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Item 1. Financial Statements

2023-04-27 compared with 2022-10-27 · 118 added, 173 removed, 324 unchanged (47% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

As of September 30, 2022 and December 31, 2021

As of March 31, 2023 and December 31, 2022

(in thousands, except share and per share amounts)

September 30,

Cash and cash equivalents

14 unchanged sentences

Preferred stock, $ 0.01 par value, 50,000,000 shares authorized, none outstanding

Common stock, $ 0.01 par value, 100,000,000 shares authorized, 31,772,335 and 33,760,940 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively

Common stock, $ 0.01 par value, 100,000,000 shares authorized, 32,025,785 and 31,772,791 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

Additional paid-in capital

5 unchanged sentences

Unaudited Condensed Consolidated Statements of Operations

For the Three and Nine Months Ended September 30, 2022 and 2021

For the Three Months Ended March 31, 2023 and 2022

(in thousands, except share and per share amounts)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Homebuilding revenues

6 unchanged sentences

Cost of home sales revenues

( 2,365,633 )

( 2,203,187 )

Cost of land sales and other revenues

Total homebuilding cost of revenues

( 2,374,784 )

( 2,227,183 )

Financial services costs

Selling, general and administrative

Loss on debt extinguishment

Inventory impairment and other

Other income (expense)

6 unchanged sentences

Unaudited Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2022 and 2021

For the Three Months Ended March 31, 2023 and 2022

(in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Operating activities

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

1 unchanged sentence

Fair value of mortgage loans held for sale and other

Loss on debt extinguishment

Inventory impairment and other

Abandonment of lot option contracts

Deferred income taxes

7 unchanged sentences

Accrued expenses and other liabilities

Net cash (used in) provided by operating activities

Net cash provided by operating activities

Investing activities

6 unchanged sentences

Payments on revolving credit facilities

Proceeds from issuance of senior notes due 2029

Extinguishment of senior notes due 2025

Borrowing under construction loan agreements

Proceeds from issuance of insurance premium notes and other

Principal payments on insurance premium notes and other

Debt issuance costs

Net payments for mortgage repurchase facilities

3 unchanged sentences

Other financing activities

Net cash (used in) provided by financing activities

Net (decrease) increase

Net cash used in financing activities

Net increase (decrease)

Cash and cash equivalents and Restricted cash

2 unchanged sentences

Supplemental cash flow disclosure

Cash paid for income taxes

Cash paid (refunds) for income taxes

Cash and cash equivalents and Restricted cash

5 unchanged sentences

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

For the Three and Nine Months Ended September 30, 2022 and 2021

For the Three Months Ended March 31, 2023 and 2022

(in thousands)

For the Three Months Ended September 30, 2022 and 2021

Additional Paid-In Capital

1 unchanged sentence

Total Stockholders'

Balance at June 30, 2022

Vesting of stock-based compensation awards

Withholding of common stock upon vesting of stock-based compensation awards

Repurchases of common stock

Stock-based compensation expense

Cash dividends declared and dividend equivalents

Balance at September 30, 2022

Balance at June 30, 2021

Stock-based compensation expense

Cash dividends declared and dividend equivalents

Balance at September 30, 2021

For the Nine Months Ended September 30, 2022 and 2021

Additional Paid-In Capital

Retained Earnings

Total Stockholders'

Balance at December 31, 2022

1 unchanged sentence

Withholding of common stock upon vesting of stock-based compensation awards

Repurchases of common stock

Stock-based compensation expense

Cash dividends declared and dividend equivalents

Balance at September 30, 2022

Balance at March 31, 2023

Balance at December 31, 2021

1 unchanged sentence

Withholding of common stock upon vesting of stock-based compensation awards

Repurchases of common stock

Stock-based compensation expense

Cash dividends declared and dividend equivalents

Balance at September 30, 2021

Balance at March 31, 2022

See Notes to Unaudited Condensed Consolidated Financial Statements

1 unchanged sentence

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, 2022

March 31, 2023

Basis of Presentation

9 unchanged sentences

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.

Additionally, our wholly owned subsidiary, Century Living, LLC, is engaged in the development, construction and management of multi-family rental properties, primarily in Colorado, with the intent to dispose of properties shortly after achieving stabilized rental operations.

Additionally, our wholly owned subsidiary, Century Living, LLC, is engaged in the development, construction and management of multi-family rental properties, primarily in Colorado.

Century Living, LLC is included in our Corporate segment.

19 unchanged sentences

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.

Our Century Complete brand currently has operations in 11 states and 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.

4 unchanged sentences

 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)

 Century Complete (Alabama, Arizona, Florida, Georgia, Indiana, Kentucky, Louisiana, Michigan, North Carolina, Ohio, South Carolina)

Commencing in the first quarter of 2023, our Century Complete operations in Texas were realigned and are now managed under our Texas segment.

Accordingly, we have presented segment information under this new basis as of and for the three months ended March 31, 2023, and we have restated the corresponding segment information for those segments as of December 31, 2022 and for the three months ended March 31, 2022 .

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.

Our Corporate operations are a non-operating segment, as our Corporate operations 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.

Additionally, our wholly owned subsidiary, Century Living, LLC, is engaged in the development, construction and management of multi-family rental properties, primarily in Colorado.

Century Living, LLC is included in our Corporate segment.

The following table summarizes total revenue and income (loss) before income tax expense by segment (in thousands ):

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Century Complete

6 unchanged sentences

The following table summarizes total assets by segment (in thousands):

September 30,

Century Complete

2 unchanged sentences

Inventories included the following (in thousands):

September 30,

Homes under construction

8 unchanged sentences

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 $ 139.8 million and $ 164.3 million at September 30, 2022 and December 31, 2021, respectively, and carried a weighted average interest rate of approximately 5.3 % and 3.3 %, respectively .

As of September 30, 2022 and December 31, 2021, Inspire had mortgage loans held for sale with an aggregate fair value of $ 194.1 million and $ 353.1 million, respectively, and an aggregate outstanding principal balance of $ 199.7 million and $ 342.0 million, respectively.

Net losses on the sale of mortgage loans were $ 3.6 million and $ 1.4 million for the three and nine months ended September 30, 2022, respectively, and net gains on the sale of mortgage loans were $ 21.7 million and $ 64.2 million for the three and nine months ended September 30, 2021, respectively, and are included in financial services revenue on the condensed consolidated statements of operations.

As of March 31, 2023 and December 31, 2022, Inspire had mortgage loans held for sale with an aggregate fair value of $ 155.7 million and $ 203.6 million, respectively, and an aggregate outstanding principal balance of $ 153.8 million and $ 202.0 million, respectively.

Net gains on the sale of mortgage loans were $ 1.8 million and $ 10.4 million for the three months ended March 31, 2023 and 2022, respectively.

The loss from the change in fair value for mortgage loans held for sale was nominal for the three months ended March 31, 2023 and was $ 9.7 million for the three months ended March 31, 2022.

Mortgage loans held for sale and mortgage servicing rights are carried at fair value , with gains and losses from the changes in fair value reflected in financial services revenue on our condensed consolidated statements of operations.

Management believes carrying mortgage 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.

Net gains and losses from the sale of mortgage loans held for sale, which are recognized based upon the difference between the sales proceeds and carrying value of the related loans upon sale, are also included in financial services revenue on our condensed consolidated statements of operations.

Mortgage loans in process for which interest rates were locked by borrowers, or interest rate lock commitments, totaled approximately $ 98.9 million and $ 68.1 million at March 31, 2023 and December 31, 2022, respectively, and carried a weighted average interest rate of approximately 5.6 % and 6.1 %, respectively .

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 $ 8.1 million and $ 1.8 million for the three months ended September 30, 2022 and 2021, respectively, and were $ 16.7 million and $ 6.1 million for the nine months ended September 30, 2022 and 2021, respectively.

Derivative instruments used to economically hedge our market and interest rate risk are carried at fair value.

Derivative instruments typically include interest rate lock commitments and forward commitments on mortgage-backed securities.

Changes in fair value of these derivatives as well as any gains or losses upon settlement are reflected in financial services revenue on our condensed consolidated statements of operations.

Refer to Note 13 – Fair Value Disclosures for further information regarding our derivative instruments.

1 unchanged sentence

Prepaid expenses and other assets included the following (in thousands):

September 30,

Prepaid insurance

1 unchanged sentence

Performance deposits

Deferred financing costs on revolving line of credit, net

Restricted cash (1)

Right of use assets

Multi-family rental properties under construction

Mortgage loans held for investment at fair value

Mortgage loans held for investment at amortized cost

Derivative assets and mortgage servicing rights

Mortgage servicing rights

Derivative assets

Other assets and prepaid expenses

Total prepaid expenses and other assets

(1) Restricted cash consists of restricted cash related to land development, 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.

(1) Restricted cash consists of restricted cash related to land development, earnest money deposits for home sale contracts held by third parties as required by various jurisdictions, and certain compensating balances associated with our mortgage repurchase facilities and other financing obligations.

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities included the following (in thousands):

September 30,

Earnest money deposits

4 unchanged sentences

Accrued interest

Lease liabilities - operating leases

Income taxes payable

5 unchanged sentences

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 $ 0.1 million and $ 2.5 million during the three months ended September 30, 2022 and 2021 and we reduced our warranty reserve by $ 0.6 million and $ 4.7 million during the nine months ended September 30, 2022 and 2021, respectively.

Based on warranty payment trends relative to our estimates at the time of home closing, we reduced our warranty reserve by $ 0.5 million and $ 0.6 million during the three months ended March 31, 2023 and 2022, 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, 2022 and 2021 are detailed in the table below (in thousands) :

Three Months Ended September 30,

Nine Months Ended September 30,

Changes in our warranty accrual for the three months ended March 31, 2023 and 2022 are detailed in the table below (in thousands) :

Three Months Ended March 31,

Beginning balance

5 unchanged sentences

These insurance policies protect us against a portion of the risk of loss from claims, subject to certain self-insured per occurrence and aggregate retentions, deductibles, and available policy limits.

Prior to the year ended December 31, 2021, we generally maintained construction defect policies with lower self-insurance limits.

In circumstances where we have elected to retain a higher portion of the overall risk for construction defect claims in return for a lower initial premium, we reserve for the estimated costs that we will incur that are above our coverage limits or that are not covered by our insurance policies.

4 unchanged sentences

Estimates of insurance recoveries and amounts we have paid on behalf of and expect to recover from other parties, if any, are recorded as receivables when such recoveries are considered probable.

Based on our third-party actuarial analysis, we increased our self-insurance reserve by $0.9 million during the three and nine months ended September

30, 2022 and recorded no change to our reserve during the three and nine months ended September 30, 2021, respectively.

These adjustments are included in cost of home sales revenues on our condensed consolidated statements of operations.

Changes in our self-insurance reserve for incurred but not reported construction defect claims for the three and nine months ended September 30, 2022 and 2021 are detailed in the table below (in thousands) :

Three Months Ended September 30,

Nine Months Ended September 30,

During the three months ended March 31, 2023 and 2022, we recorded no change to our self-insurance reserve.

Any adjustments are included in cost of home sales revenues on our condensed consolidated statements of operations.

Changes in our self-insurance reserve for incurred but not reported construction defect claims for the three months ended March 31, 2023 and 2022 are detailed in the table below (in thousands) :

Three Months Ended March 31,

Beginning balance

2 unchanged sentences

Ending balance

Our outstanding debt obligations included the following as of September 30, 2022 and December 31, 2021 (in thousands):

September 30,

Our outstanding debt obligations included the following as of March 31, 2023 and December 31, 2022 (in thousands):

3.875 % senior notes, due August 2029 (1)

5 unchanged sentences

(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.

(2) As of September 30, 2022, other financing obligations included $ 22.7 million related to insurance premium notes and certain secured borrowings, as well as $ 3.0 million outstanding under the Construction Loan Agreements.

As of December 31, 2021, other financing obligations included $ 9.2 million related to insurance premium notes and certain secured borrowings.

(2) As of March 31, 2023, other financing obligations included $ 20.4 million related to insurance premium notes and certain secured borrowings, as well as $ 14.5 million outstanding under the construction loan agreements.

As of December 31, 2022, other financing obligations included $ 20.7 million related to insurance premium notes and certain secured borrowings, as well as $ 7.4 million outstanding under the construction loan agreements.

Construction Loan Agreements

On August 9, 2022 and March 17, 2022, certain wholly owned subsidiaries of Century Living, LLC entered into construction loan agreements with PNC Bank, National Association and U.S.

Bank National Association, a national banking association, d/b/a Housing Capital Company (which we collectively refer to as “the Lenders”), respectively.

The construction loan agreements (which we refer to as the “Construction Loan Agreements”), collectively provide that we may borrow up to $ 128.0 million from the Lenders for purposes of construction of multi-family projects in Colorado, with advances made by the Lenders upon the satisfaction of certain conditions.

Borrowings under the Construction Loan Agreements bear interest at floating interest rates per annum equal to the Secured Overnight Financing Rate and the Bloomberg Short-term Bank Yield Index, plus an applicable margin .

The outstanding principal balances and all accrued and unpaid interest is due on varying maturity dates through August 9, 2026 , with the option to extend the maturity dates for a period of 12 months if certain conditions are satisfied.

On March 17, 2023, a wholly owned subsidiary of Century Living, LLC entered into a construction loan agreement with UMB Bank, N.A., and certain wholly owned subsidiaries of Century Living, LLC, are party to construction loan agreements entered into during 2022 with PNC Bank, National Association and U.S.

Bank National Association, a national banking association, d/b/a Housing Capital Company (which along with UMB Bank, N.A., we collectively refer to as “the lenders”), respectively.

The three construction loan agreements collectively provide that we may borrow up to $ 187.6 million from the lenders for purposes of construction of multi-family projects in Colorado, with advances made by the lenders upon the satisfaction of certain conditions.

Borrowings under the construction loan agreements bear interest at various rates, including a fixed rate, and floating interest rates per annum equal to the Secured Overnight Financing Rate (which we refer to as “SOFR”) and the Bloomberg Short-term Bank Yield Index, plus an applicable margin.

The outstanding principal balances and all accrued and unpaid interest is due on varying maturity dates through March 17, 2028 , with certain of the construction loan agreements allowing for the option to extend the maturity dates for a period of 12 months if certain conditions

are satisfied.

The construction loan agreements contain customary affirmative and negative covenants (including covenants related to construction completion, and limitations on the use of loan proceeds, transfers of land, equipment, and improvements), as well as customary events of default.

As of September 30, 2022, $ 3.0 million was outstanding under the Construction Loan Agreements, with borrowings bearing a weighted average interest rate of 4.423 %, and we were in compliance with all covenants thereunder.

As of March 31, 2023, $ 14.5 million was outstanding under the construction loan agreements, with borrowings bearing a weighted average interest rate of 6.778 % during the three months ended March 31, 2023, and we were in compliance with all covenants thereunder.

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 a senior unsecured revolving line of credit (which we refer to as the “Credit Facility”) of up to $ 800.0 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.

In 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 a senior unsecured revolving line of credit (which we refer to as the “revolving line of credit”) of up to $ 800.0 million, and unless terminated earlier, will mature on April 30, 2026 .

The revolving line of credit 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 revolving line of credit by an amount not exceeding $ 200.0 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, 2022 and December 31, 2021, $ 165.0 million and no amounts were outstanding under the Credit Facility, respectively, and we were in compliance with all covenants under the Second A&R Credit Agreement.

On December 21, 2022, we entered into a First Modification Agreement with Texas Capital Bank (formerly known as Texas Capital Bank, National Association), as Administrative Agent, amending the Second A&R Credit Agreement pursuant to which, effective January 3, 2023, all existing borrowings using an interest rate based on a LIBOR reference rate had the interest rate replaced with one based on an adjusted term SOFR reference rate, which equals the greater of (i) 0.50% or (ii) the one-month quotation of the secured overnight financing rate administered by the Federal Reserve Bank of New York, plus 0.10%.

As of March 31, 2023 and December 31, 2022, no amounts were outstanding under the revolving line of credit, respectively, and we were in compliance with all covenants under the Second A&R Credit Agreement.

Mortgage Repurchase Facilities – Financial Services

Inspire is a party to mortgage warehouse facilities with Comerica Bank, J.P.

Morgan, and Wells Fargo (which we refer to as the “Repurchase Facilities”), which provide Inspire with uncommitted repurchase facilities of up to $ 275.0 million as of September 30, 2022, secured by the mortgage loans financed thereunder.

The Repurchase Facilities have varying short term maturity dates through August 15, 2023 and bear a weighted average interest rate of 4.208 %.

Inspire is a party to mortgage warehouse facilities with Comerica Bank and J.P.

Morgan, and formerly Wells Fargo, (since the agreement with Wells Fargo was terminated during the three months ended March 31, 2023) (which facilities we refer to as the “repurchase facilities”), which provide Inspire with uncommitted repurchase facilities of up to an aggregate of $ 200.0 million as of March 31, 2023, secured by the mortgage loans financed thereunder.

The repurchase facilities have varying short term maturity dates through December 21, 2023 and bear a weighted average interest rate of 6.38 % during the three months ended March 31, 2023.

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, 2022, and December 31, 2021, we had $ 195.0 million and $ 331.9 million outstanding under the Repurchase Facilities, respectively, and were in compliance with all covenants thereunder.

During the three months ended September 30, 2022 and 2021, we incurred interest expense on the Repurchase Facilities of $ 0.6 million and $ 0.4 million, respectively, which are included in financial services costs on our condensed consolidated statements of operations.

During the nine months ended September 30, 2022 and 2021, we incurred interest expense on the Repurchase Facilities of $ 1.4 million and $ 1.8 million, respectively.

As of March 31, 2023 and December 31, 2022, we had $ 149.8 million and $ 197.6 million outstanding under the repurchase facilities, respectively, and were in compliance with all covenants thereunder.

Interest on Senior Notes and Revolving Line of Credit

Interest on our senior notes and Revolving Line of Credit 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, 2022 and 2021, we capitalized all interest costs incurred on these facilities during these periods.

As our qualifying assets exceeded our outstanding debt during the three months ended March 31, 2023 and 2022, we capitalized all interest costs incurred on these facilities during these periods.

Our interest costs were as follows (in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Interest capitalized beginning of period

3 unchanged sentences

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 23.6 % 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 home credits for the current year home deliveries, which combined resulted in a net decrease of 1.2 %.

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted into law.

The IRA extended the energy efficient home credit which provides a tax credit for each home delivered that met the energy saving and certification requirements for homes delivered from January 1, 2022 (retroactively) through December 31, 2022, as well as modifies and increases the tax credit starting in 2023 through 2032.

Previously, the federal tax credit expired for homes delivered after December 31, 2021.

During the three months ended September 30, 2022 , our effective tax rate was benefited by a $13.6 million benefit as a result of the retroactive extension of the energy efficient home credit.

For the nine months ended September 30, 2022, our estimated annual rate of 23.6 % was impacted by discrete items which had a net impact of decreasing our rate by 1.2 %, including federal energy home tax credits claimed and the impact of excess tax benefits for vested stock-based compensation.

For the three months ended September 30, 2022 and 2021, we recorded income tax expense of $ 27.6 million and $ 31.8 million, respectively.

For the nine months ended September 30, 2022 and 2021, we recorded income tax expense of $ 128.9 million and $ 95.4 million, respectively.

Our 2023 estimated annual effective tax rate, before discrete items, of 25.0 % is driven by our blended federal and state statutory rate of 24.6 %, and certain permanent differences between GAAP and tax, including disallowed deductions for executive compensation and estimated federal energy home credits for the current year home deliveries, which combined resulted in a net increase of 0.4 %.

For the three months ended March 31, 2023, our estimated annual rate of 25.0 % was benefitted by discrete items which had a net impact of decreasing our rate by 0.7 %, including excess tax benefits for vested stock-based compensation.

Our estimated annual rate for the three months ended March 31, 2023 of 25.0 % increased by 260 basis points as compared to our effective tax rate for the year ended December 31, 2022 of 22.4 %.

The increase in our estimated rate is a result of the enactment of the Inflation Reduction Act of 2022 during the third quarter of 2022, which modified the energy efficient home credit beginning with homes closed on or after January 1, 2023 and provided for more stringent energy standards than previous periods.

For the three months ended March 31, 2023 and 2022, we recorded income tax expense of $ 10.7 million and $ 46.3 million, respectively .

Fair Value Disclosures

7 unchanged sentences

 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.

 Derivative assets and liabilities – Derivative assets are associated with interest rate lock commitments and investor commitments on loans and derivative liabilities are associated with forward commitments.

Fair value is based on market prices for similar instruments.

3 unchanged sentences

 Mortgage loans held for investment at fair value – The fair value of mortgage loans held for investment at fair value 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, 2022 and December 31, 2021, respectively (in thousands):

September 30,

The following outlines the Company’s assets and liabilities measured at fair value on a recurring basis at March 31, 2023 and December 31, 2022, respectively (in thousands):

Balance Sheet Classification

10 unchanged sentences

(1) The unobservable inputs used in the valuation of the mortgage loans held for investment at fair value 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 7.6 %, 10.0 %, and $ 0.086 per year per loan, respectively as of September 30, 2022, and 8.5 %, 9.9 %, and $ 0.085 per year per loan, respectively, as of December 31, 2021.

(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 8.1 %, 9.0 %, and $ 0.073 per year per loan, respectively, as of March 31, 2023, and 7.6 %, 9.0 %, and $ 0.072 per year per loan, respectively, as of December 31, 2022.

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.

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 September 30,

Nine Months Ended September 30,

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 our condensed consolidated statements of operations (in thousands):

Three Months Ended March 31,

Mortgage servicing rights

2 unchanged sentences

End of period

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Mortgage loans held-for-investment at fair value

4 unchanged sentences

End of period

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, 2022 and December 31, 2021, respectively (in thousands).

September 30, 2022

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, 2023 and December 31, 2022, respectively (in thousands).

March 31, 2023

December 31, 2022

7 unchanged sentences

(2) Carrying amounts include any associated unamortized deferred financing costs, premiums and discounts.

As of September 30, 2022, these amounts totaled $ 5.3 million and $ 3.8 million for the 3.875 % senior notes and 6.750 % senior notes, respectively.

As of March 31, 2023, these amounts totaled $ 4.9 million and $ 3.4 million for the 3.875 % senior notes and 6.750 % senior notes, respectively.

As of December 31, 2022, these amounts totaled $ 5.1 million and $ 3.6 million for the 3.875 % senior notes and 6.750 % senior notes, respectively.

(3) Carrying amount approximates fair value due to short-term nature and interest rate terms.

(4) Other financing obligations included $ 22.7 million related to insurance premium notes and certain secured borrowings that generally bore interest rates ranging from 2.40 % to 3.99 %, and $ 3.0 million related to outstanding borrowings on the Construction Loan Agreements that bore a weighted average interest rate of 4.423 % during the period ended September 30, 2022.

Other financing obligations included $ 9.2 million related to insurance premium notes and certain secured borrowings that generally bore interest rates ranging from 2.99 % to 3.24 % during the period ended December 31, 2021.

(4) Other financing obligations included $ 20.4 million related to insurance premium notes and certain secured borrowings that generally bore interest rates ranging from 2.40 % to 6.40 %, and $ 14.5 million related to outstanding borrowings on the construction loan agreements that bore a weighted average interest rate of 6.778 % during the period ended March 31, 2023.

Other financing obligations included $ 20.7 million related to insurance premium notes and certain secured borrowings that generally bore interest rates ranging from 2.40 % to 5.84 %, and $ 7.4 million related to outstanding borrowings on the construction loan agreements that bore a weighted average interest rate of 5.634 % during the period ended December 31, 2022.

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 and nine months ended September 30, 2022.

No impairment charges were recorded in the three months ended September 30, 2021, and nominal impairment charges were recorded in the nine months ended September 30, 2021.

No impairment charges were recorded in the three months ended March 31, 2023 and 2022.

When impairment charges are recognized, the estimated fair value of communities are determined through a discounted cash flow approach utilizing Level 3 inputs.

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Stock-Based Compensation

During the nine months ended September 30, 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 $ 55.43 and $ 58.28 per share, respectively, that are subject to both service and performance vesting conditions.

During the three months ended March 31, 2023 and 2022, we granted restricted stock units (which we refer to as “RSUs”) covering 0.2 million and 0.2 million shares of common stock, respectively, with a grant date fair value of $ 62.61 and $ 64.37 per share, respectively, that primarily vest over a three year period.

During the three months ended March 31, 2023, we did no t grant performance share units (which we refer to as “PSUs”).

During the three months ended March 31, 2022, we granted PSUs covering up to 0.5 million shares of common stock, assuming maximum level of performance, with a grant date fair value of $ 55.93 per share 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 nine months ended September 30, 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.

During the three months ended March 31, 2023 and 2022, 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 0.6 million shares will vest from 2024 to 2025 if the defined maximum performance targets are met, and no shares will vest if the defined minimum performance targets are not met.

During the nine months ended September 30, 2022 and 2021, we granted restricted stock units (which we refer to as “RSUs”) covering 0.2 million and 0.2 million shares of common stock, respectively, with a grant date fair value of $ 63.26 and $ 53.40 per share, respectively, that primarily vest over a three year period.

During the nine months ended September 30, 2022, we granted 11.0 thousand shares of common stock on an unrestricted basis (which we refer to as “stock awards”) with a grant date fair value of $ 54.46 per share to our non-employee directors.

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 September 30, 2022

As of March 31, 2023

Unvested units

Unrecognized compensation cost

Weighted-average period to recognize compensation cost

During the three months ended September 30, 2022 and 2021, we recognized stock-based compensation expense of $ 5.2 million and $ 3.5 million, respectively.

During the nine months ended September 30, 2022 and 2021, we recognized stock-based compensation expense of $ 15.0 million and $ 10.8 million, respectively.

Weighted-average years to recognize compensation cost

During the three months ended March 31, 2023 and 2022, we recognized stock-based compensation expense of $ 5.4 million and $ 4.1 million, respectively.

Stock-based compensation expense is included in selling, general, and administrative expense on our condensed consolidated statements of operations.

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, 2022 and December 31, 2021, there were 31.8 million and 33.8 million shares of common stock issued and outstanding, respectively, and no shares of preferred stock outstanding.

The Company’s 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, 2023 and December 31, 2022, there were 32.0 million and 31.8 million shares of common stock issued and outstanding, respectively, and no shares of preferred stock outstanding.

On May 4, 2022, the stockholders approved the adoption of the Century Communities, Inc.

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Under the 2022 Incentive Plan, 3.1 million shares of common stock are available for issuance to eligible participants, plus 51.2 thousand shares of our common stock that remained available for issuance under the 2017 Incentive Plan and any shares subject to awards outstanding under the 2017 Incentive Plan that are subsequently forfeited, cancelled, expire or otherwise terminate without the issuance of such shares.

During the nine months ended September 30, 2022 and 2021, we issued 0.5 million and 0.7 million shares of common stock, respectively, related to the vesting and settlement of RSUs, PSUs, and stock awards.

As of September 30, 2022, approximately 3.1 million shares of common stock remained available for issuance under the 2022 Incentive Plan.

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, 2022 and 2021, respectively (in thousands, except per share information):

Nine months ended September 30, 2022

During the three months ended March 31, 2023 and 2022, we issued 0.4 million and 0.5 million shares of common stock, respectively, related to the vesting and settlement of RSUs and PSUs.

As of March 31, 2023, approximately 2.9 million shares of common stock remained available for issuance under the 2022 Incentive Plan.

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, 2023 and 2022, respectively (in thousands, except per share information):

Three Months ended March 31, 2023

Cash Dividends Declared and Paid

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March 15, 2023

June 15, 2022

August 17, 2022

August 31, 2022

September 14, 2022

Nine months ended September 30, 2021

Three Months ended March 31, 2022

Cash Dividends Declared and Paid

Declaration Date

June 16, 2021

August 18, 2021

September 1, 2021

September 15, 2021

February 16, 2022

March 2, 2022

March 16, 2022

Under the 2022 Incentive Plan and the previous 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 September 30, 2022.

We did no t sell or issue any shares of our common stock during the three and nine months ended September 30, 2022 and 2021, respectively.

We are party to a Distribution Agreement with J.P.

Morgan Securities LLC, BofA Securities, Inc., Wells Fargo Securities, LLC, 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.

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 4.5 million shares of our outstanding common stock.

During the three and nine months ended September 30, 2022, an aggregate of 0.5 million and 2.3 million shares, respectively, were repurchased for a total purchase price of approximately $ 22.3 million and $ 120.6 million, respectively, and a weighted average price of $ 44.58 and $ 52.32 per share, respectively.

During the three and nine months ended September 30, 2021, we did not repurchase any shares of common stock.

The maximum number of shares available to be repurchased under the stock repurchase program as of September 30, 2022 was 1,508,169 shares.

During the nine months ended September 30, 2022 and 2021, shares of common stock at a total cost of $ 12.7 million and $ 13.7 million, respectively, were netted and surrendered as payment for minimum statutory withholding obligations in connection with the vesting of outstanding stock-based compensation awards.

We did no t sell or issue any shares of our common stock during the three months ended March 31, 2023 and 2022, and as of March 31, 2023, all $ 100.0 million remained available for sale.

We authorized a stock repurchase program in 2018, under which we may repurchase up to 4.5 million shares of our outstanding common stock.

During the three months ended March 31, 2023, we did not repurchase any shares of common stock.

During the three months ended March 31, 2022, an aggregate of 1.0 million shares of our common stock were repurchased for a total purchase price of approximately $ 62.4 million at a weighted average price of $ 61.52 per share.

The maximum number of shares available to be repurchased under the stock repurchase program as of March 31, 2023 was 1,508,169 shares.

During the three months ended March 31, 2023 and 2022, shares of common stock at a total cost of $ 9.9 million and $ 12.1 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 our publicly announced share repurchase programs.

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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, 2022 and 2021 (in thousands, except share and per share information):

Three Months Ended September 30,

Nine Months Ended September 30,

The following table sets forth the computation of basic and diluted EPS for the three months ended March 31, 2023 and 2022 (in thousands, except share and per share information):

Three Months Ended March 31,

Weighted average common shares outstanding - basic

Dilutive effect of restricted stock units

Dilutive effect of stock-based compensation awards

Weighted average common shares outstanding - diluted

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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 0.5 million and 0.2 million common stock unit equivalents from diluted earnings per share during the three months ended September 30, 2022 and 2021, respectively, and we excluded 0.5 million and 0.2 million common stock unit equivalents from diluted earnings per share during the nine months ended September 30, 2022 and 2021, respectively, related to the PSUs for which performance conditions remained unsatisfied .

We excluded 0.5 million and 0.6 million common stock unit equivalents from diluted earnings per share during each of the three months ended March 31, 2023 and 2022, respectively, related to the PSUs for which performance conditions remained unsatisfied .

Commitments and Contingencies

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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, 2022 and December 31, 2021, we had $ 565 .8 million and $ 492.5 million, respectively, in letters of credit and performance and other bonds issued and outstanding.

As of March 31, 2023 and December 31, 2022, we had $ 570.8 million and $ 574.8 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.

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 on our condensed consolidated statements of operations for our estimated loss.

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements