NVR 10-Q 2023-03-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2023

OR

For the transition period from ____ to ____

Commission File Number: 1-12378

NVR, Inc.

(Exact name of registrant as specified in its charter)

11700 Plaza America Drive, Suite 500

Reston, Virginia 20190

(703) 956-4000

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

Not Applicable

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

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

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

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

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

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

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

As of April 30, 2023 there were 3,246,946 total shares of common stock outstanding.

NVR, Inc.

F****ORM 10-Q

T****ABLE OF C****ONTENTS

PART I. FINANCIAL INFORMATION

See notes to condensed consolidated financial statements.

See notes to condensed consolidated financial statements.

NVR, Inc.

Condensed Consolidated Statements of Income

(in thousands, except per share data)

(unaudited)

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(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 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: 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; the economic impact of a major epidemic or pandemic; 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, 2022.

Unless the context otherwise requires, references to “NVR,” “we,” “us,” or “our” include NVR and its consolidated subsidiaries.

Results of Operations for the Three Months Ended March 31, 2023 and 2022

Business Environment and Current Outlook

Demand for new homes in the first quarter of 2023 improved despite continued affordability issues driven by higher mortgage interest rates and higher home prices. New home demand has been favorably impacted by a limited supply of homes in the resale market; however, current market conditions continue to be impacted by affordability, a high rate of inflation, interest rate volatility and the possibility of an economic slowdown. All of these factors have negatively impacted consumer confidence levels which we expect will continue to weigh on demand. We also expect to continue to face cost pressures related to building materials, labor and land costs, as well as pricing pressures, which will impact profit margins based on our ability to manage these costs while balancing sales pace and declining home prices. We have seen an improvement with the supply chain issues experienced in prior periods as overall homebuilding activity has slowed, which we expect will improve our construction cycle times. 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:

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 March 31, 2023, we controlled approximately 129,900 lots as described below.

Lot Purchase Agreements

We controlled approximately 123,100 lots under LPAs with third parties through deposits in cash and letters of credit totaling approximately $543,900 and $7,900, respectively. Included in the number of controlled lots are approximately 11,300 lots for which we have recorded a contract land deposit impairment reserve of approximately $53,500 as of March 31, 2023.

Joint Venture Limited Liability Corporations (“JVs”)

We had an aggregate investment totaling approximately $26,800 in four JVs, expected to produce approximately 5,300 lots. Of the lots to be produced by the JVs, approximately 4,900 lots were controlled by us and approximately 400 were either under contract with unrelated parties or currently not under contract. We had additional funding commitments totaling approximately $12,400 to one of the JVs at March 31, 2023.

Land Under Development

We owned land with a carrying value of approximately $28,800 that we intend to develop into approximately 1,900 finished lots. We had additional funding commitments of approximately $1,900 under a joint development agreement related to one project, a portion of which we expect will be offset by development credits of approximately $900.

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 19,400 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 March 31, 2023, these properties are controlled with deposits in cash totaling approximately $11,300, of which approximately $4,200 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 first quarter of 2023 totaled $2,178,277, an 8% decrease from the first quarter of 2022. Net income for the first quarter ended March 31, 2023 was $344,352, or $99.89 per diluted share, decreases of 19% and 14% when compared to net income and diluted earnings per share in the first quarter of 2022, respectively. Our homebuilding gross profit margin percentage decreased to 24.6% in the first quarter of 2023 from 28.5% in the first quarter of 2022. New orders, net of cancellations (“New Orders”) decreased by 1% in the first quarter of 2023 compared to the first quarter of 2022 and the average sales price for New Orders in the first quarter of 2023 decreased by 5% to $441.2 compared to the first quarter of 2022.

Homebuilding Operations

The following table summarizes the results of operations and other data for our homebuilding operations:

Consolidated Homebuilding - Three Months Ended March 31, 2023 and 2022

Homebuilding revenues decreased 8% in the first quarter of 2023 compared to the same period in 2022, as a result of an 11% decrease in the number of units settled offset partially by a 4% increase in the average settlement price. The decrease in the number of units settled was attributable to a 28% lower backlog unit balance entering 2023 compared to the backlog unit balance entering 2022, offset partially by a higher backlog turnover rate quarter over quarter. The increase in the average settlement price was primarily attributable to a 4% higher average sales price of units in backlog entering 2023 compared to backlog entering 2022. The gross profit margin percentage in the first quarter of 2023 decreased to 24.6% from 28.5% in the first quarter of 2022. Gross profit margin was negatively impacted primarily by higher labor and material costs.

The number of New Orders and the average sales price of New Orders decreased 1% and 5%, respectively, in the first quarter of 2023 compared to the first quarter of 2022. Both New Orders and the average sales price were

negatively impacted by more difficult market conditions attributable to affordability issues resulting from higher mortgage interest rates period over period and significant home price appreciation over the previous two years.

Selling, general and administrative (“SG&A”) expense in the first quarter of 2023 increased by approximately $14,100 compared to the first quarter of 2022, and as a percentage of revenue increased to 6.7% from 5.6% quarter over quarter. The increase in SG&A expense was primarily attributable to an increase in equity-based compensation of approximately $9,200 due to the issuance of a four year block grant of Options and RSUs in the second quarter of 2022 and to an increase of approximately $3,200 in selling and marketing costs attributable to current market conditions.

Our backlog represents homes sold but not yet settled with our customers. As of March 31, 2023, our backlog decreased on both a unit and dollar basis by 23% to 10,411 units and $4,792,193 when compared to 13,443 units and $6,232,955, respectively, as of March 31, 2022. The decrease in the number of backlog units was primarily attributable to a 28% lower backlog unit balance entering 2023 compared to the backlog unit balance entering 2022. Backlog dollars were lower primarily due to the decrease in backlog units in 2023.

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 first quarter cancellation rate was approximately 14% and 10% for 2023 and 2022, respectively. During the most recent four quarters, approximately 5% 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 2023 or future years. Other than those units that are cancelled, and subject to potential construction delays resulting from continued supply chain disruptions, we expect to settle substantially all of our March 31, 2023 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 availability 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 March 31, 2023 and December 31, 2022 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 $7,900 and $6,900 at March 31, 2023 and December 31, 2022, 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 months ended March 31, 2023 and 2022.

Selected Segment Financial Data:

Operating Activity:

Homebuilding Inventory:

(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:

Mid Atlantic

Three Months Ended March 31, 2023 and 2022

The Mid Atlantic segment had an approximate $90,700, or 36%, decrease in segment profit in the first quarter of 2023 compared to the first quarter of 2022. The decrease in segment profit was driven by a decrease in segment revenues of approximately $200,600, or 18%, coupled with a decrease in gross profit margin. Segment revenues decreased due to an 18% decrease in the number of units settled, primarily attributable to a 25% lower backlog unit balance entering 2023 compared to backlog entering 2022, offset partially by a higher backlog turnover rate quarter over quarter. The Mid Atlantic segment’s gross profit margin percentage decreased to 24.4% in the first quarter of

2023 from 27.9% in the first quarter of 2022, primarily due to higher labor and certain material costs, offset partially by lower lumber costs.

Segment New Orders and the average sales price of New Orders decreased 3% and 2%, respectively, in the first quarter of 2023 compared to the first quarter of 2022. As discussed above in the Consolidated Homebuilding section, the New Orders and the average sales price of New Orders were negatively impacted by more difficult market conditions attributable to affordability issues.

North East

Three Months Ended March 31, 2023 and 2022

The North East segment had an approximate $6,100, or 24%, increase in segment profit in the first quarter of 2023 compared to the first quarter of 2022, due primarily to an increase in segment revenues of approximately $7,900, or 4%, coupled with an increase in gross profit margins. Segment revenues increased due to a 4% increase in the number of units settled. The increase in the number of units settled was attributable to a higher backlog turnover rate. The segment’s gross profit margin percentage increased to 26.8% in the first quarter of 2023 from 23.8% in the first quarter of 2022. Gross profit margins were favorably impacted by lower lumber prices, offset partially by higher labor and certain other material costs.

Segment New Orders decreased 4% in the first quarter of 2023 compared to the first quarter of 2022, while the average sales price of New Orders increased 10% quarter over quarter. As discussed above in the Consolidated Homebuilding section, New Orders were negatively impacted by more difficult market conditions attributable to affordability issues. The increase in the average sales price of New Orders was attributable to a shift in New Orders to higher priced communities quarter over quarter.

Mid East

Three Months Ended March 31, 2023 and 2022

The Mid East segment had an approximate $14,700, or 21%, decrease in segment profit in the first quarter of 2023 compared to the first quarter of 2022, due primarily to a decrease in segment revenues of approximately $59,000, or 13%, coupled with a decrease in gross profit margin. Segment revenues decreased due to an 18% decrease in settlements, offset partially by a 7% increase in the average settlement price. The decrease in the number of units settled was attributable primarily to a 39% lower backlog balance entering 2023 compared to the backlog entering 2022, offset partially by a higher backlog turnover rate quarter over quarter. The increase in the average settlement price was primarily attributable to a 6% higher average sales price of units in backlog entering 2023 compared to backlog entering 2022. The segment's gross profit margin percentage decreased to 21.0% in the first quarter of 2023 from 22.0% in the first quarter of 2022. Gross profit margins were negatively impacted by higher labor and certain material costs, offset partially by lower lumber prices quarter over quarter.

Segment New Orders and the average sales price of New Orders decreased 14% and 4%, respectively, in the first quarter of 2023 compared to the first quarter of 2022. The decrease in New Orders was primarily attributable to a 12% decrease in average number of active communities quarter over quarter. Additionally, as discussed in the Consolidated Homebuilding section above, New Orders and the average sales price of New Orders were negatively impacted by more difficult market conditions attributable to affordability issues.

South East

Three Months Ended March 31, 2023 and 2022

The South East segment had an approximate $12,000, or 11%, increase in segment profit in the first quarter of 2023 compared to the first quarter of 2022. The increase in segment profit was primarily driven by an increase in segment revenues of approximately $73,800, or 14%, offset partially by a decrease in gross profit margin. The increase in revenues is attributable to a 13% increase in the average settlement price and a 1% increase in the number of units settled quarter over quarter. The increase in the average settlement price was primarily attributable to a 3% higher average sales price of units in backlog entering 2023 compared to backlog entering 2022, coupled with a relative shift in settlements to higher priced markets quarter over quarter. The increase in the number of units

settled was attributable to a higher backlog turnover rate. The segment’s gross profit margin percentage decreased to 27.7% in the first quarter of 2023 from 28.7% in the first quarter of 2022. Gross profit margins were negatively impacted by higher labor and certain material costs, offset partially by lower lumber prices quarter over quarter.

Segment New Orders increased 16% in the first quarter of 2023 compared to the first quarter of 2022, while the average sales price of New Orders decreased 15% quarter over quarter. The increase in New Orders was primarily attributable to a 13% increase in average number of active communities quarter over quarter. The average sales price of New Orders was negatively impacted by more difficult market conditions attributable to affordability issues.

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.

(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-month period ended March 31, 2023 was primarily attributable to the issuance of a four year block grant of Options and RSUs in the second quarter of 2022.

(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:

(4)The consolidation adjustments and other in each period are primarily driven by changes in units under construction as well as significant fluctuations in lumber prices year over year. 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. In 2023, the consolidation adjustment was negatively impacted by the recognition of previously deferred home package costs that included higher priced lumber. This impact was offset partially by a reduction in the number of units under construction year over year, resulting in a decrease in intercompany profits deferred as compared to the first quarter of 2022.

Mortgage Banking Segment

Three Months Ended March 31, 2023 and 2022

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 months ended March 31, 2023 and 2022:

Loan closing volume for the three months ended March 31, 2023 decreased by approximately $247,300, or 17%, from the same period in 2022. The decrease in loan closing volume during the three months ended March 31, 2023 was primarily attributable to the 11% decrease in the homebuilding segment's number of units settled and the 3% decrease in the capture rate in the first quarter of 2023 compared to the first quarter of 2022.

Segment profit for the three months ended March 31, 2023 decreased by approximately $20,700, or 41%, from the same period in 2022. This decrease was primarily attributable to a decrease of approximately $22,200, or 32%, in mortgage banking fees, primarily due to a decrease in secondary marketing 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 during the three months ended March 31, 2023 was 20.6% compared to 24.7% for the three months ended March 31, 2022. The decrease in the effective tax rate in the first quarter of 2023 is primarily attributable to a higher income tax benefit recognized for excess tax benefits from stock option exercises, which totaled approximately $23,200 and $8,400 for the three months ended March 31, 2023 and March 31, 2022, 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 March 31, 2023, we had approximately $2,800,000 in cash and cash equivalents, approximately $287,000 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. Future interest payments on our outstanding senior notes total approximately $199,050, with $27,000 due in within the next twelve months,

(ii) payment obligations totaling approximately $327,000 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, and

(iii) obligations under operating and finance leases related primarily to office space and our production facilities (see Note 13 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 first quarter of 2023. For the quarter ended March 31, 2023, we repurchased 21,174 shares of our common stock at an aggregate purchase price of $110,048. As of March 31, 2023, we had approximately $397,600 available under a Board approved repurchase authorization.

Capital Resources

Senior Notes

As of March 31, 2023, we had Senior Notes with an aggregate principal balance of $900,000, 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 March 31, 2023.

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 $13,300 outstanding at March 31, 2023. The Credit Agreement termination date is February 12, 2026. There were no borrowings outstanding under the Credit Agreement as of March 31, 2023.

Repurchase Agreement

NVRM has an unsecured revolving mortgage repurchase facility (the “Repurchase Agreement”) which provides for aggregate borrowings up to $150,000 and is non-recourse to NVR. The Repurchase Agreement expires on July 19, 2023. At March 31, 2023, there were no borrowing base limitations reducing the amount available under the Repurchase Agreement. There were no borrowings outstanding under the Repurchase Agreement at March 31, 2023.

There have been no changes in our Credit Agreement or Repurchase Agreement during the three months ended March 31, 2023. For additional information regarding lines of credit and notes payable, see Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022.

Cash Flows

For the three months ended March 31, 2023, cash, restricted cash, and cash equivalents increased by $284,075. Net cash provided by operating activities was $315,522, due primarily to cash provided by earnings for the three months ended March 31, 2023 and an increase in accounts payable and accrued expenses of $50,607. Additionally, cash was provided by an increase in customer deposits of $21,426, attributable to the increase in our ending backlog. Cash was primarily used to fund the increase in inventory of $77,267, attributable to an increase in units under construction at March 31, 2023 compared to December 31, 2022.

Net cash used in investing activities for the three months ended March 31, 2023 was $2,915. Cash was used primarily for purchases of property, plant and equipment of $2,714.

Net cash used in financing activities was $28,532 for the three months ended March 31, 2023. Cash was used to repurchase 21,174 shares of our common stock at an aggregate purchase price of $110,048 under our ongoing common stock repurchase program, discussed above. Cash was provided from stock option exercise proceeds totaling $81,916.

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, 2022.

There have been no material changes in our market risks during the three months ended March 31, 2023. For additional information regarding our market risks, see Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2022.

As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective. There have been no changes in our internal control over financial reporting in the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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.

There have been no material changes to the risk factors as previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022.

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

(dollars in thousands, except per share data)

We had two share repurchase authorizations outstanding during the quarter ended March 31, 2023. On May 4, 2022 and August 3, 2022, we publicly announced that our Board of Directors authorized the repurchase of our outstanding common stock in one or more open market and/or privately negotiated transactions, up to an aggregate of $500,000 per authorization. The repurchase authorizations do not have expiration dates. We repurchased the following shares of our common stock during the first quarter of 2023: