Century Communities, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS. Century Communities, Inc. Condensed Consolidated Balance Sheets As of June 30, 2020 and December 31, 2019 (in thousands, except share amounts) June 30, December 31, 2020 2019 Assets (unaudited) (audited) Cash and cash equivalents $ 173,521 $ 55,436 Cash held in escrow 46,619 35,308 Accounts receivable 22,846 27,438 Inventories 1,898,503 1,995,549 Mortgage loans held for sale 219,615 185,246 Prepaid expenses and other assets 115,095 124,008 Property and equipment, net 33,277 35,998 Deferred tax assets, net 11,911 10,589 Goodwill 30,395 30,395 Total assets $ 2,551,782 $ 2,499,967 Liabilities and stockholders' equity Liabilities: Accounts payable $ 49,635 $ 84,794 Accrued expenses and other liabilities 277,526 213,975 Notes payable 897,664 896,704 Revolving line of credit — 68,700 Mortgage repurchase facilities 197,469 174,095 Total liabilities 1,422,294 1,438,268 Stockholders' equity: Preferred stock, $ 0.01 par value, 50,000,000 shares authorized, none outstanding — — Common stock, $ 0.01 par value, 100,000,000 shares authorized, 33,350,633 and 33,067,375 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively 334 331 Additional paid-in capital 687,564 684,354 Retained earnings 441,590 377,014 Total stockholders' equity 1,129,488 1,061,699 Total liabilities and stockholders' equity $ 2,551,782 $ 2,499,967 See Notes to Unaudited Condensed Consolidated Financial Statements 3 Table of Contents Century Communities, Inc. Unaudited Condensed Consolidated Statements of Operations For the Three and Six Months Ended June 30, 2020 and 2019 (in thousands, except share and per share amounts) Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Revenues Homebuilding revenues Home sales revenues $ 747,415 $ 608,636 $ 1,320,125 $ 1,131,938 Land sales and other revenues 3,307 1,399 23,411 2,754 Total homebuilding revenues 750,722 610,035 1,343,536 1,134,692 Financial services revenue 25,722 9,915 35,517 18,315 Total revenues 776,444 619,950 1,379,053 1,153,007 Homebuilding cost of revenues Cost of home sales revenues ( 620,655 ) ( 503,928 ) ( 1,091,181 ) ( 937,685 ) Cost of land sales and other revenues ( 2,384 ) ( 877 ) ( 16,551 ) ( 1,491 ) Total homebuilding cost of revenues ( 623,039 ) ( 504,805 ) ( 1,107,732 ) ( 939,176 ) Financial services costs ( 12,744 ) ( 7,747 ) ( 22,330 ) ( 14,576 ) Selling, general and administrative ( 86,706 ) ( 75,217 ) ( 160,325 ) ( 144,153 ) Loss on debt extinguishment — ( 10,832 ) — ( 10,832 ) Inventory impairment and other ( 910 ) — ( 1,691 ) — Other expense ( 2,942 ) ( 519 ) ( 2,784 ) ( 443 ) Income before income tax expense 50,103 20,830 84,191 43,827 Income tax expense ( 11,653 ) ( 5,335 ) ( 19,615 ) ( 11,215 ) Net income $ 38,450 $ 15,495 $ 64,576 $ 32,612 Earnings per share: Basic $ 1.15 $ 0.51 $ 1.94 $ 1.08 Diluted $ 1.15 $ 0.51 $ 1.93 $ 1.07 Weighted average common shares outstanding: Basic 33,340,184 30,341,628 33,274,056 30,272,818 Diluted 33,461,694 30,568,848 33,469,069 30,506,945 See Notes to Unaudited Condensed Consolidated Financial Statements 4 Table of Contents Century Communities, Inc. Unaudited Condensed Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2020 and 2019 ( in thousands ) Six Months Ended June 30, 2020 2019 Operating activities Net income $ 64,576 $ 32,612 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 6,842 6,196 Stock-based compensation expense 8,588 7,468 Fair value of loans held for sale and other ( 6,175 ) ( 1,012 ) Loss on debt extinguishment — 10,832 Inventory impairment and other 1,691 — Deferred income taxes ( 1,322 ) 428 Loss on disposition of assets 914 526 Changes in assets and liabilities: Cash held in escrow ( 11,311 ) ( 1,495 ) Accounts receivable 4,592 ( 2,535 ) Inventories 138,049 ( 121,734 ) Mortgage loans held for sale ( 30,990 ) ( 9,152 ) Prepaid expenses and other assets 13,229 ( 4,296 ) Accounts payable ( 35,158 ) 7,137 Accrued expenses and other liabilities 20,259 ( 17,974 ) Net cash provided by (used in) operating activities 173,784 ( 92,999 ) Investing activities Purchases of property and equipment ( 4,913 ) ( 6,274 ) Other investing activities 62 59 Net cash used in investing activities ( 4,851 ) ( 6,215 ) Financing activities Borrowings under revolving credit facilities 678,000 767,600 Payments on revolving credit facilities ( 746,700 ) ( 758,100 ) Proceeds from issuance of senior notes due 2027 — 500,000 Extinguishment of senior notes due 2022 — ( 391,942 ) Proceeds from issuance of insurance premium notes and other 4,542 9,301 Principal payments on insurance notes payable ( 4,220 ) ( 17,586 ) Debt issuance costs — ( 5,728 ) Net proceeds from mortgage repurchase facilities 23,374 ( 3,805 ) Net proceeds from issuances of common stock — 2,663 Withholding of common stock upon vesting of restricted stock units ( 5,145 ) ( 3,434 ) Repurchases of common stock under stock repurchase program — ( 1,439 ) Other ( 345 ) — Net cash provided by (used in) financing activities ( 50,494 ) 97,530 Net increase (decrease) $ 118,439 $ ( 1,684 ) Cash and cash equivalents and Restricted cash Beginning of period 58,521 36,441 End of period $ 176,960 $ 34,757 Supplemental cash flow disclosure Cash paid for income taxes $ 410 $ 13,111 Cash and cash equivalents and Restricted cash Cash and cash equivalents $ 173,521 $ 31,704 Restricted cash (Note 5) 3,439 3,053 Cash and cash equivalents and Restricted cash $ 176,960 $ 34,757 See Notes to Unaudited Condensed Consolidated Financial Statements 5 Table of Contents Century Communities, Inc. Unaudited Condensed Consolidated Statements of Stockholders’ Equity For the Three and Six Months Ended June 30, 2020 and 2019 ( in thousands ) Three Months Ended June 30, 2020 and 2019 Common Stock Shares Amount Additional Paid-In Capital Retained Earnings Total Stockholders' Equity Balance at March 31, 2020 33,319 $ 333 $ 681,060 $ 403,140 $ 1,084,533 Issuance of common stock — — — — — Other — — ( 230 ) — ( 230 ) Vesting of restricted stock units 42 1 ( 1 ) — — Withholding of common stock upon vesting of restricted stock units ( 10 ) — ( 168 ) — ( 168 ) Stock-based compensation expense — — 6,903 — 6,903 Net income — — — 38,450 38,450 Balance at June 30, 2020 33,351 $ 334 $ 687,564 $ 441,590 $ 1,129,488 Balance at March 31, 2019 30,304 $ 303 $ 593,966 $ 281,137 $ 875,406 Issuance of common stock 100 1 2,662 — 2,663 Vesting of restricted stock units 45 — — — — Withholding of common stock upon vesting of restricted stock units ( 10 ) — ( 268 ) — ( 268 ) Stock-based compensation expense — — 3,933 — 3,933 Net income — — — 15,495 15,495 Balance at June 30, 2019 30,439 $ 304 $ 600,293 $ 296,632 $ 897,229 Six Months Ended June 30, 2020 and 2019 Common Stock Shares Amount Additional Paid-In Capital Retained Earnings Total Stockholders' Equity Balance at December 31, 2019 33,067 $ 331 $ 684,354 $ 377,014 $ 1,061,699 Issuance of common stock — — — — — Other — — ( 230 ) ( 230 ) Vesting of restricted stock units 454 5 ( 5 ) — — Withholding of common stock upon vesting of restricted stock units ( 170 ) ( 2 ) ( 5,143 ) — ( 5,145 ) Stock-based compensation expense — — 8,588 — 8,588 Net income — — — 64,576 64,576 Balance at June 30, 2020 33,351 $ 334 $ 687,564 $ 441,590 $ 1,129,488 Balance at December 31, 2018 30,155 $ 302 $ 595,037 $ 264,020 $ 859,359 Issuance of common stock 100 1 2,662 — 2,663 Repurchase of common stock ( 83 ) ( 1 ) ( 1,438 ) — ( 1,439 ) Vesting of restricted stock units 413 4 ( 4 ) — — Withholding of common stock upon vesting of restricted stock units ( 146 ) ( 2 ) ( 3,432 ) — ( 3,434 ) Stock-based compensation expense — — 7,468 — 7,468 Net income — — — 32,612 32,612 Balance at June 30, 2019 30,439 $ 304 $ 600,293 $ 296,632 $ 897,229 See Notes to Unaudited Condensed Consolidated Financial Statements ‎ 6 Table of Contents Century Communities, Inc. Notes to Unaudited Condensed Consolidated Financial Statements June 30, 2020 1. Basis of Presentation Century Communities, Inc. (which we refer to as “we,” “CCS,” or the “Company”), together with its subsidiaries, is engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in metropolitan areas in 17 states. In many of our projects, in addition to building homes, we are responsible for the entitlement and development of the underlying land. We build and sell homes under our Century Communities and Century Complete brands. Our Century Communities brand targets a wide range of buyer profiles including: first time, first and second time move up, and lifestyle homebuyers, and provides our homebuyers with the ability to personalize their homes through certain option and upgrade selections. Our Century Complete brand targets first time homebuyers, primarily sells homes through retail studios and the internet, and provides no option or upgrade selections. Our homebuilding operations are organized into the following five reportable segments: West, Mountain, Texas, Southeast, and Century Complete. Additionally, our indirect wholly owned subsidiaries, Inspire Home Loans, Inc., Parkway Title, LLC, and IHL Home Insurance Agency, LLC, which provide mortgage, title, and insurance services, respectively, to our homebuyers, have been identified as our Financial Services segment. The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (which we refer to as “GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (which we refer to as the “SEC”). In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation of our financial position and results of operations for the periods presented. Interim results of operations are not necessarily indicative of the results that may be achieved for the full year, particularly in light of the novel coronavirus (“COVID-19”) pandemic and measures intended to mitigate the spread. The financial statements and related notes do not include all information and footnotes required by GAAP and should be read in conjunction with the consolidated financial statements for the year ended December 31, 2019, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 that was filed with the SEC on February 7, 2020. The COVID-19 pandemic has led to adverse impacts on the U.S. and global economies and created uncertainty regarding potential impacts to our operations and customer demand. Commencing in March 2020, numerous state and local municipalities issued public health orders with varying expiration dates requiring the closure of nonessential businesses, as well as ordering individuals to stay at home and/or shelter in place whenever possible. These public health orders generally exempted the sale and construction of new homes, other than a small portion of our operations, which had to cease operations in early April. During the latter half of the second quarter of 2020, state and local municipalities in the majority of our markets began to lift the most stringent of the public health restrictions and numerous nonessential businesses were allowed to reopen. However, recent increases in COVID-19 positive cases throughout the United States during the later weeks of June and into July of 2020 have resulted in the slowing or altering of “re-opening” plans in numerous states, including many in which we conduct business. As of the date of this filing, we are able to build and sell homes in all of our markets . Principles of Consolidation The condensed consolidated financial statements include the accounts of the Company, as well as all subsidiaries in which we have a controlling interest, and variable interest entities for which the Company is deemed to be the primary beneficiary. We currently do not have any variable interest entities in which we are deemed the primary beneficiary. All intercompany accounts and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates, particularly given the uncertainties associated with the ongoing COVID-19 pandemic. Recently Adopted Accounting Standards Financial Instruments - Credit Losses In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326) . The standard changes the accounting for credit losses for most financial assets and certain 7 Table of Contents other instruments. Credit losses that have historically been accounted for on an incurred loss basis are now accounted for using an estimate of lifetime expected credit losses. This generally results in earlier recognition of allowances for credit losses. We adopted this standard on January 1, 2020 with no material effect on the consolidated financial statements and related disclosures. Internal-Use Software In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force) . This update is intended to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement by providing guidance for determining when the arrangement includes a software license. We adopted this standard on January 1, 2020 with no material effect on the consolidated financial statements and related disclosures. Recently Issued Accounting Standards In December 2019, the FASB issued ASU No. 2019-12, “ Income Taxes (Topic 740) : Simplifying the Accounting for Income Taxes” (“ASU 2019-12”). The standard simplifies the accounting for income taxes, eliminates certain exceptions, and clarifies certain aspects of ASC 740 to promote consistency among reporting entities. ASU 2019-12 is effective for us beginning January 1, 2021. We do not expect this standard to have a material effect on the consolidated financial statements and related disclosures. 2. Reporting Segments Our homebuilding operations are engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in 17 states. We build and sell homes under our Century Communities and Century Complete brands. Our Century Communities brand is managed by geographic location, and each of our four geographic regions targets a wide range of buyer profiles including: first time, first and second time move up, and lifestyle homebuyers, and provides our homebuyers with the ability to personalize their homes through certain option and upgrade selections. Each of our four geographic regions is considered a separate operating segment. Our Century Complete brand targets first time homebuyers, primarily sells homes through retail studios and the internet, and provides no option or upgrade selections. Our Century Complete brand currently has operations in 11 states and is managed separately from our four geographic regions. Accordingly, it is considered a separate operating segment. The management of our four geographic regions and Century Complete reports to our chief operating decision makers (which we refer to as “CODMs”), the Co-Chief Executive Officers of our Company. The CODMs review the results of our operations, including total revenue and income before income tax expense to determine profitability and to allocate resources. Accordingly, we have presented our homebuilding operations as the following five reportable segments:  West (California and Washington)  Mountain (Colorado, Nevada and Utah)  Texas  Southeast (Georgia, North Carolina, South Carolina and Tennessee)  Century Complete (Alabama, Arizona, Florida, Georgia, Indiana, Iowa, Michigan, North Carolina, Ohio, South Carolina, and Texas) We have also identified our Financial Services operations, which provide mortgage, title, and insurance services to our homebuyers, as a sixth reportable segment. Our Corporate operations are a non-operating segment, as they serve to support our homebuilding, and to a lesser extent our financial services operations, through functions, such as our executive, finance, treasury, human resources, accounting and legal departments. The following table summarizes total revenue and income before income tax expense by segment (in thousands ): ‎ 8 Table of Contents Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Revenue: West $ 166,125 $ 135,226 $ 298,012 $ 247,346 Mountain 177,569 179,410 348,721 339,076 Texas 98,678 61,522 158,842 112,008 Southeast 174,626 124,814 306,128 237,626 Century Complete 133,724 109,063 231,833 198,636 Financial Services 25,722 9,915 35,517 18,315 Corporate — — — — Total revenue $ 776,444 $ 619,950 $ 1,379,053 $ 1,153,007 Income (loss) before income tax expense: West $ 13,747 $ 9,973 $ 29,089 $ 18,621 Mountain 20,616 22,526 39,094 41,834 Texas 9,610 5,587 15,108 9,336 Southeast 12,020 4,649 20,329 10,388 Century Complete 8,548 8,318 9,333 12,291 Financial Services 12,978 2,168 13,187 3,739 Corporate ( 27,416 ) ( 32,391 ) ( 41,949 ) ( 52,382 ) Total income before income tax expense $ 50,103 $ 20,830 $ 84,191 $ 43,827 The following table summarizes total assets by operating segment (in thousands): June 30, December 31, 2020 2019 West $ 566,724 $ 610,248 Mountain 691,622 635,201 Texas 204,925 232,887 Southeast 376,028 441,818 Century Complete 189,215 244,827 Financial Services 306,519 254,282 Corporate 216,749 80,704 Total assets $ 2,551,782 $ 2,499,967 Corporate assets primarily include certain cash and cash equivalents, certain property and equipment, prepaid insurance, and deferred financing costs on our revolving line of credit. 3. Inventories Inventories included the following (in thousands): June 30, December 31, 2020 2019 Homes under construction $ 935,543 $ 1,091,576 Land and land development 892,649 836,904 Capitalized interest 70,311 67,069 Total inventories $ 1,898,503 $ 1,995,549 4. Financial Services Our Financial Services are principally comprised of our mortgage lending operations, Inspire Home Loans, Inc. (which we refer to as “Inspire”). Inspire is a full-service mortgage lender and primarily originates mortgage loans for our homebuyers. Inspire sells substantially all of the loans it originates and their related servicing rights in the secondary mortgage market within a short period of time after origination, generally within 30 days. Inspire primarily finances these loans using its mortgage repurchase facilities. Mortgage loans in process for which interest rates were committed to borrowers totaled approximately $ 124.3 million and $ 37.6 million at June 30, 2020 and December 31, 2019, respectively, and carried a weighted average interest rate of approximately 3.8 % and 3.9 %, respectively. As of June 30, 2020 and December 31, 2019, Inspire had mortgage loans held for sale with an aggregate fair value of 9 Table of Contents $ 219.6 million and $ 185.2 million, respectively, and an aggregate outstanding principal balance of $ 210.3 million and $ 179.3 million, respectively. Mortgage loans held-for-sale, including the rights to service the mortgage loans, as well as the derivative instrument used to economically hedge our interest rate risk, which are typically forward commitments on mortgage backed securities, are carried at fair value and changes in fair value are reflected in financial services revenue on the condensed consolidated statement of operations. Management believes carrying loans held-for-sale and the derivative instruments used to economically hedge them at fair value improves financial reporting by more accurately reflecting the underlying transaction. Refer to Note 11 – Fair Value Disclosures for further information regarding our derivative instruments. 5. Prepaid Expenses and Other Assets Prepaid expenses and other assets included the following (in thousands): June 30, December 31, 2020 2019 Prepaid insurance $ 24,067 $ 26,175 Lot option and escrow deposits 37,826 48,810 Performance deposits 5,776 6,299 Deferred financing costs on revolving line of credit, net 3,890 4,574 Restricted cash (1) 3,439 3,085 Secured note receivable 2,486 2,602 Right of use assets 18,008 18,854 Other assets and prepaid expenses 7,878 8,633 Mortgage loans held for investment and derivative assets 11,640 4,768 Amortizable intangible assets, net 85 208 Total prepaid expenses and other assets $ 115,095 $ 124,008 (1) Restricted cash consists of earnest money deposits for home sale contracts held by third parties as required by various jurisdictions, and certain pledge balances associated with our mortgage repurchase facilities. 6. Accrued Expenses and Other Liabilities Accrued expenses and other liabilities included the following (in thousands): June 30, December 31, 2020 2019 Earnest money deposits $ 18,334 $ 10,592 Warranty reserve 11,221 9,731 Accrued compensation costs 29,937 30,888 Land development and home construction accruals 152,717 110,284 Accrued interest 14,063 19,306 Lease liabilities - operating leases 18,446 14,562 Income taxes payable 7,153 329 Liability for product financing arrangements and other 25,655 18,283 Total accrued expenses and other liabilities $ 277,526 $ 213,975 7. Warranties Estimated future direct warranty costs are accrued and charged to cost of home sales revenues in the period when the related home sales revenues are recognized. Amounts accrued, which are included in accrued expenses and other liabilities on the consolidated balance sheets, are based upon historical experience rates. We subsequently assess the adequacy of our warranty accrual on a quarterly basis through an internal model that incorporates historical payment trends and adjust the amounts recorded, if necessary. Based on warranty payment trends relative to our estimates at the time of home closing, we reduced our warranty reserve by $ 0.2 million and increased our reserve by $ 0.2 million during the three months ended June 30, 2020 and 2019, respectively. We reduced our warranty reserve by $ 1.3 million during the six months ended June 30, 2020, compared to a $ 0.2 million increase during the same period in 2019. These 10 Table of Contents adjustments are included in cost of home sales revenues on our consolidated statements of operations. Changes in our warranty accrual for the three and six months ended June 30, 2020 and 2019 are detailed in the table below (in thousands) : Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Beginning balance $ 9,727 $ 8,633 $ 9,731 $ 7,970 Warranty expense provisions 2,274 2,107 4,051 3,768 Payments ( 612 ) ( 1,174 ) ( 1,301 ) ( 2,194 ) Warranty adjustment ( 168 ) 202 ( 1,260 ) 224 Ending balance $ 11,221 $ 9,768 $ 11,221 $ 9,768 8. Debt Our outstanding debt obligations included the following as of June 30, 2020 and December 31, 2019 (in thousands): June 30, December 31, 2020 2019 6.750 % senior notes, due May 2027 (1) $ 494,592 $ 494,307 5.875 % senior notes, due July 2025 (1) 396,473 396,120 Other financing obligations 6,599 6,277 Notes payable 897,664 896,704 Revolving line of credit, due April 2023 — 68,700 Mortgage repurchase facilities 197,469 174,095 Total debt $ 1,095,133 $ 1,139,499 (1) The carrying value of senior notes reflects the impact of premiums, discounts, and issuance costs that are amortized to interest cost over the respective terms of the senior notes. Revolving Line of Credit We are party to an Amended and Restated Credit Agreement with Texas Capital Bank, National Association, as Administrative Agent and L/C Issuer, the lenders party thereto and certain of our subsidiaries, which, as amended most recently on December 13, 2019, provides us with a revolving line of credit of up to $ 640.0 million, and unless terminated earlier, will mature on April 30, 2023 . Under the terms of the Amended and Restated Credit Agreement, we may request a twelve-month extension of the maturity date. Our obligations under the Amended and Restated Credit Agreement are guaranteed by certain of our subsidiaries. The Amended and Restated Credit Agreement contains customary affirmative and negative covenants (including limitations on our ability to grant liens, incur additional debt, pay dividends, redeem our common stock, make certain investments and engage in certain merger, consolidation or asset sale transactions), as well as customary events of default. These covenants are measured as defined in the Amended and Restated Credit Agreement and are reported to the lenders quarterly. Borrowings under the Amended and Restated Credit Agreement bear interest at a floating rate equal to the adjusted Eurodollar Rate plus an applicable margin between 2.60 % and 3.10 % per annum, or, at the Administrative Agent’s discretion, a base rate plus an applicable margin between 1.60 % and 2.10 % per annum. As of June 30, 2020, we had no amounts outstanding under the credit facility and were in compliance with all covenants. Mortgage Repurchase Facilities – Financial Services On May 4, 2018, September 14, 2018, and August 1, 2019, Inspire entered into mortgage warehouse facilities, with Comerica Bank, J.P. Morgan, and Wells Fargo, respectively. The mortgage warehouse lines of credit (which we refer to as the “repurchase facilities”) provide Inspire with uncommitted repurchase facilities of up to an aggregate of $ 275 million, secured by the mortgage loans financed thereunder. Amounts outstanding under the repurchase facilities are not guaranteed by us or any of our subsidiaries and the agreements contain various affirmative and negative covenants applicable to Inspire that are customary for arrangements of this type. As of June 30, 2020, we had $ 197.5 million outstanding under these repurchase facilities and were in compliance with all covenants thereunder. During the three months ended June 30, 2020 and 2019, we incurred interest expense on the repurchase facilities of $ 0.5 million and $ 0.9 million, respectively, which are included in financial services costs on our condensed consolidated statements of operations. During the six months ended June 30, 2020 and 2019, we incurred interest expense on the repurchase facilities of $ 1.3 million and $ 1.5 million, respectively. 11 Table of Contents 9. Interest Interest is capitalized to inventories while the related communities are being actively developed and until homes are completed. As our qualifying assets exceeded our outstanding debt during the six months ended June 30, 2020 and 2019, we capitalized all interest costs incurred during these periods, except for interest incurred on our mortgage repurchase facilities. Our interest costs are as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 Interest capitalized beginning of period $ 70,837 $ 59,121 $ 67,069 $ 53,842 Interest capitalized during period 18,168 18,602 35,621 36,467 Less: capitalized interest in cost of sales ( 18,694 ) ( 14,655 ) ( 32,379 ) ( 27,241 ) Interest capitalized end of period $ 70,311 $ 63,068 $ 70,311 $ 63,068 10 . Income Taxes At the end of each interim period we are required to estimate our annual effective tax rate for the fiscal year, and to use that rate to provide for income taxes for the current year-to-date reporting period. Our 2020 estimated annual effective tax rate of 23.4 % is driven by our blended federal and state statutory rate of 25.6 %, and certain other permanent differences between GAAP and tax which decreased our rate by 2.2 %. For the six months ended June 30, 2020, our estimated annual rate of 23.4 % was impacted by discrete items which had a net impact of decreasing our rate by 0.1 %, including excess tax benefits for vested stock-based compensation . For the three months ended June 30, 2020 and 2019, we recorded income tax expense of $ 11.7 million and $ 5.3 million, respectively. For the six months ended June 30, 2020 and 2019, we recorded income tax expense of $ 19.6 million and $ 11.2 million, respectively . 11. Fair Value Disclosures Accounting Standards Codification Topic 820, Fair Value Measurement , defines fair value as the price that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and requires assets and liabilities carried at fair value to be classified and disclosed in the following three categories: Level 1 — Quoted prices for identical instruments in active markets. Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are inactive; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets at measurement date. Level 3 — Valuations derived from techniques where one or more significant inputs or significant value drivers are unobservable in active markets at measurement date. ‎ 12 Table of Contents The following table presents carrying values and estimated fair values of financial instruments (in thousands): June 30, 2020 December 31, 2019 Hierarchy Carrying Fair Value Carrying Fair Value Secured notes receivable (1) Level 2 $ 2,486 $ 2,532 $ 2,602 $ 2,545 Mortgage loans held for sale (2) Level 2 $ 219,615 $ 219,615 $ 185,246 $ 185,246 Derivative assets (3) Level 2 $ 4,827 $ 4,827 $ 1,382 $ 1,382 5.875 % senior notes (4)(5) Level 2 $ 396,473 $ 401,520 $ 396,120 $ 415,680 6.750 % senior notes (4)(5) Level 2 $ 494,592 $ 515,000 $ 494,307 $ 537,500 Revolving line of credit (6) Level 3 $ — $ — $ 68,700 $ 68,700 Other financing obligations (6)(7) Level 2 $ 6,599 $ 6,599 $ 6,277 $ 6,277 Derivative liabilities (3) Level 2 $ 795 $ 795 $ 147 $ 147 Mortgage repurchase facilities (6) Level 2 $ 197,469 $ 197,469 $ 174,095 $ 174,095 (1) Estimated fair value of the secured notes receivable was based on cash flow models discounted at market interest rates which considered the underlying risks of the note. In May 2020, the maturity of the secured note receivable was extended by one year to May of 2021. (2) The mortgage loans held for sale are carried at fair value, which is based on quoted market prices for committed mortgage loans. (3) Derivative instruments are carried at fair value and based on market prices for similar instruments. Changes in fair value are reflected in financial services revenue on the condensed consolidated statement of operations. Derivative assets are presented within prepaid expenses and other assets on the condensed consolidated balance sheets. Derivative liabilities are presented within accrued expenses and other liabilities on the condensed consolidated balance sheets. (4) Estimated fair value of the senior notes is based on recent trading activity in inactive markets. (5) Carrying amounts include any associated unamortized deferred financing costs, premiums and discounts. As of June 30, 2020, these amounts totaled $ 5.4 million and $ 3.5 million for the 6.750 % senior notes and 5.875 % senior notes, respectively. As of December 31, 2019, these amounts totaled $ 5.7 million and $ 3.9 million for the 6.750 % senior notes and 5.875 % senior notes, respectively. (6) Carrying amount approximates fair value due to short-term nature and interest rate terms. (7) Insurance premium notes including in other financing obligations bore interest rates ranging from 3.278 % to 3.240 % during the periods ending June 30, 2020 and December 31, 2019, which approximated prevailing market rates for similar obligations at each period. During the three months ended June 30, 2020, we determined that inventory with a carrying value before impairment of $ 6.6 million within one community in our Texas segment was not recoverable. Accordingly, we recognized an impairment charge of $ 0.9 million to reflect the estimated fair value of the community of $ 5.7 million. During the six months ended June 30, 2020, total impairment charges of $ 1.7 million were recorded, which includes $ 0.8 million of impairment charges related to one community in our Century Complete segment which was recorded during the three months ended March 31, 2020. The estimated fair value of communities are determined through a discounted cash flow approach utilizing Level 3 inputs. Because the full magnitude and duration of the COVID-19 pandemic is uncertain and difficult to predict, changes in our cash flow projections may change our conclusions on the recoverability of inventory in the future. The carrying amount of cash and cash equivalents approximates fair value. Non-financial assets and liabilities include items such as inventory and property and equipment that are measured at fair value when acquired and as a result of impairments, if deemed necessary. 12. Stock-Based Compensation During the three and six months ended June 30, 2020, we granted restricted stock units (which we refer to as “RSUs”) covering 0.1 million and 0.4 million shares of common stock, respectively, with a grant date fair value of $ 27.64 and $ 30.44 per share, respectively, that vest over a three year period. During the three and six months ended June 30, 2020, we also granted performance share units (which we refer to as “PSUs”) covering up to 0.3 million shares of common stock, assuming maximum level of performance, with a grant date fair value of $ 26.38 per share that are subject to both service and performance vesting conditions. The quantity of shares that will vest under the PSUs ranges from 0 % to 250 % of a targeted number of shares for each participant and will be determined based on an achievement of a three year pre-tax income performance goal. 13 Table of Contents A summary of our outstanding RSUs and PSUs, assuming current estimated level of performance achievement, are as follows (in thousands, except years): As of June 30, 2020 Unvested units 1,435 Unrecognized compensation cost $ 22,151 Remaining period to recognize compensation cost 1.84 yrs During the three months ended June 30, 2020 and 2019, we recognized stock-based compensation expense of $ 6.9 million and $ 3.9 million, respectively. During the six months ended June 30, 2020 and 2019, we recognized stock-based compensation expense of $ 8.6 million and $ 7.5 million, respectively. Stock-based compensation expense is included in selling, general, and administrative expense on our condensed consolidated statements of operations. During the three months ended June 30, 2020, we updated our recognition of stock-based compensation expense associated with previously granted PSU awards to reflect probable financial results as they relate to the performance goals of the awards. Accordingly, our estimate of the number of shares which will ultimately vest under our PSU awards increased by 0.2 million, and we recorded a cumulative catch-up adjustment to increase stock-based compensation expense of $ 2.9 million ($ 2.2 million net of tax), or $ 0.07 per share (basic and diluted) for the three months ended June 30, 2020. 13. Stockholders’ Equity Our authorized capital stock consists of 100.0 million shares of common stock, par value $ 0.01 per share, and 50.0 million shares of preferred stock, par value $ 0.01 per share. As of June 30, 2020, and December 31, 2019, there were 33.4 million and 33.1 million shares of common stock issued and outstanding, respectively. On May 10, 2017, our stockholders approved the adoption of the Century Communities, Inc. 2017 Omnibus Incentive Plan (which we refer to as our “2017 Incentive Plan”), which replaced our First Amended & Restated 2013 Long-Term Incentive Plan. We had reserved a total of 1.8 million shares of our common stock for issuance under our First Amended & Restated 2013 Long-Term Incentive Plan, of which approximately 0.6 million shares rolled over into the 2017 Incentive Plan when it became effective. On May 8, 2019, our stockholders approved the Century Communities, Inc. Amended and Restated 2017 Omnibus Incentive Plan (which we refer to as our “Amended 2017 Incentive Plan”), which increased the number of shares of our common stock authorized for issuance under the 2017 Incentive Plan by an additional 1.631 million shares. We issued 0.5 million and 0.4 million shares of common stock related to the vesting of RSUs during the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, approximately 1.1 million shares of common stock remained available for issuance under the Amended 2017 Incentive Plan. On November 27, 2019, we entered into a Distribution Agreement with J.P. Morgan Securities LLC, BofA Securities, Inc., Citigroup Global Markets Inc., and Fifth Third Securities, Inc. (which we refer to as the “Distribution Agreement”), as sales agents pursuant to which we may offer and sell shares of our common stock having an aggregate offering price of up to $ 100.0 million from time to time through any of the sales agents party thereto in “at-the-market” offerings, in accordance with the terms and conditions set forth in the Distribution Agreement. This Distribution Agreement, which superseded and replaced a prior similar Distribution Agreement, had all $ 100.0 million available for sale as of June 30, 2020. We did no t sell or issue any shares of our common stock during the three and six months ended June 30, 2020. During the three and six months ended June 30, 2019, we sold and issued an aggregate of 0.1 million shares of our common stock under the previous Distribution Agreement, which provided proceeds of $ 2.7 million, and in connection with such sales, paid total commissions and fees to the sales agents of $ 0.1 million . The Distribution Agreement will remain in full force and effect until terminated by either party pursuant to the terms of the agreement or such date that the maximum offering amount has been sold in accordance with the terms of the agreement . On November 6, 2018, we authorized a stock repurchase program, under which we may repurchase up to 4,500,000 shares of our outstanding common stock. During the three and six months ended June 30, 2020, we did no t repurchase any shares of common stock; while, during the three and six months ended June 30, 2019, we repurchased 83,000 shares of common stock under this program for approximately $ 1.4 million. 14. Earnings Per Share We use the treasury stock method to calculate earnings per share as our currently issued non-vested RSUs and PSUs do not have participating rights. 14 Table of Contents The following table sets forth the computation of basic and diluted EPS for the three and six months ended June 30, 2020 and 2019 (in thousands, except share and per share information): Three Months Ended Six Months Ended June 30, June 30, 2020 2019 2020 2019 Numerator Net income $ 38,450 $ 15,495 $ 64,576 $ 32,612 Denominator Weighted average common shares outstanding - basic 33,340,184 30,341,628 33,274,056 30,272,818 Dilutive effect of restricted stock units 121,510 227,220 195,013 234,127 Weighted average common shares outstanding - diluted 33,461,694 30,568,848 33,469,069 30,506,945 Earnings per share: Basic $ 1.15 $ 0.51 $ 1.94 $ 1.08 Diluted $ 1.15 $ 0.51 $ 1.93 $ 1.07 Stock-based awards are excluded from the calculation of diluted EPS in the event they are subject to unsatisfied performance conditions or are antidilutive. We excluded 0.8 million and 0.6 million common unit equivalents from diluted earnings per share during the three and six months ended June 30, 2020 and 2019, respectively, related to the PSUs for which performance conditions remain unsatisfied. 15. Commitments and Contingencies Letters of Credit and Performance Bonds In the normal course of business, we post letters of credit and performance bonds related to our land development performance obligations with local municipalities. As of June 30, 2020, and December 31, 2019, we had $ 335.9 million and $ 344.1 million, respectively, in letters of credit and performance bonds issued and outstanding. Litigation We are subject to claims and lawsuits that arise primarily in the ordinary course of business, which consist primarily of construction defect claims. It is the opinion of our management that if the claims have merit, parties other than the Company would be, at least in part, liable for the claims, and the eventual outcome of these claims will not have a material adverse effect upon our consolidated financial condition, results of operations, or cash flows. When we believe that a loss is probable and estimable, we record a charge to selling, general, and administrative expense on our condensed consolidated statements of operations for our estimated loss. Under various insurance policies, we have the ability to recoup costs in excess of applicable self-insured retentions. Estimates of such amounts are recorded in other assets when recovery is probable. We do not believe that the ultimate resolution of any claims and lawsuits will have a material adverse effect upon our consolidated financial position, results of operations, or cash flows. ‎ 15 Table of Contents