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Item 7. Management’s Discussion and Analysis

2023-02-17 compared with 2022-02-17 · 176 added, 202 removed, 510 unchanged (43% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS

OF OPERATIONS

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

M/I Homes, Inc.

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Detroit, Michigan;

Tampa, Sarasota and Orlando, Florida;

Fort Myers/Naples, Tampa, Sarasota and Orlando, Florida;

Austin, Dallas/Fort Worth, Houston and San Antonio, Texas;

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A performance obligation is a promise in a contract to transfer a distinct good or service to the customer.

A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance

obligation is satisfied.

A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

All of our home purchase contracts have a single performance obligation as the promise to transfer the home is not separately identifiable from other promises in the contract and, therefore, not distinct.

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Because each inventory asset is unique, there are numerous inputs and assumptions used in our valuation techniques, including estimated average selling price, construction and development costs, absorption pace (reflecting any product mix change strategies implemented or to be implemented), selling strategies, alternative land uses (including disposition of all or a portion of the land owned), or discount rates, which could materially impact future cash flow and fair value estimates.

As of December 31, 2021, our projections generally assume a gradual improvement in market conditions.

If communities are not recoverable based on estimated future undiscounted cash flows, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets.

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The discount rate used in determining each asset’s estimated fair value reflects the inherent risks associated with the related estimated cash flow stream, as well as current risk-free rates available in the market and estimated market risk premiums.

During the fourth quarter of 2022, we recorded an aggregate loss of $18.4 million that included $10.2 million of write-offs of land deposits for land we no longer intend to purchase in order to right-size our land portfolio and $8.2 million of asset impairment charges.

Our quarterly assessments reflect management’s best estimates.

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RESULTS OF OPERATIONS

In 2021, housing market conditions were positive, with healthy demand, a limited supply of new and resale inventory and relatively low interest rates driving record bottom line results for our business.

Strong demand for our homes enabled us to increase selling prices in many of our communities in concert with rising labor and building material costs.

This, in combination with our focus on balancing sales pace, price and construction starts at many of our communities, helped us to achieve record homes delivered, revenue, income before income taxes and net income and the second highest level of new contracts in our history, despite the supply chain challenges and disruptions that we experienced throughout 2021.

Our backlog sales value and number of homes in backlog at December 31, 2021 were also year-end records.

Our improved profitability is attributable primarily to the increase in homes delivered, improved margins and overhead leverage.

Additionally, our complementary financial services business also achieved record revenue and income before income taxes, and originated a record number of loans in 2021.

We believe that the homebuilding industry conditions that we experienced in 2021 will continue to support demand into 2022, subject to the economic uncertainties caused by rising interest rates, higher inflation, labor and supply shortages, and increased cost pressures described further below in our Outlook Section.

During the year ended December 31, 2021, we achieved the following record results in comparison to the year ended December 31, 2020:

• Homes delivered increased 12% to 8,638 homes - a record high for our Company

• Total sales value in backlog increased 29% to $2.4 billion - a year-end record for our Company

• Number of homes in backlog increased 10% - a year-end record for our Company

• Revenue increased 23% to $3.7 billion - a record high for our Company

• Income before income taxes increased 64% to $509.1 million - a record high for our Company

• Net income increased 65% to $396.9 million - a record high for our Company

In addition to the record results described above, our financial services operations also achieved record income before income taxes in 2021, benefiting from an increase in homes closed, the number of mortgages originated and higher margins, as well as technology enabled efficiencies.

Our company-wide absorption pace of sales per community in 2021 improved to 4.1 per month compared to 3.7 per month in 2020.

Partially as a result of this accelerated sales pace, we sold out of some communities earlier, and our number of active communities declined to 175 at the end of 2021 from 202 at the end of 2020.

We continued to place additional land under contract for communities that will be brought online in future periods, and controlled approximately 44,000 lots at December 31, 2021.

Our ability to timely replace existing communities could further impact our number of active communities.

We continue to work to open new communities, and we are also actively managing sales at a community level, while selectively increasing prices, to better match our availability of lots and production schedule.

We began to experience weakening in homebuyer demand during the second half of 2022.

The robust housing market of the previous 18 months began to decline as a result of the uncertain macroeconomic conditions in the broader U.S.

economy, particularly the historic rise in mortgage interest rates and the high rate of inflation not experienced since the 1970s.

We believe that these economic conditions, together with housing affordability issues and consumer fears of an economic recession, caused many potential homebuyers to postpone their homebuying decisions.

As a result of this weakening demand, our new contracts and homes delivered declined 27% and 3%, respectively, in 2022 from 2021.

In addition, our company-wide absorption pace of sales per community in 2022 declined to 3.1 per month compared to 4.1 per month in 2021 as a result of the declining market conditions.

Our average number of selling communities increased to 196 at the end of 2022 from 175 at the end of 2021.

Despite these challenges, we achieved the following results during the year ended December 31, 2022 in comparison to the year ended December 31, 2021, all of which represented record highs for the Company:

• Revenue increased 10% to $4.1 billion

• Income before income taxes increased 25% to $635.2 million

• Net income increased 24% to $490.7 million

• Shareholders’ equity of $2.1 billion

Our improved profitability is attributable primarily to improved margins and overhead leverage when compared to 2021 as consumer demand for housing remained robust in 2021 and early 2022 when the majority of our homes delivered during 2022 were placed under contract, driving record financial results for our business.

We believe that the economic uncertainties caused by increased interest rates, historically high inflation, labor and supply shortages, and increased cost pressures will continue into 2023.

However, we continue to believe long-term housing market fundamentals remain strong, including favorable demographics and a limited supply of new and resale inventory.

In January 2023, we sold approximately 630 homes, an 18% decrease compared to January 2022, but an approximate 60% sequential increase compared to average monthly sales during the second half of 2022.

We have also experienced an increase in traffic compared to prior year’s January.

Given the uncertainty in the housing market and the general economy, we may choose to delay the development and opening of some new communities to match homebuyer demand in 2023.

We recorded an aggregate loss of $18.4 million during the fourth quarter of 2022 that included $10.2 million of write-offs of land deposits for land we no longer intend to purchase in order to right-size our land portfolio and $8.2 million of asset impairment charges.

Summary of Company Financial Results in 2022

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Income before income taxes for the twelve months ended December 31, 2022 increased 25% from $509.1 million for the year ended December 31, 2021 to $635.2 million for the year ended December 31, 2022.

Income before income taxes for 2021 was unfavorably impacted by $9.1 million of loss on early extinguishment of debt (as more fully discussed below and in Note 8 to our Consolidated Financial Statements).

Income before income taxes for 2020 was unfavorably impacted by asset impairment charges of $8.4 million and $0.9 million of stucco-related repair costs.

Income before income taxes was unfavorably impacted by $18.4 million of asset impairment charges and deposit write-offs in 2022 and by $9.1 million pre-tax charge for loss on early extinguishment of debt related to the redemption of our 2025 Senior Notes (as more fully discussed below and in Note 8 to our Consolidated Financial Statements) in 2021.

Excluding these charges in both 2022 and 2021, adjusted income before income taxes increased 26% from $518.2 million in 2021 to $653.6 million in 2022.

In 2021, we achieved net income of $396.9 million, or $13.28 per diluted share, which includes the after-tax impact of the loss on early extinguishment of debt noted above ($0.23 per diluted share), compared to net income of $239.9 million, or $8.23 per diluted share in 2020, which includes the after-tax impact of both the asset impairment charges and stucco-related charges noted above ($0.22 and $0.02 per diluted share, respectively).

In 2022, we achieved net income of $490.7 million, or $17.24 per diluted share, which includes the after-tax impact of the asset impairment charges and deposit write-offs noted above ($0.50 per diluted share), compared to net income of $396.9 million, or $13.28 per diluted share in 2021, which includes the after-tax impact of the loss on early extinguishment of debt noted above ($0.23 per diluted share).

Excluding these charges in both periods, adjusted net income increased 25% from $403.9 million ($13.51 per diluted share) in 2021 to $504.6 million ($17.74 per diluted share) in 2022.

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In 2022, we recorded record total revenue of $4.13 billion, of which $4.01 billion was from homes delivered, $34.8 million was from land sales, and $86.2 million was from our financial services operations.

Revenue from homes delivered increased 23% from 2020 driven primarily by the 929 additional homes delivered in 2021 (a 12% increase) and a 10% increase in the average sales price of homes delivered ($39,000 per home delivered), which was primarily the result of the mix of homes delivered and higher demand.

Revenue from land sales decreased $5.8 million from 2020 due primarily to fewer land sales in the current year compared to the prior year.

Revenue from our financial services segment increased 17% to $102.0 million in 2021 as a result of an increase in loans closed and sold during the year

Total gross margin (total revenue less total land and housing costs) increased $232.6 million in 2021 compared to 2020 as a result of a $217.6 million improvement in the gross margin of our homebuilding operations (the sum of housing gross margin and land gross margin) and a $15.0 million improvement in the gross margin of our financial services operations.

With respect to our homebuilding gross margin, our gross margin on homes delivered (housing gross margin) improved $215.3 million, due to the 12% increase in the number of homes delivered and the 10% increase in the average sales price of homes delivered ($39,000 per home delivered) compared to prior year.

Our housing gross margin percentage improved 210 basis points from

20.0% in the prior year to 22.1% in 2021.

Exclusive of the asset impairment charges and stucco-related repair charges in 2020, our adjusted housing gross margin percentage improved 180 basis points.

Revenue from homes delivered increased 10% from 2021 driven primarily by a 14% increase in the average sales price of homes delivered ($59,000 per home delivered), which was primarily in response to robust consumer demand in 2021 and early 2022 when the majority of our homes delivered during the quarter were placed under contract, offset partially by a 3% decrease in the number of homes delivered in 2022 (272 units), which was due to reduced demand for new homes as well as increased year-over-year cycle times related to supply chain issues and labor shortages.

Revenue from land sales increased $21.4 million from 2021 due primarily to more land sales in the current year compared to the prior year.

Revenue from our financial services segment decreased 16% to $86.2 million in 2022 as a result of a decrease in loans closed and sold during the year, in addition to lower margins on loans sold during the period compared to the prior year.

Total gross margin (total revenue less total land and housing costs) increased $135.0 million in 2022 compared to 2021 as a result of a $150.8 million improvement in the gross margin of our homebuilding operations (the sum of housing gross margin and land gross margin), offset partially by a $15.8 million decline in the gross margin of our financial services operations.

With respect to our homebuilding gross margin, our gross margin on homes delivered (housing gross margin) improved

$142.3 million, due to the 14% increase in the average sales price of homes delivered ($59,000 per home delivered) compared to prior year, partially offset by the 3% decrease in the number of homes delivered.

Our housing gross margin percentage improved 150 basis points from 22.1% in the prior year to 23.6% in 2022.

Exclusive of the asset impairment charges and deposit write-offs in 2022, our adjusted housing gross margin percentage improved 190 basis points.

Our gross margin on land sales (land gross margin) improved $8.6 million in 2022 compared to 2021 as a result of the mix of lots sold in the current year compared to the prior year.

The gross margin of our financial services operations increased $15.0 million in 2021 compared to 2020 as a result of increases in the number of loan originations.

We opened 72 new communities during 2021.

The gross margin of our financial services operations declined $15.8 million in 2022 compared to 2021 as a result of a decreases in the number of loan originations and lower margins on loans sold, partially offset by an increase in the average loan amount during 2022 compared to prior year.

We opened an all-time record 101 new communities during 2022.

We sell a variety of home types in various communities and markets, each of which yields a different gross margin.

The timing of the openings of new replacement communities as well as underlying lot costs varies from year to year.

As a result, our new contracts and housing gross margin may fluctuate up or down from year to year depending on the mix of communities delivering homes.

Due to the increase in demand that we have experienced since May 2020, we are selling through communities faster;

therefore, our ability to replace existing communities timely could impact our ability to meet current demand.

The mix of communities delivering homes may cause fluctuations in our new contracts and housing gross margin from year to year.

For 2022, selling, general and administrative expense increased $15.8 million, which partially offset the increase in our gross margin discussed above, but improved as a percentage of revenue to 9.8% in 2022 from 10.4% in 2021.

Selling expense increased $19.0 million from 2020 and improved as a percentage of revenue to 5.3% in 2021 from 5.9% in 2020.

Variable selling expense for sales commissions contributed $19.5 million to the increase due to the higher number of homes delivered during the period, offset partially by a $0.5 million decrease in non-variable selling expense.

General and administrative expense increased $14.5 million compared to 2020 but improved as a percentage of revenue from 5.8% in 2020 to 5.1% in 2021.

The dollar increase in general and administrative expense was primarily due to a $14.2 million increase in compensation-related expenses due to our increased headcount and strong financial performance which led to higher incentive-based compensation, and a $0.3 million increase in miscellaneous expenses.

We believe that new home sales will continue to benefit from a continued undersupply of available homes, mortgage rates that remain historically low, improving employment levels and positive consumer demographics, which are leading to a growing number of younger homebuyers moving to single family homes in suburban locations.

However, we also expect that overall economic and homebuilding industry conditions in the United States in 2022 will continue to be negatively impacted by labor and supply shortages, inflation, and increasing costs of materials and labor.

We have been able to raise home prices in many of our communities to offset these cost increases and preserve or increase our margins.

During 2021, our ability to raise prices, together with cost management, enabled us to achieve a total gross margin percentage of 24.3%, an improvement of 210 basis points compared to 2020.

We expect to experience shortages in materials and labor as well as price increases for materials and labor in 2022 and may not be able to maintain our current level of direct construction costs as a percentage of average sales price.

We remain sensitive to changes in market conditions, and continue to focus on controlling overhead leverage and carefully managing our investment in land and land development spending.

We are also closely monitoring mortgage availability and lending standards.

While interest rates remain low by historical standards, mortgage rates are generally expected to increase during 2022 which could negatively impact affordability and mortgage availability.

General and administrative expense increased $22.8 million compared to 2021 and also increased as a percentage of revenue from 5.1% in 2021 to 5.2% in 2022.

The dollar increase in general and administrative expense was primarily due to an $11.5 million increase in compensation-related expenses due to our increased headcount and strong financial performance which led to higher incentive-based compensation, a $2.5 million increase in land-related costs primarily due to write-offs of abandoned land transaction costs and a $8.8 million increase in miscellaneous expenses.

Selling expense decreased $7.0 million from 2021 and improved as a percentage of revenue to 4.6% in 2022 from 5.3% in 2021, partially offsetting the increase in general and administrative expense above.

Variable selling expense for sales commissions contributed $8.7 million to the decrease due to the lower number of homes delivered during the period, offset partially by a $1.7 million increase in non-variable selling expense primarily related to increased costs associated with our sales offices and models.

Housing market conditions began to decline during the second half of 2022, resulting in significantly weakened overall demand for new homes.

We attribute this decline in demand to various macroeconomic conditions, including steep increases in mortgage rates since January 2022, substantial increases in home prices over the past two years, the high rate of inflation, and economic recession concerns of our potential homebuyers.

The extent to which these factors will continue to impact our business is highly uncertain and unpredictable, and our past performance should not be considered indicative of our future results on any metric or set of metrics given the uncertainty in the U.S.

Despite these negative economic developments, we believe that the homebuilding industry will continue to benefit over the long term from a continued undersupply of available homes, positive consumer demographics, scarcity of rentals and increasing rent prices.

We believe that we are well positioned to manage through these challenging economic conditions with our affordable product offerings, lot supply and planned new community openings.

We remain sensitive to the changes in market conditions, and continue to focus on controlling overhead leverage, carefully managing our investment in land and land development spending and offering incentives, including mortgage interest rate buy-downs, to retain our backlog and improve our sales pace.

Our strong balance sheet and liquidity position should also provide us with the flexibility to operate effectively through changing economic conditions.

However, we cannot provide any assurances that the strategic business objectives listed below will remain successful, and we may need to adjust elements of our strategy to effectively address evolving market conditions.

We expect to continue to emphasize the following strategic business objectives in 2023:

• managing our land spend and inventory levels;

• opening new communities on schedule wherever possible;

• opening new communities;

• managing overhead spend;

• maintaining a strong balance sheet and liquidity levels;

• expanding the availability of our more affordable Smart Series homes;

• emphasizing customer service, product quality and design, and premier locations.

During 2022, we invested $341.1 million in land acquisitions and $496.2 million in land development.

We continue to closely review all of our land acquisition and land development spending and monitor our ongoing pace of home sales and deliveries, and we will adjust our land and inventory home investment spend accordingly.

As a result of the unprecedented current market conditions, we are not providing land spending estimates for 2022 at this time.

As a result of our accelerated pace of home sales, we sold through communities at a faster pace than anticipated in 2021.

We invested in less land acquisitions in 2022 due to declining demand for new homes and invested more in land development to finish lots needed to start homes and allow us to open new communities in an effort to increase demand and sales.

We continue to closely review all of our land acquisition and land development spending and monitor our ongoing pace of home sales and deliveries, and we will

adjust our land and investment spend accordingly.

As a result of the unprecedented current market conditions with municipality delays, extended cycle times, and increased mortgage interest rates impacting sales, we are not providing land spending estimates for 2023 at this time.

We ended 2022 with approximately 42,100 lots under control, which represents a 5.0 year supply of lots based on 2022 homes delivered, including certain lots that we anticipate selling to third parties.

This represents an 11% increase from our approximately 39,500 lots under control at the end of 2020.

We opened 72 communities and closed 99 communities in 2021, ending the year with a total of 175 communities, compared to 202 at the end of 2020.

Of our total communities at the end of 2021, 72 offered our more affordable Smart Series designs, which are primarily designed for first-time homebuyers.

Although the timing of opening new communities and closing out existing communities is subject to substantial variation, we expect to open a record number of new communities in 2022, growing our community count by approximately 15% by the end of 2022 to more than 200 communities.

We believe our ability to design and develop attractive homes in desirable locations at an affordable cost, and to grow our business while also leveraging our fixed costs, has enabled us to maintain and improve our strong financial results.

We further believe that we are well positioned with a strong balance sheet to manage through the current economic environment.

Housing market demand has remained strong over the past year and continues as we enter fiscal 2022.

However, future economic and homebuilding industry conditions and the demand for homes are subject to continued uncertainty due to many factors, including the impacts of inflation, materials and labor cost increases, supply chain disruptions and labor shortages, the ongoing impact of the pandemic and government directives, actions and economic relief efforts related thereto, and the further impact of these actions on the economy, mortgage rates and markets, employment levels, consumer confidence, and financial markets, among other things.

This represents a 4% decrease from our approximately 44,000 lots under control at the end of 2021.

We opened a record 101 communities and closed 80 communities in 2022, ending the year with a total of 196 communities, compared to 175 at the end of 2021.

Although the timing of opening new communities and closing out existing communities is subject to substantial variation, we expect to grow our community count by approximately 15% by the end of 2023 to 225 communities.

While we believe 2023 will be a very challenging year compared to the past few years of historically strong market conditions, we believe that we are well positioned with a strong balance sheet and backlog to manage through the current economic environment.

However, the challenging macroeconomic conditions described above could materially and negatively affect our performance in 2023, particularly when compared to our performance over the past few years.

Future economic and homebuilding industry conditions and the demand for homes are subject to continued uncertainty due to many factors, including the impacts of increased mortgage interest rates, inflation, materials and labor cost increases, supply chain disruptions and labor shortages, and the further impact of these actions on the economy, employment levels, consumer confidence, and financial markets, among other things.

These factors are highly uncertain and outside our control.

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Columbus, Ohio Tampa, Florida

Indianapolis, Indiana Austin, Texas

Indianapolis, Indiana Fort Myers/Naples, Florida

Minneapolis/St.

Paul, Minnesota Dallas/Fort Worth, Texas

Detroit, Michigan Houston, Texas

Paul, Minnesota Austin, Texas

Detroit, Michigan Dallas/Fort Worth, Texas

Houston, Texas

San Antonio, Texas

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operating income (loss);

interest expense;

interest expense (income);

and depreciation and amortization for the years ended December 31, 2022, 2021 and 2020:

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Gross margin:

Northern homebuilding (b)

$ 331,521 $ 232,915 $ 182,887

Southern homebuilding (c)

Northern homebuilding $ 334,300 $ 331,521 $ 232,915

Southern homebuilding (b)

623,347 475,366 356,415

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86,195 102,028 87,013

Total gross margin (b) (c) (d)

Total gross margin (b) (c)

$ 1,043,842 $ 908,915 $ 676,343

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Operating income (loss):

Northern homebuilding (b)

$ 211,958 $ 125,588 $ 96,239

Southern homebuilding (c)

Northern homebuilding $ 217,499 $ 211,958 $ 125,588

Southern homebuilding (b)

451,874 312,661 202,561

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Corporate selling, general and administrative expense (76,304) (68,614) (62,283)

Total operating income (b) (c) (d)

Total operating income (b) (c)

$ 637,451 $ 518,296 $ 319,261

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Total interest expense $ 2,250 $ 2,156 $ 9,684

Other income (e)

Other income (d)

$ (6) $ (2,046) $ (466)

Loss on early extinguishment of debt (f)

Loss on early extinguishment of debt (e)

Income before income taxes $ 635,207 $ 509,114 $ 310,043

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(a) Our financial services operational results should be viewed in connection with our homebuilding business as its operations originate loans and provide title services primarily for our homebuyers, with the exception of a small amount of mortgage refinancing.

(b) Includes $0.6 million of acquisition-related charges taken during 2019 as a result of our acquisition of Pinnacle Homes in Detroit, Michigan on March 1, 2018.

(c) The year ended December 31, 2020 includes a $0.9 million net charge for stucco-related repair costs in certain of our Florida communities (as more fully discussed below and in Note 8 to our Consolidated Financial Statements).

(d) For the years ended December 31, 2020 and 2019, total gross margin and total operating income were reduced by $8.4 million and $5.0 million, respectively, related to asset impairment charges taken during the period.

(e) Other income is comprised of the gain on the sale of a non-operating asset during the fourth quarter of 2021 as well as equity in (income) loss from joint venture arrangements.

(f) Loss on early extinguishment of debt relates to the early redemption of our 5.625% senior notes due 2025 (the “2025 Senior Notes”) during the third quarter of 2021, consisting of a $7.1 million prepayment premium due to early redemption and $2.0 million for the write-off of unamortized debt issuance costs.

(b) The year ended December 31, 2020 includes a $0.9 million net charge for stucco-related repair costs in certain of our Florida communities (as more fully discussed below and in Note 8 to our Consolidated Financial Statements).

(c) Total gross margin and total operating income were reduced by $18.4 million of asset impairment charges and deposit write-offs taken during the year ended December 31, 2022 and $8.4 million of asset impairment charges taken during the year ended December 31, 2020.

(d) Other income is comprised of the gain on the sale of a non-operating asset during the fourth quarter of 2021 as well as equity in (income) loss from joint venture arrangements.

(e) Loss on early extinguishment of debt relates to the early redemption of our 5.625% senior notes due 2025 (the “2025 Senior Notes”) during the third quarter of 2021, consisting of a $7.1 million prepayment premium due to early redemption and $2.0 million for the write-off of unamortized debt issuance costs.

The following tables show total assets by segment at December 31, 2022, 2021 and 2020:

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Land sale revenue $ 2,609 $ 4,621 $ 3,808

Operating income homes (a) (b)

Operating income homes (a)

$ 217,309 $ 210,841 $ 125,410

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Land sale revenue $ 32,162 $ 8,769 $ 15,362

Operating income homes (a) (c)

Operating income homes (a) (b)

$ 440,329 $ 310,550 $ 201,750

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Land sale revenue $ 34,771 $ 13,390 $ 19,170

Operating income homes (a) (b) (c) (d)

Operating income homes (a) (b) (c)

$ 657,638 $ 521,391 $ 327,160

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(a) Includes the effect of total homebuilding selling, general and administrative expense for the region as disclosed in the first table set forth in this “Outlook” section.

(b) Includes $0.6 million of acquisition-related charges taken during 2019 as a result of our acquisition of Pinnacle Homes in Detroit, Michigan on March 1, 2018.

(c) Includes a $0.9 million net charge for stucco-related repair costs in certain of our Florida communities (as more fully discussed below and in Note 8 to our Consolidated Financial Statements) taken during 2020.

(d) Includes $8.4 million and $5.0 million of asset impairment charges taken during the years ended December 31, 2020 and 2019, respectively.

(b) Includes a $0.9 million net charge for stucco-related repair costs in certain of our Florida communities (as more fully discussed below and in Note 8 to our Consolidated Financial Statements) taken during 2020.

(c) Includes $18.4 million of asset impairment charges and deposit write-offs taken during the year ended December 31, 2022 and $8.4 million of asset impairment charges taken during the year ended December 31, 2020.

Year Ended December 31,

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18,352 — 8,435

Acquisition-related charges (c)

Adjusted housing gross margin $ 964,264 $ 803,659 $ 597,636

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18,352 — 8,435

Acquisition-related charges (c)

Loss on early extinguishment of debt (d)

Loss on early extinguishment of debt (c)

Adjusted income before income taxes $ 653,559 $ 518,186 $ 319,338

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13,948 — 6,411

Acquisition-related charges - net of tax (c)

Loss on early extinguishment of debt - net of tax (d)

Loss on early extinguishment of debt - net of tax (c)

Adjusted net income $ 504,610 $ 403,853 $ 246,939

(a) Represents warranty charges, net of recoveries, for stucco-related repair costs in certain of our Florida communities (as more fully discussed in Note 8 to our Consolidated Financial Statements).

(b) Represents asset impairment charges taken during the respective periods.

(c) Represents acquisition-related charges related to our acquisition of Pinnacle Homes in Detroit, Michigan on March 1, 2018 (as more fully discussed in Note 12 to our Consolidated Financial Statements).

(d) Loss on early extinguishment of debt relates to the early redemption of our 2025 Senior Notes during the third quarter of 2021, consisting of a $7.1 million prepayment premium due to early redemption and $2.0 million for the write-off of unamortized debt issuance costs.

(b) Represents asset impairment charges and deposit write-offs taken during 2022 and asset impairment charges taken during 2020.

(c) Loss on early extinguishment of debt relates to the early redemption of our 2025 Senior Notes during the third quarter of 2021, consisting of a $7.1 million prepayment premium due to early redemption and $2.0 million for the write-off of unamortized debt issuance costs.

We believe adjusted housing gross margin, adjusted income before income taxes, and adjusted net income are each relevant and useful financial measures to investors in evaluating our operating performance as they measure the gross profit, income before income taxes, and net income we generated specifically on our operations during a given period.

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During the twelve months ended December 31, 2022, homebuilding revenue in our Northern region increased $118.5 million, from $1.60 billion in 2021 to $1.71 billion in 2022.

This 27% increase in homebuilding revenue was the result of a 17% increase in the number of homes delivered (521 units), a 9% increase in the average sales price of homes delivered ($35,000 per home delivered) and a $0.8 million increase in land sale revenue.

This 7% increase in homebuilding revenue was the result of an 8% increase in the average sales price of homes delivered ($35,000 per home delivered), which was primarily in response to robust consumer demand in 2021 and early 2022 when the majority of our homes delivered during the year were placed under contract, partially offset by a decrease in the number of homes delivered (11 units), due to decreased demand as a result of the macroeconomic conditions described above in our Overview section, difficult comps versus last year, and a $2.0 million decrease in land sale revenue.

Operating income in our Northern region increased $5.5 million, from $212.0 million in 2021 to $217.5 million in 2022.

The increase in operating income was primarily the result of a $98.6 million increase in our gross margin, offset, in part, by a $12.2 million increase in selling, general, and administrative expense.

The increase in operating income was primarily the result of a $2.7 million increase in our gross margin in addition to a $2.8 million decrease in selling, general, and administrative expense.

With respect to our homebuilding gross margin, our housing gross margin improved $3.7 million, due to the increases noted above.

Our housing gross margin percentage improved 220 basis points from 18.6% in 2020 to 20.8% in 2021 largely due to improved demand, offset, in part, by increased construction and lot costs.

Our housing gross margin was unfavorably impacted in 2020 by $8.4 million of asset impairment charges.

Exclusive of these charges, our adjusted housing gross margin percentage improved 150 basis points.

Our land sale gross margin improved $0.9 million as a result of the mix of lots sold in the current year compared to the prior year.

Selling, general and administrative expense increased from $107.3 million in 2020 to $119.6 million in 2021, but improved as a percentage of revenue to 7.5% in 2021 from 8.5% in 2020.

The increase in selling, general and administrative expense was attributable, in part, to a $10.5 million increase in selling expense, due to (1) a $9.6 million increase in variable selling expenses resulting from increases in sales commissions produced by the higher number of homes delivered and (2) a $0.9 million increase in non-variable selling expenses primarily related to increased headcount and other costs associated with our sales offices and models.

The increase in selling, general and administrative expense was also attributable to a $1.7 million increase in general and administrative expense, which was primarily related to a $3.5 million increase in compensation related expenses as a result of increased employee headcount and an increase in incentive compensation due to improved results, partially offset by a $1.8 million decrease in professional fees.

During 2021, we experienced a 2% decrease in new contracts in our Northern region, from 3,743 in 2020 to 3,667 in 2021 as a result of a decrease in our average number of communities and limiting sales in certain communities during the period.

Backlog increased 4% from 1,815 homes at December 31, 2020 to 1,890 homes at December 31, 2021 which was attributable to improved demand in our Smart Series communities compared to the prior year.

Average sales price in backlog increased to $484,000 at December 31, 2021 compared to $436,000 at December 31, 2020 which was primarily due to improved demand in our Northern Region in 2021 compared to prior year.

Our housing gross margin percentage declined 130 basis points from 20.8% in 2021 to 19.5% in 2022 largely due to increased construction and lot costs, offset partially by the increase in average sales price of homes delivered compared to prior year.

Our housing gross margin was unfavorably impacted by $10.4 million of asset impairment charges and deposit write-offs taken in 2022.

Exclusive of these charges, our adjusted housing gross margin percentage declined 70 basis points to 20.1%.

Our land sale gross margin declined $0.9 million as a result of the mix of lots sold in the current year compared to the prior year and fewer land sales compared to prior year.

Selling, general and administrative expense decreased $2.8 million from $119.6 million in 2021 to $116.8 million in 2022, and improved as a percentage of revenue to 6.8% in 2022 from 7.5% in 2021.

The decrease in selling, general and administrative expense was attributable to a $3.8 million decrease in selling expense, due to a $5.8 million decrease in variable selling expenses resulting from decreases in sales commissions produced by the lower number of homes delivered offset, in part, by a $2.0 million increase in non-variable selling expenses primarily related to costs associated with our sales offices and models.

The decrease in selling, general and administrative expense was partially offset by a $1.0 million increase in general and administrative expense, which was primarily related to a $1.5 million increase in compensation related expenses as a result of an increase in incentive compensation due to improved results, partially offset by a $0.5 million decrease in miscellaneous expenses.

During 2022, we experienced a 25% decrease in new contracts in our Northern region, from 3,667 in 2021 to 2,747 in 2022.

Backlog decreased 44% from 1,890 homes at December 31, 2021 to 1,056 homes at December 31, 2022.

The decreases in new contracts and backlog were primarily due to decreased demand as a result of the macroeconomic conditions described above in our Overview section and difficult comps versus last year.

Average sales price in backlog increased to $523,000 at December 31, 2022 compared to $484,000 at December 31, 2021.

During the twelve months ended December 31, 2022, we opened 34 new communities in our Northern region compared to 40 during 2021.

Our monthly absorption rate in our Northern region improved to 3.6 per community in 2021, compared to 3.4 per community in 2020.

Our monthly absorption rate in our Northern region declined to 2.5 per community in 2022, compared to 3.6 per community in 2021 due to the decline in new contracts noted above.

Southern Region.

For the twelve months ended December 31, 2022, homebuilding revenue in our Southern region increased $282.8 million, from $2.05 billion in 2021 to $2.33 billion in 2022.

This 20% increase in homebuilding revenue was primarily the result of a 9% increase in the number of homes delivered (408 units) and an 11% increase in the average sales price of homes delivered ($40,000 per home delivered), partially offset by a $6.6 million decrease in land sale revenue.

This 14% increase in homebuilding revenue was primarily the result of a 19% increase in the average sales price of homes delivered ($76,000 per home delivered) and a $23.4 million increase in land sale revenue, partially offset by a 5% decrease in the number of homes delivered (261 units) due to decreased demand as a result of the macroeconomic conditions described above in our Overview section, a decrease in our average number of communities and difficult comps versus last year.

Operating income in our Southern region increased $139.2 million from $312.7 million in 2021 to $451.9 million in 2022.

This increase in operating income was the result of a $148.0 million improvement in our gross margin, offset, in part, by an $8.8 million increase in selling, general, and administrative expense.

With respect to our homebuilding gross margin, our housing gross margin improved $117.7 million, due primarily to the increases in the number and average sales price of homes delivered noted above.

Our housing gross margin percentage improved 210 basis points from 21.1% in 2020 to 23.2% in 2021 largely due to improved demand, offset, in part, by increased construction and lot costs.

Exclusive of the stucco-related repair charges in 2020, our adjusted housing gross margin percentage remained 21.1%.

With respect to our homebuilding gross margin, our housing gross margin improved $138.5 million, due primarily to the increase in the average sales price of homes delivered noted above.

Our housing gross margin percentage improved 340 basis points from 23.2% in 2021 to 26.6% in 2022 largely due to the increase in average sales price of homes delivered compared to prior year.

Our housing gross margin was unfavorably impacted by $8.0 million of deposit write-offs taken in 2022.

Exclusive of these charges, our adjusted housing gross margin percentage improved 380 basis points to 27.0%.

Our land sale gross margin improved $9.4 million as a result of the mix of lots sold in the current year compared to the prior year.

Selling, general and administrative expense increased from $153.9 million in 2020 to $162.7 million in 2021 but declined as a percentage of revenue to 7.9% in 2021 from 9.0% in 2020.

The increase in selling, general and administrative expense was attributable, in part, to a $7.7 million increase in selling expense due to a $10.0 million increase in variable selling expenses resulting from increases in sales commissions produced by the higher number of homes delivered, offset, in part, by a $2.3 million decrease in non-variable selling expenses primarily related to the timing of sales office and model openings and a reduction in marketing costs.

The increase in selling, general and administrative expense was also attributable to a $1.2 million increase in general and administrative expense, which was primarily related to a $2.5 million increase in compensation related

expenses as a result of increased employee headcount and an increase in incentive compensation due to improved results, offset partially by a $1.3 million decrease in land-related expenses.

During 2021, we experienced a 5% decrease in new contracts in our Southern region, from 5,684 in 2020 to 5,417 in 2021 as a result of a decrease in our average number of communities and limiting sales in certain communities during the period.

Backlog increased 14% from 2,574 homes at December 31, 2020 to 2,945 homes at December 31, 2021 primarily due to changes in product type and market mix, along with improvement in demand across our Southern markets compared to prior year.

Average sales price in backlog increased to $493,000 at December 31, 2021 from $406,000 at December 31, 2020 primarily due to a change in product type and market mix and improved demand in our Southern Region.

Selling, general and administrative expense increased $8.8 million from $162.7 million in 2021 to $171.5 million in 2022 but declined as a percentage of revenue to 7.4% in 2022 from 7.9% in 2021.

The increase in selling, general and administrative expense was attributable to a $12.2 million increase in general and administrative expense, which was primarily related to a $5.2 million increase in compensation related expenses as a result of an increase in incentive compensation due to our strong financial performance during the period, a $4.7 million increase in land-related expenses and a $2.3 million increase in miscellaneous expenses, offset, in part, by a $3.4 million decrease in selling expense.

Selling expense declined due to a $2.9 million decrease in variable selling expenses resulting from increases in sales commissions produced by the lower number of homes delivered and a $0.5 million decrease in non-variable selling expenses primarily related to the timing of sales office and model openings and a reduction in marketing costs.

During 2022, we experienced a 28% decrease in new contracts in our Southern region, from 5,417 in 2021 to 3,921 in 2022.

Backlog decreased 29% from 2,945 homes at December 31, 2021 to 2,081 homes at December 31, 2022.

The decreases in new contracts and backlog were primarily due to decreased demand as a result of the macroeconomic conditions described above in our Overview section, a decrease in our average number of communities, and difficult comps compared to prior year.

Average sales price in backlog increased to $551,000 at December 31, 2022 from $493,000 at December 31, 2021.

During 2022, we opened 67 communities in our Southern region compared to 32 in 2021.

Our monthly absorption rate in our Southern region improved to 4.7 per community in 2021 from 3.9 per community in 2020.

Our monthly absorption rate in our Southern region declined to 3.8 per community in 2022 from 4.7 per community in 2021.

Financial Services.

Revenue from our mortgage and title operations increased $15.0 million, or 17%, from $87.0 million for the twelve months ended December 31, 2020 to a record $102.0 million for the twelve months ended December 31, 2021 as a result of an 11% increase in the number of loan originations, from 5,888 in 2020 to 6,525 in 2021, and an increase in the average loan amount from $313,000 in 2020 to $343,000 in 2021.

Our financial service operations ended 2021 with an $8.9 million increase in operating income compared to 2020, which was primarily due to the increase in our revenue discussed above partially offset by a $6.1 million increase in selling, general and administrative expense compared to 2020.

The increase in selling, general and administrative expense was attributable to an increase in compensation expense related to our increase in employee headcount and an increase in incentive compensation due to improved results.

Revenue from our mortgage and title operations decreased $15.8 million, or 16%, from a record $102.0 million for the twelve months ended December 31, 2021 to $86.2 million for the twelve months ended December 31, 2022 as a result of an 18% decrease in the number of loan originations, from 6,525 in 2021 to 5,374 in 2022, and lower margins on loans sold during the period compared to prior year.

Partially offsetting this was an increase in the average loan amount from $343,000 in 2021 to $385,000 in 2022.

Our financial service operations ended 2022 with a $17.9 million decrease in operating income compared to 2021, which was primarily due to the decrease in revenue discussed above in addition to a $2.1 million increase in selling, general and administrative expense compared to 2021.

The increase in selling, general and administrative expense was attributable to an increase in compensation expense related to our increase in employee headcount as a result of our expansion into new markets.

At December 31, 2022, M/I Financial provided financing services in all of our markets.

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Corporate selling, general and administrative expense increased $7.7 million, from $68.6 million in 2021 to $76.3 million in 2022.

The increase was primarily due to a $4.3 million increase in compensation expense due to increased headcount during the period, a $1.2 million increase related to costs associated with new information systems and a $0.8 million increase in advertising expenses.

The increase was primarily due to a $2.8 million increase in compensation expense due to increased headcount during the period, a $1.9 million increase related to costs associated with new information systems and a $3.0 million increase in miscellaneous expenses.

Other income.

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Equity in income from joint venture arrangements represents our portion of pre-tax earnings from our joint venture arrangements where a special purpose entity is established (“LLCs”) with the other partners.

The Company earned $0.1 million and $0.5 million of equity in income from its LLCs during 2021 and 2020, respectively.

The Company earned less than $0.1 million and $0.1 million of equity in income from its LLCs during 2022 and 2021, respectively.

Interest Expense - Net.

Interest expense for the Company decreased $7.5 million from $9.7 million in the twelve months ended December 31, 2020 to $2.2 million in the twelve months ended December 31, 2021.

This decrease was primarily the result of a decrease in average borrowings during 2021 compared to prior year, the redemption of our 2025 Senior Notes during the third quarter of 2021, the issuance of our 2030 Senior Notes, which were not outstanding during 2020 and have a lower interest rate than the 2025 Senior Notes and higher interest capitalization due to the high level of inventory we have under development compared to the prior year.

Our weighted average borrowings decreased from $767.5 million in 2020 to $716.7 million in 2021.

Our weighted average borrowing interest rate increased slightly from 5.53% in 2020 to 5.55% in the 2021 as a result of a change in the mix of borrowings in the current year compared to prior year.

Interest expense for the Company increased $0.1 million from $2.2 million in the twelve months ended December 31, 2021 to $2.3 million in the twelve months ended December 31, 2022.

This increase in interest expense was primarily due to an increase in our average outstanding borrowings resulting in an increase in our weighted average borrowings from $716.7 million in 2021 to $811.0 million in 2022.

Loss on Early Extinguishment of Debt.

We recognized a loss on early extinguishment of debt of $9.1 million during 2021 as a result of the write-off of unamortized debt issuance costs and a prepayment premium associated with the redemption of our 2025 Senior Notes.

Income Taxes.

Our overall effective tax rate was 22.8% for the year ended December 31, 2022 and 22.0% for the year ended December 31, 2021.

The decrease in the effective rate for the twelve months ended December 31, 2021 was primarily attributable to a $12.7 million tax benefit related to energy tax credits (see Note 14 to our Consolidated Financial Statements for more information).

The increase in the effective rate for the twelve months ended December 31, 2022 was primarily attributable to decreased tax benefits from energy tax credits and equity compensation (see Note 14 to our Consolidated Financial Statements for more information).

Segment Non-GAAP Financial Measures.

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Housing gross margin 611,802 473,255

Stucco-related charges (b)

Impairment (a)

Adjusted housing gross margin $ 619,748 $ 473,255

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(a) Represents asset impairment charges taken during the respective periods.

(b) Represents warranty charges, net of recoveries, for stucco-related repair costs in certain of our Florida communities taken during 2020.

See Note 8 to our Consolidated Financial Statements for further information.

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

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Overview of Capital Resources and Liquidity

At December 31, 2021, we had $236.4 million of cash, cash equivalents and restricted cash, with $236.0 million of this amount comprised of unrestricted cash and cash equivalents, which represents a $24.6 million decrease in unrestricted cash and cash equivalents from December 31, 2020.

Our principal uses of cash during 2021 were investment in land and land development, construction of homes, mortgage loan originations, investment in joint ventures, operating expenses, short-term working capital, debt service requirements, including the redemption of our 2025 Senior Notes, and the repurchase of $51.5 million of our outstanding common shares under our 2021 Share Repurchase Program during the third and fourth quarters of 2021.

In order to fund these uses of cash, we used proceeds from home deliveries, the sale of mortgage loans and the sale of mortgage servicing rights, as well as excess cash balances, proceeds from the issuance of our 2030 Senior Notes (as described below), borrowings under our credit facilities, and other sources of liquidity.

At December 31, 2022, we had $311.5 million of cash, cash equivalents and restricted cash, with $310.6 million of this amount comprised of unrestricted cash and cash equivalents, which represents a $74.5 million increase in unrestricted cash and cash equivalents from December 31, 2021.

Our principal uses of cash during 2022 were investment in land and land development, construction of homes, mortgage loan originations, investment in joint ventures, operating expenses, short-term working capital, and debt service requirements, including the repayment of amounts outstanding under our credit facilities, and the repurchase of $55.3 million of our outstanding common shares under our 2021 Share Repurchase Program during the first, second and third quarters of 2022.

In order to fund these uses of cash, we used proceeds from home deliveries, the sale of mortgage loans, as well as excess cash balances, borrowings under our credit facilities, and other sources of liquidity.

The Company is a party to three primary credit agreements:

(1) the Credit Facility, our $550 million unsecured revolving credit facility, with M/I Homes, Inc.

(1) the Credit Facility, our $650 million unsecured revolving credit facility, dated July 18, 2013, as amended (the “Credit Facility”), with M/I Homes, Inc.

as borrower and guaranteed by the Company’s wholly-owned homebuilding subsidiaries;

(2) the MIF Mortgage Warehousing Agreement, our $175 million secured mortgage warehousing agreement (which increased to $210 million from September 25, 2021 to October 15, 2021 and to $235 million from November 15, 2021 to February 4, 2022),

with M/I Financial as borrower;

(2) the MIF Mortgage Warehousing Agreement, our $200 million secured mortgage warehousing agreement (which increased to $275 million from September 19, 2022 to November 13, 2022

and to $300 million from November 14, 2022 to February 6, 2023), with M/I Financial as borrower;

and (3) the MIF Mortgage Repurchase Facility, our $90 million mortgage repurchase agreement, with M/I Financial as borrower.

In August 2021, we issued $300.0 million aggregate principal amount of our 2030 Senior Notes at par, for net proceeds of approximately $296.0 million.

We used $257.9 million of the net proceeds to redeem all $250.0 million aggregate principal amount of our outstanding 2025 Senior Notes at a redemption price of 102.813% of the principal amount, plus accrued and unpaid interest thereon.

As of December 31, 2021, there were no borrowings outstanding and $85.0 million of letters of credit outstanding under the Credit Facility, leaving $465.0 million in available borrowings.

As of December 31, 2022, we had outstanding notes payable (consisting primarily of notes payable for our financial services operations, the 2030 Senior Notes and the 2028 Senior Notes) with varying maturities totaling an aggregate principal amount of $946 million, with $246 million payable within 12 months.

Future interest payments associated with these notes payable totaled $198 million as of December 31, 2022, with $32 million payable within 12 months.

As of December 31, 2022, there were no borrowings outstanding and $94.9 million of letters of credit outstanding under our $650 million Credit Facility, leaving $555.1 million available.

We expect to continue managing our balance sheet and liquidity carefully in 2023 by managing our spending on land acquisition and development and construction of inventory homes, as well as overhead expenditures, relative to our ongoing volume of home deliveries, and we expect to meet our current and anticipated cash requirements in 2023 from cash receipts and availability under our credit facilities, as well as excess cash balances.

During the year ended December 31, 2022, we delivered 8,366 homes, started 7,792 homes, and spent $341.1 million on land purchases and $496.2 million on land development.

We are selectively acquiring and developing lots in our markets to replenish and increase our lot supply and will continue to monitor market conditions and our pace of home sales and deliveries and adjust our land spending accordingly.

We are selectively acquiring and developing lots in our markets to replenish and increase our lot supply and are being more selective in investing in land and land development opportunities in response to the current market conditions.

We will continue to monitor market conditions and our pace of home sales and deliveries and adjust our land spending accordingly.

Pursuant to our land option agreements, as of December 31, 2022, we had a total of 17,049 lots under contract, with an aggregate purchase price of approximately $803.5 million, to be acquired during the period from 2023 through 2029.

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Operating Cash Flow Activities .

During 2021, we used $16.8 million of cash in operating activities, compared to generating $168.3 million of cash from operating activities in 2020.

During 2022, we generated $184.1 million of cash in operating activities, compared to using $16.8 million of cash from operating activities in 2021.

The cash generated by operating activities in 2022 was primarily a result of net income of $490.7 million, proceeds from the sale of mortgage loans that exceeded mortgage loan originations by $33.5 million and a $34.3 million increase in other liabilities, offset partially by a $348.7 million increase in inventory and $30.7 million decrease in accounts payable and customer deposits.

The cash used in operating activities in 2021 was primarily a result of a $508.2 million increase in inventory, along with payments for mortgage loan originations which exceeded the proceeds from the sale of mortgage loans by $43.9 million, offset by net income of $396.9 million and a $121.7 million increase in accounts payable, customer deposits and other liabilities.

The cash provided by operating activities in 2020 was primarily a result of net income of $239.9 million and a $128.7 million increase in accounts payable, customer deposits and other liabilities, offset partially by payments for mortgage loan originations which exceeded the proceeds from the sale of mortgage loans by $78.7 million and a $134.9 million increase in inventory.

Investing Cash Flow Activities.

During 2022, we used $27.4 million of cash in investing activities, compared to using $51.7 million of cash in investing activities during 2021.

This $17.8 million increase in cash usage was primarily due to an increase in our investments in joint venture arrangements.

This $24.3 million decrease in cash usage was primarily due to a decrease in cash contributions to our joint venture arrangements compared to prior year.

Financing Cash Flow Activities.

During 2021, we generated $44.1 million of cash from our financing activities, compared to generating $120.3 million of cash during 2020.

The cash generated from financing activities in 2021 was primarily due to the issuance of $300.0 million of our 2030 Senior Notes, net of debt issuance costs, for $296.0 million, and net borrowings under our two M/I Financial credit facilities of $40.5 million, offset partially by the redemption of all $250.0 million of our then outstanding 2025 Senior Notes, and the repurchase of $51.5 million of our outstanding common shares during 2021 .

On July 28, 2021, the Company announced that its Board of Directors authorized the 2021 Share Repurchase Program pursuant to which the Company may purchase up to $100 million of its outstanding common shares (see Note 16 to our Consolidated Financial Statements).

During 2022, we used $81.5 million of cash in our financing activities, compared to generating $44.1 million of cash during 2021.

The cash used in financing activities in 2022 was primarily due to net repayments under our two M/I Financial credit facilities of $20.4 million in addition to the repurchase of $55.3 million of our outstanding common shares during 2022.

On July 28, 2021, the Company announced that its Board of Directors authorized a new share repurchase program pursuant to which the Company may purchase up to $100 million of its outstanding common shares (see Note 16 to our Consolidated Financial Statements).

On February 17, 2022, the Company announced that its Board of Directors approved an increase to its 2021 Share Repurchase Program by an additional $100 million.

During 2022, the Company repurchased 1.2 million common shares with an aggregate purchase price of $55.3 million which was funded with cash on hand.

As of December 31, 2022, the Company was authorized to repurchase an additional $93.1 million of outstanding common shares under the 2021 Share Repurchase Program.

On February 17, 2022, the Company announced that its Board of Directors approved an increase to its 2021 Share Repurchase Program by an additional

$100 million, leaving up to $148.5 million available for repurchase.

See Note 17 to our Consolidated financial Statements and “Item 9B.

Other Information”, for more information regarding the increase in the 2021 Share Repurchase Program.

Based on current market conditions, expected capital needs and availability, and the current market price of the Company’s common shares, we expect to continue repurchasing shares during the first quarter of 2022.

The timing and amount of any purchases under the 2021 Share Repurchase Program will be determined by the Company’s management at its discretion based on a variety of factors, including the market price of the Company’s common shares, business considerations, general market and economic conditions and legal requirements.

The 2021 Share Repurchase Program replaced and superseded the share repurchase program authorized by the Board of Directors in 2018 which authorized the repurchase of $50 million of the Company’s common shares (the “2018 Share Repurchase Program”).

At December 31, 2021 and December 31, 2020, our ratio of homebuilding debt to capital was 30% and 34%, respectively, calculated as the carrying value of our outstanding homebuilding debt (which consists of borrowings under our Credit Facility, our 2030 Senior Notes, our 2028 Senior Notes, our 2025 Senior Notes, and Notes Payable-Other) divided by the sum of the carrying value of our outstanding homebuilding debt plus shareholders’ equity.

The timing and amount of any future purchases under the 2021 Share Repurchase Program will be determined by the Company’s management at its discretion based on a variety of factors, including the market price of the Company’s common shares, business considerations, general market and economic conditions and legal requirements.

At December 31, 2022 and December 31, 2021, our ratio of homebuilding debt to capital was 25% and 30%, respectively, calculated as the carrying value of our outstanding homebuilding debt (which consists of borrowings under our Credit Facility, our 2030 Senior Notes, our 2028 Senior Notes, and Notes Payable-Other) divided by the sum of the carrying value of our outstanding homebuilding debt plus shareholders’ equity.

We believe that this ratio provides useful information for understanding our financial position and the leverage employed in our operations, and for comparing us with other homebuilders.

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There were no borrowings outstanding and $94.9 million of letters of credit outstanding at December 31, 2022, leaving $555.1 million available.

The Credit Facility has an expiration date of July 18, 2025.

The maximum aggregate commitment amount of M/I Financial's warehousing agreements as of December 31, 2021 was $325 million, which included a temporary increase for the MIF Mortgage Warehouse Agreement applicable through February 4, 2022 (as described below) at which time the maximum aggregate commitment amount under the two agreements reverted to $265 million.

The MIF Mortgage Warehousing Agreement has an expiration date of May 27, 2022 and the MIF Mortgage Repurchase Facility has an expiration date of October 24, 2022.

The Credit Facility has an expiration date of December 9, 2026.

(b) The available amount is computed in accordance with the borrowing base calculations under the MIF Mortgage Warehousing Agreement and the MIF Mortgage Repurchase Facility, each of which may be increased by pledging additional mortgage collateral, not to exceed the maximum aggregate commitment amount of M/I Financial's warehousing agreements as of December 31, 2022, which was $390 million, which included a temporary increase for the MIF Mortgage Warehouse Agreement applicable through February 6, 2023 (as described below) at which time the maximum aggregate commitment amount under the two agreements reverted to $290 million.

The MIF Mortgage Warehousing Agreement has an expiration date of May 26, 2023.

M/I Financial entered into an amendment to the MIF Mortgage Repurchase Facility, which extended its term for an additional year to October 23, 2023.

Notes Payable - Homebuilding.

Homebuilding Credit Facility .

The Credit Facility provides for an aggregate commitment amount of $550 million, and also includes an accordion feature pursuant to which the maximum borrowing availability may be increased to an aggregate of $700 million, subject to obtaining additional commitments from lenders.

The Credit Facility matures on July 18, 2025.

Interest on amounts borrowed under the Credit Facility is payable at a rate which is adjusted daily and is equal to the sum of one-month LIBOR (subject to a floor of 0.25%) plus a margin of 175 basis points (subject to adjustment in subsequent quarterly periods based on the Company’s leverage ratio).

The Credit Facility includes a provision for the replacement of LIBOR under certain circumstances where one-month LIBOR is no longer available.

On December 9, 2022, the company entered into an amendment to the Credit Facility, which, among other things, (1) increased the commitments from lenders to $650 million, (2) extended the maturity to December 9, 2026, (3) increased the accordion feature pursuant to which the maximum borrowing availability may be increased to an aggregate of $800 million, subject to obtaining additional commitments from lenders, (4) increased the sub-facility for letters of credit included in the Credit Facility to $250 million from $150 million, and (5) replaced LIBOR with the secured overnight financing rate (“SOFR”) as an interest rate bench mark (subject to a floor of 0.25%) and permitted the Company to select an index rate for each borrowing from multiple interest rate options, including one, three or six month adjusted term SOFR, plus a margin of 1.75 basis points (subject to adjustment in subsequent quarterly periods based on the Company’s then applicable leverage ratio).

Borrowings under the Credit Facility constitute senior, unsecured indebtedness and availability is subject to, among other things, a borrowing base calculated using various advance rates for different categories of inventory.

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The Credit Facility contains various representations, warranties and covenants which require, among other things, that the Company maintain (1) a minimum level of Consolidated Tangible Net Worth of $1.3 billion at December 31, 2022 (subject to increase over time based on earnings and proceeds from equity offerings), (2) a leverage ratio not in excess of 60%, and (3) either a minimum Interest Coverage Ratio of 1.5 to 1.0 or a minimum amount of available liquidity.

In addition, the Credit Facility contains covenants that limit the Company’s number of unsold housing units and model homes, as well as the amount of Investments in Unrestricted Subsidiaries and Joint Ventures (each as defined in the Credit Facility).

On February 16, 2022, the Company amended its Credit Facility to eliminate specified limits on the Company to make investments in its subordinated debt and capital stock.

Such investments are subject to the Company’s compliance with the other covenants and provisions in the Credit Facility.

In addition, the Credit Facility contains covenants that limit the Company’s number of

unsold housing units, as well as the amount of Investments in Unrestricted Subsidiaries and Joint Ventures (each as defined in the Credit Facility).

The Company’s obligations under the Credit Facility are guaranteed by all of the Company’s subsidiaries, with the exception of subsidiaries that are primarily engaged in the business of mortgage financing, title insurance or similar financial businesses relating to the homebuilding and home sales business, certain subsidiaries that are not 100%-owned by the Company or another subsidiary, and other subsidiaries designated by the Company as Unrestricted Subsidiaries, subject to limitations on the aggregate amount invested in such Unrestricted Subsidiaries.

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Investments in Unrestricted Subsidiaries and Joint Ventures ≤ $ 594.2 $ 6.0

Unsold Housing Units and Model Homes ≤ 3,053 784

Unsold Housing Units ≤ 3,087 1,505

Notes Payable - Financial Services.

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The MIF Mortgage Warehousing Agreement is used to finance eligible residential mortgage loans originated by M/I Financial.

The MIF Mortgage Warehousing Agreement provides a maximum borrowing availability of $175 million, which increased to $210 million from September 25, 2021 to October 15, 2021 and increased to $235 million from November 15, 2021 to February 4, 2022, which were periods of expected increases in the volume of mortgage originations.

The MIF Mortgage Warehousing Agreement provides a maximum borrowing availability of $200 million, which increased to $275 million from September 19, 2022 to November 13, 2022 and increased to $300 million from November 14, 2022 to February 6, 2023, which were periods of expected increases in the volume of mortgage originations.

The MIF Mortgage Warehousing Agreement expires on May 26, 2023.

Interest on amounts borrowed under the MIF Mortgage Warehousing Agreement is payable at a per annum rate equal to the one-month LIBOR rate (subject to a floor of 0.5%) plus a spread of 190 basis points.

The MIF Mortgage Warehousing Agreement includes a provision for the replacement of LIBOR under certain circumstances where one-month LIBOR is no longer available.

Interest on amounts borrowed under the MIF Mortgage Warehousing Agreement is payable at a per annum rate equal to the one-month BSBY rate (adjusting daily) (subject to a floor of 0.25%) plus a spread of 190 basis points.

As is typical for similar credit facilities in the mortgage origination industry, at closing, the expiration of the MIF Mortgage Warehousing Agreement was set at approximately one year and is under consideration for extension annually by the participating lenders.

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The MIF Mortgage Warehousing Agreement is secured by certain mortgage loans originated by M/I Financial that are being “warehoused” prior to their sale to investors.

The MIF Mortgage Warehousing Agreement provides for limits with respect to

certain loan types that can secure outstanding borrowings.

The MIF Mortgage Warehousing Agreement provides for limits with respect to certain loan types that can secure outstanding borrowings.

There are currently no guarantors of the MIF Mortgage Warehousing Agreement.

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The MIF Mortgage Repurchase Facility expires on October 23, 2023.

As is typical for similar credit facilities in the mortgage origination industry, at closing, the expiration of the MIF Mortgage Repurchase Facility was set at approximately one year, and is under consideration for extension annually by the participating lender.

M/I Financial pays interest on each advance under the MIF Mortgage Repurchase Facility at a per annum rate equal to the one-month LIBOR rate (subject to a floor of 0.75% or 0.625% based on the type of loan ) plus 175 or 200 basis points depending on the loan type.

The MIF Mortgage Repurchase Facility includes a provision for the replacement of LIBOR under certain circumstances where one-month LIBOR is no longer available.

As is typical for similar credit facilities in the mortgage origination industry, at closing, the expiration of the MIF

Mortgage Repurchase Facility was set at approximately one year, and is under consideration for extension annually by the participating lender.

M/I Financial pays interest on each advance under the MIF Mortgage Repurchase Facility at a per annum rate equal to One-Month Term SOFR (subject to an all-in floor of 2.375% or 2.75% based on the type of loan) plus 150 or 200 basis points depending on loan type.

The covenants in the MIF Mortgage Repurchase Facility are substantially similar to the covenants in the MIF Mortgage Warehousing Agreement.

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As of December 31, 2022, the Company was in compliance with all terms, conditions, and covenants under the indenture.

We used a portion of the net proceeds from the issuance of the 2030 Senior Notes to redeem all of our outstanding 2025 Senior Notes at a redemption price of 102.813% of the principal amount, plus accrued and unpaid interest thereon, on August 24, 2021.

In connection with the early redemption of our 2025 Senior Notes, we incurred a $9.1 million loss on early extinguishment of debt, consisting of a prepayment premium of $7.1 million and the write-off of unamortized debt issuance costs of $2.0 million.

4.95% Senior Notes.

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The guarantees are “full and unconditional,” as those terms are used in Regulation S-X, Rule 3-10(b)(3), except that the indentures governing the 2030 Senior Notes and the 2028 Senior Notes provide that a Subsidiary Guarantor’s guarantee will be released if:

(1) all of the assets of such Subsidiary Guarantor have been sold or otherwise disposed of in a transaction in compliance with the terms of the applicable indenture;

(1) all of the assets of such Subsidiary Guarantor have been sold or otherwise disposed of in a transaction in

compliance with the terms of the applicable indenture;

(2) all of the Equity Interests (as defined in the applicable indenture) held by M/I Homes, Inc.

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(4) M/I Homes, Inc.

exercises its legal defeasance option or covenant defeasance option under the

applicable indenture;

exercises its legal defeasance option or covenant defeasance option under the applicable indenture;

or (5) all obligations under the applicable indenture are discharged in accordance with the terms of the applicable indenture.

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In 2022 and 2021, our weighted average borrowings outstanding were $811.0 million and $716.7 million, respectively, with a weighted average interest rate of 4.96% and 5.55%, respectively.

The decrease in our weighted average borrowings related to a decrease in borrowings under our two MIF credit facilities during 2021 compared to 2020.

The increase in our weighted average borrowings related to increased borrowings under our two M/I Financial credit facilities during 2022 compared to 2021 due to an increase in average loan amounts in 2022.

The decrease in our weighted average borrowing rate was due to lower interest rates on our credit facilities in 2022 compared to the prior year.

At both December 31, 2022 and December 31, 2021, we had no borrowings outstanding under the Credit Facility.

During the twelve months ended December 31, 2021, the average daily amount outstanding and the maximum amount outstanding under the Credit Facility were both zero, and during the twelve months ended December 31, 2020, the average daily amount outstanding under the Credit Facility was $17.3 million and the maximum amount outstanding under the Credit Facility was $111.3 million.

Based on our currently anticipated spending on home construction, overhead expenses, share repurchases and land acquisition and development in 2022, offset by expected cash receipts from home deliveries and other sources, we may borrow under the Credit Facility during 2022, but do not expect the peak amount outstanding to exceed $150 million.

During the twelve months ended December 31, 2022, the average daily amount outstanding under the Credit Facility was $9.0 million and the maximum amount outstanding under the Credit Facility was $82.5 million which occurred during September.

During the twelve months ended December 31, 2021, the average daily amount outstanding and the maximum amount outstanding under the Credit Facility were both zero.

Based on our currently anticipated spending on home construction, overhead expenses, share repurchases and land acquisition and development in 2023, offset by expected cash receipts from home deliveries and other sources, we may borrow under the Credit Facility during 2023, but do not expect the peak amount outstanding to exceed approximately $100 million.

The actual amount borrowed in 2023 (and the estimated peak amount outstanding) and the related timing will be subject to numerous factors, which are subject to significant variation as a result of the timing and amount of land and house construction expenditures, payroll and other general and administrative expenses, and cash receipts from home deliveries.

The amount borrowed will also be impacted by other cash receipts and payments, any capital markets transactions or other additional financings by the Company, any repayments or redemptions of outstanding debt, any additional share repurchases under the 2021 Share Repurchase Program and any other extraordinary events or transactions.

repurchases under the 2021 Share Repurchase Program and any other extraordinary events or transactions.

The Company may also experience significant variation in cash and Credit Facility balances from week to week due to the timing of such receipts and payments.

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At December 31, 2022, M/I Financial had $44.9 million outstanding under the MIF Mortgage Repurchase Facility.

During 2021, the average daily amount outstanding under the MIF Mortgage Repurchase Facility was $43.2 million and the maximum amount outstanding was $78.6 million, which occurred during April.

During 2022, the average daily amount outstanding under the MIF Mortgage Repurchase Facility was $40.5 million and the maximum amount outstanding was $80.4 million, which occurred during October.

Universal Shelf Registration.

In June 2019, the Company filed a $400 million universal shelf registration statement with the SEC, which registration statement became effective upon filing and will expire in June 2022.

In June 2022, the Company filed a universal shelf registration statement with the SEC, which registration statement became effective upon filing and will expire in June 2025.

Pursuant to the registration statement, the Company may, from time to time, offer debt securities, common shares, preferred shares, depositary shares, warrants to purchase debt securities, common shares, preferred shares, depositary shares or units of two or more of those securities, rights to purchase debt securities, common shares, preferred shares or depositary shares, stock purchase contracts and units.

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Our business is significantly affected by general economic conditions within the United States and, particularly, by the impact of interest rates and inflation.

Inflation can have a long-term impact on us because increasing costs of land, materials and labor can result in a need to increase the sales prices of homes.

In addition, inflation is often accompanied by higher interest rates, which can have a negative impact on housing demand and the costs of financing land development activities and housing construction.

Higher interest rates also may decrease our potential market by making it more difficult for homebuyers to qualify for mortgages or to obtain mortgages at interest rates that are acceptable to them.

The impact of increased rates can be offset, in part, by offering variable rate loans with lower interest rates.

In conjunction with our mortgage financing services, hedging methods are used to reduce our exposure to interest rate fluctuations between the commitment date of the loan and the time the loan closes.

Rising interest rates, as well as increased materials and labor costs, may reduce gross margins.

An increase in material and labor costs is particularly a problem during a period of declining home prices.

Conversely, deflation can impact the value of real estate and make it difficult for us to recover our land costs.

Therefore, either inflation or deflation could adversely impact our future results of operations.

The annual rate of inflation in the United States was 6.5% in December 2022, as measured by the Consumer Price Index (CPI), down slightly from 9.1% in June 2022 which was the highest inflation rate we have experienced in 40 years.

As a result of the high inflation rates during 2022, we have experienced an increase in the costs of land, materials and labor that we have been able to pass along to the consumer.

However, inflation has also reduced the purchasing power of potential homebuyers and has negatively impacted their ability and desire to buy a home and our ability to pass along our increased costs to our homebuyers.

Beginning in the second half of 2022, the pace of sales across the homebuilding industry declined significantly from the unprecedented levels experienced over the previous two years as a result of the sharp increase in mortgage interest rates from approximately 3% in December 2021 to around 6.5% at the end of 2022, the highest rates in over a decade, as well as significant inflation in the broader economy, and the substantial rise in home prices.

These macroeconomic trends have pressured housing affordability, negatively impacted homebuyer sentiment and impacted the costs of financing land development activities and housing construction.

The higher mortgage interest rates and the high rate of inflation are making it more difficult for homebuyers to qualify for mortgages or to obtain mortgages at interest rates that are acceptable to them.

Rising interest rates, as well as increased materials and labor costs, can also reduce gross margins.

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-K

Item 7. Management’s Discussion and Analysis