter of 2022 from 22.5% in the second quarter of 2021. Gross profit margins were favorably impacted primarily by the aforementioned 12% increase in the average settlement price, offset partially by higher material and labor costs quarter over quarter.
Segment New Orders decreased 11% in the second quarter of 2022 compared to the second quarter of 2021. The average sales price of New Orders was flat quarter over quarter. New Orders were negatively impacted by a significant increase in mortgage interest rates during the quarter which resulted in a decline in affordability and in turn, led to lower absorption rates quarter over quarter. Additionally, New Orders were negatively impacted by an increase in the segment's cancellation rate in the second quarter of 2022 compared to the same period in 2021.
Six Months Ended June 30, 2022 and 2021
The Mid Atlantic segment had an approximate $198,000, or 65%, increase in segment profit in the first six months of 2022 compared to the first six months of 2021. The increase in segment profit was driven by an increase in segment revenues of approximately $365,500, or 18%, coupled with an increase in gross profit margins. Segment revenues increased due to increases in settlements and the average settlement price of 6% and 12%, respectively. The increases in settlements and the average settlement price were primarily attributable to a 10% higher backlog unit balance and a 14% higher average sales price of units in backlog entering 2022 compared to backlog entering 2021. The Mid Atlantic segment’s gross profit margin percentage increased to 27.3% in the first six months of 2022 from 21.5% in the first six months of 2021. Gross profit margins were favorably impacted primarily by the aforementioned 12% increase in the average settlement price, offset partially by higher material and labor costs period over period.
Segment New Orders decreased 5% in the first six months of 2022 compared to the first six months of 2021. The average sales price of New Orders increased 3% in the first six months of 2022 compared to the first six months
of 2021. New Orders were negatively impacted by the significant increase in mortgage interest rates during the first six months of 2022 resulting in a decline in affordability and in turn, led to lower absorption rates year over year. The increase in the average sales price of New Orders was attributable to significant price appreciation resulting from strong demand in prior quarters.
North East
Three Months Ended June 30, 2022 and 2021
The North East segment had an approximate $19,800, or 92%, increase in segment profit in the second quarter of 2022 compared to the second quarter of 2021, due primarily to an increase in segment revenues of approximately $44,100, or 23%, coupled with an increase in gross profit margins. Segment revenues increased due to increases in settlements and the average settlement price of 9% and 13%, respectively. The increase in settlements was attributable to a 6% higher backlog unit balance entering the second quarter of 2022 compared to backlog entering the second quarter of 2021, coupled with a higher backlog turnover rate quarter over quarter. The increase in the average settlement price was primarily attributable to a 12% higher average sales price of units in backlog entering the second quarter of 2022 compared to backlog entering the second quarter of 2021. The segment’s gross profit margin percentage increased to 24.9% in the second quarter of 2022 from 18.7% in the second quarter of 2021. Gross profit margins were favorably impacted primarily by the aforementioned 13% increase in the average settlement price quarter over quarter, offset partially by higher material and labor costs quarter over quarter.
Segment New Orders and the average sales price of New Orders increased 12% and 1%, respectively, in the second quarter of 2022 compared to the second quarter of 2021. The increase in New Orders was primarily attributable to a 16% increase in the average number of active communities, offset partially by lower absorption rates quarter over quarter.
Six Months Ended June 30, 2022 and 2021
The North East segment had an approximate $30,500, or 83%, increase in segment profit in the first six months of 2022 compared to the first six months of 2021, due primarily to an increase in segment revenues of approximately $57,500, or 16%, coupled with an increase in gross profit margins. Segment revenues increased due to increases in settlements and the average settlement price of 2% and 14%, respectively. The increases in settlements and the average settlement price were primarily attributable to a 2% higher backlog unit balance and a 14% higher average sales price of units in backlog entering 2022 compared to backlog entering 2021. The segment’s gross profit margin percentage increased to 24.4% in the first six months of 2022 from 18.3% in the first six months of 2021. Gross profit margins were favorably impacted primarily by the aforementioned 14% increase in the average settlement price, offset partially by higher material and labor costs period over period.
Segment New Orders and the average sales price of New Orders increased 8% and 6%, respectively, in the first six months of 2022 compared to the first six months of 2021. The increase in New Orders was primarily attributable to a 7% increase in the average number of active communities quarter over quarter. The increase in the average sales price of New Orders was primarily attributable to significant price appreciation resulting from strong demand in prior quarters.
Mid East
Three Months Ended June 30, 2022 and 2021
The Mid East segment had an approximate $22,600, or 38%, increase in segment profit in the second quarter of 2022 compared to the second quarter of 2021, due primarily to an increase in segment revenues of approximately $42,900, or 9%, coupled with an increase in gross profit margins. Segment revenues increased due to a 13% increase in the average settlement price, offset partially by a 3% decrease in settlements. The increase in the average settlement price was primarily attributable to an 11% higher average sales price of units in backlog entering the second quarter of 2022 compared to same period in 2021. The decrease in settlements was attributable to a 4% lower backlog unit balance entering the second quarter of 2022 compared to the same period in 2021. The segment's gross profit margin percentage increased to 22.2% in the second quarter of 2022 from 18.8% in the
second quarter of 2021. Gross profit margins were favorably impacted primarily by the aforementioned 13% increase in the average settlement price, offset partially by higher material and labor costs quarter over quarter.
Segment New Orders decreased 16% in the second quarter of 2022 compared to the second quarter of 2021, while the average sales price of New Orders increased 9%. New Orders were negatively impacted by a significant increase in mortgage interest rates during the quarter which resulted in a decline in affordability and in turn, led to lower absorption rates and an increase in the segment's cancellation rate quarter over quarter. Additionally, New Orders were negatively impacted by a 3% decrease in average number of active communities quarter over quarter. The increase in the average sales price of New Orders was primarily attributable to significant price appreciation resulting from strong demand in prior quarters.
Six Months Ended June 30, 2022 and 2021
The Mid East segment had an approximate $44,900, or 41%, increase in segment profit in the first six months of 2022 compared to the first six months of 2021, due primarily to an increase in segment revenues of approximately $79,300, or 9%, coupled with an increase in gross profit margins. Segment revenues increased due to a 13% increase in the average settlement price, offset partially by a 4% decrease in settlements year over year. The increase in the average settlement price was primarily attributable to an 11% higher average sales price of units in backlog entering 2022 compared to backlog entering 2021. The decrease in settlements was attributable to a lower backlog turnover rate due in part to the impact of supply chain issues on our construction cycle times. The segment's gross profit margin percentage increased to 22.1% in the first six months of 2022 from 18.5% in the first six months of 2021. Gross profit margins were favorably impacted primarily by the aforementioned 13% increase in the average settlement price, offset partially by higher material and labor costs period over period.
Segment New Orders decreased 15% in the first six months of 2022 compared to the first six months of 2021, while the average sales price of New Orders increased 12%. New Orders were negatively impacted by a significant increase in mortgage interest rates during the first six months of 2022 which resulted in a decline in affordability and in turn, lower absorption rates and an increase in the segment's cancellation rate year over year. Additionally, New Orders were negatively impacted by a 6% decrease in average number of active communities year over year. The increase in the average sales price of New Orders was primarily attributable to significant price appreciation resulting from strong demand in prior quarters.
South East
Three Months Ended June 30, 2022 and 2021
The South East segment had an approximate $71,900, or 91%, increase in segment profit in the second quarter of 2022 compared to the second quarter of 2021. The increase in segment profit was primarily driven by an increase in segment revenues of approximately $138,600, or 27%, coupled with an increase in gross profit margins. The increase in revenues was attributable to a 5% increase in settlements and a 22% increase in the average settlement price quarter over quarter. The increase in settlements was attributable to a 10% higher backlog unit balance entering the second quarter of 2022 compared to the backlog unit balance entering the second quarter of 2021, offset by a lower backlog turnover rate attributable in part to the impact of supply chain issues on our construction cycle times. The increase in the average settlement price was primarily attributable to a 24% higher average sales price of units in backlog entering the second quarter of 2022 compared to backlog entering the second quarter of 2021. The segment’s gross profit margin percentage increased to 30.2% in the second quarter of 2022 from 22.4% in the second quarter of 2021. Gross profit margins were favorably impacted primarily by the aforementioned 22% increase in the average settlement price, offset partially by higher material and labor costs quarter over quarter.
Segment New Orders decreased 27% in the second quarter of 2022 compared to the second quarter of 2021, while the average sales price of New Orders increased 17% in the second quarter of 2022. The decrease in New Orders was primarily attributable to a 16% decrease in average number of active communities quarter over quarter. Additionally, New Orders were negatively impacted by a significant increase in mortgage interest rates during the second quarter of 2022 which resulted in a decline in affordability and led to lower absorption rates and an increase in the segment's cancellation rate quarter over quarter. The increase in the average sales price of New Orders was primarily attributable to significant price appreciation resulting from strong demand in prior quarters.
Six Months Ended June 30, 2022 and 2021
The South East segment had an approximate $128,700, or 95%, increase in segment profit in the first six months of 2022 compared to the first six months of 2021. The increase in segment profit was driven by an increase in segment revenues of approximately $228,700, or 24%, year over year. Segment revenues increased due to increases in settlements and the average settlement price of 4% and 19%, respectively, year over year. The increase in settlements was attributable to an 18% higher backlog unit balance entering 2022 compared to the backlog unit balance entering 2021, offset partially by a lower backlog turnover rate year over year due in part to the impact of supply chain issues on our construction cycle times. The increase in the average settlement price was primarily attributable to a 22% higher average sales price of units in backlog entering 2022 compared to backlog entering 2021. The segment’s gross profit margin percentage increased to 29.5% in the first six months of 2022 from 21.4% in the first six months of 2021. Gross profit margins were favorably impacted by the aforementioned 19% increase in the average settlement price, offset partially by higher material and labor costs period over period.
Segment New Orders decreased 18% in the first six months of 2022 compared to the first six months of 2021, while the average sales price of New Orders increased 21% year over year. The decrease in New Orders was primarily attributable to a 17% decrease in the average number of active communities. The average sales price of New Orders increased 21% in the first six months of 2022 compared to the first six months of 2021 due primarily to significant price appreciation resulting from strong demand in prior quarters.
Homebuilding Segment Reconciliations to Consolidated Homebuilding Operations
In addition to the corporate capital allocation and contract land deposit impairments discussed above, the other reconciling items between homebuilding segment profit and homebuilding consolidated income before tax include unallocated corporate overhead (which includes 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 the costs are not allocated to our operating segments. Consolidation adjustments consist of such items 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 Senior Notes, and is not charged to the operating segments because the charges are included in the corporate capital allocation discussed above.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Homebuilding consolidated gross profit: | ||||||||||||||||||||||||||
| Mid Atlantic | $ | 323,986 | $ | 235,944 | $ | 642,200 | $ | 427,246 | ||||||||||||||||||
| North East | 59,162 | 36,090 | 100,866 | 65,037 | ||||||||||||||||||||||
| Mid East | 115,849 | 89,702 | 217,256 | 167,206 | ||||||||||||||||||||||
| South East | 194,236 | 112,859 | 346,335 | 202,589 | ||||||||||||||||||||||
| Consolidation adjustments and other | (7,898) | 28,292 | 36,540 | 27,067 | ||||||||||||||||||||||
| Homebuilding consolidated gross profit | $ | 685,335 | $ | 502,887 | $ | 1,343,197 | $ | 889,145 |
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Homebuilding consolidated income before taxes: | ||||||||||||||||||||||||||
| Mid Atlantic | $ | 251,739 | $ | 174,481 | $ | 501,520 | $ | 303,548 | ||||||||||||||||||
| North East | 41,297 | 21,510 | 67,225 | 36,737 | ||||||||||||||||||||||
| Mid East | 82,512 | 59,887 | 153,695 | 108,828 | ||||||||||||||||||||||
| South East | 150,822 | 78,919 | 264,276 | 135,584 | ||||||||||||||||||||||
| Reconciling items: | ||||||||||||||||||||||||||
| Contract land deposit recoveries (1) | 419 | 7,178 | 6,345 | 13,374 | ||||||||||||||||||||||
| Equity-based compensation expense (2) | (20,352) | (12,209) | (30,972) | (25,705) | ||||||||||||||||||||||
| 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 | 18,577 | 43,466 | 75,118 | 46,985 | ||||||||||||||||||||||
| Homebuilding consolidated income before taxes | $ | 544,947 | $ | 378,263 | $ | 1,061,834 | $ | 631,682 | ||||||||||||||||||
(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 in the accompanying condensed consolidated financial statements.
(2)The increase in equity-based compensation expense for the three and six-month periods 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 in the accompanying condensed consolidated financial statements.
(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 is as follows for the periods presented:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Corporate capital allocation charge: | ||||||||||||||||||||||||||
| Mid Atlantic | $ | 37,121 | $ | 31,135 | $ | 71,208 | $ | 61,731 | ||||||||||||||||||
| North East | 8,158 | 6,457 | 15,245 | 12,495 | ||||||||||||||||||||||
| Mid East | 12,875 | 11,066 | 24,292 | 21,690 | ||||||||||||||||||||||
| 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 is 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 is 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 is 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.
Mortgage Banking Segment
Three and Six Months Ended June 30, 2022 and 2021
We conduct our mortgage banking activity through NVR Mortgage Finance, Inc. (“NVRM”), a wholly owned subsidiary. NVRM focuses exclusively on serving the homebuilding segment customer base. NVRM sells all of the mortgage loans it closes to investors in the secondary markets on a servicing-released basis, typically within 30 days from the loan closing. The following table summarizes the results of our mortgage banking operations and certain statistical data 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 | |||||||||||||||||||||||
| Loan closing volume: | ||||||||||||||||||||||||||
| Total principal | $ | 1,647,972 | $ | 1,565,095 | $ | 3,132,565 | $ | 2,977,974 | ||||||||||||||||||
| Loan volume mix: | ||||||||||||||||||||||||||
| Adjustable rate mortgages | 10 | % | 4 | % | 8 | % | 2 | % | ||||||||||||||||||
| Fixed-rate mortgages | 90 | % | 96 | % | 92 | % | 98 | % | ||||||||||||||||||
| Operating profit: | ||||||||||||||||||||||||||
| Segment profit | $ | 28,800 | $ | 40,372 | $ | 78,906 | $ | 99,934 | ||||||||||||||||||
| Equity-based compensation expense | 265 | (1,170) | (783) | (2,145) | ||||||||||||||||||||||
| Mortgage banking income before tax | $ | 29,065 | $ | 39,202 | $ | 78,123 | $ | 97,789 | ||||||||||||||||||
| Capture rate: | 84 | % | 89 | % | 85 | % | 89 | % | ||||||||||||||||||
| Mortgage banking fees: | ||||||||||||||||||||||||||
| Net gain on sale of loans | $ | 36,835 | $ | 47,602 | $ | 94,813 | $ | 115,152 | ||||||||||||||||||
| Title services | 11,997 | 11,235 | 23,173 | 21,232 | ||||||||||||||||||||||
| Servicing fees | 49 | 201 | 77 | 389 | ||||||||||||||||||||||
| $ | 48,881 | $ | 59,038 | $ | 118,063 | $ | 136,773 | |||||||||||||||||||
Loan closing volume for the three and six months ended June 30, 2022 increased by approximately $82,900, or 5%, and $154,000, or 5% from the same periods in 2021. The increase in loan closing volume during both the three and six months ended June 30, 2022 was primarily attributable to an 11% increase in the average loan balance for loans closed, resulting from a 15% increase in the homebuilding segment's average home settlement price in each period compared to the same periods in 2021. These increases were partially offset by a 5% decrease in number of loans closed in both periods, which was primarily attributable to the 5% and 4% decreases in the capture rate in the three and six month periods ended June 30, 2022, respectively, compared to the same periods in 2021.
Segment profit for the three and six months ended June 30, 2022 decreased by approximately $11,600, or 29%, and $21,000, or 21%, respectively, from the same periods in 2021. These decreases were primarily attributable to decreases of approximately $10,200, or 17%, and $18,700, or 14%, respectively, in mortgage banking fees, primarily due to decreases in gains on sales of loans.
Seasonality
We generally have higher New Order activity in the first half of the year and higher home settlements, revenue and net income in the second half of the year. However, our typical seasonal New Order and settlement trends have been affected since 2020 by the pandemic and supply chain disruptions.
Effective Tax Rate
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 the impact of the income tax benefit recognized related to excess tax benefits from stock option exercises totaling $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.
We expect to experience volatility in our effective tax rate in future quarters as the amount of the excess tax benefit from equity-based awards is dependent on our stock price when awards are exercised as well as on the timing of exercises, which historically has varied from quarter to quarter.
Liquidity and Capital Resources
We fund our operations primarily from our current cash holdings and cash flows generated by operating activities. In addition, we have available a short-term unsecured working capital revolving credit facility and revolving mortgage repurchase facility, as further described below. As of June 30, 2022, we had approximately $1,500,000 in cash and cash equivalents, approximately $285,800 in unused committed capacity under our revolving credit facility and $150,000 in unused committed capacity under our revolving mortgage repurchase facility.
Material Cash Requirements
We believe that our current cash holdings, cash generated from operations, and cash available under our short-term unsecured credit agreement and revolving mortgage repurchase facility, as well as the public debt and equity markets, will be sufficient to satisfy both our short term and long term cash requirements for working capital to support our daily operations and meet commitments under our contractual obligations with third parties. Our material contractual obligations primarily consist of the following:
(i) Payments due to service our debt and interest on that debt. In June 2022, we used cash holdings to redeem $600,000 in outstanding 3.95% Senior Notes set to mature in September 2022. The Senior Notes were redeemed at par, plus accrued interest. Future interest payments on our remaining outstanding senior notes total approximately $212,550, with approximately $27,000 due within the next twelve months.
(ii) Payment obligations totaling approximately $336,000 under existing LPAs for deposits to be paid to land developers, assuming that contractual development milestones are met by the developers and we exercise our option to acquire finished lots under those LPAs. We expect to make the majority of these payments within the next three years.
(iii) Obligations under operating and finance leases related primarily to office space and our production facilities. See Note 14 of this Form 10-Q for additional discussion of our leases.
In addition to funding growth in our homebuilding and mortgage banking operations, we historically have used a substantial portion of our excess liquidity to repurchase outstanding shares of our common stock in open market and privately negotiated transactions. This ongoing repurchase program assists us in accomplishing our primary objective, creating increases in shareholder value. See Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds, of this Form 10-Q for further discussion of repurchase activity during the second quarter of 2022. For the six months ended June 30, 2022, we repurchased 207,132 shares of our common stock at an aggregate purchase price of $1,015,703. As of June 30, 2022, we had approximately $492,300 available under Board approved repurchase authorizations.
Capital Resources
Senior Notes
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 a total of $900,000 in outstanding Senior Notes which mature in May 2030. The Senior Notes are senior unsecured obligations and rank equally in right of payment with any of our existing and future unsecured senior indebtedness, will rank senior in right of payment to any of our future indebtedness that is by its terms expressly subordinated to the Senior Notes and will be effectively subordinated to any of our existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness. The indenture governing the Senior Notes does not contain any financial covenants; however, it does contain, among other items, and subject to certain exceptions, covenants that restrict our ability to create, incur, assume or guarantee secured debt, enter into sale and leaseback transactions and conditions related to mergers and/or the sale of assets. We were in compliance with all covenants under the Senior Notes at June 30, 2022.
Credit Agreement
We have an unsecured revolving credit agreement (the "Credit Agreement") with a group of lenders which may be used for working capital and general corporate purposes. The Credit Agreement 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. In addition, the Credit Agreement provides for a $100,000 sublimit for the issuance of letters of credit of which there was approximately $14,200 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's revolving mortgage repurchase facility (the “Repurchase Agreement”) provides for aggregate borrowings up to $150,000 and is non-recourse to NVR.
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. See Exhibit 10.1 filed herewith for additional information regarding the Amended MRA.
For additional information regarding the Credit Agreement and Senior Notes, see Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021.
Cash Flows
For the six months ended June 30, 2022, cash, restricted cash, and cash equivalents decreased by $1,073,025. Net cash provided by operating activities was $447,206, due primarily to cash provided by earnings for the six months ended June 30, 2022. Cash was primarily used to fund the increase in inventory of $431,379, attributable to an increase in units under construction at June 30, 2022 compared to December 31, 2021.
Net cash used in investing activities for the six months ended June 30, 2022 was $17,627. Cash was used primarily for purchases of property, plant and equipment of $8,751 and investments in unconsolidated joint ventures totaling $9,222.
Net cash used in financing activities was $1,502,604 for the six months ended June 30, 2022. Cash was used to repurchase 207,132 shares of our common stock at an aggregate purchase price of $1,015,703 under our ongoing
common stock repurchase program, discussed above. In addition, cash was used to redeem the outstanding $600,000 principal amount of 3.95% Senior Notes due September 15, 2022. Cash was provided from stock option exercise proceeds totaling $113,822.
Critical Accounting Policies and Estimates
There have been no material changes to our critical accounting policies and estimates as previously disclosed in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021.
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