Century Communities, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS. Century Communities, Inc. Condensed Consolidated Balance Sheets As of September 30, 2021 and December 31, 2020 (in thousands, except share and per share amounts) September 30, December 31, 2021 2020 Assets (unaudited) (audited) Cash and cash equivalents $ 491,879 $ 394,001 Cash held in escrow 29,183 23,149 Accounts receivable 34,134 21,781 Inventories 2,162,682 1,929,664 Mortgage loans held for sale 223,443 282,639 Prepaid expenses and other assets 190,778 122,630 Property and equipment, net 25,592 28,384 Deferred tax assets, net 22,786 12,450 Goodwill 30,395 30,395 Total assets $ 3,210,872 $ 2,845,093 Liabilities and stockholders' equity Liabilities: Accounts payable $ 102,327 $ 107,712 Accrued expenses and other liabilities 293,445 302,751 Notes payable 1,002,484 894,875 Revolving line of credit — — Mortgage repurchase facilities 211,599 259,050 Total liabilities 1,609,855 1,564,388 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, 33,760,940 and 33,350,633 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively 338 334 Additional paid-in capital 694,206 697,200 Retained earnings 906,473 583,171 Total stockholders' equity 1,601,017 1,280,705 Total liabilities and stockholders' equity $ 3,210,872 $ 2,845,093 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 Nine Months Ended September 30, 2021 and 2020 (in thousands, except share and per share amounts) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Revenues Homebuilding revenues Home sales revenues $ 917,337 $ 760,239 $ 2,881,404 $ 2,080,364 Land sales and other revenues 11,594 2,105 35,522 25,516 Total homebuilding revenues 928,931 762,344 2,916,926 2,105,880 Financial services revenues 29,101 32,017 92,586 67,534 Total revenues 958,032 794,361 3,009,512 2,173,414 Homebuilding cost of revenues Cost of home sales revenues ( 682,012 ) ( 627,364 ) ( 2,203,187 ) ( 1,718,545 ) Cost of land sales and other revenues ( 6,977 ) ( 2,046 ) ( 23,996 ) ( 18,597 ) Total homebuilding cost of revenues ( 688,989 ) ( 629,410 ) ( 2,227,183 ) ( 1,737,142 ) Financial services costs ( 17,666 ) ( 14,511 ) ( 54,135 ) ( 36,841 ) Selling, general and administrative ( 90,154 ) ( 85,806 ) ( 281,961 ) ( 246,131 ) Loss on debt extinguishment ( 14,458 ) — ( 14,458 ) — Inventory impairment and other — — ( 41 ) ( 1,691 ) Other income (expense) ( 1,004 ) 251 ( 2,790 ) ( 2,533 ) Income before income tax expense 145,761 64,885 428,944 149,076 Income tax expense ( 31,784 ) ( 15,121 ) ( 95,406 ) ( 34,736 ) Net income $ 113,977 $ 49,764 $ 333,538 $ 114,340 Earnings per share: Basic $ 3.38 $ 1.49 $ 9.90 $ 3.43 Diluted $ 3.31 $ 1.48 $ 9.69 $ 3.41 Weighted average common shares outstanding: Basic 33,760,940 33,350,633 33,688,531 33,299,768 Diluted 34,471,044 33,731,252 34,420,163 33,556,650 See Notes to Unaudited Condensed Consolidated Financial Statements 4 Table of Contents Century Communities, Inc. Unaudited Condensed Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2021 and 2020 (in thousands) Nine Months Ended September 30, 2021 2020 Operating activities Net income $ 333,538 $ 114,340 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,324 10,088 Stock-based compensation expense 10,760 14,374 Fair value of mortgage loans held for sale and other 3,529 ( 9,346 ) Loss on debt extinguishment 14,458 — Inventory impairment and other 41 1,691 Deferred income taxes ( 10,336 ) ( 2,186 ) Loss on disposition of assets 1,267 1,213 Changes in assets and liabilities: Cash held in escrow ( 6,034 ) 9,033 Accounts receivable ( 12,353 ) ( 1,417 ) Inventories ( 267,282 ) 160,877 Mortgage loans held for sale 53,132 ( 594 ) Prepaid expenses and other assets ( 68,622 ) 18,090 Accounts payable ( 5,385 ) ( 36,346 ) Accrued expenses and other liabilities 27,743 35,989 Net cash provided by operating activities 82,780 315,806 Investing activities Purchases of property and equipment ( 6,763 ) ( 6,706 ) Proceeds from secured note receivable and other 2,434 79 Net cash used in investing activities ( 4,329 ) ( 6,627 ) Financing activities Borrowings under revolving credit facilities — 678,000 Payments on revolving credit facilities — ( 746,700 ) Proceeds from issuance of senior notes due 2029 500,000 — Extinguishment of senior notes due 2025 ( 411,752 ) — Proceeds from issuance of insurance premium notes and other 19,580 5,469 Principal payments on insurance notes payable ( 9,683 ) ( 7,259 ) Debt issuance costs ( 6,155 ) — Net payments on mortgage repurchase facilities ( 47,451 ) ( 680 ) Withholding of common stock upon vesting of restricted stock units ( 13,726 ) ( 5,145 ) Dividend payments ( 10,127 ) — Other ( 133 ) ( 495 ) Net cash provided by (used in) financing activities 20,553 ( 76,810 ) Net increase $ 99,004 $ 232,369 Cash and cash equivalents and Restricted cash Beginning of period 398,081 58,521 End of period $ 497,085 $ 290,890 Supplemental cash flow disclosure Cash paid for income taxes $ 116,182 $ 30,998 Cash and cash equivalents and Restricted cash Cash and cash equivalents $ 491,879 $ 288,341 Restricted cash (Note 5) 5,206 2,549 Cash and cash equivalents and Restricted cash $ 497,085 $ 290,890 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 Nine Months Ended September 30, 2021 and 2020 (in thousands) For the Three Months Ended September 30, 2021 and 2020 Common Stock Shares Amount Additional Paid-In Capital Retained Earnings Total Stockholders' Equity Balance at June 30, 2021 33,761 $ 338 $ 690,707 $ 797,613 $ 1,488,658 Stock-based compensation expense — — 3,548 — 3,548 Cash dividends declared — — 54 ( 5,117 ) ( 5,063 ) Other — — ( 103 ) — ( 103 ) Net income — — — 113,977 113,977 Balance at September 30, 2021 33,761 $ 338 $ 694,206 $ 906,473 $ 1,601,017 Balance at June 30, 2020 33,351 $ 334 $ 687,564 $ 441,590 $ 1,129,488 Stock-based compensation expense — — 5,786 — 5,786 Other — — ( 81 ) — ( 81 ) Net income — — — 49,764 49,764 Balance at September 30, 2020 33,351 $ 334 $ 693,269 $ 491,354 $ 1,184,957 For the Nine Months Ended September 30, 2021 and 2020 Common Stock Shares Amount Additional Paid-In Capital Retained Earnings Total Stockholders' Equity Balance at December 31, 2020 33,351 $ 334 $ 697,200 $ 583,171 $ 1,280,705 Vesting of restricted stock units 675 7 ( 7 ) — — Withholding of common stock upon vesting of restricted stock units ( 265 ) ( 3 ) ( 13,723 ) — ( 13,726 ) Stock-based compensation expense — — 10,760 — 10,760 Cash dividends declared — — 109 ( 10,236 ) ( 10,127 ) Other — — ( 133 ) — ( 133 ) Net income — — — 333,538 333,538 Balance at September 30, 2021 33,761 $ 338 $ 694,206 $ 906,473 $ 1,601,017 Balance at December 31, 2019 33,067 $ 331 $ 684,354 $ 377,014 $ 1,061,699 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 — — 14,374 — 14,374 Other — — ( 311 ) — ( 311 ) Net income — — — 114,340 114,340 Balance at September 30, 2020 33,351 $ 334 $ 693,269 $ 491,354 $ 1,184,957 See Notes to Unaudited Condensed Consolidated Financial Statements ‎ 6 Table of Contents Century Communities, Inc. Notes to Unaudited Condensed Consolidated Financial Statements September 30, 2021 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 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: entry-level, 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 opportunities. Our Century Complete brand targets entry-level homebuyers, primarily sells homes through retail studios and the internet, and generally provides no option or upgrade opportunities. 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, primarily 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. 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, 2020, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 that was filed with the SEC on February 5, 2021. 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. Recently Adopted Accounting Standards Income Taxes In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. We adopted this standard on January 1, 2021 with no material effect on the condensed 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: entry-level, 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 entry-level homebuyers, primarily sells homes through retail studios and the 7 Table of Contents internet, and generally 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 Century Communities 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 (Arizona, Colorado, Nevada, and Utah)  Texas  Southeast (Georgia, North Carolina, South Carolina, Tennessee, and Florida)  Century Complete (Alabama, Arizona, Florida, Georgia, Indiana, Kentucky, 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 September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Revenue: West $ 268,279 $ 188,495 $ 691,472 $ 486,507 Mountain 263,587 222,262 863,901 570,983 Texas 87,250 76,776 307,774 235,618 Southeast 131,297 152,858 520,221 458,986 Century Complete 178,518 121,953 533,558 353,786 Financial Services 29,101 32,017 92,586 67,534 Corporate — — — — Total revenue $ 958,032 $ 794,361 $ 3,009,512 $ 2,173,414 Income (loss) before income tax expense: West $ 60,915 $ 13,627 $ 129,279 $ 42,716 Mountain 50,561 28,695 158,355 67,789 Texas 11,884 6,904 39,554 22,012 Southeast 20,004 13,414 69,540 33,743 Century Complete 24,838 7,826 69,657 17,159 Financial Services 11,435 17,506 38,451 30,693 Corporate ( 33,876 ) ( 23,087 ) ( 75,892 ) ( 65,036 ) Total income before income tax expense $ 145,761 $ 64,885 $ 428,944 $ 149,076 The following table summarizes total assets by segment (in thousands): September 30, December 31, 2021 2020 West $ 642,710 $ 536,907 Mountain 843,848 778,198 Texas 289,449 207,746 Southeast 369,041 329,930 Century Complete 332,998 218,604 Financial Services 397,133 421,153 Corporate 335,693 352,555 Total assets $ 3,210,872 $ 2,845,093 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): September 30, December 31, 2021 2020 Homes under construction $ 1,241,572 $ 1,040,584 Land and land development 866,381 828,242 Capitalized interest 54,729 60,838 Total inventories $ 2,162,682 $ 1,929,664 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 9 Table of Contents substantially all of the loans it originates either as loans with servicing rights released, or with servicing rights retained, 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 locked by borrowers, or interest rate lock commitments, totaled approximately $ 171.0 million and $ 172.3 million at September 30, 2021 and December 31, 2020, respectively, and carried a weighted average interest rate of approximately 3.1 % and 2.8 %, respectively . As of September 30, 2021 and December 31, 2020, Inspire had mortgage loans held for sale with an aggregate fair value of $ 223.4 million and $ 282.6 million, respectively, and an aggregate outstanding principal balance of $ 216.4 million and $ 269.6 million, respectively. Our net gains on the sale of mortgage loans were $ 23.4 million and $ 26.3 million for the three months ended September 30, 2021 and 2020, respectively, and were $ 70.2 million and $ 53.9 million for the nine months ended September 30, 2021 and 2020, respectively, and are included in the financial services revenue on the condensed consolidated statements of operations. Interest rate risks related to these obligations are typically mitigated by the preselling of loans to investors or through our program to economically hedge interest rates. Mortgage loans in process for which interest rates were committed to borrowers, mortgage loans held-for-sale, including the rights to service the mortgage loans, as well as the derivative instruments 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 statements 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): September 30, December 31, 2021 2020 Prepaid insurance $ 41,494 $ 18,699 Lot option and escrow deposits 72,023 39,985 Performance deposits 11,398 9,372 Deferred financing costs on revolving line of credit, net 5,431 3,206 Restricted cash (1) 5,206 4,080 Secured note receivable — 2,434 Right of use assets 16,026 16,175 Other assets and prepaid expenses 9,529 8,082 Mortgage loans held for investment 11,613 8,727 Derivative assets and mortgage servicing rights 18,058 11,870 Total prepaid expenses and other assets $ 190,778 $ 122,630 (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): September 30, December 31, 2021 2020 Earnest money deposits $ 53,838 $ 30,578 Warranty reserve 12,315 13,824 Accrued compensation costs 63,846 60,692 Land development and home construction accruals 84,061 80,088 Liability for product financing arrangements 19,844 62,084 Accrued interest 13,241 13,649 Lease liabilities - operating leases 16,457 16,801 Income taxes payable — 3,118 Derivative liabilities — 3,807 Other accrued liabilities 29,843 18,110 Total accrued expenses and other liabilities $ 293,445 $ 302,751 10 Table of Contents 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 condensed consolidated balance sheets, are based upon historical experience rates. We subsequently assess the adequacy of our warranty accrual on a quarterly basis through a 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 $ 2.5 million during the three months ended September 30, 2021, and did not reduce our warranty reserve during the three months ended September 30, 2020. We reduced our warranty reserve by $ 4.7 million and $ 1.3 million during the nine months ended September 30, 2021 and 2020, respectively. These adjustments are included in cost of home sales revenues on our condensed consolidated statements of operations. Changes in our warranty accrual for the three and nine months ended September 30, 2021 and 2020 are detailed in the table below (in thousands) : Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Beginning balance $ 13,862 $ 11,221 $ 13,824 $ 9,731 Warranty expense provisions 2,459 2,293 7,139 6,345 Payments ( 1,494 ) ( 624 ) ( 3,938 ) ( 1,925 ) Warranty adjustment ( 2,512 ) — ( 4,710 ) ( 1,261 ) Ending balance $ 12,315 $ 12,890 $ 12,315 $ 12,890 8. Debt Our outstanding debt obligations included the following as of September 30, 2021 and December 31, 2020 (in thousands): September 30, December 31, 2021 2020 3.875 % senior notes, due August 2029 (1) $ 493,929 $ — 6.750 % senior notes, due May 2027 (1) 495,371 494,768 5.875 % senior notes, due July 2025 (1) — 396,821 Other financing obligations 13,184 3,286 Notes payable 1,002,484 894,875 Revolving line of credit — — Mortgage repurchase facilities 211,599 259,050 Total debt $ 1,214,083 $ 1,153,925 (1) The carrying value of senior notes reflects the impact of premiums, discounts, and issuance costs that are amortized to interest expense over the respective terms of the senior notes. Issuance of 3.875% Senior Notes Due 2029 In August 2021, we completed a private offering of $ 500.0 million aggregate principal amount of our 3.875 % Senior Notes due 2029 (the “2029 Notes”) in reliance on Rule 144A and Regulation S under the Securities Act of 1933. The 2029 Notes were issued under an Indenture, dated as of August 23, 2021, among the Company, our subsidiary guarantors party thereto, and U.S. Bank National Association, as trustee (which we refer to as the “August 2021 Indenture,” as it may be supplemented or amended from time to time). The 2029 Notes were issued at 100% of their principal amount and we received proceeds of $ 493.8 million, net of $ 6.2 million in issuance costs. The August 2021 Indenture contains certain restrictive covenants on issuing future secured debt and other transactions. The aggregate principal balance of the 2029 Notes is due August 2029, with interest only payments due semi-annually in February and August of each year, beginning on February 15, 2022. Redemption and Extinguishment of 5.875% Senior Notes Due 2025 During the three months ended September 30, 2021 we redeemed $ 400.0 million in outstanding principal of our 5.875 % Senior Notes due 2025 at a redemption price equal to 102.938 % of the principal amount, plus accrued and unpaid interest, totaling $ 414.8 million. The redemption was conditioned upon our prior consummation of the offering and issuance of the 2029 Notes. The redemption transaction resulted in a loss on debt extinguishment of $ 14.5 million in the condensed consolidated statement of operations. 11 Table of Contents Revolving Line of Credit On May 21, 2021, we entered into a Second Amended and Restated Credit Agreement (the “Second A&R Credit Agreement”) with Texas Capital Bank, National Association, as Administrative Agent and L/C Issuer, and the lenders party thereto. The Second A&R Credit Agreement, which amended and restated our prior Amended and Restated Credit Agreement , provides us with a senior unsecured revolving line of credit (the “Credit Facility”) of up to $ 800 million, and unless terminated earlier, will mature on April 30, 2026 . The Credit Facility includes a $ 250.0 million sublimit for standby letters of credit. Under the terms of the Second A&R Credit Agreement, the Company is entitled to request an increase in the size of the Credit Facility by an amount not exceeding $ 200 million. Our obligations under the Second A&R Credit Agreement are guaranteed by certain of our subsidiaries. The Second A&R 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. Borrowings under the Second A&R Credit Agreement bear interest at a floating rate equal to the adjusted Eurodollar Rate plus an applicable margin between 2.05 % and 2.65 % per annum, and if made available in the Administrative Agent’s discretion, a base rate plus an applicable margin between 1.05 % and 1.65 % per annum. As of September 30, 2021 and December 31, 2020, no amounts were outstanding under the Credit Facility, and we 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”), which were increased in 2020, provide Inspire with uncommitted repurchase facilities of up to $ 275 million as of September 30, 2021, secured by the mortgage loans financed thereunder. The repurchase facilities have varying short term maturity dates through August 23, 2022 and bear a weighted average interest rate of 2.23 %. 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 September 30, 2021 and December 31, 2020, we had $ 211.6 million and $ 259.1 million outstanding under these repurchase facilities, respectively, and were in compliance with all covenants thereunder. During the three months ended September 30, 2021 and 2020, we incurred interest expense on the repurchase facilities of $ 0.4 million and $ 0.8 million, respectively, which are included in financial services costs on our condensed consolidated statements of operations. During the nine months ended September 30, 2021 and 2020, we incurred interest expense on the repurchase facilities of $ 1.8 million and $ 2.0 million, respectively. 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 three and nine months ended September 30, 2021 and 2020, we capitalized all interest costs incurred during these periods, except for interest incurred on our mortgage repurchase facilities. Our interest costs were as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Interest capitalized beginning of period $ 54,161 $ 70,311 $ 60,838 $ 67,069 Interest capitalized during period 15,204 15,065 45,310 50,686 Less: capitalized interest in cost of sales ( 14,636 ) ( 19,050 ) ( 51,419 ) ( 51,429 ) Interest capitalized end of period $ 54,729 $ 66,326 $ 54,729 $ 66,326 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 2021 estimated annual effective tax rate, before discrete items, of 23.4 % is driven by our blended federal and state statutory rate of 24.8 %, and certain permanent differences between GAAP and tax, including disallowed deductions for executive compensation and estimated federal energy credits for current year home deliveries, which decreased our rate by 1.4 %. 12 Table of Contents For the nine months ended September 30, 2021, our estimated annual rate of 23.4 % was impacted by discrete items which had a net impact of decreasing our rate by 1.2 %, including federal energy tax credits claimed on prior year home deliveries in excess of previous estimates and excess tax benefits for vested stock-based compensation. For the three months ended September 30, 2021 and 2020, we recorded income tax expense of $ 31.8 million and $ 15.1 million, respectively. For the nine months ended September 30, 2021 and 2020, we recorded income tax expense of $ 95.4 million and $ 34.7 million, respectively. 11. Fair Value Disclosures Fair value measurements are used for the Company’s mortgage loans held for sale, mortgage loans held for investment, mortgage servicing rights, interest rate lock commitments and other derivative instruments on a recurring basis. We also utilize fair value measurements on a non-recurring basis for inventories and intangible assets when events and circumstances indicate that the carrying value is not recoverable. The fair value hierarchy and its application to the Company’s assets and liabilities is as follows: 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 the measurement date.  Mortgage loans held for sale – Fair value is based on quoted market prices for committed mortgage loans.  Derivative assets and liabilities – Derivative assets and liabilities are related to our financial services segment and f air value is based on market prices for similar instruments. Level 3 – Valuations derived from techniques where one or more significant inputs or significant value drivers are unobservable in active markets at the measurement date.  Mortgage servicing rights - The fair value of the mortgage servicing rights is calculated using third-party valuations. The key assumptions, which are generally unobservable inputs, used in the valuation of the mortgage servicing rights include mortgage prepayment rates, discount rates and cost to service.  Mortgage loans held for investment – The fair value of mortgage loans held for investment is calculated based on Level 3 analysis which incorporates information including the value of underlying collateral, from markets where there is little observable trading activity. The following outlines the Company’s assets and liabilities measured at fair value on a recurring basis at September 30, 2021 and December 31, 2020, respectively (in thousands): September 30, December 31, Balance Sheet Classification Hierarchy 2021 2020 Mortgage loans held for sale Mortgage loans held for sale Level 2 $ 223,443 $ 282,639 Mortgage loans held for investment Prepaid expenses and other assets Level 3 $ 11,613 $ 8,727 Derivative assets Prepaid expenses and other assets Level 2 $ 6,387 $ 7,755 Mortgage servicing rights (1) Prepaid expenses and other assets Level 3 $ 11,671 $ 4,115 Derivative liabilities Accrued expenses and other liabilities Level 2 $ — $ 3,807 (1) The unobservable inputs used in the valuation of the mortgage servicing rights include mortgage prepayment rates, discount rates and cost to service, which were 8.8 %, 9.9 %, and $ 0.085 per year per loan, respectively as of September 30, 2021, and 10.4 %, 9.8 %, and $ 0.084 per year per loan, respectively, as of December 31, 2020. The high and low end of the range of unobservable inputs used in the valuation did not result in a significant change to the fair value measurement. 13 Table of Contents The following table represents the reconciliation of the beginning and ending balance for the Level 3 recurring fair value measurements (in thousands): Three Months Ended September 30, Nine Months Ended September 30, Mortgage servicing rights: 2021 2020 2021 2020 Beginning of period $ 10,298 $ — $ 4,115 $ — Originations 1,604 1,800 7,986 1,800 Disposals/settlements ( 258 ) — ( 527 ) — Changes in fair value 27 — 97 — End of period $ 11,671 $ 1,800 $ 11,671 $ 1,800 Three Months Ended September 30, Nine Months Ended September 30, Mortgage loans held-for-investment 2021 2020 2021 2020 Beginning of period $ 10,823 $ 6,813 $ 8,727 $ 3,385 Originations 973 1,563 4,354 6,209 Disposals/settlements ( 129 ) ( 331 ) ( 1,309 ) ( 1,504 ) Reduction in unpaid principal balance ( 54 ) ( 70 ) ( 159 ) ( 115 ) Changes in fair value — — — — End of period $ 11,613 $ 7,975 $ 11,613 $ 7,975 For the financial assets and liabilities that the Company does not reflect at fair value, the following present both their respective carrying value and fair value at September 30, 2021 and December 31, 2020, respectively (in thousands). September 30, 2021 December 31, 2020 Hierarchy Carrying Fair Value Carrying Fair Value Cash and cash equivalents Level 1 $ 491,879 $ 491,879 $ 394,001 $ 394,001 Secured notes receivable (1) Level 2 $ — $ — $ 2,434 $ 2,448 3.875 % senior notes (2)(3) Level 2 $ 493,929 $ 506,875 $ — $ — 5.875 % senior notes (2)(3) Level 2 $ — $ — $ 396,821 $ 417,500 6.750 % senior notes (2)(3) Level 2 $ 495,371 $ 532,500 $ 494,768 $ 533,750 Revolving line of credit (4) Level 2 $ — $ — $ — $ — Other financing obligations (4)(5) Level 3 $ 13,184 $ 13,184 $ 3,286 $ 3,286 Mortgage repurchase facilities (4) Level 2 $ 211,599 $ 211,599 $ 259,050 $ 259,050 (1) During the three months ended September 30, 2021, the secured note receivable was paid in full at $ 2.4 million. Prior year estimated fair value of the secured note receivable was based on cash flow models discounted at market interest rates which considered the underlying risks of the note. (2) Estimated fair value of the senior notes is based on recent trading activity in inactive markets. (3) Carrying amounts include any associated unamortized deferred financing costs, premiums and discounts. As of September 30, 2021, these amounts totaled $ 6.1 million and $ 4.6 million for the 3.875 % senior notes and 6.750 % senior notes, respectively. As of December 31, 2020, these amounts totaled $ 5.2 million and $ 3.2 million for the 6.750 % senior notes and 5.875 % senior notes, respectively. (4) Carrying amount approximates fair value due to short-term nature and interest rate terms. (5) Insurance premium notes included in other financing obligations bore interest rates ranging from 2.990 % to 3.240 % during the period ended September 30, 2021 and from 3.200 % to 3.240 % during the period ended December 31, 2020. 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. No impairment charges were recorded in the three months ended September 30, 2021 and 2020, respectively. Nominal impairment charges were recorded during the nine months ended September 30, 2021, and we recognized impairment charges of $ 1.7 million during the nine months ended September 30, 2020. The estimated fair value of the communities were determined through a discounted cash flow approach utilizing Level 3 inputs. Changes in our cash flow projections in future periods related to these communities may change our conclusions on the recoverability of inventory in the future. 14 Table of Contents 12. Stock-Based Compensation During the nine months ended September 30, 2021, we granted restricted stock units (which we refer to as “RSUs”) covering 0.2 million shares of common stock, respectively, with a grant date fair value of $ 53.40 per share, that primarily vest over a three year period. During the nine months ended September 30, 2021, we also granted performance share units (which we refer to as “PSUs”) covering up to 0.2 million shares of common stock, assuming maximum level of performance, with a grant date fair value of $ 58.28 per share. Granted PSUs are subject to both service and performance vesting conditions. The quantity of shares that will ultimately vest for 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. Approximately 0.8 million shares will vest if the defined maximum performance targets are met, and no shares will vest if the defined minimum performance targets are not met. A summary of our outstanding RSUs and PSUs, assuming the current estimated level of performance achievement, are as follows (in thousands, except years): As of September 30, 2021 Unvested units 1,111 Unrecognized compensation cost $ 20,667 Weighted-average period to recognize compensation cost 1.9 years During the three months ended September 30, 2021 and 2020, we recognized stock-based compensation expense of $ 3.5 million and $ 5.8 million, respectively. During the nine months ended September 30, 2021 and 2020, we recognized stock-based compensation expense of $ 10.8 million and $ 14.4 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 September 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 30 thousand, and we recorded a cumulative catch-up adjustment to increase stock-based compensation expense of $ 0.6 million ($ 0.4 million net of tax), or $ 0.02 per basic share and $ 0.01 per diluted share for the three and nine months ended September 30, 2020, respectively. 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 September 30, 2021, and December 31, 2020 there were 33.8 million and 33.4 million shares of common stock issued and outstanding, respectively, and no shares of preferred stock outstanding. 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 0.7 million and 0.5 million shares of common stock related to the vesting of RSUs during the nine months ended September 30, 2021 and 2020, respectively. As of September 30, 2021, approximately 0.7 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, and was amended in July 2021 to acknowledge our filing of a new registration statement on Form S-3 registering the issuance and sale of shares of our common stock under the Distribution Agreement and replace Citigroup Global Markets Inc. with Wells Fargo Securities, LLC as a sales agent, had all $ 100.0 million available for sale as of September 30, 2021. We did no t sell or issue any shares of our common stock during the three and nine months ended September 30, 2021 and 2020, respectively. 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 . 15 Table of Contents 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 nine months ended September 30, 2021 and 2020, we did not repurchase any shares of common stock. The maximum number of shares available to be purchased under the stock repurchase program as of September 30, 2021 was 3,812,939 shares. On May 19, 2021, our Board of Directors announced the approval of the initiation of a quarterly cash dividend. The following table sets forth cash dividends declared by our Board of Directors to holders of record of our common stock during the nine months ended September 30, 2021 (in thousands, except per share information): Cash Dividends Declared Declaration Date Record Date Payable Date Per Share Amount May 19, 2021 June 2, 2021 June 16, 2021 $ 0.15 $ 5,064 August 18, 2021 September 1, 2021 September 15, 2021 $ 0.15 $ 5,063 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. The following table sets forth the computation of basic and diluted EPS for the three and nine months ended September 30, 2021 and 2020 (in thousands, except share and per share information): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Numerator Net income $ 113,977 $ 49,764 $ 333,538 $ 114,340 Denominator Weighted average common shares outstanding - basic 33,760,940 33,350,633 33,688,531 33,299,768 Dilutive effect of restricted stock units 710,104 380,619 731,632 256,882 Weighted average common shares outstanding - diluted 34,471,044 33,731,252 34,420,163 33,556,650 Earnings per share: Basic $ 3.38 $ 1.49 $ 9.90 $ 3.43 Diluted $ 3.31 $ 1.48 $ 9.69 $ 3.41 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 0.2 million common stock unit equivalents from diluted earnings per share during each of the three and nine months ended September 30, 2021 and 2020 related to the PSUs for which performance conditions remained unsatisfied. 15. Commitments and Contingencies Letters of Credit and Performance Bonds In the normal course of business, we post letters of credit and performance and other bonds primarily related to our land development performance obligations with local municipalities. As of September 30, 2021, and December 31, 2020, we had $ 484.9 million and $ 402.7 million, respectively, in letters of credit and performance and other bonds issued and outstanding. Legal Proceedings We are subject to claims and lawsuits that arise primarily in the ordinary course of business, which consist primarily of construction 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 on our condensed consolidated balance sheet when recovery is probable. 16 Table of Contents 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.