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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
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: 1-12378
NVR, Inc.
(Exact name of registrant as specified in its charter)
Virginia54-1394360
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
11700 Plaza America Drive, Suite 500
Reston, Virginia 20190
(703) 956-4000
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
Not Applicable
(Former name, former address, and former fiscal year if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.01 per shareNVRNew 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, 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 filer  Accelerated filer
Non-accelerated filer Smaller 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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of November 1, 2022 there were 3,195,887 total shares of common stock outstanding.



NVR, Inc.
FORM 10-Q




PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NVR, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(unaudited)
 September 30, 2022December 31, 2021
ASSETS  
Homebuilding:  
Cash and cash equivalents$1,748,506 $2,545,069 
Restricted cash51,239 60,730 
Receivables28,378 18,552 
Inventory:
Lots and housing units, covered under sales agreements with customers1,931,639 1,777,862 
Unsold lots and housing units194,882 127,434 
Land under development15,230 12,147 
Building materials and other28,698 29,923 
 2,170,449 1,947,366 
Contract land deposits, net521,572 497,139 
Property, plant and equipment, net55,982 56,979 
Operating lease right-of-use assets69,933 59,010 
Reorganization value in excess of amounts allocable to identifiable assets, net41,580 41,580 
Other assets230,255 229,018 
 4,917,894 5,455,443 
Mortgage Banking:  
Cash and cash equivalents18,431 28,398 
Restricted cash2,924 2,519 
Mortgage loans held for sale, net316,094 302,192 
Property and equipment, net3,250 3,658 
Operating lease right-of-use assets14,534 9,758 
Reorganization value in excess of amounts allocable to identifiable assets, net7,347 7,347 
Other assets109,060 25,160 
 471,640 379,032 
Total assets$5,389,534 $5,834,475 


See notes to condensed consolidated financial statements.
1


NVR, Inc.
Condensed Consolidated Balance Sheets (Continued)
(in thousands, except share and per share data)
(unaudited)
September 30, 2022December 31, 2021
LIABILITIES AND SHAREHOLDERS' EQUITY  
Homebuilding:  
Accounts payable$393,941 $336,560 
Accrued expenses and other liabilities427,072 435,860 
Customer deposits376,160 417,463 
Operating lease liabilities74,670 64,128 
Senior notes915,346 1,516,255 
 2,187,189 2,770,266 
Mortgage Banking:  
Accounts payable and other liabilities102,101 51,394 
Operating lease liabilities15,405 10,437 
 117,506 61,831 
Total liabilities2,304,695 2,832,097 
Commitments and contingencies
Shareholders' equity:  
Common stock, $0.01 par value; 60,000,000 shares authorized; 20,555,330 shares issued as of both September 30, 2022 and December 31, 2021
206 206 
Additional paid-in capital2,538,812 2,378,191 
Deferred compensation trust – 106,697 shares of NVR, Inc. common stock as of both September 30, 2022 and December 31, 2021
(16,710)(16,710)
Deferred compensation liability16,710 16,710 
Retained earnings11,318,646 10,047,839 
Less treasury stock at cost – 17,343,353 and 17,107,889 shares as of September 30, 2022 and December 31, 2021, respectively
(10,772,825)(9,423,858)
Total shareholders' equity3,084,839 3,002,378 
Total liabilities and shareholders' equity$5,389,534 $5,834,475 


See notes to condensed consolidated financial statements.
2

NVR, Inc.
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Homebuilding:    
Revenues$2,739,445 $2,336,615 $7,658,734 $6,524,886 
Other income10,211 1,496 15,446 4,714 
Cost of sales(2,092,457)(1,817,939)(5,668,549)(5,117,065)
Selling, general and administrative(129,416)(112,226)(391,358)(347,051)
Operating income527,783 407,946 1,614,273 1,065,484 
Interest expense(6,854)(12,838)(31,510)(38,694)
Homebuilding income520,929 395,108 1,582,763 1,026,790 
Mortgage Banking:    
Mortgage banking fees37,455 59,025 155,518 195,798 
Interest income3,437 2,336 8,283 6,577 
Other income1,294 1,022 3,669 2,877 
General and administrative(24,252)(22,959)(70,646)(67,228)
Interest expense(348)(405)(1,115)(1,216)
Mortgage banking income17,586 39,019 95,709 136,808 
Income before taxes538,515 434,127 1,678,472 1,163,598 
Income tax expense(127,122)(102,046)(407,665)(261,460)
Net income$411,393 $332,081 $1,270,807 $902,138 
Basic earnings per share$125.97 $93.25 $383.68 $249.30 
Diluted earnings per share$118.51 $86.44 $358.61 $231.75 
Basic weighted average shares outstanding3,266 3,561 3,312 3,619 
Diluted weighted average shares outstanding3,471 3,842 3,544 3,893 


See notes to condensed consolidated financial statements.
3

NVR, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 Nine Months Ended September 30,
 20222021
Cash flows from operating activities:  
Net income$1,270,807 $902,138 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization13,237 14,720 
Equity-based compensation expense58,441 42,859 
Contract land deposit impairments (recoveries), net2,482 (17,474)
Gain on sale of loans, net(120,035)(162,729)
Mortgage loans closed(4,791,742)(4,599,324)
Mortgage loans sold and principal payments on mortgage loans held for sale4,925,431 4,918,464 
Distribution of earnings from unconsolidated joint ventures7,500 7,500 
Net change in assets and liabilities:  
Increase in inventory(223,083)(154,443)
Increase in contract land deposits(26,915)(48,153)
Increase in receivables(69,132)(2,349)
Increase (decrease) in accounts payable and accrued expenses42,087 (44,970)
(Decrease) increase in customer deposits(41,303)140,836 
Other, net5,131 (14,783)
Net cash provided by operating activities1,052,906 982,292 
Cash flows from investing activities:  
Investments in and advances to unconsolidated joint ventures(9,222)(861)
Purchase of property, plant and equipment(11,972)(11,946)
Proceeds from the sale of property, plant and equipment553 821 
Net cash used in investing activities(20,641)(11,986)
Cash flows from financing activities:  
Purchase of treasury stock(1,384,193)(1,152,855)
Redemption of senior notes(600,000) 
Principal payments on finance lease liabilities(1,107)(1,008)
Proceeds from the exercise of stock options137,406 121,835 
Net cash used in financing activities(1,847,894)(1,032,028)
Net decrease in cash, restricted cash, and cash equivalents(815,629)(61,722)
Cash, restricted cash, and cash equivalents, beginning of the period2,636,984 2,809,782 
Cash, restricted cash, and cash equivalents, end of the period$1,821,355 $2,748,060 
Supplemental disclosures of cash flow information:  
Interest paid during the period, net of interest capitalized$33,475 $39,473 
Income taxes paid during the period, net of refunds$403,875 $289,850 


See notes to condensed consolidated financial statements.
4

NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

1. Significant Accounting Policies

Basis of Presentation
The accompanying unaudited, condensed consolidated financial statements include the accounts of NVR, Inc. (“NVR”, the “Company”, "we", "us" or "our") and its subsidiaries and certain other entities in which the Company is deemed to be the primary beneficiary (see Notes 2 and 3 to the accompanying condensed consolidated financial statements).  Intercompany accounts and transactions have been eliminated in consolidation.  The statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  Because the accompanying condensed consolidated financial statements do not include all of the information and footnotes required by GAAP, they should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021.  In the opinion of management, all adjustments (consisting only of normal recurring accruals except as otherwise noted herein) considered necessary for a fair presentation have been included.  Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Actual results could differ from those estimates.
For the three and nine months ended September 30, 2022 and 2021, comprehensive income equaled net income; therefore, a separate statement of comprehensive income is not included in the accompanying condensed consolidated financial statements.
Cash and Cash Equivalents
The beginning-of-period and end-of-period cash, restricted cash, and cash equivalent balances presented on the accompanying condensed consolidated statements of cash flows includes cash related to a consolidated joint venture which is included in homebuilding "Other assets" on the accompanying condensed consolidated balance sheets. The cash related to this consolidated joint venture as of September 30, 2022 and December 31, 2021 was $255 and $268, respectively, and as of September 30, 2021 and December 31, 2020 was $271 and $269, respectively.
Revenue Recognition
Homebuilding revenue is recognized on the settlement date at the contract sales price, when control is transferred to our customers. Our contract liabilities, which consist of deposits received from customers on homes not settled, were $376,160 and $417,463 as of September 30, 2022 and December 31, 2021, respectively. We expect that substantially all of the customer deposits held at December 31, 2021 will be recognized in revenue in 2022. Our contract assets consist of prepaid sales compensation and totaled approximately $20,100 and $25,200, as of September 30, 2022 and December 31, 2021, respectively. Prepaid sales compensation is included in homebuilding “Other assets” on the accompanying condensed consolidated balance sheets.
5

NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)
2.    Variable Interest Entities ("VIEs")
Fixed Price Finished Lot Purchase Agreements (“LPAs”)
We generally do not engage in the land development business.  Instead, we typically acquire finished building lots at market prices from various development entities under LPAs.  The LPAs require deposits that may be forfeited if we fail to perform under the LPAs.  The deposits required under the LPAs are in the form of cash or letters of credit in varying amounts, and typically range up to 10% of the aggregate purchase price of the finished lots.  
The deposit placed by us pursuant to the LPA is deemed to be a variable interest in the respective development entities.  Those development entities are deemed to be VIEs.  Therefore, the development entities with which we enter into LPAs, including the joint venture limited liability corporations discussed below, are evaluated for possible consolidation by us.  We have concluded that we are not the primary beneficiary of the development entities with which we enter into LPAs, and therefore, we do not consolidate any of these VIEs.
As of September 30, 2022, we controlled approximately 125,600 lots under LPAs with third parties through deposits in cash and letters of credit totaling approximately $543,400 and $7,300, respectively.  Our sole legal obligation and economic loss for failure to perform under these LPAs is limited to the amount of the deposit pursuant to the liquidated damage provisions contained in the LPAs and, in very limited circumstances, specific performance obligations. For the three and nine months ended September 30, 2022, we incurred pre-tax impairment charges on lot deposits of approximately $8,800 and $2,500, respectively, based on current market conditions. For the three and nine months ended September 30, 2021, we recorded a net reversal of approximately $4,100 and $17,500, respectively, related to previously impaired lot deposits. Our contract land deposit asset is shown net of a $32,240 and $30,041 impairment reserve at September 30, 2022 and December 31, 2021, respectively.
In addition, we have certain properties under contract with land owners that are expected to yield approximately 23,100 lots, which are not included in the number of total lots controlled.  Some of these properties may require rezoning or other approvals to achieve the expected yield. These properties are controlled with deposits in cash totaling approximately $10,400 as of September 30, 2022, of which approximately $4,600 is refundable if certain contractual conditions are not met.  We generally expect to assign the raw land contracts to a land developer and simultaneously enter into an LPA with the assignee if the project is determined to be feasible.
Our total risk of loss related to contract land deposits is limited to the amount of the deposits pursuant to the liquidated damages provision of the LPAs. As of September 30, 2022 and December 31, 2021, our total risk of loss was as follows:
September 30, 2022December 31, 2021
Contract land deposits$553,812 $527,180 
Loss reserve on contract land deposits(32,240)(30,041)
Contract land deposits, net521,572 497,139 
Contingent obligations in the form of letters of credit7,266 10,145 
Total risk of loss$528,838 $507,284 

3.    Joint Ventures
On a limited basis, we obtain finished lots using joint venture limited liability corporations (“JVs”). The JVs are typically structured such that we are a non-controlling member and are at risk only for the amount we have invested, or have committed to invest, in addition to any deposits placed under LPAs with the joint venture. We are not a borrower, guarantor or obligor on any debt of the JVs, as applicable. We enter into LPAs to purchase lots from these JVs, and as a result have a variable interest in these JVs.
6

NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)
At September 30, 2022, we had an aggregate investment totaling approximately $27,800 in five JVs that are expected to produce approximately 5,400 finished lots, of which approximately 5,000 lots were controlled by us and the remaining approximately 400 lots were either under contract with unrelated parties or not currently under contract. We had additional funding commitments totaling approximately $13,500 to one of the JVs at September 30, 2022.
We determined that we are not the primary beneficiary in four of the JVs because we and the other JV partner either share power or the other JV partner has the controlling financial interest. The aggregate investment in unconsolidated JVs was approximately $27,800 and $20,300 at September 30, 2022 and December 31, 2021, respectively, and is reported in the homebuilding “Other assets” line item on the accompanying condensed consolidated balance sheets. None of the unconsolidated JVs had any indicators of impairment as of September 30, 2022. For the remaining JV, we concluded that we are the primary beneficiary because we have the controlling financial interest in the JV. All activities under the consolidated JV have been completed and we have no remaining investment in the JV. As of September 30, 2022, the JV had remaining balances of $255 in cash and $229 in accrued expenses, which are included in homebuilding "Other assets" and "Accrued expenses and other liabilities," respectively, in the accompanying condensed consolidated balance sheets.
We recognize income from the JVs as a reduction to the lot cost of the lots purchased from the respective JVs when the homes are settled, based on the expected total profitability and the total number of lots expected to be produced by the respective JVs.
We classify distributions received from unconsolidated JVs using the cumulative earnings approach. As a result, distributions received up to the amount of cumulative earnings recognized by us are reported as distributions of earnings and those in excess of that amount are reported as a distribution of capital. These distributions are classified within the accompanying condensed consolidated statements of cash flows as cash flows from operating activities and investing activities, respectively.
4.    Land Under Development
On a limited basis, we directly acquire raw land parcels already zoned for their intended use to develop into finished lots.  Land under development includes the land acquisition costs, direct improvement costs, capitalized interest, where applicable, and real estate taxes.
As of September 30, 2022, we owned land parcels with a carrying value of $15,230 that we intend to develop into approximately 800 finished lots. We have additional funding commitments of approximately $2,200 under a joint development agreement related to one parcel, a portion of which we expect will be offset by development credits of approximately $900. None of the raw parcels had any indicators of impairment as of September 30, 2022.
5.    Capitalized Interest
We capitalize interest costs to land under development during the active development of finished lots.  In addition, we capitalize interest costs on our JV investments while the investments are considered qualified assets pursuant to ASC Topic 835-20 - Interest. Capitalized interest is transferred to sold or unsold inventory as the development of finished lots is completed, then charged to cost of sales upon our settlement of homes and the respective lots.  Interest incurred in excess of the interest capitalizable based on the level of qualified assets is expensed in the period incurred.
7

NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)
The following table reflects the changes in our capitalized interest during the three and nine months ended September 30, 2022 and 2021:
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Interest capitalized, beginning of period$680 $644 $593 $1,025 
Interest incurred7,118 13,263 32,721 39,977 
Interest charged to interest expense(7,202)(13,243)(32,625)(39,910)
Interest charged to cost of sales(32)(100)(125)(528)
Interest capitalized, end of period$564 $564 $564 $564 

6.    Earnings per Share
The following weighted average shares and share equivalents were used to calculate basic and diluted earnings per share ("EPS") for the three and nine months ended September 30, 2022 and 2021:
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Weighted average number of shares outstanding used to calculate basic EPS3,265,914 3,561,374 3,312,145 3,618,724 
Dilutive securities:
Stock options and restricted share units205,473 280,559 231,559 273,953 
Weighted average number of shares and share equivalents outstanding used to calculate diluted EPS3,471,387 3,841,933 3,543,704 3,892,677 

The following non-qualified stock options ("Options") and restricted stock units ("RSUs") issued under equity incentive plans were outstanding during the three and nine months ended September 30, 2022 and 2021, but were not included in the computation of diluted EPS because the effect would have been anti-dilutive.
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Anti-dilutive securities203,340 16,022 193,248 22,132 

8

NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)

7.    Equity-Based Compensation
Our equity-based compensation plans provide for the granting of Options and RSUs to key management employees, including executive officers and members of our Board of Directors ("Directors"). The exercise price of Options granted is equal to the closing price of our common stock on the New York Stock Exchange (the “NYSE”) on the day prior to the date of grant. Options are granted for a 10-year term and typically vest in separate tranches over periods of 3 to 6 years. RSUs generally vest in separate tranches over periods of 2 to 6 years. Grants to key management employees are generally divided such that vesting for 50% of the grant is contingent solely on continued employment, while vesting for the remaining 50% of the grant is contingent upon both continued employment and the achievement of a performance metric based on our return on capital performance relative to a peer group during a 3-year period specified on the date of grant. Grants to directors generally vest solely based on continued service as a Director.
During the second quarter of 2022, we issued 165,456 Options and 16,864 RSUs in a block grant to key management employees and Directors. Block grants are generally made once every four years. Option and RSU grants for the nine month period ended September 30, 2022 totaled 170,806 and 17,906, respectively, and were granted under the NVR, Inc. 2014 Equity Incentive Plan (the "2014 Plan") and the NVR, Inc. 2018 Equity Incentive Plan (the "2018 Plan") as follows:

Options Granted2014 Plan2018 Plan
Options - service-only (1)55,655 32,331 
Options - performance-based (2)55,655 27,165 
Total Options Granted111,310 59,496 
RSUs Granted
RSUs - service-only (3) 8,976 
RSUs - performance-based (4) 8,930 
Total RSUs Granted 17,906 


(1)Of the 87,986 service-only Options granted, 69,361 Options will vest in 25% increments on December 31, 2024, 2025, 2026, and 2027; 16,415 Options will vest in 50% increments on December 31, 2026 and 2027; and the remaining 2,210 Options will vest in 50% increments on December 31, 2024 and 2025. Vesting for the Options is contingent solely upon continued employment or continued service as a Director.

(2)Of the 82,820 performance-based Options granted, 64,195 will vest in 25% increments on December 31, 2024, 2025, 2026, and 2027; 16,415 Options will vest in 50% increments on December 31, 2026 and 2027; and the remaining 2,210 Options will vest in 50% increments on December 31, 2024 and 2025. Vesting for the performance-based Options is contingent upon both continued employment and the Company's return on capital performance during 2022 through 2024.

(3)Of the 8,976 service-only RSUs granted, 5,215 will vest in 50% increments on December 31, 2024 and 2025; 3,119 RSUs will vest in 25% increments on December 31, 2024, 2025, 2026, and 2027; and the remaining 642 RSUs will vest in 50% increments on December 31, 2026 and 2027. Vesting for the RSUs is contingent solely upon continued employment.

(4)Of the 8,930 performance-based RSUs granted, 5,215 will vest in 50% increments on December 31, 2024 and 2025; 3,119 RSUs will vest in 25% increments on December 31, 2024, 2025, 2026, and 2027; and the remaining 596 RSUs will vest in 50% increments on December 31, 2026 and 2027. Vesting for the performance-based RSUs is contingent upon both continued employment and the Company's return on capital performance during 2022 through 2024.

9

NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)
All Options were granted at an exercise price equal to the closing price of the Company’s common stock on the day prior to the date of grant, and expire ten years from the date of grant.
The following table provides additional information relative to our equity-based compensation plans for the nine months ended September 30, 2022:
 SharesWeighted Avg. Per Share
Exercise Price
Weighted Avg. Remaining
Contract Life (years)
Aggregate
Intrinsic Value
Stock Options
Outstanding at December 31, 2021534,695 $2,424.62 
Granted170,806 4,481.92 
Exercised(59,559)2,303.55 
Forfeited(12,126)3,352.37 
Outstanding at September 30, 2022633,816 $2,972.67 5.9$740,513 
Exercisable at September 30, 2022281,825 $1,952.12 3.5$573,502 
RSUs
Outstanding at December 31, 202116,564 
Granted17,906 
Vested 
Forfeited(1,438)
Outstanding at September 30, 202233,032 $131,701 
Vested, but not issued at September 30, 2022 $ 
 
To estimate the grant-date fair value of our Options, we use the Black-Scholes option-pricing model (the “Pricing Model”). The Pricing Model estimates the per share fair value of an option on its date of grant based on the following factors: the Option’s exercise price, the price of the underlying stock on the date of grant, the estimated dividend yield, a risk-free interest rate, the estimated option term, and the expected volatility. For the risk-free interest rate, we use U.S. Treasury STRIPS which mature at approximately the same time as the Option’s expected holding term. For expected volatility, we have concluded that our historical volatility over the Option’s expected holding term provides the most reasonable basis for this estimate.
The fair value of the Options granted during the first nine months of 2022 was estimated on the grant date using the Pricing Model, based on the following assumptions:  
 
Estimated option life (years)5.60
Risk free interest rate (range)1.17%-3.40%
Expected volatility (range)24.93%-30.89%
Expected dividend rate%
Weighted average grant-date fair value per share of options granted$1,432.72 

The weighted average grant date fair value per share of $4,505.90 for the RSUs was the closing price of our common stock on the day immediately preceding the date of grant.
Compensation cost for Options and RSUs is recognized on a straight-line basis over the requisite service period for the entire award (from the date of grant through the period of the last separately vesting portion of the grant). For the recognition of equity-based compensation, the Options and RSUs that are subject to a performance
10

NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)
condition are treated as a separate award from the “service-only” Options and RSUs, and compensation cost is recognized when it becomes probable that the stated performance target will be achieved. We currently believe that it is probable that the stated performance condition will be satisfied at the target level for all of our Options and RSUs granted. Compensation cost is recognized within the income statement in the same expense line as the cash compensation paid to the respective employees.
We recognize forfeitures of equity-based awards as a reduction to compensation costs in the period in which they occur. During the three and nine months ended September 30, 2022, we recognized $26,686 and $58,441 in equity-based compensation costs, respectively. During the three and nine months ended September 30, 2021, we recognized $15,009 and $42,859 in equity-based compensation costs, respectively.
As of September 30, 2022, the total unrecognized compensation cost for all outstanding Options and RSUs equaled approximately $381,700. The unrecognized compensation cost will be recognized over each grant’s applicable vesting period with the latest vesting date being December 31, 2027. The weighted-average period over which the unrecognized compensation cost will be recorded is equal to approximately 2.6 years.
8.    Shareholders’ Equity
A summary of changes in shareholders’ equity for the three months ended September 30, 2022 is presented below:
 Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Deferred
Compensation
Trust
Deferred
Compensation
Liability
Total
Balance, June 30, 2022$206 $2,498,123 $10,907,253 $(10,413,916)$(16,710)$16,710 $2,991,666 
Net income— — 411,393 — — — 411,393 
Purchase of common stock for treasury— — — (368,490)— — (368,490)
Equity-based compensation— 26,686 — — — — 26,686 
Proceeds from Options exercised— 23,584 — — — — 23,584 
Treasury stock issued upon Option exercise — (9,581)— 9,581 — — — 
Balance, September 30, 2022$206 $2,538,812 $11,318,646 $(10,772,825)$(16,710)$16,710 $3,084,839 
A summary of changes in shareholders’ equity for the nine months ended September 30, 2022 is presented below:
 Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Deferred
Compensation
Trust
Deferred
Compensation
Liability
Total
Balance, December 31, 2021$206 $2,378,191 $10,047,839 $(9,423,858)$(16,710)$16,710 $3,002,378 
Net income— — 1,270,807 — — — 1,270,807 
Purchase of common stock for treasury— — — (1,384,193)— — (1,384,193)
Equity-based compensation— 58,441 — — — — 58,441 
Proceeds from Options exercised— 137,406 — — — — 137,406 
Treasury stock issued upon Option exercise — (35,226)— 35,226 — — — 
Balance, September 30, 2022$206 $2,538,812 $11,318,646 $(10,772,825)$(16,710)$16,710 $3,084,839 

11

NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)
We repurchased 88,016 and 295,148 shares of our outstanding common stock during the three and nine months ended September 30, 2022, respectively. We settle Option exercises and vesting of RSUs by issuing shares of treasury stock.  We issued 15,840 and 59,559 shares from the treasury account during the three and nine months ended September 30, 2022, respectively, in settlement of Option exercises.  Shares are relieved from the treasury account based on the weighted average cost basis of treasury shares.
A summary of changes in shareholders’ equity for the three months ended September 30, 2021 is presented below:
 Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Deferred
Compensation
Trust
Deferred
Compensation
Liability
Total
Balance, June 30, 2021$206 $2,314,564 $9,381,177 $(8,653,659)$(16,710)$16,710 $3,042,288 
Net income— — 332,081 — — — 332,081 
Purchase of common stock for treasury— — — (398,489)— — (398,489)
Equity-based compensation— 15,009 — — — — 15,009 
Proceeds from Options exercised— 26,162 — — — — 26,162 
Treasury stock issued upon Option exercise and RSU vesting— (6,735)— 6,735 — — — 
Balance, September 30, 2021$206 $2,349,000 $9,713,258 $(9,045,413)$(16,710)$16,710 $3,017,051 
A summary of changes in shareholders’ equity for the nine months ended September 30, 2021 is presented below:
 Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Deferred
Compensation
Trust
Deferred
Compensation
Liability
Total
Balance, December 31, 2020$206 $2,214,426 $8,811,120 $(7,922,678)$(16,710)$16,710 $3,103,074 
Net income— — 902,138 — — — 902,138 
Purchase of common stock for treasury— — — (1,152,855)— — (1,152,855)
Equity-based compensation— 42,859 — — — — 42,859 
Proceeds from Options exercised— 121,835 — — — — 121,835 
Treasury stock issued upon Option exercise and RSU vesting— (30,120)— 30,120 — — — 
Balance, September 30, 2021$206 $2,349,000 $9,713,258 $(9,045,413)$(16,710)$16,710 $3,017,051 

We repurchased 79,620 and 244,595 shares of our outstanding common stock during the three and nine months ended September 30, 2021, respectively. We issued 13,116 and 61,704 shares from the treasury account during the three and nine months ended September 30, 2021, respectively, in settlement of Option exercises and vesting of RSUs.  
12

NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)
9.    Product Warranties
We establish warranty and product liability reserves (“Warranty Reserve”) to provide for estimated future expenses as a result of construction and product defects, product recalls and litigation incidental to our homebuilding business.  Liability estimates are determined based on management’s judgment, considering such factors as historical experience, the estimated current cost of corrective action, manufacturers’ and subcontractors’ participation in sharing the cost of corrective action, consultations with third party experts such as engineers, and discussions with our general counsel and outside counsel retained to handle specific product liability cases.
The following table reflects the changes in our Warranty Reserve during the three and nine months ended September 30, 2022 and 2021:
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Warranty reserve, beginning of period$138,240 $127,502 $134,859 $119,638 
Provision28,624 22,789 71,142 66,878 
Payments(23,066)(20,188)(62,203)(56,413)
Warranty reserve, end of period$143,798 $130,103 $143,798 $130,103 

10.    Segment Disclosures
Our homebuilding operations are aggregated geographically into four homebuilding reportable segments and our mortgage banking operations are presented as one reportable segment.  The homebuilding reportable segments are comprised of operating divisions in the following geographic areas:
Mid Atlantic: Maryland, Virginia, West Virginia, Delaware and Washington, D.C.
North East: New Jersey and Eastern Pennsylvania
Mid East: New York, Ohio, Western Pennsylvania, Indiana and Illinois
South East: North Carolina, South Carolina, Tennessee, Florida and Georgia
Homebuilding profit before tax includes all revenues and income generated from the sale of homes, less the cost of homes sold, selling, general and administrative expenses and a corporate capital allocation charge.  The corporate capital allocation charge is eliminated in consolidation and is based on the segment’s average net assets employed.  The corporate capital allocation charged to the operating segment allows the Chief Operating Decision Maker (“CODM”) to determine whether the operating segment’s results are providing the desired rate of return after covering our cost of capital.  
Assets not allocated to the operating segments are not included in either the operating segment’s corporate capital allocation charge or the CODM’s evaluation of the operating segment’s performance.  We record charges on contract land deposits when it is determined that it is probable that recovery of the deposit is impaired.  For segment reporting purposes, impairments on contract land deposits are generally charged to the operating segment upon the termination of an LPA with the developer, or the restructuring of an LPA resulting in the forfeiture of the deposit.  Mortgage banking profit before tax consists of revenues generated from mortgage financing, title insurance and closing services, less the costs of such services and general and administrative costs.  Mortgage banking operations are not charged a corporate capital allocation charge.
In addition to the corporate capital allocation and contract land deposit impairments discussed above, the other reconciling items between segment profit and consolidated profit before tax include unallocated corporate overhead (including all management incentive compensation), equity-based compensation expense, consolidation adjustments and external corporate interest expense.  Our overhead functions such as accounting, treasury and human resources are centrally performed and these costs are not allocated to our operating segments.  Consolidation adjustments consist of such items necessary to convert the reportable segments’ results, which are predominantly
13

NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars in thousands, except per share data)
(unaudited)
maintained on a cash basis, to a full accrual basis for external financial statement presentation purposes, and are not allocated to our operating segments.  External corporate interest expense primarily consists of interest charges on our 3.95% Senior Notes due 2022 and 3.00% Senior Notes due 2030 (the “Senior Notes”), which are not charged to the operating segments because the charges are included in the corporate capital allocation discussed above.
The following tables present segment revenues, profit and assets with reconciliations to the amounts reported for the consolidated enterprise, where applicable:
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Revenues:
Homebuilding Mid Atlantic$1,282,504 $1,082,710 $3,632,524 $3,067,267 
Homebuilding North East250,067 213,087 663,012 568,524 
Homebuilding Mid East569,991 503,232 1,552,434 1,406,364 
Homebuilding South East636,883 537,586 1,810,764 1,482,731 
Mortgage Banking37,455 59,025 155,518 195,798 
Total consolidated revenues$2,776,900 $2,395,640 $7,814,252 $6,720,684 

Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Income before taxes:
Homebuilding Mid Atlantic$272,860 $222,504 $774,380 $526,052 
Homebuilding North East49,614 33,885 116,839 70,622 
Homebuilding Mid East92,364 81,021 246,059 189,849 
Homebuilding South East145,619 100,688 409,895 236,272 
Mortgage Banking18,993 40,249 97,899 140,183 
Total segment profit before taxes579,450 478,347 1,645,072 1,162,978 
Reconciling items:
Contract land deposit reserve adjustment (1)(8,736)4,126 (2,391)17,500 
Equity-based compensation expense (2)(26,686)(15,009)(58,441)(42,859)
Corporate capital allocation (3)81,020 64,055 228,276 188,638 
Unallocated corporate overhead(22,565)(27,801)(100,109)(101,605)
Consolidation adjustments and other (4)(57,165)(56,786)(2,561)(22,456)
Corporate interest expense(6,803)(12,805)(31,374)(38,598)
Reconciling items sub-total(40,935)(44,220)33,400