Century Communities, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS. Century Communities, Inc. Condensed Consolidated Balance Sheets As of June 30, 2023 and December 31, 2022 (in thousands, except share and per share amounts) June 30, December 31, 2023 2022 Assets (unaudited) (audited) Cash and cash equivalents $ 350,488 $ 296,724 Cash held in escrow 23,245 56,569 Accounts receivable 59,993 52,797 Inventories 2,856,388 2,830,645 Mortgage loans held for sale 195,598 203,558 Prepaid expenses and other assets 287,448 250,535 Property and equipment, net 32,663 31,688 Deferred tax assets, net 20,430 20,856 Goodwill 30,395 30,395 Total assets $ 3,856,648 $ 3,773,767 Liabilities and stockholders' equity Liabilities: Accounts payable $ 146,559 $ 106,926 Accrued expenses and other liabilities 266,366 299,588 Notes payable 1,030,782 1,019,412 Revolving line of credit — — Mortgage repurchase facilities 191,024 197,626 Total liabilities 1,634,731 1,623,552 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, 32,020,378 and 31,772,791 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively 320 318 Additional paid-in capital 586,856 584,803 Retained earnings 1,634,741 1,565,094 Total stockholders' equity 2,221,917 2,150,215 Total liabilities and stockholders' equity $ 3,856,648 $ 3,773,767 See Notes to Unaudited Condensed Consolidated Financial Statements 3 Table of Contents Century Communities, Inc. Unaudited Condensed Consolidated Statements of Operations For the Three and Six Months Ended June 30, 2023 and 2022 (in thousands, except share and per share amounts) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Revenues Homebuilding revenues Home sales revenues $ 818,360 $ 1,134,535 $ 1,553,960 $ 2,122,950 Land sales and other revenues 1,554 8,810 3,089 10,440 Total homebuilding revenues 819,914 1,143,345 1,557,049 2,133,390 Financial services revenues 24,277 22,797 40,132 49,102 Total revenues 844,191 1,166,142 1,597,181 2,182,492 Homebuilding cost of revenues Cost of home sales revenues ( 656,834 ) ( 814,895 ) ( 1,258,219 ) ( 1,523,968 ) Cost of land sales and other revenues ( 375 ) ( 8,012 ) ( 375 ) ( 8,858 ) Total homebuilding cost of revenues ( 657,209 ) ( 822,907 ) ( 1,258,594 ) ( 1,532,826 ) Financial services costs ( 11,770 ) ( 14,186 ) ( 22,551 ) ( 29,340 ) Selling, general and administrative ( 105,120 ) ( 109,158 ) ( 203,433 ) ( 210,797 ) Other income (expense) ( 1,344 ) ( 6,243 ) 154 ( 7,105 ) Income before income tax expense 68,748 213,648 112,757 402,424 Income tax expense ( 17,303 ) ( 54,980 ) ( 28,001 ) ( 101,260 ) Net income $ 51,445 $ 158,668 $ 84,756 $ 301,164 Earnings per share: Basic $ 1.61 $ 4.83 $ 2.65 $ 9.08 Diluted $ 1.60 $ 4.78 $ 2.63 $ 8.97 Weighted average common shares outstanding: Basic 32,025,186 32,839,402 31,970,106 33,183,097 Diluted 32,247,396 33,227,383 32,182,545 33,582,900 See Notes to Unaudited Condensed Consolidated Financial Statements 4 Table of Contents Century Communities, Inc. Unaudited Condensed Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2023 and 2022 (in thousands) Six Months Ended June 30, 2023 2022 Operating activities Net income $ 84,756 $ 301,164 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 6,913 5,352 Stock-based compensation expense 14,291 9,791 Fair value of mortgage loans held for sale and other ( 2,309 ) 5,322 Abandonment of lot option contracts 1,670 3,010 Deferred income taxes 426 1,883 Loss on disposition of assets 825 1,067 Changes in assets and liabilities: Cash held in escrow 33,324 ( 30,197 ) Accounts receivable ( 7,196 ) ( 16,824 ) Inventories ( 24,354 ) ( 544,237 ) Mortgage loans held for sale 6,400 128,114 Prepaid expenses and other assets 11,564 ( 26,582 ) Accounts payable 39,632 32,711 Accrued expenses and other liabilities ( 33,167 ) 26,539 Net cash provided by (used in) operating activities 132,775 ( 102,887 ) Investing activities Purchases of property and equipment ( 8,713 ) ( 8,785 ) Expenditures related to development of rental properties ( 39,501 ) ( 13,618 ) Other investing activities ( 391 ) ( 2,879 ) Net cash used in investing activities ( 48,605 ) ( 25,282 ) Financing activities Borrowings under revolving credit facilities — 571,000 Payments on revolving credit facilities — ( 430,000 ) Borrowing under construction loan agreements 13,757 — Proceeds from issuance of insurance premium notes and other 3,032 18,031 Principal payments on insurance premium notes and other ( 6,213 ) ( 9,043 ) Net payments for mortgage repurchase facilities ( 6,602 ) ( 122,875 ) Withholding of common stock upon vesting of stock-based compensation awards ( 10,643 ) ( 12,735 ) Repurchases of common stock under stock repurchase program ( 1,969 ) ( 98,305 ) Dividend payments ( 14,733 ) ( 13,225 ) Other financing activities — 879 Net cash used in financing activities ( 23,371 ) ( 96,273 ) Net increase (decrease) $ 60,799 $ ( 224,442 ) Cash and cash equivalents and Restricted cash Beginning of period 308,492 322,241 End of period $ 369,291 $ 97,799 Supplemental cash flow disclosure Cash paid for income taxes $ 19,295 $ 117,476 Cash and cash equivalents and Restricted cash Cash and cash equivalents $ 350,488 $ 78,011 Restricted cash (Note 5) 18,803 19,788 Cash and cash equivalents and Restricted cash $ 369,291 $ 97,799 See Notes to Unaudited Condensed Consolidated Financial Statements 5 Table of Contents Century Communities, Inc. Unaudited Condensed Consolidated Statements of Stockholders’ Equity For the Three and Six Months Ended June 30, 2023 and 2022 (in thousands) For the Three Months Ended June 30, 2023 and 2022 Common Stock Shares Amount Additional Paid-In Capital Retained Earnings Total Stockholders' Equity Balance at March 31, 2023 32,026 $ 320 $ 580,489 $ 1,590,832 $ 2,171,641 Vesting of stock-based compensation awards 35 — — — — Withholding of common stock upon vesting of stock-based compensation awards ( 11 ) — ( 763 ) — ( 763 ) Repurchases of common stock ( 30 ) — ( 1,969 ) — ( 1,969 ) Stock-based compensation expense — 8,931 — 8,931 Cash dividends declared and dividend equivalents — — 168 ( 7,536 ) ( 7,368 ) Net income — — — 51,445 51,445 Balance at June 30, 2023 32,020 $ 320 $ 586,856 $ 1,634,741 $ 2,221,917 Balance at March 31, 2022 33,038 $ 330 $ 627,447 $ 1,202,085 $ 1,829,862 Vesting of stock-based compensation awards 36 — — — — Withholding of common stock upon vesting of stock-based compensation awards ( 10 ) — ( 598 ) — ( 598 ) Repurchases of common stock ( 791 ) ( 7 ) ( 35,920 ) ( 35,927 ) Stock-based compensation expense — — 5,727 — 5,727 Cash dividends declared and dividend equivalents — — 71 ( 6,639 ) ( 6,568 ) Net income — — — 158,668 158,668 Balance at June 30, 2022 32,273 $ 323 $ 596,727 $ 1,354,114 $ 1,951,164 For the Six Months Ended June 30, 2023 and 2022 Common Stock Shares Amount Additional Paid-In Capital Retained Earnings Total Stockholders' Equity Balance at December 31, 2022 31,773 $ 318 $ 584,803 $ 1,565,094 $ 2,150,215 Vesting of stock-based compensation awards 447 4 ( 4 ) — — Withholding of common stock upon vesting of stock-based compensation awards ( 170 ) ( 2 ) ( 10,641 ) — ( 10,643 ) Repurchases of common stock ( 30 ) — ( 1,969 ) — ( 1,969 ) Stock-based compensation expense — — 14,291 — 14,291 Cash dividends declared and dividend equivalents — — 376 ( 15,109 ) ( 14,733 ) Net income — — — 84,756 84,756 Balance at June 30, 2023 32,020 $ 320 $ 586,856 $ 1,634,741 $ 2,221,917 Balance at December 31, 2021 33,761 $ 338 $ 697,845 $ 1,066,325 $ 1,764,508 Vesting of stock-based compensation awards 516 5 ( 5 ) — — Withholding of common stock upon vesting of stock-based compensation awards ( 200 ) ( 2 ) ( 12,733 ) — ( 12,735 ) Repurchases of common stock ( 1,804 ) ( 18 ) ( 98,287 ) — ( 98,305 ) Stock-based compensation expense — — 9,791 — 9,791 Cash dividends declared and dividend equivalents — — 150 ( 13,375 ) ( 13,225 ) Other — — ( 34 ) — ( 34 ) Net income — — — 301,164 301,164 Balance at June 30, 2022 32,273 $ 323 $ 596,727 $ 1,354,114 $ 1,951,164 See Notes to Unaudited Condensed Consolidated Financial Statements ‎ 6 Table of Contents Century Communities, Inc. Notes to Unaudited Condensed Consolidated Financial Statements June 30, 2023 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 18 states. In many of our projects, in addition to building homes, we are responsible for the entitlement and development of the underlying land. We build and sell homes under our Century Communities and Century Complete brands. Our Century Communities brand targets a wide range of buyer profiles including: entry-level, first and second time move-up, and lifestyle homebuyers, and provides our homebuyers with the ability to personalize their homes through certain option and upgrade opportunities. Our Century Complete brand targets entry-level homebuyers, primarily sells homes through retail studios and the internet, and generally provides no option or upgrade opportunities. Our homebuilding operations are organized into the following five reportable segments: West, Mountain, Texas, Southeast, and Century Complete. 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, currently all located in Colorado. Century Living, LLC is included in our Corporate 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, 2022, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 that was filed with the SEC on February 2, 2023. 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. 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. ‎ Reclassifications Certain prior period amounts have been reclassified to conform to current period presentation. Recently Issued Accounting Standards There are no recent accounting standards that are expected to have a material impact on our consolidated financial statements. 2. Reporting Segments Our homebuilding operations are engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in 18 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 7 Table of Contents internet, and generally provides no option or upgrade selections. 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. 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 (Alabama, Florida, Georgia, North Carolina, South Carolina, and Tennessee)  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 and six months ended June 30, 2023, and we have restated the corresponding segment information for those segments as of December 31, 2022 and for the three and six months ended June 30, 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 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, currently all located 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 June 30, Six Months Ended June 30, 2023 2022 2023 2022 Revenue: West $ 139,292 $ 293,839 $ 268,373 $ 556,548 Mountain 230,103 283,002 476,378 564,362 Texas 126,618 153,389 216,150 291,953 Southeast 117,320 180,556 204,446 330,157 Century Complete 206,581 232,559 391,702 390,370 Financial Services 24,277 22,797 40,132 49,102 Corporate — — — — Total revenue $ 844,191 $ 1,166,142 $ 1,597,181 $ 2,182,492 Income (loss) before income tax expense: West $ 14,966 $ 77,945 $ 22,939 $ 149,187 Mountain 24,689 51,500 52,497 108,503 Texas 11,452 30,664 15,125 53,500 Southeast 17,992 38,782 29,958 69,647 Century Complete 16,348 34,797 30,298 57,219 Financial Services 12,507 8,611 17,581 19,762 Corporate ( 29,206 ) ( 28,651 ) ( 55,641 ) ( 55,394 ) Total income before income tax expense $ 68,748 $ 213,648 $ 112,757 $ 402,424 8 Table of Contents The following table summarizes total assets by segment (in thousands): June 30, December 31, 2023 2022 West $ 676,682 $ 665,827 Mountain 1,024,418 1,122,892 Texas 524,317 508,862 Southeast 467,930 415,887 Century Complete 353,034 376,131 Financial Services 367,244 372,284 Corporate 443,023 311,884 Total assets $ 3,856,648 $ 3,773,767 Corporate assets primarily include certain cash and cash equivalents, certain property and equipment, costs associated with development of multi-family rental properties, prepaid insurance, and deferred financing costs on our revolving line of credit. 3. Inventories Inventories included the following (in thousands): June 30, December 31, 2023 2022 Homes under construction $ 1,262,462 $ 1,213,919 Land and land development 1,524,181 1,554,951 Capitalized interest 69,745 61,775 Total inventories $ 2,856,388 $ 2,830,645 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. A pproximately all of the mortgage loans closed by Inspire are made to buyers of homes we build and Inspire receives an allocation of intersegment revenue from our homebuilding segments related to financing incentives given to 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. As of June 30, 2023 and December 31, 2022, Inspire had mortgage loans held for sale with an aggregate fair value of $ 195.6 million and $ 203.6 million, respectively, and an aggregate outstanding principal balance of $ 195.6 million and $ 202.0 million, respectively. Net gains on the sale of mortgage loans were $ 1.7 million and $ 3.5 million for the three and six months ended June 30, 2023, respectively, and were $ 0.4 million and $ 10.8 million for the three and six months ended June 30, 2022, respectively. Losses from the change in fair value for mortgage loans held for sale were $ 2.0 million and $ 2.0 million for the three and six months ended June 30, 2023, respectively. Gains from the change in fair value for mortgage loans held for sale was $ 1.1 million for the three months ended June 30, 2022, and losses from the change in fair value for mortgage loans held for sale was $ 8.6 million for the six months ended June 30, 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 $ 115.5 million and $ 68.1 million at June 30, 2023 and December 31, 2022, respectively, and carried a weighted average interest rate of approximately 5.7 % 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. 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 12 – Fair Value Disclosures for further information regarding our derivative instruments. 9 Table of Contents 5. Prepaid Expenses and Other Assets Prepaid expenses and other assets included the following (in thousands): June 30, December 31, 2023 2022 Prepaid insurance $ 25,198 $ 31,716 Lot option and escrow deposits 41,190 48,354 Performance deposits 12,648 12,626 Restricted cash (1) 18,803 11,768 Multi-family rental properties under construction 98,006 56,615 Mortgage loans held for investment at fair value 20,559 18,875 Mortgage loans held for investment at amortized cost 6,971 6,574 Mortgage servicing rights 26,631 24,164 Derivative assets 3,834 1,958 Other assets and prepaid expenses 33,608 37,885 Total prepaid expenses and other assets $ 287,448 $ 250,535 (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. 6. Accrued Expenses and Other Liabilities Accrued expenses and other liabilities included the following (in thousands): June 30, December 31, 2023 2022 Earnest money deposits $ 18,871 $ 17,903 Warranty reserve 12,984 13,136 Self-insurance reserve 21,477 16,998 Accrued compensation costs 46,823 80,415 Land development and home construction accruals 119,086 128,483 Accrued interest 10,195 10,670 Derivative liabilities — 1,526 Other accrued liabilities 36,930 30,457 Total accrued expenses and other liabilities $ 266,366 $ 299,588 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 decreased our warranty reserve by $ 0.2 million during the three months ended June 30, 2023 and increased our warranty reserve by $ 0.1 million during the three months ended June 30, 2022, respectively, and we reduced our warranty reserve by $ 0.7 million and $ 0.5 million during the six months ended June 30, 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 six months ended June 30, 2023 and 2022 are detailed in the table below (in thousands) : Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Beginning balance $ 12,331 $ 13,503 $ 13,136 $ 13,343 Warranty expense provisions 2,472 2,245 4,301 4,147 Payments ( 1,593 ) ( 1,679 ) ( 3,769 ) ( 2,867 ) Warranty adjustment ( 226 ) 58 ( 684 ) ( 496 ) Ending balance $ 12,984 $ 14,127 $ 12,984 $ 14,127 10 Table of Contents 8. Self-Insurance Reserve We maintain general liability insurance coverage, including coverage for certain construction defects. 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. 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. The reserve is recorded on an undiscounted basis at the time revenue is recognized for each home closing. Amounts accrued, which are included in accrued expenses and other liabilities on the condensed consolidated balance sheets, are based on third party actuarial analyses that are primarily based on industry data and partially on our historical claims, which include estimates of claims incurred but not yet reported. Adjustments to estimated reserves are recorded in the period in which the change in estimate occurs. Our self-insurance liability is presented on a gross basis without consideration of insurance recoveries and amounts we have paid on behalf of and expect to recover from other parties, if any. 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. During the three and six months ended June 30, 2023 and 2022, we recorded no adjustment 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 and six months ended June 30, 2023 and 2022 are detailed in the table below (in thousands) : Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Beginning balance $ 19,076 $ 7,475 $ 16,998 $ 5,103 Self-insurance expense provisions 2,444 2,678 4,559 5,050 Payments ( 43 ) — ( 80 ) — Self-insurance adjustment — — — — Ending balance $ 21,477 $ 10,153 $ 21,477 $ 10,153 9. Debt Our outstanding debt obligations included the following as of June 30, 2023 and December 31, 2022 (in thousands): June 30, December 31, 2023 2022 3.875 % senior notes, due August 2029 (1) $ 495,270 $ 494,884 6.750 % senior notes, due June 2027 (1) 496,802 496,394 Other financing obligations (2) 38,710 28,134 Notes payable 1,030,782 1,019,412 Revolving line of credit — — Mortgage repurchase facilities 191,024 197,626 Total debt $ 1,221,806 $ 1,217,038 (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 June 30, 2023, other financing obligations included $ 17.6 million related to insurance premium notes and certain secured borrowings, as well as $ 21.1 million outstanding under 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 construction loan agreements. Construction Loan Agreements 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 an aggregate of $ 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 , 11 Table of Contents 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. Interest on our construction loan agreements is capitalized to the multi-family properties assets included in prepaid expenses and other assets on the condensed consolidated balance sheets while the related multi-family rental properties are being actively developed and until the projects are completed. As of June 30, 2023, $ 21.1 million was outstanding under the construction loan agreements, with borrowings that bore a weighted average interest rate of 7.1 % during the six months ended June 30, 2023, and we were in compliance with all covenants thereunder. Revolving Line of Credit 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. 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 June 30, 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 and J.P. Morgan, (which facilities we refer to as the “repurchase facilities”), which provide Inspire with uncommitted repurchase facilities of up to an aggregate of $ 275.0 million as of June 30, 2023, secured by the mortgage loans financed thereunder. The repurchase facilities have varying short term maturity dates through June 21, 2024 and bore a weighted average interest rate of 6.67 % during the six months ended June 30, 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 June 30, 2023 and December 31, 2022, we had $ 191.0 million and $ 197.6 million outstanding under the repurchase facilities, respectively, and were in compliance with all covenants thereunder. 10. Interest on Senior Notes and Revolving Line of Credit Interest on our senior notes and revolving line of credit, if applicable, 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 six months ended June 30, 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 June 30, Six Months Ended June 30, 2023 2022 2023 2022 Interest capitalized beginning of period $ 65,984 $ 55,252 $ 61,775 $ 53,379 Interest capitalized during period 14,031 15,345 28,047 29,364 Less: capitalized interest in cost of sales ( 10,270 ) ( 13,473 ) ( 20,077 ) ( 25,619 ) Interest capitalized end of period $ 69,745 $ 57,124 $ 69,745 $ 57,124 12 Table of Contents 11 . 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 2023 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 and estimated federal energy home credits for the current year home deliveries, which combined resulted in a net increase of 0.8 %. For the six months ended June 30, 2023, our estimated annual rate of 25.5 % 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 six months ended June 30, 2023 of 25.5 % increased by 310 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 primarily 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, resulting in fewer closings qualifying for energy efficient home credits. For the three months ended June 30, 2023 and 2022, we recorded income tax expense of $ 17.3 million and $ 55.0 million, respectively . For the six months ended June 30, 2023 and 2022, we recorded income tax expense of $ 28.0 million and $ 101.3 million, respectively. 12. 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 associated with interest rate lock commitments and investor commitments on loans and derivative liabilities are associated with forward mortgage-backed securities contracts. 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 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. 13 Table of Contents The following outlines the Company’s assets and liabilities measured at fair value on a recurring basis at June 30, 2023 and December 31, 2022, respectively (in thousands): June 30, December 31, Balance Sheet Classification Hierarchy 2023 2022 Mortgage loans held for sale Mortgage loans held for sale Level 2 $ 195,598 $ 203,558 Mortgage loans held for investment at fair value (1) Prepaid expenses and other assets Level 3 $ 20,559 $ 18,875 Derivative assets Prepaid expenses and other assets Level 2 $ 3,834 $ 1,958 Mortgage servicing rights (2) Prepaid expenses and other assets Level 3 $ 26,631 $ 24,164 Derivative liabilities Accrued expenses and other liabilities Level 2 $ — $ 1,526 (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 9.0 %, 9.6 %, and $ 0.071 per year per loan, respectively, as of June 30, 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 our condensed consolidated statements of operations (in thousands): Three Months Ended June 30, Six Months Ended June 30, Mortgage servicing rights 2023 2022 2023 2022 Beginning of period $ 23,901 $ 18,050 $ 24,164 $ 13,701 Originations 1,059 1,967 2,104 5,373 Settlements ( 410 ) ( 230 ) ( 561 ) ( 535 ) Changes in fair value 2,081 409 924 1,657 End of period $ 26,631 $ 20,196 $ 26,631 $ 20,196 Three Months Ended June 30, Six Months Ended June 30, Mortgage loans held-for-investment at fair value 2023 2022 2023 2022 Beginning of period $ 20,078 $ 13,955 $ 18,875 $ 10,631 Transfers from loans held for sale 1,730 1,216 3,164 5,142 Settlements ( 681 ) ( 592 ) ( 681 ) ( 1,121 ) Reduction in unpaid principal balance ( 529 ) ( 70 ) ( 633 ) ( 124 ) Changes in fair value ( 39 ) — ( 166 ) ( 19 ) End of period $ 20,559 $ 14,509 $ 20,559 $ 14,509 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 June 30, 2023 and December 31, 2022, respectively (in thousands). June 30, 2023 December 31, 2022 Hierarchy Carrying Fair Value Carrying Fair Value Cash and cash equivalents Level 1 $ 350,488 $ 350,488 $ 296,724 $ 296,724 3.875 % senior notes (1)(2) Level 2 $ 495,270 $ 431,250 $ 494,884 $ 395,000 6.750 % senior notes (1)(2) Level 2 $ 496,802 $ 498,125 $ 496,394 $ 477,500 Revolving line of credit (3) Level 2 $ — $ — $ — $ — Other financing obligations (3)(4) Level 3 $ 38,710 $ 38,710 $ 28,134 $ 28,134 Mortgage repurchase facilities (3) Level 2 $ 191,024 $ 191,024 $ 197,626 $ 197,626 14 Table of Contents (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 June 30, 2023, these amounts totaled $ 4.7 million and $ 3.2 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/or interest rate terms. (4) Other financing obligations included $ 17.6 million related to insurance premium notes and certain secured borrowings that generally bore interest rates ranging from 2.40 % to 6.40 %, and $ 21.1 million related to outstanding borrowings on the construction loan agreements that bore a weighted average interest rate of 7.1 % during the period ended June 30, 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 5.6 % 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 six months ended June 30, 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. 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. 13. Stock-Based Compensation During the six months ended June 30, 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 $ 63.77 per share, respectively, that primarily vest over a three year period. During the six months ended June 30, 2023 and 2022, we granted 11.0 thousand and 11.0 thousand shares of common stock, respectively, on an unrestricted basis (which we refer to as “stock awards”) with a grant date fair value of $ 65.77 and $ 54.46 per share, respectively, to our non-employee directors. During the six months ended June 30, 2023 and 2022, we granted performance share units (which we refer to as “PSUs”) covering up to 0.5 million and 0.5 million shares of common stock, respectively, assuming maximum level of performance, with a grant date fair value of $ 60.05 and $ 55.93 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 six months ended June 30, 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 1.1 million shares will vest from 2024 to 2026 if the defined maximum performance targets are met, and no shares will vest if the defined minimum performance targets are not met. A summary of our outstanding PSUs, assuming the current estimated level of performance achievement, and RSUs are as follows (in thousands, except years): As of June 30, 2023 Unvested units 1,014 Unrecognized compensation cost $ 32,703 Weighted-average years to recognize compensation cost 2.04 During the three months ended June 30, 2023 and 2022, we recognized stock-based compensation expense of $ 8.9 million and $ 5.7 million, respectively. During the six months ended June 30, 2023 and 2022, we recognized stock-based compensation expense of $ 14.3 million and $ 9.8 million, respectively. Stock-based compensation expense is included in selling, general, and administrative expense on our condensed consolidated statements of operations. D uring the three months ended June 30, 2023, in accordance with ASC 718, Compensation—Stock Compensation we updated our recognition of stock-based compensation expense associated with previously granted PSU awards to reflect probable financial results as they relate to the performance goals of the awards. Accordingly, our estimate of the number of shares which will ultimately vest under our PSU awards increased by 90.0 thousand, and we recorded a cumulative catch-up adjustment to increase stock-based compensation expense of $ 3.4 million ($ 2.5 million net of tax), or $ 0.08 per share (basic and diluted), for the three and six months ended June 30, 2023. 14. Stockholders’ Equity 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 June 30, 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. 15 Table of Contents On May 4, 2022, the stockholders approved the adoption of the Century Communities, Inc. 2022 Omnibus Incentive Plan (which we refer to as the “2022 Incentive Plan”), which replaced the Century Communities, Inc. Amended and Restated 2017 Omnibus Incentive Plan (which we refer to as our “2017 Incentive Plan”). 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 six months ended June 30, 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 June 30, 2023, approximately 2.5 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 six months ended June 30, 2023 and 2022, respectively (in thousands, except per share information): Six Months ended June 30, 2023 Cash Dividends Declared and Paid Declaration Date Record Date Paid Date Per Share Amount February 8, 2023 March 1, 2023 March 15, 2023 $ 0.23 $ 7,365 May 17, 2023 May 31, 2023 June 14, 2023 $ 0.23 $ 7,368 Six Months ended June 30, 2022 Cash Dividends Declared and Paid Declaration Date Record Date Paid Date Per Share Amount February 16, 2022 March 2, 2022 March 16, 2022 $ 0.20 $ 6,657 May 18, 2022 June 1, 2022 June 15, 2022 $ 0.20 $ 6,568 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. 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. We did no t sell or issue any shares of our common stock during the three and six months ended June 30, 2023 and 2022, and as of June 30, 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 and six months ended June 30, 2023, an aggregate of 30.4 thousand shares were repurchased for a total purchase price of approximately $ 2.0 million and a weighted average price of $ 64.84 per share. During the three and six months ended June 30, 2022, an aggregate of 0.8 million and 1.8 million shares, respectively, were repurchased for a total purchase price of approximately $ 35.9 million and $ 98.3 million, respectively, and a weighted average price of $ 45.42 and $ 54.46 per share, respectively. The maximum number of shares available to be repurchased under the stock repurchase program as of June 30, 2023 was 1,477,817 shares. During the six months ended June 30, 2023 and 2022, shares of common stock at a total cost of $ 10.6 million and $ 12.7 million, respectively, were netted and surrendered as payment for minimum statutory withholding obligations in connection with the vesting of outstanding stock-based compensation awards. 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. 15. 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. 16 Table of Contents The following table sets forth the computation of basic and diluted EPS for the three and six months ended June 30, 2023 and 2022 (in thousands, except share and per share information): Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Numerator Net income $ 51,445 $ 158,668 $ 84,756 $ 301,164 Denominator Weighted average common shares outstanding - basic 32,025,186 32,839,402 31,970,106 33,183,097 Dilutive effect of stock-based compensation awards 222,210 387,981 212,439 399,803 Weighted average common shares outstanding - diluted 32,247,396 33,227,383 32,182,545 33,582,900 Earnings per share: Basic $ 1.61 $ 4.83 $ 2.65 $ 9.08 Diluted $ 1.60 $ 4.78 $ 2.63 $ 8.97 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 0.9 million and 0.5 million common stock unit equivalents from diluted earnings per share during each of the three months ended June 30, 2023 and 2022, respectively, and we excluded 0.7 million and 0.5 million common stock unit equivalents from diluted earnings per share during the six months ended June 30, 2023 and 2022, respectively, related to the PSUs for which performance conditions remained unsatisfied . 16. 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 June 30, 2023 and December 31, 2022, we had $ 546.1 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. 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. 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.