Century Communities, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS. Century Communities, Inc. Condensed Consolidated Balance Sheets As of March 31, 2022 and December 31, 2021 (in thousands, except share and per share amounts) March 31, December 31, 2022 2021 Assets (unaudited) (audited) Cash and cash equivalents $ 209,046 $ 316,310 Cash held in escrow 45,212 52,297 Accounts receivable 46,038 41,932 Inventories 2,680,195 2,456,614 Mortgage loans held for sale 198,985 353,063 Prepaid expenses and other assets 236,567 200,087 Property and equipment, net 27,791 24,939 Deferred tax assets, net 21,272 21,239 Goodwill 30,395 30,395 Total assets $ 3,495,501 $ 3,496,876 Liabilities and stockholders' equity Liabilities: Accounts payable $ 91,520 $ 84,679 Accrued expenses and other liabilities 370,130 316,877 Notes payable 1,010,961 998,936 Revolving line of credit — — Mortgage repurchase facilities 193,028 331,876 Total liabilities 1,665,639 1,732,368 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, 33,038,361 and 33,760,940 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively 330 338 Additional paid-in capital 627,447 697,845 Retained earnings 1,202,085 1,066,325 Total stockholders' equity 1,829,862 1,764,508 Total liabilities and stockholders' equity $ 3,495,501 $ 3,496,876 See Notes to Unaudited Condensed Consolidated Financial Statements 3 Table of Contents Century Communities, Inc. Unaudited Condensed Consolidated Statements of Operations For the Three Months Ended March 31, 2022 and 2021 (in thousands, except share and per share amounts) Three Months Ended March 31, 2022 2021 Revenues Homebuilding revenues Home sales revenues $ 988,415 $ 959,279 Land sales and other revenues 1,630 15,670 Total homebuilding revenues 990,045 974,949 Financial services revenues 26,305 33,620 Total revenues 1,016,350 1,008,569 Homebuilding cost of revenues Cost of home sales revenues ( 709,073 ) ( 756,507 ) Cost of land sales and other revenues ( 846 ) ( 10,020 ) Total homebuilding cost of revenues ( 709,919 ) ( 766,527 ) Financial services costs ( 15,154 ) ( 18,301 ) Selling, general and administrative ( 101,639 ) ( 92,151 ) Other income (expense) ( 862 ) ( 541 ) Income before income tax expense 188,776 131,049 Income tax expense ( 46,280 ) ( 29,397 ) Net income $ 142,496 $ 101,652 Earnings per share: Basic $ 4.25 $ 3.03 Diluted $ 4.20 $ 3.00 Weighted average common shares outstanding: Basic 33,530,610 33,563,903 Diluted 33,942,234 33,884,275 See Notes to Unaudited Condensed Consolidated Financial Statements 4 Table of Contents Century Communities, Inc. Unaudited Condensed Consolidated Statements of Cash Flows For the Three Months Ended March 31, 2022 and 2021 (in thousands) Three Months Ended March 31, 2022 2021 Operating activities Net income $ 142,496 $ 101,652 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,606 2,806 Stock-based compensation expense 4,064 3,019 Fair value of mortgage loans held for sale and other 4,443 ( 15 ) Deferred income taxes ( 33 ) ( 2,763 ) Loss on disposition of assets 384 329 Changes in assets and liabilities: Cash held in escrow 7,085 ( 31,071 ) Accounts receivable 3,669 ( 3,075 ) Inventories ( 193,451 ) 63,586 Mortgage loans held for sale 144,361 ( 25,662 ) Prepaid expenses and other assets ( 28,084 ) ( 14,900 ) Accounts payable 8,720 ( 23,533 ) Accrued expenses and other liabilities 13,173 25,747 Net cash provided by operating activities 109,433 96,120 Investing activities Purchases of property and equipment ( 5,841 ) ( 2,913 ) Other investing activities 750 27 Net cash used in investing activities ( 5,091 ) ( 2,886 ) Financing activities Borrowings under revolving credit facilities 141,500 — Payments on revolving credit facilities ( 141,500 ) — Proceeds from issuance of insurance premium notes and other 16,863 4,124 Principal payments on insurance premium notes and other ( 5,235 ) ( 1,602 ) Net (payments) proceeds for mortgage repurchase facilities ( 138,848 ) 26,000 Withholding of common stock upon vesting of stock-based compensation awards ( 12,138 ) ( 12,177 ) Repurchases of common stock under stock repurchase program ( 62,377 ) — Dividend payments ( 6,657 ) — Other ( 34 ) ( 30 ) Net cash (used in) provided by financing activities ( 208,426 ) 16,315 Net (decrease) increase $ ( 104,084 ) $ 109,549 Cash and cash equivalents and Restricted cash Beginning of period 322,241 398,081 End of period $ 218,157 $ 507,630 Supplemental cash flow disclosure Cash (refunds) paid for income taxes $ ( 893 ) $ 10 Cash and cash equivalents and Restricted cash Cash and cash equivalents $ 209,046 $ 502,906 Restricted cash (Note 5) 9,111 4,724 Cash and cash equivalents and Restricted cash $ 218,157 $ 507,630 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 Months Ended March 31, 2022 and 2021 (in thousands) Common Stock Shares Amount Additional Paid-In Capital Retained Earnings Total Stockholders' Equity Balance at December 31, 2021 33,761 $ 338 $ 697,845 $ 1,066,325 $ 1,764,508 Vesting of stock-based compensation awards 480 5 ( 5 ) — — Withholding of common stock upon vesting of stock-based compensation awards ( 190 ) ( 3 ) ( 12,135 ) — ( 12,138 ) Repurchases of common stock ( 1,013 ) ( 10 ) ( 62,367 ) — ( 62,377 ) Stock-based compensation expense — — 4,064 — 4,064 Cash dividends declared and dividend equivalents — — 79 ( 6,736 ) ( 6,657 ) Other — — ( 34 ) — ( 34 ) Net income — — — 142,496 142,496 Balance at March 31, 2022 33,038 $ 330 $ 627,447 $ 1,202,085 $ 1,829,862 Balance at December 31, 2020 33,351 $ 334 $ 697,200 $ 583,171 $ 1,280,705 Vesting of stock-based compensation awards 601 6 ( 6 ) — — Withholding of common stock upon vesting of stock-based compensation awards ( 244 ) ( 3 ) ( 12,174 ) — ( 12,177 ) Stock-based compensation expense — — 3,019 — 3,019 Other — — ( 30 ) — ( 30 ) Net income — — — 101,652 101,652 Balance at March 31, 2021 33,708 $ 337 $ 688,009 $ 684,823 $ 1,373,169 See Notes to Unaudited Condensed Consolidated Financial Statements ‎ 6 Table of Contents Century Communities, Inc. Notes to Unaudited Condensed Consolidated Financial Statements March 31, 2022 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. We now have six states where both Century brands have a presence, and we believe there are more opportunities for increased penetration within our over 45 high-growth markets to enable both brands to benefit from increased scale and enhanced operational efficiencies. Our homebuilding operations are organized into the following five reportable segments: West, Mountain, Texas, Southeast, and Century Complete. 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, 2021, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 that was filed with the SEC on February 3, 2022. 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 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. 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 offers 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 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. 7 Table of Contents 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 (Florida, Georgia, North Carolina, South Carolina, and Tennessee)  Century Complete (Alabama, Arizona, Florida, Georgia, Indiana, Kentucky, Michigan, North Carolina, Ohio, South Carolina, and Texas) We have 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 ): Three Months Ended March 31, 2022 2021 Revenue: West $ 262,710 $ 185,826 Mountain 281,360 305,313 Texas 124,577 87,735 Southeast 149,600 220,406 Century Complete 171,798 175,669 Financial Services 26,305 33,620 Corporate — — Total revenue $ 1,016,350 $ 1,008,569 Income (loss) before income tax expense: West $ 71,242 $ 27,461 Mountain 56,999 51,980 Texas 20,570 8,531 Southeast 30,865 23,440 Century Complete 24,692 21,730 Financial Services 11,151 15,319 Corporate ( 26,743 ) ( 17,412 ) Total income before income tax expense $ 188,776 $ 131,049 The following table summarizes total assets by segment (in thousands): March 31, December 31, 2022 2021 West $ 724,968 $ 668,830 Mountain 1,016,202 1,008,481 Texas 365,114 322,302 Southeast 401,522 360,644 Century Complete 424,854 371,096 Financial Services 396,178 533,159 Corporate 166,663 232,364 Total assets $ 3,495,501 $ 3,496,876 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. 8 Table of Contents 3. Inventories Inventories included the following (in thousands): March 31, December 31, 2022 2021 Homes under construction $ 1,298,771 $ 1,188,270 Land and land development 1,326,172 1,214,965 Capitalized interest 55,252 53,379 Total inventories $ 2,680,195 $ 2,456,614 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 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 $ 230.7 million and $ 164.3 million at March 31, 2022 and December 31, 2021, respectively, and carried a weighted average interest rate of approximately 4.4 % and 3.3 %, respectively . As of March 31, 2022 and December 31, 2021, Inspire had mortgage loans held for sale with an aggregate fair value of $ 199.0 million and $ 353.1 million, respectively, and an aggregate outstanding principal balance of $ 197.6 million and $ 342.0 million, respectively. Our net gains on the sale of mortgage loans were $ 0.7 million and $ 18.0 million for the three months ended March 31, 2022 and 2021, 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 interest rate hedging program. Mortgage loans held for sale, including the rights to service the mortgage loans, mortgage loans in process for which interest rates were committed to the borrowers (referred to as “interest rate lock commitments”), as well as the derivative instruments used to economically hedge our interest rate risk, which are typically forward commitments on mortgage-backed securities and interest rate lock commitments, are carried at fair value. Management believes carrying loans held for sale at fair value improves financial reporting by mitigating volatility in reported earnings caused by measuring the fair value of the loans and the derivative instruments used to economically hedge them. Gains and losses from the changes in fair value are reflected in financial services revenue on the condensed consolidated statements of operations. Losses from the change in fair value for mortgage loans held for sale were $ 9.7 million and $ 4.9 million for the three months ended March 31, 2022 and 2021, respectively . 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): March 31, December 31, 2022 2021 Prepaid insurance $ 35,968 $ 37,814 Lot option and escrow deposits 67,068 61,649 Performance deposits 11,606 11,196 Deferred financing costs on revolving line of credit, net 5,411 5,135 Restricted cash (1) 9,111 5,931 Right of use assets 16,899 16,939 Other assets and prepaid expenses 46,362 28,322 Mortgage loans held for investment 16,509 13,456 Derivative assets and mortgage servicing rights 27,633 19,645 Total prepaid expenses and other assets $ 236,567 $ 200,087 (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. 9 Table of Contents 6. Accrued Expenses and Other Liabilities Accrued expenses and other liabilities included the following (in thousands): March 31, December 31, 2022 2021 Earnest money deposits $ 65,553 $ 56,811 Warranty reserve 13,503 13,343 Accrued compensation costs 43,665 81,604 Land development and home construction accruals 115,940 88,155 Accrued interest 13,765 9,653 Lease liabilities - operating leases 17,555 17,359 Income taxes payable 46,036 1,684 Derivative liabilities — 359 Other accrued liabilities 54,113 47,909 Total accrued expenses and other liabilities $ 370,130 $ 316,877 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 $ 0.6 million and $ 1.8 million during the three months ended March 31, 2022 and 2021, 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 months ended March 31, 2022 and 2021 are detailed in the table below (in thousands) : Three Months Ended March 31, 2022 2021 Beginning balance $ 13,343 $ 13,824 Warranty expense provisions 1,902 2,298 Payments ( 1,185 ) ( 839 ) Warranty adjustment ( 557 ) ( 1,803 ) Ending balance $ 13,503 $ 13,480 8. Debt Our outstanding debt obligations included the following as of March 31, 2022 and December 31, 2021 (in thousands): March 31, December 31, 2022 2021 3.875 % senior notes, due August 2029 (1) $ 494,310 $ 494,117 6.750 % senior notes, due May 2027 (1) 495,785 495,581 Other financing obligations 20,866 9,238 Notes payable 1,010,961 998,936 Revolving line of credit — — Mortgage repurchase facilities 193,028 331,876 Total debt $ 1,203,989 $ 1,330,812 (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. Revolving Line of Credit On May 21, 2021, we entered into a Second Amended and Restated Credit Agreement (which we refer to as 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 10 Table of Contents a senior unsecured revolving line of credit (which we refer to as 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 March 31, 2022 and December 31, 2021, 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 $ 325 million as of March 31, 2022, 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 2.17 %. 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 March 31, 2022 and December 31, 2021, we had $ 193.0 million and $ 331.9 million outstanding under the Repurchase Facilities, respectively, and were in compliance with all covenants thereunder. During the three months ended March 31, 2022 and 2021, 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. 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 months ended March 31, 2022 and 2021, we capitalized all interest costs incurred during these periods, except for interest incurred on our Repurchase Facilities. Our interest costs were as follows (in thousands): Three Months Ended March 31, 2022 2021 Interest capitalized beginning of period $ 53,379 $ 60,838 Interest capitalized during period 14,019 15,048 Less: capitalized interest in cost of sales ( 12,146 ) ( 18,377 ) Interest capitalized end of period $ 55,252 $ 57,509 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 2022 estimated annual effective tax rate, before discrete items, of 25.5 % is driven by our blended federal and state statutory rate of 24.7 %, and certain permanent differences between GAAP and tax, including disallowed deductions for executive compensation which increased our rate by 0.8 %. For the three months ended March 31, 2022, our estimated annual rate of 25.5 % was impacted by discrete items which had a net impact of decreasing our rate by 1.0 %, including excess tax benefits for vested stock-based compensation and federal energy tax credits claimed on prior year home deliveries in excess of previous estimates . Our estimated annual rate for the three months ended March 31, 2022 of 25.5 % increased by 330 basis points as compared to our effective tax rate for the year ended December 31, 2021 of 22.2 %. The increase in our estimated rate is driven by the expiration of the 11 Table of Contents Energy Efficient Home Credit on December 31, 2021. The Energy Efficient Home Credit provided a $2,000 tax credit for each home delivered that met the energy saving and certification requirements under the statute. For the three months ended March 31, 2022 and 2021, we recorded income tax expense of $ 46.3 million and $ 29.4 million, respectiv ely. 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 and uncommitted mortgage loans.  Derivative assets and liabilities – Derivative assets are interest rate lock commitments and derivative liabilities are associated with forward commitments and investor commitments on loans. Fair 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 March 31, 2022 and December 31, 2021, respectively (in thousands): March 31, December 31, Balance Sheet Classification Hierarchy 2022 2021 Mortgage loans held for sale Mortgage loans held for sale Level 2 $ 198,985 $ 353,063 Mortgage loans held for investment (1) Prepaid expenses and other assets Level 3 $ 16,509 $ 13,456 Derivative assets Prepaid expenses and other assets Level 2 $ 9,583 $ 5,944 Mortgage servicing rights (2) Prepaid expenses and other assets Level 3 $ 18,050 $ 13,701 Derivative liabilities Accrued expenses and other liabilities Level 2 $ — $ 359 (1) The unobservable inputs used in the valuation of the mortgage loans held for investment include, among other items, the value of underlying collateral, from markets where there is little observable trading activity. (2) The unobservable inputs used in the valuation of the mortgage servicing rights include mortgage prepayment rates, discount rates and cost to service, which were 7.1 %, 9.9 %, and $ 0.090 per year per loan, respectively as of March 31, 2022, and 8.5 %, 9.9 %, and $ 0.085 per year per loan, respectively, as of December 31, 2021. 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. 12 Table of Contents The following table represents the reconciliation of the beginning and ending balance for the Level 3 recurring fair value measurements, with gains and losses from the changes in fair value reflected in financial services revenue on the condensed consolidated statements of operations (in thousands): Three Months Ended March 31, Mortgage servicing rights 2022 2021 Beginning of period $ 13,701 $ 4,115 Originations 3,406 3,882 Settlements ( 305 ) ( 126 ) Changes in fair value 1,248 378 End of period $ 18,050 $ 8,249 Three Months Ended March 31, Mortgage loans held-for-investment 2022 2021 Beginning of period $ 13,456 $ 8,727 Transfers from loans held for sale 4,166 1,400 Settlements ( 975 ) — Reduction in unpaid principal balance ( 64 ) ( 49 ) Changes in fair value ( 74 ) — End of period $ 16,509 $ 10,078 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 March 31, 2022 and December 31, 2021, respectively (in thousands). March 31, 2022 December 31, 2021 Hierarchy Carrying Fair Value Carrying Fair Value Cash and cash equivalents Level 1 $ 209,046 $ 209,046 $ 316,310 $ 316,310 3.875 % senior notes (1)(2) Level 2 $ 494,310 $ 446,250 $ 494,117 $ 504,375 6.750 % senior notes (1)(2) Level 2 $ 495,785 $ 515,000 $ 495,581 $ 526,875 Revolving line of credit (3) Level 2 $ — $ — $ — $ — Other financing obligations (3)(4) Level 3 $ 20,866 $ 20,866 $ 9,238 $ 9,238 Mortgage repurchase facilities (3) Level 2 $ 193,028 $ 193,028 $ 331,876 $ 331,876 (1) Estimated fair value of the senior notes is based on recent trading activity in inactive markets. (2) Carrying amounts include any associated unamortized deferred financing costs, premiums and discounts. As of March 31, 2022, these amounts totaled $ 5.7 million and $ 4.2 million for the 3.875 % senior notes and 6.750 % senior notes, respectively. As of December 31, 2021, these amounts totaled $ 5.9 million and $ 4.4 million for the 6.750 % senior notes and 5.875 % senior notes, respectively. (3) Carrying amount approximates fair value due to short-term nature and interest rate terms. (4) Other financing obligations included insurance premium notes and certain secured borrowings and generally bore interest rates ranging from 2.40 % to 3.24 % during the period ended March 31, 2022 and from 2.99 % to 3.24 % during the period ended December 31, 2021. 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 March 31, 2022 and 2021, respectively. When impairment charges are recognized, the estimated fair value of communities are 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. 12. Stock-Based Compensation During the three months ended March 31, 2022 and 2021, we granted performance share units (which we refer to as “PSUs”) covering up to 0.5 million and 0.2 million shares of common stock, respectively, assuming maximum level of performance, with a grant date fair value of $ 55.93 and $ 58.28 per share, respectively, that are subject to both service and performance vesting conditions. The quantity of shares that will ultimately vest for the PSUs ranges from 0 % to up to 250 % of a targeted number of shares for each participant and will be determined based on an achievement of a three year adjusted pre-tax income performance goal. During the three months ended March 31, 2022 and 2021, we issued 0.3 million and 0.3 million shares of common stock, respectively, upon the vesting and settlement of PSUs that were granted in previous periods. Approximately 0.9 million shares will vest in 2022 to 2024 if the defined maximum performance targets are met, and no shares will vest if the defined minimum performance targets are not met. During the three months ended March 31, 2022 and 2021, we granted restricted stock units (which we refer to as “RSUs”) covering 0.2 million and 0.2 million shares of 13 Table of Contents common stock, respectively, with a grant date fair value of $ 64.37 and $ 52.74 per share, respectively, that primarily vest over a three year period. A summary of our outstanding PSUs, assuming the current estimated level of performance achievement, and RSUs are as follows (in thousands, except years): As of March 31, 2022 Unvested units 1,026 Unrecognized compensation cost $ 34,672 Weighted-average period to recognize compensation cost 1.97 During the three months ended March 31, 2022 and 2021, we recognized stock-based compensation expense of $ 4.1 million and $ 3.0 million, respectively. Stock-based compensation expense is included in selling, general, and administrative expense on our condensed consolidated statements of operations. 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 March 31, 2022 and December 31, 2021, there were 33.0 million and 33.8 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 1.6 million shares. We issued 0.5 million and 0.6 million shares of common stock related to the vesting and settlement of RSUs and PSUs during the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, approximately 0.3 million shares of common stock remained available for issuance under the Amended 2017 Incentive Plan. 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 three months ended March 31, 2022 (in thousands, except per share information): Cash Dividends Declared Declaration Date Record Date Payable Date Per Share Amount February 16, 2022 March 2, 2022 March 16, 2022 $ 0.20 $ 6,657 Under the Amended 2017 Incentive Plan, at the discretion of the Compensation Committee of the Board of Directors, RSUs and PSUs granted under the plan have the right to earn dividend equivalents, which entitles the holders of such RSUs and PSUs to additional RSUs and PSUs equal to the same dividend value per share as holders of common stock. Dividend equivalents are subject to the same vesting and other terms and conditions as the underlying RSUs and PSUs. 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 March 31, 2022. We did no t sell or issue any shares of our common stock during the three months ended March 31, 2022 and 2021, 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 . 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 months ended March 31, 2022, an aggregate of 1.0 million shares were repurchased for a total purchase price of approximately $ 62.4 million and a weighted average price of $ 61.52 per share. During the three months ended 14 Table of Contents March 31, 2021 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 March 31, 2022 was 2,799,552 shares. During the three months ended March 31, 2022 and 2021, shares of common stock at a total cost of $ 12.1 million and $ 12.2 million, respectively, were netted and surrendered as payment for minimum statutory withholding obligations in connection with the vesting of outstanding stock-based compensation awards. Shares surrendered by the participants in accordance with the applicable award agreements and plan are deemed repurchased and retired by us but are not part of publicly announced share repurchase programs. 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 months ended March 31, 2022 and 2021 (in thousands, except share and per share information): Three Months Ended March 31, 2022 2021 Numerator Net income $ 142,496 $ 101,652 Denominator Weighted average common shares outstanding - basic 33,530,610 33,563,903 Dilutive effect of restricted stock units 411,624 320,372 Weighted average common shares outstanding - diluted 33,942,234 33,884,275 Earnings per share: Basic $ 4.25 $ 3.03 Diluted $ 4.20 $ 3.00 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 0.6 million and 0.8 million common stock unit equivalents from diluted earnings per share during each of the three months ended March 31, 2022 and 2021, respectively, 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 March 31, 2022 and December 31, 2021, we had $ 528.9 million and $ 492.5 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. 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