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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2022
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _____________________
Commission File Number 1-12434

M/I HOMES, INC.
(Exact name of registrant as specified in it charter)
Ohio
31-1210837
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

4131 Worth Avenue, Suite 500, Columbus, Ohio 43219
(Address of principal executive offices) (Zip Code)

(614) 418-8000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Shares, par value $.01MHONew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. q



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common shares, par value $.01 per share: 28,288,783 shares outstanding as of April 27, 2022.



M/I HOMES, INC.
FORM 10-Q
TABLE OF CONTENTS
PART 1.FINANCIAL INFORMATION
Item 1.M/I Homes, Inc. and Subsidiaries Unaudited Condensed Consolidated Financial Statements
Unaudited Condensed Consolidated Balance Sheets at March 31, 2022 and December 31, 2021
Unaudited Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2022 and 2021
Unaudited Condensed Consolidated Statement of Shareholders’ Equity for the Three Months Ended March 31, 2022 and 2021
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021
Notes to Unaudited Condensed Consolidated Financial Statements
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
PART II.OTHER INFORMATION
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.Defaults Upon Senior Securities
Item 4.Mine Safety Disclosures
Item 5.Other Information
Item 6.Exhibits
Signatures


2




M/I HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except par values)March 31,
2022
December 31,
2021
(unaudited)
ASSETS:
Cash, cash equivalents and restricted cash$218,606 $236,368 
Mortgage loans held for sale200,455 275,655 
Inventory2,582,552 2,452,434 
Property and equipment - net36,776 37,648 
Investment in joint venture arrangements57,309 57,121 
Operating lease right-of-use assets
50,907 50,950 
Deferred income tax asset
10,251 10,251 
Goodwill16,400 16,400 
Other assets133,255 103,026 
TOTAL ASSETS$3,306,511 $3,239,853 
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Accounts payable$281,387 $244,505 
Customer deposits131,682 107,864 
Operating lease liabilities51,546 51,497 
Other liabilities221,585 226,969 
Community development district obligations16,766 20,089 
Obligation for consolidated inventory not owned2,828 2,768 
Notes payable bank - financial services operations203,650 266,160 
Notes payable - other1,871 4,549 
Senior notes due 2028 - net395,524 395,331 
Senior notes due 2030 - net295,983 295,937 
TOTAL LIABILITIES$1,602,822 $1,615,669 
Commitments and contingencies (Note 6)
  
SHAREHOLDERS’ EQUITY:
Common shares - $0.01 par value; authorized 58,000,000 shares at both March 31, 2022 and December 31, 2021;
   issued 30,137,141 shares at both March 31, 2022 and December 31, 2021
301 301 
Additional paid-in capital346,291 347,452 
Retained earnings1,437,160 1,345,321 
Treasury shares - at cost - 1,848,358 and 1,637,511 shares at March 31, 2022 and December 31, 2021, respectively
(80,063)(68,890)
TOTAL SHAREHOLDERS’ EQUITY$1,703,689 $1,624,184 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$3,306,511 $3,239,853 

See Notes to Unaudited Condensed Consolidated Financial Statements.
3


M/I HOMES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended March 31,
(In thousands, except per share amounts)20222021
Revenue$860,811 $828,776 
Costs and expenses:
Land and housing647,702 626,585 
General and administrative48,783 45,205 
Selling41,421 45,689 
Other income(16)(160)
Interest expense671 1,176 
Total costs and expenses$738,561 $718,495 
Income before income taxes122,250 110,281 
Provision for income taxes30,411 25,415 
Net income$91,839 $84,866 
Earnings per common share:
Basic$3.23 $2.92 
Diluted$3.16 $2.85 
Weighted average shares outstanding:
Basic28,424 29,015 
Diluted29,072 29,743 

See Notes to Unaudited Condensed Consolidated Financial Statements.
4


M/I HOMES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

Three Months Ended March 31, 2022
Common Shares
Shares OutstandingAdditional Paid-in CapitalRetained EarningsTreasury SharesTotal Shareholders’ Equity
(Dollars in thousands)Amount
Balance at December 31, 2021
28,499,630 $301 $347,452 $1,345,321 $(68,890)$1,624,184 
Net income   91,839  91,839 
Stock options exercised8,600  (164) 370 206 
Stock-based compensation expense  1,831   1,831 
Repurchase of common shares(310,000)   (15,393)(15,393)
Deferral of executive and director compensation  1,022   1,022 
Executive and director deferred compensation distributions90,553  (3,850) 3,850  
Balance at March 31, 2022
28,288,783 $301 $346,291 $1,437,160 $(80,063)$1,703,689 


Three Months Ended March 31, 2021
Common Shares
Shares OutstandingAdditional Paid-in CapitalRetained EarningsTreasury SharesTotal Shareholders’ Equity
(Dollars in thousands)Amount
Balance at December 31, 2020
28,813,849 $301 $339,001 $948,453 $(29,057)$1,258,698 
Net income— — — 84,866 — 84,866 
Stock options exercised295,600 — 766 — 6,490 7,256 
Stock-based compensation expense— — 2,264 — — 2,264 
Deferral of executive and director compensation— — 338 — — 338 
Executive and director deferred compensation distributions76,181 — (1,673)— 1,673  
Balance at March 31, 2021
29,185,630 $301 $340,696 $1,033,319 $(20,894)$1,353,422 

See Notes to Unaudited Condensed Consolidated Financial Statements.
5


M/I HOMES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
(Dollars in thousands)20222021
OPERATING ACTIVITIES:
Net income$91,839 $84,866 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Equity in income from joint venture arrangements(16)(160)
Mortgage loan originations(479,781)(515,877)
Proceeds from the sale of mortgage loans549,025 525,706 
Fair value adjustment of mortgage loans held for sale5,956 6,940 
Fair value adjustment of mortgage servicing rights (162)
Capitalization of originated mortgage servicing rights(3,583)(3,999)
Amortization of mortgage servicing rights300 231 
Depreciation3,244 3,233 
Amortization of debt issue costs644 646 
Loss (gain ) on sale of mortgage servicing rights176 (252)
Stock-based compensation expense1,831 2,264 
Change in assets and liabilities:
Inventory(129,295)(34,331)
Other assets(25,025)(8,947)
Accounts payable36,882 12,547 
Customer deposits23,818 24,829 
Accrued compensation(31,746)(27,340)
Other liabilities25,057 4,974 
Net cash provided by operating activities69,326 75,168 
INVESTING ACTIVITIES:
Purchase of property and equipment(1,205)(158)
Return of capital from joint venture arrangements 1,050 
Investment in joint venture arrangements(5,429)(4,664)
Proceeds from sale of mortgage servicing rights 4,395 
Net cash (used in) provided by investing activities(6,634)623 
FINANCING ACTIVITIES:
Net repayments of bank borrowings - financial services operations(62,510)(49,430)
Principal repayments of notes payable - other and community development district bond obligations(2,677)(1,528)
Repurchase of common shares(15,393) 
Debt issue costs(80) 
Proceeds from exercise of stock options206 7,257 
Net cash used in financing activities(80,454)(43,701)
Net (decrease) increase in cash, cash equivalents and restricted cash(17,762)32,090 
Cash, cash equivalents and restricted cash balance at beginning of period236,368 260,810 
Cash, cash equivalents and restricted cash balance at end of period$218,606 $292,900 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest — net of amount capitalized$7,895 $9,110 
Income taxes$993 $969 
NON-CASH TRANSACTIONS DURING THE PERIOD:
Community development district infrastructure$(3,323)$4,126 
Consolidated inventory not owned$60 $2,229 
Distribution of single-family lots from joint venture arrangements$5,257 $4,625 

See Notes to Unaudited Condensed Consolidated Financial Statements.
6


M/I HOMES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. Basis of Presentation

The accompanying Unaudited Condensed Consolidated Financial Statements (the “financial statements”) of M/I Homes, Inc. and its subsidiaries (the “Company”) and notes thereto have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. The financial statements include the accounts of the Company. All intercompany transactions have been eliminated. Results for the interim period are not necessarily indicative of results for a full year. In the opinion of management, the accompanying financial statements reflect all adjustments (all of which are normal and recurring in nature) necessary for a fair presentation of financial results for the interim periods presented. These financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”).

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during that period. Actual results could differ from these estimates and have a significant impact on the financial condition and results of operations and cash flows. With regard to the Company, estimates and assumptions are inherent in calculations relating to valuation of inventory and investment in unconsolidated joint ventures, property and equipment depreciation, valuation of derivative financial instruments, accounts payable on inventory, accruals for costs to complete inventory, accruals for warranty claims, accruals for self-insured general liability claims, litigation, accruals for health care and workers’ compensation, accruals for guaranteed or indemnified loans, stock-based compensation expense, income taxes, and contingencies. Items that could have a significant impact on these estimates and assumptions include the risks and uncertainties listed in “Item 1A. Risk Factors” in Part I of our 2021 Form 10-K, as the same may be updated from time to time in our subsequent filings with the SEC.

Recently Adopted Accounting Standards

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 is intended to provide temporary optional expedients and exceptions to the US GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance became effective on March 12, 2020 and can be applied prospectively through December 31, 2022. In January 2021, the FASB issued Accounting Standards Update 2021-01, “Reference Rate Reform (Topic 848): Scope” (“ASU 2021-01”), which clarified the scope and application of the original guidance. We plan to adopt ASU 2020-04 and ASU 2021-01 when LIBOR is discontinued. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements and disclosures.

Significant Accounting Policies

There have been no significant changes to our significant accounting policies during the quarter ended March 31, 2022 as compared to those disclosed in our 2021 Form 10-K.
NOTE 2. Inventory and Capitalized Interest
Inventory
Inventory is recorded at cost, unless events and circumstances indicate that the carrying value of the inventory is impaired, at which point the inventory is written down to fair value (see Note 4 to our financial statements for additional details relating to our procedures for evaluating our inventories for impairment). Inventory includes the costs of land acquisition, land development and home construction, capitalized interest, real estate taxes, direct overhead costs incurred during development and home construction, and common costs that benefit the entire community, less impairments, if any.
7


A summary of the Company’s inventory as of March 31, 2022 and December 31, 2021 is as follows:
(In thousands)March 31, 2022December 31, 2021
Single-family lots, land and land development costs$1,116,069 $1,125,738 
Land held for sale8,377 4,312 
Homes under construction1,325,672 1,187,341 
Model homes and furnishings - at cost (less accumulated depreciation: March 31, 2022 - $11,690;
   December 31, 2021 - $12,023)
57,499 59,268 
Community development district infrastructure16,766 20,089 
Land purchase deposits55,341 52,918 
Consolidated inventory not owned2,828 2,768 
Total inventory$2,582,552 $2,452,434 

Single-family lots, land and land development costs include raw land that the Company has purchased to develop into lots, costs incurred to develop the raw land into lots, and lots for which development has been completed, but which have not yet been used to start construction of a home.
Homes under construction include homes that are in various stages of construction. As of March 31, 2022 and December 31, 2021, we had 1,224 homes (with a carrying value of $174.3 million) and 1,266 homes (with a carrying value of $193.2 million), respectively, included in homes under construction that were not subject to a sales contract.
Model homes and furnishings include homes that are under construction or have been completed and are being used as sales models. The amount also includes the net book value of furnishings included in our model homes. Depreciation on model home furnishings is recorded using an accelerated method over the estimated useful life of the assets, which is typically three years.
We own lots in certain communities in Florida that have Community Development Districts (“CDDs”). The Company records a liability for the estimated developer obligations that are probable and estimable and user fees that are required to be paid or transferred at the time the parcel or unit is sold to an end user.  The Company reduces this liability at the time of closing and the transfer of the property.  The Company recorded a $16.8 million liability and a $20.1 million liability related to these CDD bond obligations as of March 31, 2022 and December 31, 2021, respectively, along with the related inventory infrastructure.

Land purchase deposits include both refundable and non-refundable amounts paid to third party sellers relating to the purchase of land. On an ongoing basis, the Company evaluates the land option agreements relating to the land purchase deposits. The Company expenses any deposits and accumulated pre-acquisition costs relating to such agreements in the period when the Company makes the decision not to proceed with the purchase of land under an agreement.
Capitalized Interest
The Company capitalizes interest during land development and home construction.  Capitalized interest is charged to land and housing costs and expensed as the related inventory is delivered to a third party.  The summary of capitalized interest for the three months ended March 31, 2022 and 2021 is as follows:
Three Months Ended March 31,
(In thousands)20222021
Capitalized interest, beginning of period$24,343 $21,329 
Interest capitalized to inventory8,791 8,995 
Capitalized interest charged to land and housing costs and expenses(7,327)(8,205)
Capitalized interest, end of period$25,807 $22,119 
Interest incurred$9,462 $10,171 
8


NOTE 3. Investment in Joint Venture Arrangements
Investment in Joint Venture Arrangements
In order to minimize our investment and risk of land exposure in a single location, we have periodically partnered with other land developers or homebuilders to share in the land investment and development of a property through joint ownership and development agreements, joint ventures, and other similar arrangements. As of March 31, 2022 and December 31, 2021, our investment in such joint venture arrangements totaled $57.3 million and $57.1 million, respectively, and was reported as Investment in Joint Venture Arrangements on our Unaudited Condensed Consolidated Balance Sheets. The $0.2 million increase during the three-month period ended March 31, 2022 was driven primarily by our cash contributions to our joint venture arrangements during the first quarter of 2022 of $5.4 million, offset, in part, by lot distributions from our joint venture arrangements of $5.3 million.
The majority of our investment in joint venture arrangements for both March 31, 2022 and December 31, 2021 consisted of joint ownership and development agreements for which a special purpose entity was not established (“JODAs”). In these JODAs, we own the property jointly with partners which are typically other builders, and land development activities are funded jointly until the developed lots are subdivided for separate ownership by the partners in accordance with the JODA and the approved site plan. As of March 31, 2022 and December 31, 2021, the Company had $49.8 million and $50.6 million, respectively, invested in JODAs.
The remainder of our investment in joint venture arrangements was comprised of joint venture arrangements where a special purpose entity was established to own and develop the property. For these joint venture arrangements, we generally enter into limited liability company or similar arrangements (“LLCs”) with the other partners. These entities typically engage in land development activities for the purpose of distributing or selling developed lots to the Company and its partners in the LLC. As of March 31, 2022 and December 31, 2021, the Company had $7.5 million and $6.5 million, respectively, of equity invested in LLCs. The Company’s percentage of ownership in these LLCs as of both March 31, 2022 and December 31, 2021 ranged from 25% to 50%.
We use the equity method of accounting for investments in LLCs and other joint venture arrangements, including JODAs, over which we exercise significant influence but do not have a controlling interest. Under the equity method, our share of the LLCs’ earnings or loss, if any, is included in our Unaudited Condensed Consolidated Statements of Income. The Company’s equity in income relating to earnings from its LLCs was less than $0.1 million for the three months ended March 31, 2022 and $0.2 million for the three months ended March 31, 2021. Our share of the profit relating to lots we purchase from our LLCs is deferred until homes are delivered by us and title passes to a homebuyer.
We believe that the Company’s maximum exposure related to its investment in these joint venture arrangements as of March 31, 2022 was the amount invested of $57.3 million, which is reported as Investment in Joint Venture Arrangements on our Unaudited Condensed Consolidated Balance Sheets. We expect to invest further amounts in these joint venture arrangements as development of the properties progresses.
The Company assesses its investments in unconsolidated LLCs for recoverability on a quarterly basis. See Note 4 to our financial statements for additional details relating to our procedures for evaluating our investments for impairment.
Variable Interest Entities
With respect to our investments in these LLCs, we are required, under ASC 810-10, Consolidation (“ASC 810”), to evaluate whether or not such entities should be consolidated into our consolidated financial statements. We initially perform these evaluations when each new entity is created and upon any events that require reconsideration of the entity. See Note 1, “Summary of Significant Accounting Policies - Variable Interest Entities” in the Company’s 2021 Form 10-K for additional information regarding the Company’s methodology for evaluating entities for consolidation.
Land Option Agreements
In the ordinary course of business, the Company enters into land option or purchase agreements for which we generally pay non-refundable deposits. Pursuant to these land option agreements, the Company provides a deposit to the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices.  In accordance with ASC 810, we analyze our land option or purchase agreements to determine whether the corresponding land sellers are variable interest entities (“VIEs”) and, if so, whether we are the primary beneficiary, as further described in Note 1, “Summary of Significant Accounting Policies - Land Option Agreements” in the 2021 Form 10-K. If we are deemed to be the primary beneficiary of the VIE, we will consolidate the VIE in our consolidated financial statements and reflect such assets and
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liabilities in our Consolidated Inventory Not Owned in our Unaudited Condensed Consolidated Balance Sheets. At both March 31, 2022 and December 31, 2021, we concluded that we were not the primary beneficiary of any VIEs from which we are purchasing land under option or purchase agreements.
NOTE 4. Fair Value Measurements
There are three measurement input levels for determining fair value: Level 1, Level 2, and Level 3. Fair values determined by Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
Assets Measured on a Recurring Basis
The Company measures both mortgage loans held for sale and interest rate lock commitments (“IRLCs”) at fair value. Fair value measurement results in a better presentation of the changes in fair values of the loans and the derivative instruments used to economically hedge them.
In the normal course of business, our financial services segment enters into contractual commitments to extend credit to buyers of single-family homes with fixed expiration dates.  The commitments become effective when the borrowers “lock-in” a specified interest rate within established time frames.  Market risk arises if interest rates move adversely between the time of the “lock-in” of rates by the borrower and the sale date of the loan to an investor.  To mitigate the effect of the interest rate risk inherent in providing rate lock commitments to borrowers, the Company enters into optional or mandatory delivery forward sale contracts to sell whole loans and mortgage-backed securities to broker/dealers.  The forward sale contracts lock in an interest rate and price for the sale of loans similar to the specific rate lock commitments.  The Company does not engage in speculative trading or derivative activities.  Both the rate lock commitments to borrowers and the forward sale contracts to broker/dealers or investors are undesignated derivatives, and accordingly, are marked to fair value through earnings.  Changes in fair value measurements are included in earnings in the accompanying statements of income.
The fair value of mortgage loans held for sale is estimated based primarily on published prices for mortgage-backed securities with similar characteristics.  To calculate the effects of interest rate movements, the Company utilizes applicable published mortgage-backed security prices, and multiplies the price movement between the rate lock date and the balance sheet date by the notional loan commitment amount.  The Company applies a fallout rate to IRLCs when measuring the fair value of rate lock commitments.  Fallout is defined as locked loan commitments for which the Company does not close a mortgage loan and is based on management’s judgment and company experience.
The Company sells loans on a servicing released or servicing retained basis and receives servicing compensation.  Thus, the value of the servicing rights included in the fair value measurement is based upon contractual terms with investors and depends on the loan type. Mortgage servicing rights (Level 3 financial instruments as they are measured using significant unobservable inputs such as mortgage prepayment rates, discount rates and delinquency rates) are periodically evaluated for impairment. The amount of impairment is the amount by which the mortgage servicing rights, net of accumulated amortization, exceed their fair value, which is calculated using third-party valuations. Impairment, if any, is recognized through a valuation allowance and a reduction of revenue. Both the carrying value and fair value of our mortgage servicing rights were $11.8 million at March 31, 2022. At December 31, 2021, both the carrying value and fair value of our mortgage servicing rights were $8.4 million.
The fair value of the Company’s forward sales contracts to broker/dealers solely considers the market price movement of the same type of security between the trade date and the balance sheet date.  The market price changes are multiplied by the notional amount of the forward sales contracts to measure the fair value.
Interest Rate Lock Commitments. IRLCs are extended to certain homebuying customers who have applied for a mortgage loan and meet certain defined credit and underwriting criteria. Typically, the IRLCs will have a term of less than six months; however, in certain markets, the term could extend to nine months.
Some IRLCs are committed to a specific third-party investor through the use of whole loan delivery commitments matching the exact terms of the IRLC loan. Uncommitted IRLCs are considered derivative instruments and are fair value adjusted, with the resulting gain or loss recorded in current earnings.
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Forward Sales of Mortgage-Backed Securities. Forward sales of mortgage-backed securities (“FMBSs”) are used to protect uncommitted IRLC loans against the risk of changes in interest rates between the lock date and the funding date. FMBSs related to uncommitted IRLCs and FMBSs related to mortgage loans held for sale are classified and accounted for as non-designated derivative instruments and are recorded at fair value, with gains and losses recorded in current earnings.

Mortgage Loans Held for Sale. Mortgage loans held for sale consists primarily of single-family residential loans collateralized by the underlying property.  Generally, all of the mortgage loans and related servicing rights are sold to third-party investors shortly after origination.  During the period between when a loan is closed and when it is sold to an investor, the interest rate risk is covered through the use of a whole loan contract or by FMBSs.
The table below shows the notional amounts of our financial instruments at March 31, 2022 and December 31, 2021:
Description of Financial Instrument (in thousands)March 31, 2022December 31, 2021
Whole loan contracts and related committed IRLCs$14,587 $782 
Uncommitted IRLCs470,964 228,831 
FMBSs related to uncommitted IRLCs453,000 223,000 
Whole loan contracts and related mortgage loans held for sale5,005 3,785 
FMBSs related to mortgage loans held for sale200,000 251,000 
Mortgage loans held for sale covered by FMBSs198,937 263,088 

The following table sets forth the amount of gain (loss) recognized, within our revenue in the Unaudited Condensed Consolidated Statements of Income, on assets and liabilities measured on a recurring basis for the three months ended March 31, 2022 and 2021:
Three Months Ended March 31,
Description (in thousands)20222021
Mortgage loans held for sale$(5,956)$(6,940)
Forward sales of mortgage-backed securities13,560 9,347 
Interest rate lock commitments(7,229)(2,618)
Whole loan contracts125 413 
Total gain recognized$500 $202 

The following tables set forth the fair value of the Company’s derivative instruments and their location within the Unaudited Condensed Consolidated Balance Sheets for the periods indicated (except for mortgage loans held for sale which are disclosed as a separate line item):
Asset DerivativesLiability Derivatives
March 31, 2022March 31, 2022
Description of DerivativesBalance Sheet
Location
Fair Value
(in thousands)
Balance Sheet LocationFair Value
(in thousands)
Forward sales of mortgage-backed securitiesOther assets$18,037 Other liabilities$ 
Interest rate lock commitmentsOther assets Other liabilities7,648 
Whole loan contractsOther assets Other liabilities5 
Total fair value measurements$18,037 $7,653 

Asset DerivativesLiability Derivatives
December 31, 2021December 31, 2021
Description of DerivativesBalance Sheet
Location
Fair Value
(in thousands)
Balance Sheet LocationFair Value
(in thousands)
Forward sales of mortgage-backed securitiesOther assets$4,477 Other liabilities$ 
Interest rate lock commitmentsOther assets Other liabilities487 
Whole loan contractsOther assets Other liabilities62 
Total fair value measurements$4,477 $549 
Assets Measured on a Non-Recurring Basis
Inventory. The Company assesses inventory for recoverability on a quarterly basis based on the difference in the carrying value of the inventory and its fair value at the time of the evaluation. Determining the fair value of a community’s inventory involves a number of variables, estimates and projections, which are Level 3 measurement inputs. See Note 1, “Summary of
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Significant Accounting Policies - Inventory” in the 2021 Form 10-K for additional information regarding the Company’s methodology for determining fair value.
The Company uses significant assumptions to evaluate the recoverability of its inventory, such as estimated average selling price, construction and development costs, absorption rate (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. Changes in these assumptions could materially impact future cash flow and fair value estimates and may lead the Company to incur additional impairment charges in the future. Our analysis is conducted only if indicators of a decline in value of our inventory exist, which include, among other things, declines in gross margin on sales contracts in backlog or homes that have been delivered, slower than anticipated absorption pace, declines in average sales price or high incentive offers by management to improve absorptions, declines in margins regarding future land sales, or declines in the value of the land itself as a result of third party appraisals. If communities are not recoverable based on the 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. During the three months ended March 31, 2022 and 2021, the Company did not record any impairment charges on its inventory.
Investment in Unconsolidated Joint Ventures.  We evaluate our investments in unconsolidated joint ventures for impairment on a quarterly basis based on the difference in the investment’s carrying value and its fair value at the time of the evaluation. If the Company has determined that the decline in value is other than temporary, the Company would write down the value of the investment to its estimated fair value. Determining the fair value of investments in unconsolidated joint ventures involves a number of variables, estimates and assumptions, which are Level 3 measurement inputs. See Note 1, “Summary of Significant Accounting Policies - Investment in Unconsolidated Joint Ventures,” in the 2021 Form 10-K for additional information regarding the Company’s methodology for determining fair value. Because of the high degree of judgment involved in developing these assumptions, it is possible that changes in these assumptions could materially impact future cash flow and fair value estimates of the investments which may lead the Company to incur additional impairment charges in the future. During the three months ended March 31, 2022 and 2021, the Company did not record any impairment charges on its investments in unconsolidated joint ventures.
Financial Instruments
Counterparty Credit Risk. To reduce the risk associated with losses that would be recognized if counterparties failed to perform as contracted, the Company limits the entities with whom management can enter into commitments. This risk of accounting loss is the difference between the market rate at the time of non-performance by the counterparty and the rate to which the Company committed.
The following table presents the carrying amounts and fair values of the Company’s financial instruments at March 31, 2022 and December 31, 2021. The objective of the fair value measurement is to estimate the price at which an orderly transaction to sell the asset or transfer the liability would take place between market participants at the measurement date under current market conditions.
March 31, 2022December 31, 2021
(In thousands)Fair Value HierarchyCarrying AmountFair ValueCarrying AmountFair Value
Assets:
Cash, cash equivalents and restricted cashLevel 1$218,606 $218,606 $236,368 $236,368 
Mortgage loans held for saleLevel 2200,455 200,455 275,655 275,655 
Forward sales of mortgage-backed securitiesLevel 218,037 18,037 4,477 4,477 
Liabilities:
Notes payable - financial services operationsLevel 2203,650 203,650 266,160 266,160 
Notes payable - otherLevel 21,871 1,795 4,549 5,015 
Senior notes due 2028 (a)
Level 2400,000 377,500 400,000 414,000 
Senior notes due 2030 (a)
Level 2300,000 262,875 300,000 294,375 
Interest rate lock commitmentsLevel 27,648 7,648 487 487 
Whole loan contracts for committed IRLCs and mortgage loans held for saleLevel 25 5 62 62 
(a)Our senior notes are stated at the principal amount outstanding which does not include the impact of premiums, discounts, and debt issuance costs that are amortized to interest cost over the respective terms of the notes.
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The following methods and assumptions were used by the Company in estimating its fair value disclosures of financial instruments at March 31, 2022 and December 31, 2021:
Cash, Cash Equivalents and Restricted Cash. The carrying amounts of these items approximate fair value because they are short-term by nature.
Mortgage Loans Held for Sale, Forward Sales of Mortgage-Backed Securities, Interest Rate Lock Commitments, Whole loan Contracts for Committed IRLCs and Mortgage Loans Held for Sale, Senior Notes due 2028 and Senior Notes due 2030. The fair value of these financial instruments was determined based upon market quotes at March 31, 2022 and December 31, 2021. The market quotes used were quoted prices for similar assets or liabilities along with inputs taken from observable market data by correlation. The inputs were adjusted to account for the condition of the asset or liability.
Notes Payable - Homebuilding Operations. The interest rate available to the Company during the quarter ended March 31, 2022 under the Company’s $550 million unsecured revolving credit facility, dated July 18, 2013, as amended (the “Credit Facility”), fluctuated daily with the one-month LIBOR rate plus a margin of 175 basis points, and thus the carrying value is a reasonable estimate of fair value. See Note 8 to our financial statements for additional information regarding the Credit Facility.
Notes Payable - Financial Services Operations. M/I Financial, LLC, a 100%-owned subsidiary of M/I Homes, Inc. (“M/I Financial”), is a party to two credit agreements: (1) a $175 million secured mortgage warehousing agreement, dated June 24, 2016, as amended (the “MIF Mortgage Warehousing Agreement”); and (2) a $90 million mortgage repurchase agreement, dated October 30, 2017, as amended (the “MIF Mortgage Repurchase Facility”). For each of these credit facilities, the interest rate is based on a variable rate index, and thus their carrying value is a reasonable estimate of fair value. The interest rate available to M/I Financial during the first quarter of 2022 fluctuated with LIBOR. See Note 8 to our financial statements for additional information regarding the MIF Mortgage Warehousing Agreement and the MIF Mortgage Repurchase Facility.

Notes Payable - Other. The estimated fair value was determined by calculating the present value of the future cash flows using the Company’s current incremental borrowing rate.
NOTE 5. Guarantees and Indemnifications
In the ordinary course of business, M/I Financial enters into agreements that provide a limited-life guarantee on loans sold to certain third-party purchasers of its mortgage loans that M/I Financial will repurchase a loan if certain conditions occur, primarily if the mortgagor does not meet the terms of the loan within the first six months after the sale of the loan. Loans totaling approximately $304.0 million and $305.0 million were covered under these guarantees as of March 31, 2022 and December 31, 2021, respectively.  A portion of the revenue paid to M/I Financial for providing the guarantees on these loans was deferred at March 31, 2022, and will be recognized in income as M/I Financial is released from its obligation under the guarantees. The risk associated with the guarantees above is offset by the value of the underlying assets.
M/I Financial has received inquiries concerning underwriting matters from purchasers of its loans regarding certain loans totaling approximately $1.5 million and $0.7 million at March 31, 2022 and December 31, 2021, respectively.
M/I Financial has also guaranteed the collectability of certain loans to third party insurers (U.S. Department of Housing and Urban Development and U.S. Veterans Administration) of those loans for periods ranging from five to thirty years. The maximum potential amount of future payments is equal to the outstanding loan value less the value of the underlying asset plus administrative costs incurred related to foreclosure on the loans, should this event occur.
The Company recorded a liability relating to the guarantees described above totaling $0.5 million and $0.3 million at March 31, 2022 and December 31, 2021, respectively, which is management’s best estimate of the Company’s liability with respect to such guarantees.
NOTE 6. Commitments and Contingencies
Warranty
We use subcontractors for nearly all aspects of home construction. Although our subcontractors are generally required to repair and replace any product or labor defects, we are, during applicable warranty periods, ultimately responsible to the homeowner for making such repairs. As such, we record warranty reserves to cover our exposure to the costs for materials and labor not expected to be covered by our subcontractors to the extent they relate to warranty-type claims. Warranty reserves are established by charging cost of sales and crediting a warranty reserve for each home delivered.  The amounts charged are
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estimated by management to be adequate to cover expected warranty-related costs under the Company’s warranty programs. Warranty reserves are recorded for warranties under our Home Builder’s Limited Warranty (“HBLW”) and our transferable structural warranty in Other Liabilities on the Company’s Unaudited Condensed Consolidated Balance Sheets.
The warranty reserves for the HBLW are established as a percentage of average sales price and adjusted based on historical payment patterns determined, generally, by geographic area and recent trends. Factors that are given consideration in determining the HBLW reserves include: (1) the historical range of amounts paid per average sales price on a home; (2) type and mix of amenity packages added to the home; (3) any warranty expenditures not considered to be normal and recurring; (4) timing of payments; (5) improvements in quality of construction expected to impact future warranty expenditures; and (6) conditions that may affect certain projects and require a different percentage of average sales price for those specific projects. Changes in estimates for warranties occur due to changes in the historical payment experience and differences between the actual payment pattern experienced during the period and the historical payment pattern used in our evaluation of the warranty reserve balance at the end of each quarter. Actual future warranty costs could differ from our current estimated amount.
Our warranty reserves for our transferable structural warranty programs are established on a per-unit basis. While the structural warranty reserve is recorded as each house is delivered, the sufficiency of the structural warranty per unit charge and total reserve is reevaluated on an annual basis, with the assistance of an actuary, using our own historical data and trends, industry-wide historical data and trends, and other project specific factors. The reserves are also evaluated quarterly and adjusted if we encounter activity that is inconsistent with the historical experience used in the annual analysis. These reserves are subject to variability due to uncertainties regarding structural defect claims for products we build, the markets in which we build, claim settlement history, insurance and legal interpretations, among other factors.
Our warranty reserve amounts are based upon historical experience and geographic location. While we believe that our warranty reserves are sufficient to cover our projected costs, there can be no assurances that historical data and trends will accurately predict our actual warranty costs.
A summary of warranty activity for the three months ended March 31, 2022 and 2021 is as follows:
Three Months Ended March 31,
(In thousands)20222021
Warranty reserves, beginning of period$29,728 $29,012 
Warranty expense on homes delivered during the period4,559 4,826 
Changes in estimates for pre-existing warranties272 363 
Settlements made during the period(5,087)(4,775)
Warranty reserves, end of period$29,472 $29,426 

We have received claims related to stucco installation from homeowners in certain of our communities in our Tampa and Orlando, Florida markets and have been named as a defendant in legal proceedings initiated by certain of such homeowners. These claims primarily relate to homes built prior to 2014 which have second story elevations with frame construction.

During the three month period ended March 31, 2022, we did not record any additional warranty charges or receive any additional recoveries for stucco-related repair costs. The remaining reserve at March 31, 2022 for (1) homes in our Florida communities that we had identified as needing repair but had not yet completed the repair and (2) estimated repair costs for homes in our Florida communities that we had not yet identified as needing repair but that may require repair in the future included within our warranty reserve was $2.4 million. We believe that this amount is sufficient to cover both known and estimated future repair costs as of March 31, 2022. Our remaining stucco-related reserve is gross of any recoveries.
Our estimate of future costs of stucco-related repairs is based on our judgment, various assumptions and internal data. Due to the degree of judgment and the potential for variability in our underlying assumptions and data, we may revise our estimate, including to reflect additional estimated future stucco-related repairs costs, which revision could be material.

Performance Bonds and Letters of Credit

At March 31, 2022, the Company had outstanding approximately $386.1 million of completion bonds and standby letters of credit, some of which were issued to various local governmental entities that expire at various times through November 2027. Included in this total are: (1) $307.1 million of performance and maintenance bonds and $62.2 million of performance letters of credit that serve as completion bonds for land development work in progress; (2) $11.9 million of financial letters of credit, of which $11.4 million represent deposits on land and lot purchase agreements; and (3) $4.9 million of financial bonds.

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Land Option Contracts and Other Similar Contracts

At March 31, 2022, the Company also had options and contingent purchase agreements to acquire land and developed lots with an aggregate purchase price of approximately $961.5 million. Purchase of properties under these agreements is contingent upon satisfaction of certain requirements by the Company and the sellers.
Legal Matters
In addition to the legal proceedings related to stucco, the Company and certain of its subsidiaries have been named as defendants in certain other legal proceedings which are incidental to our business. While management currently believes that the ultimate resolution of these other legal proceedings, individually and in the aggregate, will not have a material effect on the Company’s financial position, results of operations and cash flows, such legal proceedings are subject to inherent uncertainties. The Company has recorded a liability to provide for the anticipated costs, including legal defense costs, associated with the resolution of these other legal proceedings. However, the possibility exists that the costs to resolve these legal proceedings could differ from the recorded estimates and, therefore, have a material effect on the Company’s net income for the periods in which they are resolved. At March 31, 2022 and December 31, 2021, we had $1.0 million and $1.2 million reserved for legal expenses, respectively.
NOTE 7. Goodwill
Goodwill represents the excess of the purchase price paid over the fair value of the net assets acquired and liabilities assumed in business combinations. In connection with the Company’s acquisition of the homebuilding assets and operations of Pinnacle Homes in Detroit, Michigan in March 2018, the Company recorded goodwill of $16.4 million, which is included as Goodwill in our Consolidated Balance Sheets. This amount was based on the estimated fair values of the acquired assets and liabilities at the date of the acquisition in accordance with ASC 350.

In accordance with ASC 350, the Company analyzes goodwill for impairment on an annual basis (or more often if indicators of impairment exist). The Company performs a qualitative assessment to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment indicates that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, a quantitative assessment is performed to determine the reporting unit’s fair value. If the reporting unit’s carrying value exceeds its fair value, then an impairment loss is recognized for the amount of the excess of the carrying amount over the reporting unit’s fair value. The Company performed its annual goodwill impairment analysis during the fourth quarter of 2021, and as no indicators for impairment existed at December 31, 2021, no impairment was recorded. At March 31, 2022, no indicators for impairment existed and therefore no impairment was recorded. However, we will continue to monitor the fair value of the reporting unit in future periods if conditions worsen or other events occur that could impact the fair value of the reporting unit.
NOTE 8. Debt
Notes Payable - Homebuilding
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 the 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. The Credit Facility also contains certain financial covenants. At March 31, 2022, the Company was in compliance with all financial covenants of the Credit Facility.
The available amount under the Credit Facility is computed in accordance with a borrowing base, which is calculated by applying various advance rates for different categories of inventory, and totaled $1.38 billion of availability for additional senior debt at March 31, 2022. As a result, the full $550 million commitment amount of the Credit Facility was available, less any borrowings and letters of credit outstanding. At March 31, 2022, there were no borrowings outstanding and $74.1 million of letters of credit outstanding, leaving a net remaining borrowing availability of $475.9 million. The Credit Facility includes a $150 million sub-facility for letters of credit.
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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 (as defined in the Credit Facility), subject to limitations on the aggregate amount invested in such Unrestricted Subsidiaries in accordance with the terms of the Credit Facility and the indentures governing the Company’s $300.0 million aggregate principal amount of 3.95% Senior Notes due 2030 (the “2030 Senior Notes”) and the Company’s $400.0 million aggregate principal amount of 4.95% Senior Notes due 2028 (the “2028 Senior Notes”). The guarantors for the Credit Facility (the “Subsidiary Guarantors”) are the same subsidiaries that guarantee the 2030 Senior Notes and the 2028 Senior Notes.
The Company’s obligations under the Credit Facility are general, unsecured senior obligations of the Company and the Subsidiary Guarantors and rank equally in right of payment with all our and the Subsidiary Guarantors’ existing and future unsecured senior indebtedness. Our obligations under the Credit Facility are effectively subordinated to our and the Subsidiary Guarantors’ existing and future secured indebtedness with respect to any assets comprising security or collateral for such indebtedness.
Notes Payable - Financial Services
The MIF Mortgage Warehousing Agreement is used to finance eligible residential mortgage loans originated by M/I Financial. The MIF Mortgage Warehousing Agreement provides for 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 (periods of increases in the volume of mortgage originations). The MIF Mortgage Warehousing Agreement expires on May 27, 2022. 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. The MIF Mortgage Warehousing Agreement also contains certain financial covenants. At March 31, 2022, M/I Financial was in compliance with all financial covenants of the MIF Mortgage Warehousing Agreement.
The MIF Mortgage Repurchase Facility is used to finance eligible residential mortgage loans originated by M/I Financial. The MIF Mortgage Repurchase Facility provides for a mortgage repurchase facility with a maximum borrowing availability of $90 million. The MIF Mortgage Repurchase Facility expires on October 24, 2022. 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. The MIF Mortgage Repurchase Facility also contains certain financial covenants. At March 31, 2022, M/I Financial was in compliance with all financial covenants of the MIF Mortgage Repurchase Facility.
At March 31, 2022 and December 31, 2021, M/I Financial’s total combined maximum borrowing availability under the two credit facilities was $265.0 million and $325.0 million, respectively. At March 31, 2022 and December 31, 2021, M/I Financial had $203.7 million and $266.2 million outstanding on a combined basis under its credit facilities, respectively.
Senior Notes
As of both March 31, 2022 and December 31, 2021, we had $300.0 million of our 2030 Senior Notes outstanding. The 2030 Senior Notes bear interest at a rate of 3.95% per year, payable semiannually in arrears on February 15 and August 15 of each year, and mature on February 15, 2030. The Company may redeem some or all of the 2030 Senior Notes at any time prior to August 15, 2029 (the date that is six months prior to the maturity of the 2030 Senior Notes), at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the redemption date, plus a “make-whole” amount set forth in the indenture governing the 2030 Senior Notes. In addition, on or after August 15, 2029 (the date that is six months prior to the maturity of the 2030 Senior Notes), the Company may redeem some or all of the 2030 Senior Notes at a redemption price equal to 100.000% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the redemption date.
As of both March 31, 2022 and December 31, 2021, we had $400.0 million of our 2028 Senior Notes outstanding. The 2028 Senior Notes bear interest at a rate of 4.95% per year, payable semiannually in arrears on February 1 and August 1 of each year and mature on February 1, 2028. We may redeem all or any portion of the 2028 Senior Notes on or after February 1, 2023 at a stated redemption price, together with accrued and unpaid interest thereon. The redemption price will initially be 103.713% of the principal amount outstanding, but will decline to 102.475% of the principal amount outstanding if redeemed during the 12-
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month period beginning on February 1, 2024, will further decline to 101.238% of the principal amount outstanding if redeemed during the 12-month period beginning on February 1, 2025 and will further decline to 100.000% of the principal amount outstanding if redeemed on or after February 1, 2026, but prior to maturity.
The 2030 Senior Notes contain certain covenants, as more fully described and defined in the indenture governing the 2030 Senior Notes, which limit the ability of the Company and the restricted subsidiaries to, among other things: incur certain liens securing indebtedness without equally and ratably securing the 2030 Senior Notes and the guarantees thereof; enter into certain sale and leaseback transactions; and consolidate or merge with or into other companies, liquidate or sell or otherwise dispose of all or substantially all of the Company’s assets. These covenants are subject to a number of exceptions and qualifications as described in the indenture governing the 2030 Senior Notes. As of March 31, 2022, the Company was in compliance with all terms, conditions, and covenants under the indenture.

The 2028 Senior Notes contain certain covenants, as more fully described and defined in the indenture governing the 2028 Senior Notes, which limit the ability of the Company and the restricted subsidiaries to, among other things: incur additional indebtedness; make certain payments, including dividends, or repurchase any shares, in an aggregate amount exceeding our “restricted payments basket”; make certain investments; and create or incur certain liens, consolidate or merge with or into other companies, or liquidate or sell or transfer all or substantially all of our assets. These covenants are subject to a number of exceptions and qualifications as described in the indenture governing the 2028 Senior Notes. As of March 31, 2022, the Company was in compliance with all terms, conditions, and covenants under the indenture.
The 2030 Senior Notes and the 2028 Senior Notes are fully and unconditionally guaranteed jointly and severally on a senior unsecured basis by the Subsidiary Guarantors. The 2030 Senior Notes and the 2028 Senior Notes are general, unsecured senior obligations of the Company and the Subsidiary Guarantors and rank equally in right of payment with all our and the Subsidiary Guarantors’ existing and future unsecured senior indebtedness.  The 2030 Senior Notes and the 2028 Senior Notes are effectively subordinated to our and the Subsidiary Guarantors’ existing and future secured indebtedness with respect to any assets comprising security or collateral for such indebtedness.
The indenture governing the 2028 Senior Notes limits our ability to pay dividends on, and repurchase, our common shares and any of our preferred shares then outstanding to the amount of the positive balance in our “restricted payments basket,” as defined in the indenture. The “restricted payments basket” is equal to $125.0 million plus (1) 50% of our aggregate consolidated net income (or minus 100% of our aggregate consolidated net loss) from October 1, 2015, excluding income or loss from Unrestricted Subsidiaries (as defined in the indenture), plus (2) 100% of the net cash proceeds from either contributions to the common equity of the Company after December 1, 2015 or the sale of qualified equity interests after December 1, 2015, plus other items and subject to other exceptions. The positive balance in our restricted payments basket was $513.0 million at March 31, 2022 and $487.5 million at December 31, 2021. The determination to pay future dividends on, or make future repurchases of, our common shares will be at the discretion of our board of directors and will depend upon our results of operations, financial condition, capital requirements and compliance with debt covenants, and other factors deemed relevant by our board of directors (see Note 12 to our financial statements for more information).
Notes Payable - Other
The Company had other borrowings, which are reported in Notes Payable - Other in our Unaudited Condensed Consolidated Balance Sheets, totaling $1.9 million and $4.5 million as of March 31, 2022 and December 31, 2021, respectively, which are comprised of notes payable acquired in the normal course of business.

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NOTE 9. Earnings Per Share
The table below presents a reconciliation between basic and diluted weighted average shares outstanding, net income, and basic and diluted income per share for the three months ended March 31, 2022 and 2021:
Three Months Ended
March 31,
(In thousands, except per share amounts)20222021
NUMERATOR
Net income$91,839 $84,866 
DENOMINATOR
Basic weighted average shares outstanding28,424 29,015 
Effect of dilutive securities:
Stock option awards336 431 
Deferred compensation awards312 297 
Diluted weighted average shares outstanding$29,072 $29,743 
Earnings per common share:
Basic$3.23 $2.92 
Diluted$3.16 $2.85 
Anti-dilutive equity awards not included in the calculation of diluted earnings per common share
434  
NOTE 10. Income Taxes
During the three months ended March 31, 2022 and 2021, the Company recorded a tax provision of $30.4 million and $25.4 million, respectively, which reflects income tax expense related to the periods’ income before income taxes. The effective tax rate for the three months ended March 31, 2022 and 2021 was 24.9% and 23.0%, respectively. The increase in the effective rate from the three months ended March 31, 2021 was primarily attributable to a $1.1 million decrease in tax benefits from the non-renewal of the energy efficient home credits for 2022 in addition to a $1.1 million decrease in tax benefits from equity compensation.
NOTE 11. Business Segments
The Company’s chief operating decision makers evaluate the Company’s performance in various ways, including: (1) the results of our individual homebuilding operating segments and the results of our financial services operations; (2) the results of our homebuilding reportable segments; and (3) our consolidated financial results.
In accordance with ASC 280, Segment Reporting (“ASC 280”), we have identified each homebuilding division as an operating segment and have elected to aggregate our operating segments into separate reportable segments as they share similar aggregation characteristics prescribed in ASC 280 in the following regards: (1) long-term economic characteristics; (2) historical and expected future long-term gross margin percentages; (3) housing products, production processes and methods of distribution; and (4) geographical proximity.
The homebuilding operating segments that comprise each of our reportable segments are as follows:
NorthernSouthern
Chicago, IllinoisOrlando, Florida
Cincinnati, OhioSarasota, Florida
Columbus, OhioTampa, Florida
Indianapolis, IndianaAustin, Texas
Minneapolis/St. Paul, MinnesotaDallas/Fort Worth, Texas
Detroit, MichiganHouston, Texas
San Antonio, Texas
Charlotte, North Carolina
Raleigh, North Carolina
Nashville, Tennessee

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The following table shows, by segment, revenue, operating income and interest (income) expense for the three months ended March 31, 2022 and 2021, as well as the Company’s income before income taxes for such periods:
Three Months Ended March 31,
(In thousands)20222021
Revenue:
Northern homebuilding$353,786 $332,998 
Southern homebuilding482,914 466,129 
Financial services (a)
24,111 29,649 
Total revenue$860,811 $828,776 
Operating income (loss):
Northern homebuilding$40,216 $38,984 
Southern homebuilding84,293 66,215 
Financial services (a)
13,933 20,636 
Less: Corporate selling, general and administrative expense(15,537)(14,538)
Total operating income$122,905 $111,297 
Interest expense (income):
Northern homebuilding$ $76 
Southern homebuilding(2)157 
Financial services (a)
878 943 
Corporate(205) 
Total interest expense$671 $1,176 
Other income(16)(160)
Income before income taxes$122,250 $110,281 
(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 homebuying customers, with the exception of an immaterial amount of mortgage refinancing.
The following tables show total assets by segment at March 31, 2022 and December 31, 2021:
March 31, 2022
(In thousands)NorthernSouthernCorporate, Financial Services and UnallocatedTotal
Deposits on real estate under option or contract$6,033 $49,308 $ $55,341 
Inventory (a)
1,014,419 1,512,792  2,527,211 
Investments in joint venture arrangements 57,309  57,309 
Other assets45,708 85,660 
(b)
535,282 666,650 
Total assets$1,066,160 $1,705,069 $535,282 $3,306,511 

December 31, 2021
(In thousands)NorthernSouthernCorporate, Financial Services and UnallocatedTotal
Deposits on real estate under option or contract$4,123 $48,795 $ $52,918 
Inventory (a)
987,258 1,412,258  2,399,516 
Investments in joint venture arrangements 57,121  57,121 
Other assets37,527 63,844 
(b)
628,927 730,298 
Total assets$1,028,908 $1,582,018 $628,927 $3,239,853 
(a)Inventory includes single-family lots, land and land development costs; land held for sale; homes under construction; model homes and furnishings; community development district infrastructure; and consolidated inventory not owned.
(b)Includes development reimbursements from local municipalities.
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NOTE 12. Share Repurchase Program
On July 28, 2021, the Company announced that its Board of Directors approved a new share repurchase program pursuant to which the Company may purchase up to $100 million of its outstanding common shares (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.

Pursuant to the 2021 Share Repurchase Program, the Company may purchase up to $200 million of its outstanding common shares through open market transactions, privately negotiated transactions or otherwise in accordance with all applicable laws. The timing, amount and other terms and conditions of any additional repurchases 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 does not have an expiration date and the Board may modify, discontinue or suspend it at any time.

During the first quarter 2022, the Company repurchased 0.3 million outstanding common shares at an aggregate purchase price of $15.4 million under the 2021 Share Repurchase Program. As of March 31, 2022, $133.1 million remained available for repurchases under the 2021 Share Repurchase Program.
NOTE 13. Revenue Recognition
Revenue and the related profit from the sale of a home and revenue and the related profit from the sale of land to third parties are recognized in the financial statements on the date of closing if delivery has occurred, title has passed to the buyer, all performance obligations (as defined below) have been met, and control of the home or land is transferred to the buyer in an amount that reflects the consideration we expect to be entitled to receive in exchange for the home or land. If not received immediately upon closing, cash proceeds from home closings are held in escrow for the Company’s benefit, typically for up to three days, and are included in Cash, cash equivalents and restricted cash on the Condensed Consolidated Balance Sheets.

Sales incentives vary by type of incentive and by amount on a community-by-community and home-by-home basis. The costs of any sales incentives in the form of free or discounted products and services provided to homebuyers are reflected in Land and housing costs in the Condensed Consolidated Statements of Income because such incentives are identified in our home purchase contracts with homebuyers as an intrinsic part of our single performance obligation to deliver and transfer title to their home for the transaction price stated in the contracts. Sales incentives that we may provide in the form of closing cost allowances are recorded as a reduction of housing revenue at the time the home is delivered.

We record sales commissions within Selling expenses in the Condensed Consolidated Statements of Income when incurred (i.e., when the home is delivered) as the amortization period is generally one year or less and therefore capitalization is not required as part of the practical expedient for incremental costs of obtaining a contract.

Contract liabilities include customer deposits related to sold but undelivered homes. Substantially all of our home sales are scheduled to close and be recorded to revenue within one year from the date of receiving a customer deposit. Contract liabilities expected to be recognized as revenue, excluding revenue pertaining to contracts that have an original expected duration of one year or less, is not material.

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. 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. Our performance obligation, to deliver the agreed-upon home, is generally satisfied in less than one year from the original contract date. Deferred revenue resulting from uncompleted performance obligations existing at the time we deliver new homes to our homebuyers is not material.

Although our third party land sale contracts may include multiple performance obligations, the revenue we expect to recognize in any future year related to remaining performance obligations, excluding revenue pertaining to contracts that have an original expected duration of one year or less, is not material. We do not disclose the value of unsatisfied performance obligations for land sale contracts with an original expected duration of one year or less.
We recognize the majority of the revenue associated with our mortgage loan operations when the mortgage loans are sold and/or related servicing rights are sold to third party investors or retained and managed under a third party sub-service arrangement.
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The revenue recognized is reduced by the fair value of the related guarantee provided to the investor. The fair value of the guarantee is recognized in revenue when the Company is released from its obligation under the guarantee (note that guarantees are excluded from the scope of ASC 606, Revenue from Contracts with Customers). We recognize financial services revenue associated with our title operations as homes are delivered, closing services are rendered, and title policies are issued, all of which generally occur simultaneously as each home is delivered. All of the underwriting risk associated with title insurance policies is transferred to third-party insurers.
The following table presents our revenues disaggregated by revenue source:
Three Months Ended March 31,
(Dollars in thousands)20222021
Housing$833,163 $798,279 
Land sales3,537 848 
Financial services (a)
24,111 29,649 
Total revenue$860,811 $828,776 
(a)Revenue includes hedging gains of $8.2 million and $1.2 million for the three months ended March 31, 2022 and 2021, respectively. Hedging gains do not represent revenue recognized from contracts with customers.

Refer to Note 11 for presentation of our revenues disaggregated by geography. As our homebuilding operations accounted for over 96% of our total revenues for the three months ended March 31, 2022 and 2021, with most of those revenues generated from home purchase contracts with customers, we believe the disaggregation of revenues as disclosed above and in Note 11 fairly depict how the nature, amount, timing and uncertainty of cash flows are affected by economic factors.
NOTE 14. Stock-Based Compensation
The Company maintains the M/I Homes, Inc. 2018 Long-Term Incentive Plan (the “2018 LTIP”), an equity compensation plan administered by the Compensation Committee of our Board of Directors. Under the 2018 LTIP, the Company is permitted to grant (1) nonqualified stock options to purchase common shares, (2) incentive stock options to purchase common shares, (3) stock appreciation rights, (4) restricted common shares, (5) other stock-based awards (awards that are valued in whole or in part by reference to, or otherwise based on, the fair market value of our common shares), and (6) cash-based awards to its officers, employees, non-employee directors and other eligible participants. Subject to certain adjustments, the 2018 LTIP authorizes awards to officers, employees, non-employee directors and other eligible participants for up to 2,250,000 common shares, of which 168,487 remain available for grant at March 31, 2022.
The 2018 LTIP replaced the M/I Homes, Inc. 2009 Long-Term Incentive Plan (the “2009 LTIP”), which was terminated immediately following our 2018 Annual Meeting of Shareholders. Awards outstanding under the 2009 LTIP Plan remain in effect in accordance with their respective terms.
Stock Options
On February 17, 2022, the Company awarded certain of its employees 474,000 (in the aggregate) nonqualified stock options at an exercise price of $47.59 (the closing price of our common shares on the New York Stock Exchange on such date) and a fair value of $16.29 that vest ratably over a five-year period. Total stock-based compensation expense related to stock option awards that has been charged against income relating to the 2018 LTIP was $1.8 million and $2.3 million for the three months ended March 31, 2022 and 2021, respectively.  As of March 31, 2022, there was a total of $17.4 million of unrecognized compensation expense related to unvested stock option awards that will be recognized as stock-based compensation expense as the awards vest over a weighted average period of 2.4 years.
Performance Share Unit Awards
On February 17, 2022, February 16, 2021 and February 18, 2020, the Company awarded its executive officers (in the aggregate) a target number of performance share units (“PSU’s”) equal to 33,619, 30,875 and 45,771 PSU’s, respectively. Each PSU represents a contingent right to receive one common share of the Company if vesting is satisfied at the end of a three-year performance period (the “Performance Period”). The ultimate number of PSU’s that will vest and be earned, if any, after the completion of the Performance Period, is based on (1) (a) the Company’s cumulative annual pre-tax income from operations, excluding extraordinary items, as defined in the underlying award agreements with the executive officers, over the Performance Period (weighted 80%) (the “Performance Condition”), and (b) the Company’s relative total shareholder return over the Performance Period compared to the total shareholder return of a peer group of other publicly-traded homebuilders (weighted 20%) (the “Market Condition”) and (2) the participant’s continued employment through the end of the Performance Period, except in the case of termination due to death, disability or retirement or involuntary termination without cause by the Company. The number of PSU’s that vest may increase by up to 50% from the target number based on levels of achievement
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of the above criteria as set forth in the applicable award agreements and decrease to zero if the Company fails to meet the minimum performance levels for both of the above criteria. If the Company achieves the minimum performance levels for both of the above criteria, 50% of the target number of PSU’s will vest and be earned. Any portion of PSU’s that does not vest at the end of the Performance Period will be forfeited. Additionally, the PSU’s have no dividend or voting rights during the Performance Period.
The grant date fair value of the portion of the PSU’s subject to the Performance Condition and the Market Condition component was $47.59 and $50.51 for the 2022 PSU’s, respectively, $51.82 and $56.44 for the 2021 PSU’s, respectively, and $42.23 and $37.51 for the 2020 PSU’s, respectively. In accordance with ASC 718, for the portion of the PSU’s subject to a Market Condition, stock-based compensation expense is derived using the Monte Carlo simulation methodology and is recognized ratably over the service period regardless of whether or not the attainment of the Market Condition is probable. Therefore, the Company recognized less than $0.1 million in stock-based compensation expense during the first quarter of 2022 related to the Market Condition portion of the 2022, 2021 and 2020 PSU awards. There was a total of $0.3 million of unrecognized stock-based compensation expense related to the Market Condition portion of the 2022, 2021 and 2020 PSU awards as of March 31, 2022.
For the portion of the PSU’s subject to the Performance Condition, we recognize stock-based compensation expense on a straight-line basis over the Performance Period based on the probable outcome of the related Performance Condition. Otherwise, stock-based compensation expense recognition is deferred until probability is attained and a cumulative stock-based compensation expense adjustment is recorded and recognized ratably over the remaining service period. The Company reassesses the probability of the satisfaction of the Performance Condition on a quarterly basis, and stock-based compensation expense is adjusted based on the portion of the requisite service period that has passed. As of March 31, 2022, the Company had not recognized any stock-based compensation expense related to the Performance Condition portion of the 2022 PSU awards. If the Company achieves the minimum performance levels for the Performance Conditions to be met for the 2022 PSU awards, the Company would record unrecognized stock-based compensation expense of $0.6 million as of March 31, 2022, for which $0.1 million would be immediately recognized had attainment been probable at March 31, 2022. The Company recognized a total of $0.2 million of stock-based compensation expense related to the Performance Condition portion of the 2021 and the 2020 PSU awards during the first quarter of 2022 based on the probability of attaining the respective performance conditions. The Company has a total of $1.1 million of unrecognized stock-based compensation expense for the 2021 and the 2020 PSU awards as of March 31, 2022.

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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

OVERVIEW
M/I Homes, Inc. and subsidiaries (the “Company” or “we”) is one of the nation’s leading builders of single-family homes having sold over 139,200 homes since commencing homebuilding activities in 1976.  The Company’s homes are marketed and sold primarily under the M/I Homes brand. The Company has homebuilding operations in Columbus and Cincinnati, Ohio; Indianapolis, Indiana; Chicago, Illinois; Minneapolis/St. Paul, Minnesota; Detroit, Michigan; Tampa, Sarasota and Orlando, Florida; Austin, Dallas/Fort Worth, Houston and San Antonio, Texas; Charlotte and Raleigh, North Carolina; and Nashville, Tennessee.
Included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are the following topics relevant to the Company’s performance and financial condition:
Information Relating to Forward-Looking Statements;
Application of Critical Accounting Estimates and Policies;
Results of Operations;
Discussion of Our Liquidity and Capital Resources; and
Impact of Interest Rates and Inflation.
FORWARD-LOOKING STATEMENTS
Certain information included in this report or in other materials we have filed or will file with the Securities and Exchange Commission (the “SEC”) (as well as information included in oral statements or other written statements made or to be made by us) contains or may contain forward-looking statements, including, but not limited to, statements regarding our future financial performance and financial condition.  Words such as “expects,” “anticipates,” “envisions,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words and similar expressions are intended to identify such forward-looking statements. Forward-looking statements involve a number of risks and uncertainties.  Any forward-looking statements that we make herein and in future reports and statements are not guarantees of future performance, and actual results may differ materially from those in such forward-looking statements as a result of various risk factors, including, without limitation, factors relating to the economic environment, interest rates, availability of resources, competition, market concentration, land development activities, construction defects, product liability and warranty claims and various governmental rules and regulations.  See “Item 1A. Risk Factors” in Part I of our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”), as the same may be updated from time to time in our subsequent filings with the SEC, for more information regarding those risk factors.
Any forward-looking statement speaks only as of the date made. Except as required by applicable law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in our subsequent reports on Forms 10-K, 10-Q and 8-K should be consulted.  This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995, and all of our forward-looking statements are expressly qualified in their entirety by the cautionary statements contained or referenced in this section.
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APPLICATION OF CRITICAL ACCOUNTING ESTIMATES AND POLICIES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.  Management bases its estimates and assumptions on historical experience and various other factors that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.  On an ongoing basis, management evaluates such estimates and assumptions and makes adjustments as deemed necessary.  Actual results could differ from these estimates using different estimates and assumptions, or if conditions are significantly different in the future.  See Note 1 (Summary of Significant Accounting Policies) to our consolidated financial statements included in our 2021 Form 10-K for additional information about our accounting policies.
We believe that there have been no significant changes to our critical accounting policies during the quarter ended March 31, 2022 as compared to those disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2021 Form 10-K.
RESULTS OF OPERATIONS
Our reportable segments are: Northern homebuilding; Southern homebuilding; and financial services operations. The homebuilding operating segments that comprise each of our reportable segments are as follows:
NorthernSouthern
Chicago, IllinoisOrlando, Florida
Cincinnati, OhioSarasota, Florida
Columbus, OhioTampa, Florida
Indianapolis, IndianaAustin, Texas
Minneapolis/St. Paul, MinnesotaDallas/Fort Worth, Texas
Detroit, MichiganHouston, Texas
San Antonio, Texas
Charlotte, North Carolina
Raleigh, North Carolina
Nashville, Tennessee
Overview
During the first quarter, homebuilding 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. Our increase in selling prices, in combination with our focus on balancing sales pace, price of labor and materials, and construction starts at many of our communities, helped us to achieve record first quarter revenue, income before income taxes and net income. We also achieved the second highest level of first quarter home deliveries and new contracts in our history, despite the supply chain challenges and disruptions that we continued to experience in 2022. Our improved profitability is attributable primarily to improved margins and overhead leverage when compared to 2021’s first quarter.

Our number of new contracts for the three months ended March 31, 2022 declined 19% from the first quarter of 2021 due to several factors, including (1) a reduction in the number of our average selling communities to 176 in 2022 from 195 in 2021, (2) limitations we imposed on sales in a majority of our communities to align sales with production timelines and lot availability, and (3) the record sales pace we achieved in the first quarter of 2021. In addition, we continued to experience construction delays and supply chain challenges which have impacted the homebuilding industry and many of our product manufacturers, including raw material availability, extension of product lead times, labor and transportation issues, and overall demand outpacing production or shipping capacities. These challenges have resulted in a significant increase in our build cycle times, which we expect to continue for the foreseeable future, and led, in part, to our home deliveries for the first quarter declining 10% compared to 2021's first quarter. Despite these challenges, demand for new homes remains strong and continues to exceed supply, and we ended the quarter with an all-time record number of homes in backlog and all-time record sales backlog value of $2.8 billion.

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During the first quarter of 2022, we achieved the following results in comparison to the first quarter of 2021:
Total sales value in backlog increased 17% to $2.8 billion, an all-time record
Number of homes in backlog at March 31, 2022 increased 1% to an all-time record 5,526 homes
Revenue increased 4% to $860.8 million (a first-quarter record)
Income before income taxes increased 11% to $122.3 million (a first-quarter record)
Net income increased 8% to $91.8 million (a first-quarter record)

Our company-wide absorption pace of sales per community for the first quarter of 2022 declined to 4.8 per month compared to the record pace of 5.3 per month for the prior year’s first quarter as a result of the decline in our average communities and the decrease in the number of new contracts during the quarter compared to prior year. Partially as a result of the accelerated sales pace we experienced in 2020 and 2021, our number of average number of selling communities declined to 176 during the first quarter of 2022 from 195 for the first quarter of 2021. We believe we maintain a strong land position, and we continue to place additional land under contract for communities that will open in future periods. However, delays in our ability to replace existing communities that are selling out in the short-term could negatively impact our number of selling communities throughout the remainder of 2022 and into 2023 as a result of land development challenges, delays in approvals for entitlements and permits due to volume, or other delays. We continue to work to open new communities to grow our community count. We are also actively managing sales pace, in part by selectively increasing prices and limiting sales in the majority of our communities, to optimize our availability of lots and maximize returns, while also maintaining a manageable timeline for construction and delivery of our homes.

Summary of Company Financial Results

Income before income taxes for the first quarter of 2022 increased 11% from $110.3 million in the first quarter of 2021 to a first quarter record $122.3 million in 2022. We also achieved first-quarter record net income of $91.8 million ($3.16 per diluted share), in 2022's first quarter, an 8% increase, or $6.9 million, from net income of $84.9 million ($2.85 per diluted share), in 2021's first quarter. Our effective tax rate was 24.9% in 2022’s first quarter compared to 23.0% in 2021.
During the quarter ended March 31, 2022, we recorded first-quarter record total revenue of $860.8 million, of which $833.2 million was from homes delivered, $3.5 million was from land sales and $24.1 million was from our financial services operations. Revenue from homes delivered increased 4% in 2022's first quarter compared to the same period in 2021 driven primarily by a 16% increase in the average sales price of homes delivered ($62,000 per home delivered), which was primarily the result of strong demand, partially offset by a 10% decrease in the number of homes delivered (196 units) which was due to construction and supply chain issues that created delays in home closings. Revenue from land sales increased $2.7 million from the first quarter of 2021 due to increased land sales in 2022's first quarter compared to the prior year. Revenue from our financial services segment decreased 19% to $24.1 million in the first quarter of 2022 as a result of a decrease in loans closed and sold as well as lower margins on loans sold during the period compared to the first quarter of 2021, which was a record quarter for our financial services segment and provided difficult comparisons for the first quarter of 2022.
Total gross margin (total revenue less total land and housing costs) increased $10.9 million in the first quarter of 2022 compared to the first quarter of 2021 as a result of a $16.5 million improvement in the gross margin of our homebuilding operations (housing gross margin and land sales gross margin), offset partially by a $5.6 million decrease 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) increased $15.7 million primarily as a result of the 16% increase in average sales price of homes delivered, partially offset by the 10% decrease in the number of homes delivered. Our housing gross margin percentage improved 100 basis points from 21.6% in prior year's first quarter to 22.6% in 2022's first quarter, primarily as a result of strong demand during 2022's first quarter and increased average sales prices. Our gross margin on land sales (land sale gross margin) improved $0.8 million in the first quarter of 2022 compared to the first quarter of 2021. The gross margin of our financial services operations decreased $5.6 million in the first quarter of 2022 compared to the first quarter of 2021 as a result of a decrease in the number of loan originations and lower margins on loans sold, partially offset by an increase in the average loan amount during the first quarter of 2022 compared to the first quarter of 2021. Our housing gross margin may fluctuate from quarter to quarter depending on the mix of communities delivering homes, due to the variation in margin between different communities.
As a result of our record number of sales in 2020 and 2021, we are selling through communities faster, which has reduced our number of active communities. We opened 31 new communities during the first quarter of 2022 and closed 30 communities.
For the three months ended March 31, 2022, selling, general and administrative expense decreased $0.7 million, which contributed to the increase in our total gross margin discussed above, and improved as a percentage of revenue from 11.0% in
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the first quarter of 2021 to 10.5% in the first quarter of 2022 (a first quarter record). Selling expense decreased $4.3 million from 2021's first quarter and improved as a percentage of revenue to 4.8% in 2022's first quarter from 5.5% for the same period in 2021. Variable selling expense for sales commissions contributed $4.6 million to the decrease due to the lower number of homes delivered in the quarter, which was offset partially by a $0.3 million increase in non-variable selling expense primarily related to increased costs associated with our sales offices and models. The decrease in selling expense was offset partially by a $3.6 million increase in general and administrative expense compared to the first quarter of 2021 which also increased as a percentage of revenue from 5.5% in the first quarter of 2021 to 5.7% in the first quarter of 2022. The increase in general and administrative expense was primarily due to a $2.1 million increase in compensation-related expenses due to our increased headcount and our strong financial performance during the quarter, a $0.9 million increase in computer costs, a $0.3 million increase in professional fees, and a $0.3 million increase in miscellaneous expenses.
Outlook
We believe that new home sales will continue to benefit from a continued undersupply of available homes, improving employment levels, positive consumer demographics, and a growing number of younger homebuyers moving to single family homes. However, we also expect that labor and supply shortages, rising inflation, increasing costs of material and labor and rising mortgage rates (albeit still historically low) will continue to negatively impact overall economic and homebuilding industry conditions in the United States in 2022. We have raised home prices in many of our communities to offset these cost increases and preserve or increase our margins. During the first quarter, this increased pricing, together with cost management, enabled us to achieve a total gross margin percentage of 24.8%, an improvement of 40 basis points compared with 2021's first quarter. We expect to experience shortages in materials and labor as well as price increases for materials and labor throughout the remainder of 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.

We expect to continue to emphasize the following strategic business objectives throughout the remainder of 2022:
managing our land spend and inventory levels;
opening new communities on schedule wherever possible;
maintaining a strong balance sheet and liquidity levels;
expanding the availability of our more affordable Smart Series homes; and
emphasizing customer service, product quality and design, and premier locations.
During the first three months of 2022, we invested $93.9 million in land acquisitions and $100.7 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 investment spend accordingly. As a result of the unprecedented current market conditions with municipality delays, extended cycle times, and rising interest rates potentially impacting sales, 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 and into the first quarter of 2022. We ended the first quarter of 2022 with approximately 45,800 lots under control, which represents a five year supply of lots based on the past twelve months of homes delivered, including certain lots that we anticipate selling to third parties. This represents a 9% increase from our approximately 42,000 lots under control at the end of last year’s first quarter. We opened 31 communities and closed 30 communities in the first quarter of 2022, ending the first quarter with a total of 176 active communities, compared to 187 at the end of last year’s first quarter. 77 of our total communities at the end of the first quarter of 2022 offered our more affordable Smart Series designs, which are primarily designed for first-time homebuyers.
Although the timing of opening new communities and closing 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 that 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 and achieve another year of strong results in 2022.
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The demand for housing has remained strong over the past year and into 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 high inflation, materials and labor cost increases, supply chain disruptions and labor shortages, the lingering impact of the pandemic and related government directives, actions and economic relief efforts, and the impact of these actions on the economy, mortgage rates and markets, employment levels, consumer confidence, and financial markets, among other things. These factors are highly uncertain and outside our control. As a result, our past performance may not be indicative of future results.

The following table shows, by segment, revenue; gross margin; selling, general and administrative expense; operating income (loss); and interest expense for the three months ended March 31, 2022 and 2021:
Three Months Ended March 31,
(In thousands)20222021
Revenue:
Northern homebuilding$353,786 $332,998 
Southern homebuilding482,914 466,129 
Financial services (a)
24,111 29,649 
Total revenue$860,811