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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
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 1-08951
__________________________________________
M.D.C. HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
Delaware
84-0622967
(State or other jurisdiction
of incorporation or organization)
(I.R.S. Employer
Identification No.)
4350 South Monaco Street, Suite 500
80237
Denver, Colorado
(Zip code)
(Address of principal executive offices)
(303) 773-1100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $.01 par value
552676108
New York Stock Exchange
6.000% Senior Notes due January 2043
552676AQ1
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes No
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 x No o
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 x No o
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 Filer
Accelerated Filer
Emerging Growth Company
Non-Accelerated Filer
Smaller Reporting 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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 726(b)) by the registered public accounting firm that prepared or issued its audit report.
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 June 30, 2020, the aggregate market value of the Registrant's common stock held by non-affiliates of the Registrant was $1.8 billion based on the closing sales price of $35.70 per share as reported on the New York Stock Exchange on June 30, 2020.
As of December 31, 2020, the number of shares outstanding of Registrant's common stock was 64,851,126.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of part III of this Form 10-K are incorporated by reference from the Registrant's 2020 definitive proxy statement to be filed with the Securities and Exchange Commission no later than 120 days after the end of the Registrant's fiscal year.



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M.D.C. HOLDINGS, INC.
FORM 10-K
For the Year Ended December 31, 2020
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Page
No.
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M.D.C. HOLDINGS, INC.
FORM 10-K
PART I
Forward-Looking Statements
Certain statements in this Annual Report on Form 10-K, as well as statements made by us in periodic press releases, oral statements made by our officials in the course of presentations about the Company and conference calls in connection with quarterly earnings releases, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding our business, financial condition, results of operation, cash flows, strategies and prospects. These forward-looking statements may be identified by terminology such as “likely,” “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained in this Report are reasonable, we cannot guarantee future results. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from those expressed or implied by the forward-looking statements. 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 subsequent reports on Forms 10-K, 10-Q and 8-K should be considered.
Item 1. Business.
(a) General Development of Business
M.D.C. Holdings, Inc. is a Delaware corporation. We refer to M.D.C. Holdings, Inc. as the “Company,” “MDC,” “we” or “our” in this Annual Report on Form 10-K, and these designations include our subsidiaries unless we state otherwise. We have two primary operations, homebuilding and financial services. Our homebuilding operations consist of wholly owned subsidiary companies that generally purchase finished lots or develop lots to the extent necessary for the construction and sale primarily of single-family detached homes to first-time and first-time move-up homebuyers under the name “Richmond American Homes.” Our homebuilding operations are comprised of various homebuilding divisions that we consider to be our operating segments. For financial reporting, we have aggregated our homebuilding operating segments into reportable segments as follows: (1) West (includes operating segments located in Arizona, California, Nevada, Washington and Oregon); (2) Mountain (includes operating segments located in Colorado and Utah); and (3) East (includes operating segments located in the mid-Atlantic, which includes Virginia and Maryland, and Florida).
Our financial services operations consist of (1) HomeAmerican Mortgage Corporation (“HomeAmerican”), which originates mortgage loans primarily for our homebuyers, (2) Allegiant Insurance Company, Inc., A Risk Retention Group (“Allegiant”), which provides insurance coverage primarily to our homebuilding subsidiaries on homes that have been delivered and most of our subcontractors for completed work on those delivered homes, (3) StarAmerican Insurance Ltd. ("StarAmerican"), which is a re-insurer of Allegiant claims, (4) American Home Insurance Agency, Inc., which offers third-party insurance products to our homebuyers, and (5) American Home Title and Escrow Company, which provides title agency services to our homebuilding subsidiaries and our customers in certain states. For financial reporting, we have aggregated our financial services operating segments into reportable segments as follows: (1) mortgage operations (represents HomeAmerican only) and (2) other (all remaining operating segments).
(c) Description of Business
Our business consists of two primary operations, homebuilding and financial services. Our homebuilding subsidiaries build and sell primarily single-family detached homes that are designed and built to meet local customer preferences. Each homebuilding subsidiary is the general contractor for its projects and retains subcontractors for land development and home construction. Our homebuilding subsidiaries build a variety of home styles in each of their markets, targeting primarily first-time and first-time move-up homebuyers.

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For 2020, the percentage of our home deliveries and home sale revenues by state were as follows:
Percentage
of
Deliveries
Percentage
of Home Sale
Revenues
Arizona20 %16 %
California18 %23 %
Nevada11 %11 %
Oregon%%
Washington%%
West54 %56 %
Colorado25 %29 %
Utah%%
Mountain31 %34 %
Maryland%%
Virginia%%
Florida12 %%
East15 %10 %
Total100 %100 %
Our financial services operations include subsidiaries that provide mortgage financing, place title insurance and homeowner insurance for our homebuyers, and provide general liability insurance for our subsidiaries and most of our subcontractors.
Homebuilding Operations
Operating Divisions. The primary functions of our homebuilding segments include land acquisition and development, home construction, sales and marketing, and customer service. Operating decisions are made by our local management teams under the oversight of our Chief Operating Decision Maker (“CODM”), or decision-making group, defined as two key executives - our Executive Chairman and Chief Executive Officer. Our organizational structure (i.e., the grouping and reporting of divisions) changes based upon the current needs of the Company. We had 17 active homebuilding operating divisions at the end of December 31, 2020. We had 15 active homebuilding operating divisions at the end of each year ended December 31, 2019 and 2018.
Corporate Management. Our homebuilding business is managed primarily through members of senior management in our Corporate segment and our four Asset Management Committees (“AMCs”), three for reviewing real estate transactions and one for reviewing corporate transactions. Each real estate AMC is comprised of the Chief Executive Officer, Chief Financial Officer and one of our other corporate officers, with the corporate AMC comprised of our Chief Executive Officer and Chief Financial Officer.  All real estate acquisition transactions are reviewed to confirm that the transaction is projected to achieve the objectives established by our decision-making group and must be approved by one of the real estate AMCs. Generally, the role of our senior management team and/or AMC includes:
review and approval of division business plans and budgets;
oversight of land and home inventory levels;
review of major personnel decisions; and
review of capital allocation decisions.
Additionally, our corporate executives and corporate departments generally are responsible for establishing and monitoring compliance with our policies and procedures. Among other things, the corporate office has primary responsibility for:
asset management and capital allocation;
treasury;
insurance and risk management;
merchandising and marketing;
national purchasing contracts;
accounting, tax and internal audit functions;
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legal matters;
human resources and payroll;
information technology; and
training and development.
Housing. Generally, our homebuilding subsidiaries build single-family detached homes in a number of standardized series, designed to provide variety in the size and style of homes for our potential homebuyers. In certain markets, our homebuilding subsidiaries build and sell attached townhomes. Within each series of our single-family detached homes, our homebuilding subsidiaries build several different floor plans offering standard and optional features (such as upgraded appliances, cabinetry, flooring, etc.). Differences in sales prices of similar models from market-to-market depend primarily upon homebuyer demand, home prices offered by our competitors, market conditions (such as home inventory supply levels), location, cost of land, optional features and design specifications. The series of homes offered at a particular location is based on perceived customer preferences, lot size, area demographics and, in certain cases, the requirements of major land sellers and local municipalities. In general, our homebuilding subsidiaries focus on selling “build-to-order,” also referred to as “dirt sales,” and limit the number of homes started without a contract, also known as “spec homes.”
Land Acquisition and Development. Our homebuilding subsidiaries acquire lots with the intention of constructing and selling homes on the acquired land. Generally, we prefer to purchase finished lots using option contracts, in phases or in bulk for cash. However, because there often is significant competition for finished lots, approximately one-half of the lots we purchase require some level of development. In making land purchases, we consider a number of factors, including projected rates of return, estimated gross margins from home sales, sales prices of the homes to be built, mortgage loan limits within the respective county, population and employment growth patterns, proximity to developed areas, estimated cost and complexity of development including environmental and geological factors, quality of schools, estimated levels of competition and demographic trends.
In their option contracts, our homebuilding subsidiaries generally obtain the right to purchase lots in consideration for an option deposit in the form of cash or letters of credit. In the event they elect not to purchase the lots within a specified period of time, they may be required to forfeit the option deposit. Our option contracts do not contain provisions requiring our specific performance.
Our homebuilding subsidiaries may own or have the right under option contracts to acquire undeveloped parcels of real estate that they intend to develop into finished lots. They generally develop our land in phases in order to limit our risk in a particular subdivision and to efficiently employ available capital resources. Generally, building permits and utilities are available and zoning is suitable for the current intended use of substantially all of our undeveloped land. When developed, these lots generally will be used in our homebuilding activities. See “Forward-Looking Statements” above.
Labor and Raw Materials. Materials used in our homebuilding operations are mainly standard items carried by major suppliers. We generally contract for our materials and labor at a fixed price for the anticipated construction period of our homes. This allows us to mitigate the risks associated with increases in the cost of building materials and labor between the time construction begins on a home and the time it is closed. Increases in the cost of building materials and subcontracted labor may reduce gross margins from home sales to the extent that market conditions prevent the recovery of increased costs through higher home sales prices. From time to time and to varying degrees, we may experience shortages in the availability of building materials and/or labor in each of our markets. These shortages and delays may result in delays in the delivery of homes under construction, reduced gross margins from home sales, or both. See “Forward-Looking Statements” above.
Warranty. Our homebuilding subsidiaries sell their homes with limited third-party warranties that generally provide for ten years of structural coverage, two years of coverage for plumbing, electrical, heating, ventilation and air conditioning systems, and one year of coverage for workmanship and materials. Under our agreement with the issuer of the third-party warranties, our homebuilding subsidiaries perform all of the work for the first two years of the warranty coverage and pay for substantially all of the work required to be performed during years three through ten of the warranties.
Seasonal Nature of Business. The homebuilding industry can experience noticeable seasonality and quarter-to-quarter variability in homebuilding activity levels. The seasonal nature of our business is described in more detail in our description of Risk Factors under the heading “Because of the seasonal nature of our business, our quarterly operating results can fluctuate.

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Backlog. At December 31, 2020 and 2019, homes under contract but not yet delivered (“backlog”) totaled 6,655 and 3,801, respectively, with an estimated sales value of $3.26 billion and $1.75 billion, respectively. We anticipate that homes in backlog at December 31, 2020 generally will close during 2021 under their existing home order contracts or through the replacement of an existing contract with a new home order contract. The estimated backlog sales value at December 31, 2020 may be impacted by, among other things, subsequent home order cancellations, incentives provided, and/or options and upgrades selected. See “Forward-Looking Statements” above.
Customer Service and Quality Control. Our homebuilding divisions are responsible for pre-closing quality control inspections and responding to customers’ post-closing needs. We have a product service and quality control program, focused on improving and/or maintaining the quality of our customers’ complete home buying and homeownership experience.
Sales and Marketing. Our sales and marketing programs are designed to attract homebuyers in a cost effective manner. We have a centralized in-house advertising and marketing department, including digital marketing, that oversees our efforts to communicate the inherent value of our homes to our prospective homebuyers and distinguish our Richmond American Homes brand from our competitors or other home buying opportunities. The main objective of this team is to generate homebuyer leads, which are actively pursued by our community sales associates. Our centralized in-house merchandising team furnishes our model homes and sales offices.
Another important part of our marketing presentation takes place in our design centers (also known as Home Galleries). Here, homebuyers are able to personalize their homes with a variety of options and upgrades. These locations also serve as an information center for prospective homebuyers and real estate agents who may opt to receive personalized attention from one of our new home specialists, resulting in a more focused and efficient home search across all of our Richmond American communities in a given market place. We believe that the services provided by our Home Galleries represent a key competitive advantage in attracting and retaining prospective homebuyers.
Competition. The homebuilding industry is fragmented and highly competitive. The competitive nature of our business is described in more detail in our description of Risk Factors.
Regulation. Our homebuilding operations are subject to compliance with applicable laws and regulations, which are described in more detail in our description of Risk Factors.
Financial Services Operations
Mortgage Lending Operations
General. HomeAmerican is a full-service mortgage lender and the principal originator of mortgage loans for our homebuyers. HomeAmerican has a centralized loan processing center where it originates mortgage loans, primarily for our homebuyers.
HomeAmerican is authorized to originate Federal National Mortgage Association (“Fannie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”) (together “the government-sponsored enterprises”), Federal Housing Administration-insured (“FHA”), and Department of Veterans Affairs-guaranteed (“VA”) mortgages and is an authorized issuer of Government National Mortgage Association (“Ginnie Mae”) mortgage-backed securities. Furthermore, HomeAmerican also is an authorized loan servicer for Fannie Mae, Freddie Mac and Ginnie Mae and, as such, is subject to the rules and regulations of these entities.
HomeAmerican uses a mortgage repurchase facility, internally generated funds, and temporary financing provided by its parent, to finance the origination of mortgage loans until they are sold. HomeAmerican sells originated mortgage loans to third-party purchasers on either a bulk or flow basis. Mortgage loans sold on a bulk basis include the sale of a package of substantially similar originated mortgage loans, while sales of mortgage loans on a flow basis are completed as HomeAmerican originates each loan. Mortgage loans sold to third-party purchasers include HomeAmerican’s representations and warranties with respect to certain borrower payment defaults, credit quality issues and/or misrepresentations made by HomeAmerican or our homebuyers. Substantially all of the mortgage loans originated by HomeAmerican are sold to third-party purchasers, generally between 5 to 35 days of origination.
Pipeline. HomeAmerican’s mortgage loans in process for which a rate and price commitment had been made to a borrower that had not closed (the “locked pipeline”) at December 31, 2020 and 2019 had an aggregate principal balance of approximately $230.5 million and $104.5 million, respectively, and were under interest rate lock commitments at an average interest rate of 2.69% and 3.72% respectively.
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Forward Sales Commitments. HomeAmerican is exposed to market risks related to fluctuations in interest rates. HomeAmerican creates certain derivative instruments in the normal course of business, which primarily include commitments to originate mortgage loans (interest rate lock commitments or locked pipeline). HomeAmerican uses forward sales of mortgage-backed securities and commitments from third-parties to purchase loans to hedge the interest rate risk inherent with the locked pipeline, as well as its loan inventory held for sale. The market related risks in our business are described in more detail in our description of Risk Factors.
Competition. HomeAmerican has significant competition with other mortgage bankers to arrange financing for our homebuyers. However, in selling its originated mortgages to third parties, HomeAmerican has benefited from an increased number of smaller non-bank entities entering the third-party purchaser space, resulting in better prices and a potentially wider array of product options. The competitive nature of our mortgage business is described in more detail in our description of Risk Factors.
Regulation. Our mortgage lending operations are subject to compliance with applicable laws and regulations, which are described in more detail in our description of Risk Factors.
Insurance Operations
General. Allegiant and StarAmerican were formed to provide insurance coverage of homebuilding risks for our homebuilding subsidiaries and most of our homebuilding subcontractors. Allegiant was organized as a risk retention group under the Federal Liability Risk Retention Act of 1981. Allegiant, which began operations in June of 2004, is licensed as a Class 3 Stock Insurance Company by the Division of Insurance of the State of Hawaii and is subject primarily to the regulations of its state of incorporation. StarAmerican is a single parent captive insurance company licensed by the Division of Insurance of the State of Hawaii. Pursuant to agreements executed on an annual basis since June of 2004, StarAmerican has re-insured Allegiant for all claims in excess of $50,000 per occurrence up to $3.0 million per occurrence, subject to various aggregate limits.
Allegiant generates premium revenue generally by providing to its customers, comprised of the Company’s homebuilding subsidiaries and most subcontractors of the Company’s homebuilding subsidiaries, general liability insurance on homes sold by our homebuilding subsidiaries and for work performed in completed subdivisions. Allegiant seeks to provide to its customers coverage and insurance rates that are competitive with other insurers. StarAmerican generates premium revenue by providing re-insurance coverage to Allegiant. Allegiant and StarAmerican incur expenses for actual losses and loss adjustment expenses and for reserves established based on actuarial studies including known facts, such as our experience with similar insurance cases and historical trends involving insurance claim payment patterns, pending levels of unpaid insurance claims, claim severity, claim frequency patterns and interpretations of circumstances including changing regulatory and legal environments.
Regulation. Allegiant and StarAmerican are licensed in the State of Hawaii and, therefore, are subject to regulation by the Hawaii Insurance Division. This regulation includes restrictions and oversight regarding: types of insurance provided; investment options; required capital and surplus; financial and information reporting; use of auditors, actuaries and other service providers; periodic examinations; and other operational items. Additionally, as a risk retention group, Allegiant is also registered in other states where certain MDC homebuilding subsidiaries do business.
Insurance Agency Operations
American Home Insurance is an insurance agency that sells primarily homeowners’ personal property and casualty insurance products in the same markets where our homebuilding subsidiaries operate and primarily to our homebuyers.
Title Operations
American Home Title provides title agency services to the Company and its homebuyers in Colorado, Florida, Maryland, Nevada and Virginia.
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Human Capital Resources
The table below summarizes the approximate number of employees for our combined Homebuilding, combined Financial Services and Corporate segments at December 31, 2020 and 2019.
December 31,
20202019
Homebuilding1,350 1,264 
Financial Services185 155 
Corporate238 237 
Total1,773 1,656 

We believe our employees are one of our greatest assets and our Company is made up of diverse, talented and dedicated employees working together to achieve common and rewarding goals. We value integrity, hard work, dedication, energy and teamwork. Our goal is to promote an environment where employees are encouraged to do their best work with high professional standards, team collaboration and customer excellence.

At MDC we are committed to fostering a diverse and inclusive workplace. Our management teams and all of our employees are expected to exhibit and promote honest, ethical and respectful conduct in the workplace. We have implemented and maintained a corporate compliance program to provide guidance for everyone associated with the Company, including its employees, officers and directors (the "Code"). Annual review of the Code is required and it, in summary, prohibits unlawful or unethical activity, including discrimination, and directs our employees, officers, and directors to avoid actions that, even if not unlawful or unethical, might create an appearance of illegality or impropriety. In addition, the Code includes required annual training on preventing, identifying, reporting and stopping any type of unlawful discrimination.

We recognize that we are in a competitive marketplace when it comes to finding top talent. As a result, talent acquisition and the retention of employees continue to be a priority initiative for the Company. Our leaders across all levels of the organization consistently review their business metrics to determine appropriate workforce planning goals. We offer a variety of career paths for our employees; which includes consistent training and development through online resources, job shadowing, mentoring, etc. Our employees may participate in a robust benefits program, which includes a focus on health and wellness, and we offer a variety of other employee perks. We believe our compensation packages and benefits are competitive with others in our industry. We are committed to consistently evaluating total compensation across all positions within the Company.

As we look to the future, we will continue to leverage the core principles and practices that contributed to our past achievements, while welcoming new perspectives that allow our organization to evolve with the changing economic landscape. We will maintain our commitment to quality craftsmanship, providing excellent customer service, hiring from within when possible and fostering an internal culture that supports collaboration and teamwork as well as work-life balance.

In response to the COVID-19 pandemic, we implemented safety protocols and procedures to protect our employees, our subcontractors and our customers. These protocols include complying with social distancing and other health and safety standards as mandated by state and local government agencies, taking into consideration guidance from the Centers for Disease Control and Prevention and other public health authorities. Certainly, there has been a significant shift to moving much of our workforce to a work from home/remote environment, particularly in Corporate and Division offices, to minimize in-person interactions.
(e) Available Information
We make our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, available free of charge on our website as soon as reasonably practicable after we file or furnish the materials electronically with the Securities and Exchange Commission (“SEC”). To obtain any of this information, go to our website, www.mdcholdings.com, and select “SEC Filings” from the “Financial Reports” menu. Our website includes our: (1) Corporate Governance Guidelines; (2) Corporate Code of Conduct; (3) Rules for Senior Financial Officers; (4) Audit Committee Procedures for Handling Confidential Complaints; and (5) charters for the Audit, Compensation, Legal and Corporate Governance/Nominating Committees. These materials may be obtained, free of charge, at www.mdcholdings.com (select “Governance”).
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Item 1A. Risk Factors.
The recent global Coronavirus/COVID-19 pandemic could harm business and results of operations of the Company.
Demand for our homes is dependent on a variety of macroeconomic factors, such as employment levels, availability of financing for homebuyers, interest rates, consumer confidence, wage growth, household formations, levels of new and existing homes for sale, cost of land, labor and construction materials, demographic trends and housing demand. These factors, in particular consumer confidence, can be significantly and adversely affected by a variety of factors beyond our control. In response to the pandemic, many state and local governments instituted restrictions that substantially limited the operations of non-essential businesses and the activities of individuals. While some of these restrictions have been eased, there is still significant uncertainty around the extent and duration of those still in place, the possibility for restrictions to be increased again in the future and the impact these restrictions will have on the U.S. economy and consumer confidence. The degree to which the pandemic will impact our financial results in the coming periods depends on future developments that are highly uncertain, including new information that may emerge concerning the severity of the pandemic, whether there are additional outbreaks of COVID-19 and the actions taken to contain or address the virus. If the pandemic continues to cause significant negative impacts to the U.S. economy and consumer confidence, our results of operations, financial condition and cash flows could be significantly and adversely impacted.
Changes in general economic, real estate and other business conditions may have an adverse effect on the homebuilding and mortgage industries, which could have a negative impact on our business.
The homebuilding industry is cyclical and is significantly affected by changes in industry conditions, the national political environment and general economic conditions such as:
employment levels;
availability of financing for homebuyers;
interest rates;
consumer confidence;
wage growth;
household formations;
levels of new and existing homes for sale;
cost of land, labor and construction materials;
demographic trends; and
housing demand.
These conditions may exist on a national level or may affect some of the regions or markets in which we operate more than others. When adverse conditions affect any of our larger markets, they could have a proportionately greater impact on us than on some other homebuilding companies.
Changes to monetary policy or other actions by the Federal Reserve could have an adverse effect on interest rates (including mortgage interest rates), equity markets and consumer confidence. Such effects could cause us to experience declines in the market value of our inventory and the demand for our homes, resulting in a negative impact to our financial position, results of operations and cash flows.
An oversupply of alternatives to new homes, including foreclosed homes, homes held for sale by investors and speculators, other existing homes, and rental properties, can also reduce our ability to sell new homes, depress new home prices and reduce our margins on the sale of new homes. High levels of foreclosures and short-sales not only contribute to additional inventory available for sale, but also can reduce appraisal valuations for new homes, potentially resulting in lower sales prices.
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Terrorist attacks, acts of war, other acts of violence or threats to national security, and any corresponding response by the United States or others, or related domestic or international instability, may adversely affect general economic conditions or cause a slowdown of the economy.
As a result of the foregoing matters, potential customers may be less willing or able to buy our homes. In the future, our pricing strategies may continue to be limited by market conditions. We may be unable to change the mix of our home offerings, reduce the costs of the homes we build or offer more affordable homes to maintain our gross margins or satisfactorily address changing market conditions in other ways. In addition, cancellations of home sales contracts in backlog may increase as homebuyers choose to not honor their contracts.
Additionally, the factors discussed above may increase our counterparty risk, which may include, among others, banks under our credit facilities and mortgage purchasers who may not be willing or able to perform on obligations to us. To the extent a third-party is unable or unwilling to meet its obligations, our financial position, results of operations and cash flows could be negatively impacted.
Our mortgage operations are closely related to our homebuilding business, as HomeAmerican originates mortgage loans principally to purchasers of the homes we build. Therefore, a decrease in the demand for our homes because of the preceding matters may also adversely affect the financial results of this segment of our business. Furthermore, any adverse changes in the economic conditions discussed previously could increase the default rate on the mortgages we originate, which may adversely affect our ability to sell the mortgages, the pricing we receive upon the sale of mortgages, or our potential exposure to recourse regarding mortgage loan sales.
These challenging conditions are complex and interrelated. We cannot predict their occurrence or severity, nor can we provide assurance that our responses would be successful.
Increased competition levels in the homebuilding and mortgage lending industries could have a negative impact on our homebuilding and mortgage operations.
The homebuilding industry is fragmented and highly competitive. Our homebuilding subsidiaries compete with numerous public and private homebuilders, including a number that are substantially larger than us and may have greater financial resources than we do. Our homebuilding subsidiaries also compete with subdivision developers and land development companies, some of which are themselves homebuilders or affiliates of homebuilders. Homebuilders compete for customers, land, building materials, subcontractor labor and desirable financing. Competition for home orders is based primarily on home sales price, location of property, home style, financing available to prospective homebuyers, quality of homes built, customer service and general reputation in the community, and may vary market-by-market and/or submarket-by-submarket. Additionally, competition within the homebuilding industry can be impacted by an excess supply of new and existing homes available for sale resulting from a number of factors, including, among other things, increases in the number of new home communities, increases in speculative homes available for sale and increases in home foreclosures. Increased competition can result in a decrease in our net new home orders, a decrease in our home sales prices and/or an increase in our home sales incentives in an effort to generate new home sales and maintain homes in backlog until they close. These competitive pressures may negatively impact our financial position, results of operations and cash flows.
Our mortgage lending subsidiary, HomeAmerican, experiences competition from numerous banks and other mortgage bankers and brokers, many of which are larger and may have greater financial resources. As a result, these competitors may be able to offer better pricing and/or mortgage loan terms, more relaxed underwriting criteria and a greater range of products, which could negatively impact the financial position, results of operations and cash flows of our mortgage operations.
If land is not available at reasonable prices or terms, we could be required to scale back our operations in a given market and/or we may operate at lower levels of profitability.
Our operations depend on our homebuilding subsidiaries’ ability to obtain land for the development of our residential communities at reasonable prices and with terms that meet our underwriting criteria. Our ability to obtain land for new residential communities may be adversely affected by changes in the general availability of land, the willingness of land sellers to sell land at reasonable prices, competition for available land, availability of financing to acquire land, zoning, regulations that limit housing density, and other market conditions. If the supply of land, and especially finished lots, appropriate for development of residential communities is limited because of these factors, or for any other reason, the number of homes that our homebuilding subsidiaries build and sell may decline. To the extent that we are unable to purchase land timely or enter into new contracts for the purchase of land at reasonable prices, due to the lag time between the time we acquire land and the time
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we begin selling homes, we may be required to scale back our operations in a given market and/or we may operate at lower levels of profitability. As a result, our financial position, results of operations and cash flows could be negatively impacted.
Supply shortages and other risks related to the demand for skilled labor and building materials could increase costs and delay deliveries.
The residential construction industry experiences price fluctuations and shortages in labor and materials from time to time. Shortages in labor can be due to: work stoppages, labor disputes, shortages in qualified trades people, lack of availability of adequate utility infrastructure and services, or our need to rely on local subcontractors who may not be adequately capitalized or insured. Labor and material shortages can be more severe during periods of strong demand for housing or during periods in which the markets where we operate experience natural disasters that have a significant impact on existing residential and commercial structures. Additionally, we could experience labor shortages as a result of subcontractors going out of business or leaving the residential construction market due to low levels of housing production and volumes. Pricing for labor and materials can be affected by the factors discussed above, changes in energy prices, and various other national, regional and local economic factors. In addition, environmental and other regulations and import tariffs and trade restrictions have had, and in the future could continue to have, an adverse impact on the cost of certain raw materials such as lumber. Recalls of materials driven by manufacturing defects can drive shortages in materials and delay the delivery of homes. Any of these circumstances could give rise to delays in the start or completion of our residential communities, increase the cost of developing one or more of our residential communities and/or increase the construction cost of our homes.
We generally are unable to pass on increases in construction costs to customers who have already entered into sales contracts, as those sales contracts fix the price of the homes at the time the contracts are signed, which generally is in advance of the construction of the home. To the extent that market conditions prevent the recovery of increased costs, including, among other things, subcontracted labor, finished lots, building materials, and other resources, through higher selling prices, our financial position, cash flows and operating results, including our gross margin from home sales, could be negatively impacted.
If mortgage interest rates rise, if down payment requirements are increased, if loan limits are decreased, or if mortgage financing otherwise becomes less available, it could adversely affect our business.
Mortgage liquidity influenced by governmental entities like the FHA, VA, USDA and Ginnie Mae or government-sponsored enterprises (“GSEs”) like Fannie Mae and Freddie Mac continue to be an important factor in marketing our homes. Financial losses or other factors may limit, restrict or otherwise curtail their ability or willingness to insure mortgage loans, offer insurance at rates and on terms that are not prohibitive, or purchase mortgage loans. Should this occur, it may negatively impact the availability of mortgage financing and our sales of new homes.
We believe that the liquidity provided by Fannie Mae, Freddie Mac and Ginnie Mae to the mortgage industry has been very important to the housing market. The future of Fannie Mae and Freddie Mac are in question and any reduction in the availability of the liquidity provided by these institutions could adversely affect interest rates, mortgage availability and our sales of new homes and mortgage loans.
Loans sold to or insured by the GSEs are subject to various loan limits. Decreases in these loan limits may require homebuyers to make larger down payments or obtain more restrictive non-conforming or “jumbo” mortgages, which could adversely impact on our financial position, results of operations and cash flows.
Even if potential customers do not need financing, changes in the availability of mortgage products may make it harder for them to sell their current homes to potential buyers who need financing.
If interest rates increase, the costs of owning a home may be affected and could result in further reductions in the demand for our homes.
Changes to tax laws, incentives or credits currently available to our customers may negatively impact our business.
Many homeowners receive substantial tax benefits in the form of tax deductions against their personal taxable income for mortgage interest and property tax payments and the loss or reduction of these deductions could affect homeowners’ net cost of owning a home. Significant changes to existing tax laws, such as the ability to deduct mortgage interest and real property taxes, may result in an increase in the total cost of home ownership and may make the purchase of a home less attractive to buyers. This could adversely impact demand for and/or sales prices of new homes, which would have a negative impact on our business.
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A decline in the market value of our homes or carrying value of our land would have a negative impact on our business.
Our homebuilding subsidiaries acquire land for the replacement of land inventory and/or expansion within our current markets and may, from time to time, purchase land for expansion into new markets. The fair value of our land and land under development inventory and housing completed or under construction inventory depends on market conditions. Factors that can impact our determination of the fair value of our inventory primarily include home sale prices, levels of home sale incentives and home construction and land costs. Our home sale prices and/or levels of home sale incentives can be impacted by, among other things, uncertainty in the homebuilding and mortgage industries or the United States/global economy overall, decreased demand for new homes, decreased home prices offered by our competitors, home foreclosure and short-sale levels, decreased ability of our homebuyers to obtain suitable mortgage loan financing and high levels of home order cancellations. Under such circumstances, we may be required to record impairments of our inventory. Any such inventory impairments would have a negative impact on our financial position and results of operations.
Natural disasters could cause an increase in home construction costs, as well as delays, and could negatively impact our business.
The climates and geology of many of the markets in which we operate present increased risks of natural disasters. To the extent that hurricanes, severe storms, earthquakes, droughts, floods, heavy or prolonged precipitation, wildfires or other natural disasters or similar events occur, the financial position, results of operations and cash flows of our business may be negatively impacted.
Changes in energy prices or regulations may have an adverse effect on our cost of building homes.
Some of the markets in which we operate are impacted by regulations related to energy, such as setbacks required from oil / gas drilling operations or restrictions on the use of land. To the extent that these regulations are modified, the value of land we already own or the availability of land we are looking to purchase may decline, which may adversely impact the financial position, results of operations and cash flows of our business. Furthermore, pricing offered by our suppliers and subcontractors can be adversely affected by increases in various energy costs resulting in a negative impact to our financial position, results of operations and cash flows of our business.
We have financial needs that we meet through the capital markets, including the debt and secondary mortgage markets, and disruptions in these markets could have an adverse impact on the results of our business.
We have financial needs that we meet through the capital markets, including the debt and secondary mortgage markets. Our requirements for additional capital, whether to finance operations or to service or refinance our existing indebtedness, fluctuate as market conditions and our financial performance and operations change. We cannot provide assurance that we will maintain cash reserves and generate sufficient cash flow from operations in an amount to enable us to service our debt or to fund other liquidity needs.
The availability of additional capital, whether from private capital sources or the public capital markets, fluctuates as our financial condition and market conditions in general change. There may be times when the private capital markets and the public debt or equity markets lack sufficient liquidity or when our securities cannot be sold at attractive prices, in which case we would not be able to access capital from these sources. Additionally, any reduction in our credit rankings and/or a weakening of our financial condition, could adversely affect our ability to obtain necessary funds. Even if financing is available, it could be costly or have other adverse consequences.
In addition, the sources and terms and conditions of our mortgage repurchase facility are subject to change. These changes may impact, among other things, availability of capital, cost of borrowings, collateral requirements and collateral advance rates.
Our business is subject to numerous federal, state and local laws and regulations concerning land development, construction of homes, sales, mortgage lending, environmental and other aspects of our business. These laws and regulations could give rise to additional liabilities or expenditures, or restrictions on our business.
Our operations are subject to continuing compliance requirements mandated by applicable federal, state and local statutes, ordinances, rules and regulations, including zoning and land use ordinances, building, plumbing and electrical codes, contractors’ licensing laws, state insurance laws, federal and state human resources laws and regulations, and health and safety laws and regulations. Various localities in which we operate have imposed (or may impose in the future) fees on developers to fund schools, road improvements and low and moderate-income housing.
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Availability of and costs related to permit, water/sewer tap, and impact fees can impact our homebuilding operations. From time to time, various municipalities in which our homebuilding subsidiaries operate restrict or place moratoria on the availability of utilities, including water and sewer taps. Additionally, certain jurisdictions in which our homebuilding subsidiaries operate have proposed or enacted “slow growth” or “no growth” initiatives and other measures that may restrict the number of building permits available in any given year. These initiatives or other similar measures could reduce our ability to open new subdivisions and build and sell homes in the affected markets. The availability issues previously discussed and any increases in costs of these fees may negatively impact our financial position, results of operations and cash flows.
Our homebuilding operations also are affected by environmental laws and regulations pertaining to availability of water, municipal sewage treatment capacity, stormwater discharges, land use, hazardous waste disposal, dust controls, oil and gas operations, building materials, population density and preservation of endangered species, natural terrain and vegetation.
The particular environmental laws and regulations that apply to any given homebuilding project vary greatly according to a particular site’s location, the site’s environmental conditions and the present and former uses. These environmental laws may result in project delays, cause us to incur substantial compliance and other costs and/or prohibit or severely restrict homebuilding activity in certain environmentally sensitive locations. Environmental laws and regulations may also have a negative impact on the availability and price of certain raw materials, such as lumber.
We also are subject to rules and regulations with respect to originating, processing, selling and servicing mortgage loans, which, among other things: prohibit discrimination and establish underwriting guidelines; provide for audits and inspections; require appraisals and/or credit reports on prospective borrowers and disclosure of certain information concerning credit and settlement costs; establish maximum loan amounts; prohibit predatory lending practices; and regulate the referral of business to affiliated entities.
The regulatory environment for mortgage lending is complex and ever changing and has led to an increase in the number of audits and examinations in the industry. These examinations can include consumer lending practices, sales of mortgages to financial institutions and other investors and the practices in the financial services segments of homebuilding companies. New rules and regulations or revised interpretations of existing rules and regulations applicable to our mortgage lending operations could result in more stringent compliance standards, which may substantially increase costs of compliance.
In the ordinary course of business, we are required to obtain surety bonds, the unavailability of which could adversely affect our business.
As is customary in the homebuilding industry, we often are required to provide surety bonds to secure our performance under construction contracts, development agreements and other arrangements. Our ability to obtain surety bonds primarily depends upon our credit rating, capitalization, working capital, past performance, management expertise and certain external factors, including the overall capacity of the surety market and the underwriting practices of surety bond issuers. The ability to obtain surety bonds also can be impacted by the willingness of insurance companies to issue surety bonds. If we are unable to obtain surety bonds when required, our financial position, results of operations and cash flows could be adversely impacted.
Decreases in the market value of our investments in marketable securities could have an adverse impact on our business.
Due to the nature of our insurance operations, we have a significant amount of investments in marketable securities, the market value of which is subject to changes from period to period. Decreases in the market value of our marketable securities could have an adverse impact on our financial position, results of operations and cash flows.
Product liability litigation and warranty claims that arise in the ordinary course of business may be costly.
As a homebuilder, we are subject to construction defect and home warranty claims, as well as claims associated with the sale and financing of our homes arising in the ordinary course of business. These types of claims can be costly. The costs of insuring against or directly paying for construction defect and product liability claims can be high and the amount of coverage offered by insurance companies may be limited. If we are not able to obtain adequate insurance against these claims, we may incur additional expenses that would have a negative impact on our results of operations in future reporting periods. Additionally, changes in the facts and circumstances of our pending litigation matters could have a material impact on our financial position, results of operations and cash flows.

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Repurchase requirements associated with HomeAmerican’s sale of mortgage loans, could negatively impact our business.
We are subject to risks associated with mortgage loans, including conventional mortgage loans, FHA and VA mortgage loans, second mortgage loans, high loan-to-value mortgage loans and jumbo mortgage loans (mortgage loans with principal balances that exceed various thresholds in our markets). These risks may include, among other things, compliance with mortgage loan underwriting criteria and the associated homebuyers’ performance, which could require HomeAmerican to repurchase certain of those mortgage loans or provide indemnification. Repurchased mortgage loans and/or the settlement of claims associated with such loans could have a negative impact on HomeAmerican’s financial position, results of operations and cash flows.
Because of the seasonal nature of our business, our quarterly operating results can fluctuate.
We may experience noticeable seasonality and quarter-to-quarter variability in homebuilding activity levels. In general, the number of homes delivered and the associated home sale revenues increase during the third and fourth quarters, compared with the first and second quarters. We believe that this type of seasonality reflects the historical tendency of homebuyers to purchase new homes in the spring and summer with deliveries scheduled in the fall or winter, as well as the scheduling of construction to accommodate seasonal weather conditions in certain markets.
We are dependent on the services of key employees, and the loss of their services could hurt our business.
Although we believe that we have made provision for adequately staffing current operations, because of competition for experienced homebuilding industry personnel, retaining our skilled people is an important area of focus. Our future success depends, in part, on our ability to attract, train and retain skilled personnel. If we are unable to retain our key employees or attract, train and retain other skilled personnel in the future, it could have an adverse impact on our financial position, results of operations and cash flows.
The interests of certain controlling shareholders may be adverse to other investors
Larry A. Mizel and David D. Mandarich beneficially own, directly or indirectly through their affiliates, in the aggregate, approximately 23% of our common stock. To the extent they and their affiliates vote their shares in the same manner, their combined stock ownership may effectively give them the power to influence the election of members of our board of directors and other matters reserved for our shareholders.
Information technology failures and data security breaches could harm our business.
We use information technology and other computer resources to carry out important operational activities and to maintain our business records. These information technology systems are dependent upon electronic systems and other aspects of the internet infrastructure. A material breach in the security of our information technology systems or other data security controls could result in third parties obtaining or corrupting customer, employee or company data. Such occurrences could have a material and adverse effect on our financial position, results of operations and cash flows.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our corporate office is located at 4350 South Monaco Street, Denver, Colorado 80237, where we lease all 144,000 square feet of office space in the building. In many of our markets, our homebuilding divisions and other MDC subsidiaries lease additional office space. While we are currently satisfied with the suitability and capacity of our office locations to meet our current business needs, we continue to evaluate them in view of market conditions and the size of our operations.
Item 3. Legal Proceedings.
Because of the nature of the homebuilding business, we and certain of our subsidiaries and affiliates have been named as defendants in various claims, complaints and other legal actions arising in the ordinary course of business, including product liability claims and claims associated with the sale and financing of our homes. In the opinion of management, the outcome of these ordinary course matters will not have a material adverse effect upon our financial condition, results of operations or cash flows.
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Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
At December 31, 2020, we had 560 shareholders of record. The shares of our common stock are traded on the New York Stock Exchange under the trading symbol MDC. On January 28, 2019, the Company announced an 8% stock dividend that was distributed on February 28, 2019 to shareholders of record on February 14, 2019. In accordance with Accounting Standards Codification Topic 260, “Earnings per Share”, basic and diluted earnings per share amounts, weighted-average shares outstanding, and dividends declared per share have been restated for all periods presented to reflect the effect of these stock dividends.
The table below sets forth the cash dividends declared and paid in 2020, 2019 and 2018
Date of
Declaration
Date of
Payment
Dividend
per Share
Total
Dividends
Paid
(In thousands)
2020
First Quarter
01/27/2002/26/20$0.33 $20,768 
Second Quarter
04/01/2005/20/200.33 20,914 
Third Quarter
07/27/2008/26/200.33 21,374 
Fourth Quarter
10/26/2011/24/200.40 25,952 
$1.39 $89,008 
2019
First Quarter01/28/1902/27/19$0.28 $17,019 
Second Quarter04/29/1905/29/190.30 18,521 
Third Quarter07/22/1908/21/190.30 18,700 
Fourth Quarter10/28/1911/27/190.30 18,780 
$1.18 $73,020 
2018
First Quarter01/22/1802/21/18$0.28 $16,865 
Second Quarter04/30/1805/23/180.28 16,928 
Third Quarter07/23/1808/22/180.28 16,940 
Fourth Quarter10/22/1811/21/180.28 16,984 
$1.11 $67,717 
On January 25, 2021, the Company declared a cash dividend of $0.40 per share as well as an 8% stock dividend. The cash dividend will be payable February 24, 2021 to shareholders of record on February 10, 2021. The stock dividend will be distributed on March 17, 2021 to shareholders of record on March 3, 2021, with a brokers' cut-off date of March 10, 2021, and will be in the form of one additional share of MDC common stock for 12.5 shares owned by shareholders on the record date. Cash will be paid in lieu of fractional shares based on the closing price of MDC's common stock on the record date.

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The following table provides information about our repurchases of common stock during the Three Months Ended December 31, 2020:
Period:
Total Number of Shares Purchased (1)
Average
Price Paid
Per Share
Total Number of Shares Purchased
as Part of Publicly Announced Plan
or Program (2)
Maximum Number of Shares that
 may yet be Purchased under the
Plan or Program (2)
October 1 to October 31, 2020— N/A— 4,000,000 
November 1 to November 30, 2020— N/A— 4,000,000 
December 1 to December 31, 202028,334 $48.60 — 4,000,000 
__________________________________
(1)    Represents shares of common stock withheld by us to cover withholding taxes due upon the vesting of restricted stock award shares, at the election of certain holders of nonvested shares, with market value approximating the amount of withholding taxes due.
(2)    We are authorized to repurchase up to 4,000,000 shares of our common stock. There were no shares of MDC common stock repurchased under this repurchase program during the years ended December 31, 2020, 2019 or 2018. This repurchase authorization has no expiration.
Performance Graph
Set forth below is a graph comparing the yearly change in the cumulative total return of MDC's common stock with the cumulative total return of the S&P 500® Stock Index and with that of a peer group of other homebuilders over the five-year period ended December 31, 2020, weighted as of the beginning of that period.
It is assumed in the graph that $100 was invested (1) in our common stock; (2) in the stocks of the companies in the S&P 500® Stock Index; and (3) in the stocks of the peer group companies, just prior to the commencement of the period and that all dividends received within a quarter were reinvested in that quarter. The peer group index is composed of the following companies: Beazer Homes USA, Inc., D.R. Horton, Inc., Hovnanian Enterprises, Inc., KB Home, Lennar Corporation, M/I Homes, Inc., Meritage Homes Corporation, NVR, Inc., PulteGroup, Inc. and Toll Brothers, Inc.
The stock price performance shown on the following graph is not indicative of future price performance.
mdc-20201231_g1.jpg
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Item 6. Selected Financial Data.
The data in these tables and related footnotes should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our Consolidated Financial Statements.
Year Ended December 31,
20202019201820172016
(Dollars in thousands, except per share amounts)
Income Statement Data
Homebuilding revenues
$3,765,379 $3,205,248 $2,981,811 $2,503,242 $2,262,853 
Financial services revenues
135,832 88,00583,40574,37263,991
Total revenues
$3,901,211 $3,293,253 $3,065,216 $2,577,614 $2,326,844 
Homebuilding pretax income (1)
$378,517 $244,762 $217,494 $185,939 $115,378 
Financial services pretax income
78,99560,22746,36043,79336,403
Total income before income taxes
$457,512 $304,989 $263,854 $229,732 $151,781 
Net income (1)
$367,582 $238,312 $210,780 $141,835 $103,211 
Basic earnings per share (3)
$5.76 $3.84 $3.46 $2.35 $1.72 
Diluted earnings per share (3)
$5.58 $3.72 $3.39 $2.30 $1.71 
Weighted Average Common Shares Outstanding:
Basic (3)
63,455,42261,616,98860,571,12360,117,02159,821,090
Diluted (3)
65,441,27963,702,66661,830,76161,453,57860,007,954
Balance Sheet Data
Cash and cash equivalents
$488,629 $459,933 $463,776 $505,428 $282,909 
Marketable securities
$— $56,747 $40,879 $91,638 $96,206 
Total inventories
$2,832,230 $2,366,575 $2,132,994 $1,829,736 $1,758,814 
Total assets
$3,864,920 $3,338,356 $3,001,077 $2,780,292 $2,528,589 
Senior notes, net (2)
$1,037,391 $989,422 $987,967 $986,597 $841,646 
Mortgage repurchase facility
$202,390 $149,616 $116,815 $112,340 $114,485 
Stockholders' equity
$2,119,912 $1,782,485 $1,576,000 $1,407,287 $1,320,070 
Stockholders' equity per common share (3)
$32.69 $28.49 $25.78 $23.22 $21.98 
Cash dividends declared per share (3)
$1.39 $1.18 $1.11 $0.85 $0.81 
Operational Data
Homes delivered (units)
8,1586,9746,1975,5415,054
Average selling price
$462 $460 $481 $451 $447 
Net new orders (units)
11,0127,8395,9745,8165,606
Homes in backlog at period end (units)
6,6553,8012,9363,1592,884
Estimated backlog sales value at period end
$3,263,000 $1,745,000 $1,426,000 $1,602,000 $1,382,000 
Estimated average selling price of homes in backlog
$490 $459 $486 $507 $479 
Active subdivisions at period-end
194185166151164
__________________________________
(1)During 2017, we realized a pretax gain of $53.6 million on investment sales.
(2)During 2017, we issued an additional $150.0 million of 6.000% senior notes due January 2043 for net proceeds of $146.5 million. During 2020, we issued an additional $300.0 million of 3.850% senior notes due January 2030 for net proceeds of $298.1 million.
(3)As a result of the stock dividends distributed during 2019 and 2017, the balances for the years ended December 31, 2018, 2017 and 2016 have been adjusted.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with, and is qualified in its entirety by, the Consolidated Financial Statements and Notes thereto included elsewhere in this Annual Report on Form 10-K. This item contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those indicated in such forward-looking statements. Factors that may cause such a difference include, but are not limited to, those discussed in “Item 1A, Risk Factors Relating to our Business.” This section of this Form 10-K generally discusses 2020 and 2019 items and year-to-year comparisons between 2020 and 2019. Discussions of 2018 items and year-to-year comparisons between 2019 and 2018 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
202020192018
(Dollars in thousands, except per share amounts)
Homebuilding:
Home sale revenues
$3,765,379 $3,205,248 $2,981,811 
Home cost of sales
(2,982,668)(2,600,196)(2,415,139)
Inventory impairments
— (935)(21,850)
Total cost of sales
(2,982,668)(2,601,131)(2,436,989)
Gross profit
782,711 604,117 544,822 
Gross margin %
20.8 %18.8 %18.3 %
Selling, general and administrative expenses
(403,218)(362,790)(329,801)
Interest and other income
4,233 9,070 7,718 
Other expense
(5,209)(5,635)(5,245)
Homebuilding pretax income
378,517 244,762 217,494 
Financial Services:
Revenues
135,832 88,005 83,405 
Expenses
(52,465)(45,001)(38,200)
Other income (expense), net
(4,372)17,223 1,155 
Financial services pretax income
78,995 60,227 46,360 
Income before income taxes
457,512 304,989 263,854 
Provision for income taxes
(89,930)(66,677)(53,074)
Net income
$367,582 $238,312 $210,780 
Earnings per share:
Basic
$5.76 $3.84 $3.46 
Diluted
$5.58 $3.72 $3.39 
Weighted average common shares outstanding:
Basic
63,455,422 61,616,988 60,571,123 
Diluted
65,441,279 63,702,666 61,830,761 
Cash dividends declared per share
$1.39 $1.18 $1.11 
Cash provided by (used in):
Operating Activities
$(23,095)$57,833 $(7,906)
Investing Activities
$21,685 $(28,785)$20,214 
Financing Activities
$31,170 $(24,975)$(56,409)

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EXECUTIVE SUMMARY
Overview
Industry Conditions and Outlook for MDC*
The Coronavirus/COVID-19 pandemic began impacting the U.S. economy during the latter part of March 2020, adversely affecting consumer demand, financial markets and employment levels. The homebuilding industry was not immune to the impact of the pandemic as we experienced an industry-wide decrease in traffic and order activity as well as increased cancellation levels during the months of March and April. However, with some limited exceptions, residential construction was designated an essential business, allowing us to continue to construct and sell homes. We implemented numerous operational changes to promote social distancing and comply with health and safety standards required by state and local governments, taking into consideration guidelines of the Centers for Disease Control and Prevention and other public health authorities.
We began experiencing a resurgence in demand in May 2020 that continued through year-end. This increase in demand was driven by low interest rates, a continued undersupply of affordable homes and a renewed focus on homeownership. We believe that the homebuilding industry potentially is poised for further growth, with (1) millennials continuing to age into their prime home-buying years, (2) homeownership becoming more important due to the increased prominence of remote work and school arrangements, and (3) many consumers migrating away from high cost, densely populated urban areas.
The resurgence in demand resulted in an 87% year-over-year increase in the dollar value of our backlog to $3.26 billion at the end of 2020. It also allowed us to increase pricing in the majority of our communities, resulting in a year-over-year increase in the estimated average gross margin of our homes in backlog at December 31, 2020. The improvement in our backlog provides us with the opportunity for significant year-over-year increases in home sale revenues and pretax income in coming quarters. However, even with this strong demand to end the year, we remain cautious and continue to closely monitor developments related to COVID-19, which are highly uncertain and could adversely impact our operations and financial results in future periods.
We ended the year with total liquidity of $1.70 billion following the expansion of our credit facility in December, which increased the total amount available under the facility to $1.20 billion. Additionally, on January 11, 2021, we issued $350 million of 10-year senior notes at a rate of 2.500%, which is the lowest rate for any senior note issuance in our Company's history. We believe that our financial position ranks among the best in the homebuilding industry and provides us with the capital resources to drive the continued growth of our business. We enter 2021 with a goal of delivering between 10,000 and 11,000 homes and growing our year-end active community count by at least 10%.
Results for the Twelve Months Ended December 31, 2020
For the year ended December 31, 2020, we reported net income of $367.6 million, or $5.58 per diluted share, a 54% increase compared to net income of $238.3 million, or $3.72 per diluted share, for the prior year period. Both our homebuilding and financial services businesses contributed to these year-over-year improvements, as pretax income from our homebuilding operations increased $133.8 million, or 55%, and our financial services pretax income increased $18.8 million, or 31%. The increase in homebuilding pretax income was the result of a 260 basis point increase in our operating margin and a 17% increase in home sale revenues. The increase in operating margin is the result of our improved pricing over the last twelve months as well as better operating leverage as we continue to grow our homebuilding operations. The increase in financial services pretax income was due to our mortgage business, which experienced a higher interest rate lock volume, an increase in the number of mortgages we originated as a percentage of our total homes delivered ("Capture Rate") and an increased profit margin on loans originated during the year. Additionally, our net income benefited from a decrease in our effective tax rate, primarily due to a larger benefit from energy tax credits.
The dollar value of our net new home orders increased 56% from the prior year, due to a 40% increase in the number of net new orders and a 11% increase in the average selling price of those orders. The increase in the number of net new orders was due to an increase in the monthly sales absorption rate driven by strong demand during the second half of the year. The increase in the average selling price was the result of price increases implemented over the past twelve months as well as a shift in geographical mix to some higher priced markets.
* See “Forward-Looking Statements” above.
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Homebuilding
Pretax Income (Loss)
December 31,
2020
Change
2019
Change
2018
Amount
%
Amount
%
(Dollars in thousands)
West
$229,951 $66,882 41 %$163,069 $34,240 27 %$128,829 
Mountain
175,001 38,688 28 %136,313 1,603 %134,710 
East
20,006 10,149 103 %9,857 (2,754)(22)%12,611 
Corporate
(46,441)18,036 (28)%(64,477)(5,821)10 %(58,656)
Total homebuilding pretax income
$378,517 $133,755 55 %$244,762 $27,268 13 %$217,494 
Homebuilding pretax income for 2020 was $378.5 million, an increase of $133.8 million from $244.8 million for the year ended December 31, 2019. The increase was primarily attributable to a 17% increase in home sale revenues as well as a 200 basis point improvement in gross margin from home sales.
Our West segment experienced a $66.9 million year-over-year increase in pretax income, due to a 19% increase in home sales revenue and an improved gross margin, which were slightly offset by a $14.0 million increase in general and administrative expenses resulting from the change in our Corporate cost allocation discussed below. Our Mountain segment experienced a $38.7 million increase in pretax income from the prior year, as a result of a 14% increase in home sales revenue and an improved gross margin, which were slightly offset by a $7.2 million increase in general and administrative expenses due to the change in our Corporate cost allocation. Our East segment experienced a $10.1 million increase in pretax income from the prior year, due primarily to a 21% increase in home sales revenue and an improved gross margin, which were slightly offset by a $3.0 million increase in general and administrative expenses resulting from the change in our Corporate cost allocation. Our Corporate segment experienced an $18.0 million increase in pretax income, due primarily to the impact of the change in our Corporate cost allocation.
On a periodic basis, we assess our Corporate cost allocation estimates. Our most recent assessment resulted in increases in Corporate cost allocations to both our homebuilding and financial services segments beginning January 1, 2020, to reflect the use of centralized administrative functions. Applying the most recent cost allocation estimate to the year ended December 31, 2019 would have resulted in decreased pretax income for our homebuilding and financial services segments of approximately $11.1 million and $1.6 million, respectively, with corresponding increases in our Corporate segment pretax income. Additionally, beginning January 1, 2020, we have reflected the expense associated with all homebuilding employee bonuses in the respective homebuilding segment to which the employee reports, consistent with how the CODM is now evaluating homebuilding division performance and making operating decisions. Had these bonuses been reflected in a similar manner during the year ended December 31, 2019, pretax income for our homebuilding segments would have decreased by an additional $13.1 million with a corresponding decrease in our Corporate segment pretax loss.
Assets
December 31,
Change
20202019
Amount
%
(Dollars in thousands)
West
$1,855,567 $1,461,645 $393,922 27 %
Mountain
905,007869,66535,342%
East
274,937194,59280,34541 %
Corporate
470,909505,507(34,598)(7)%
Total homebuilding assets
$3,506,420 $3,031,409 $475,011 16 %
Total homebuilding assets increased 16% from December 31, 2019 to December 31, 2020. Increases in each of our homebuilding segments were the result of increases in our inventory balances. These increases were driven by a greater number of lots acquired during 2020 than those delivered to homebuyers during the year as well as an increase in homes completed or under construction as of year-end. The funds for this land acquisition and construction activity came from our Corporate segment, causing a decline in our Corporate segment's assets that was mostly offset by the net proceeds from home sales.
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New Home Deliveries & Home Sale Revenues:
Changes in home sale revenues are impacted by changes in the number of new homes delivered and the average selling price of those delivered homes. Commentary for each of our segments on significant changes in these two metrics is provided below.
December 31,
20202019
% Change
Homes
Dollar
Value
Average
Price
Homes
Dollar
Value
Average
Price
Homes
Dollar
Value
Average
Price
(Dollars in thousands)
West
4,412 $2,106,241 $477.4 3,763 $1,771,061 $470.7 17 %19 %%
Mountain
2,530 1,293,779 511.4 2,242 1,131,568 504.7 13 %14 %%
East
1,216 365,359 300.5 969 302,619 312.3 25 %21 %(4)%
Total
8,158 $3,765,379 $461.6 6,974 $3,205,248 $459.6 17 %17 %— %

December 31,
20192018
% Change
Homes
Dollar
Value
Average
Price
Homes
Dollar
Value
Average
Price
Homes
Dollar
Value
Average
Price
(Dollars in thousands)
West
3,763 $1,771,061 $470.7 3,244 $1,567,141 $483.1 16 %13 %(3)%
Mountain
2,242 1,131,568 504.7 2,118 1,080,475 510.1 %%(1)%
East
969 302,619 312.3 835 334,195 400.2 16 %(9)%(22)%
Total
6,974 $3,205,248 $459.6 6,197 $2,981,811 $481.2 13 %%(4)%
West Segment Commentary
For the year ended December 31, 2020, the increase in new home deliveries was the result of a 33% year-over-year increase in the number of homes in backlog to begin the year. This increase was partially offset by a decrease in backlog conversion rates in most markets due to construction delays as a result of (1) certain state and local governments not identifying residential construction as an essential business at the outset of the pandemic, which impacted our ability to physically construct homes for a short period of time and (2) more general construction related delays from the pandemic coupled with an increase in the number of homes under construction.
Mountain Segment Commentary
For the year ended December 31, 2020, the increase in new home deliveries was the result of a 16% year-over-year increase in the number of homes in backlog to begin the year.
East Segment Commentary
For the year ended December 31, 2020, the increase in new home deliveries was the result of a 53% year-over-year increase in the number of homes in backlog to begin the year. This increase was partially offset by a decrease in backlog conversion rates in most of our markets within this segment due to (1) a lower percentage of homes in backlog to start the period that were under construction at that time and (2) an increase in cancellation rates during the first half of the year, most notably in our Florida markets, resulting from the pandemic. The decrease in the average selling price of homes delivered in our East segment was the result of a greater percentage of closings from our more affordable product offerings.
Gross Margin
Our gross margin from home sales for the year ended December 31, 2020 increased 200 basis points year-over-year from 18.8% to 20.8%. Gross margin from home sales increased across each of our segments on both build-to-order and speculative home deliveries driven by price increases implemented across nearly all of our communities over the past twelve months.

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Inventory Impairments
Inventory impairments recognized by segment for the years ended December 31, 2020, 2019 and 2018 are shown in the table below.
Year Ended December 31,
202020192018
(Dollars in thousands)
Housing Completed or Under Construction:
West
$— $100 $2,860 
Mountain
— 417
East
4351,227
Subtotal
— 5354,504
Land and Land Under Development:
West16,198
Mountain
400958
East190
Subtotal
— 40017,346
Total Inventory Impairments
$— $935 $21,850 
The table below provides quantitative data, for the periods presented, where applicable, used in determining the fair value of the impaired inventory.
Impairment Data
Quantitative Data
Three Months Ended
Number of
Subdivisions
Impaired
Inventory
Impairments
Fair Value of
Inventory After Impairments
Discount Rate
(Dollars in thousands)
March 31, 2019
2$610 $10,476 
N/A
December 31, 2019
2325 3,948 
N/A
Total
$935 
March 31, 2018
2$550 $5,223 12%
June 30, 2018
1200 767 12%
September 30, 2018
211,098 29,874 12%18%
December 31, 2018
1010,002 32,248 12%18%
Total
$21,850 

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Selling, General and Administrative Expenses
December 31,
2020
Change
2019
Change
2018
(Dollars in thousands)
General and administrative expenses
$184,720$9,693$175,027$13,348$161,679
General and administrative expenses as a percentage of home sale revenues
4.9%(60) bps5.5%10 bps5.4%
Marketing expenses
$95,103$13,488$81,615$11,493$70,122
Marketing expenses as a percentage of home sale revenues
2.5%0 bps2.5%10 bps2.4%
Commissions expenses
$123,395$17,247$106,148$8,148$98,000
Commissions expenses as a percentage of home sale revenues
3.3%0 bps3.3%0 bps3.3%
Total selling, general and administrative expenses
$403,218$40,428$362,790$32,989$329,801
Total selling, general and administrative expenses as a percentage of home sale revenues (SG&A Rate)
10.7%(60) bps11.3%20 bps11.1%
For the year ended December 31, 2020, the increase in our general and administrative expenses was primarily due to an increase in salaries and other compensation-related expenses due to a higher average headcount and strong operating results.
For the year ended December 31, 2020, marketing expenses increased as a result of increased deferred selling amortization and master marketing fees resulting from increased closings as well as increased compensation expense due to a higher average headcount.
For the year ended December 31, 2020, commissions expenses increased as a result of the increase in homes sale revenues year-over-year.

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Other Homebuilding Operating Data
Net New Orders and Active Subdivisions:
Changes in the dollar value of net new orders are impacted by changes in the number of net new orders and the average selling price of those homes. Commentary for each of our segments on significant changes in these two metrics is provided below
December 31,
20202019% Change
HomesDollar
Value
Average
Price
Monthly
Absorption
Rate *
HomesDollar ValueAverage PriceMonthly
Absorption Rate *
HomesDollar ValueAverage PriceMonthly
Absorption
Rate *
(Dollars in thousands)
West6,099 $3,078,584 $504.8 5.294,263 $1,963,489 $460.6 3.9143 %57 %10 %35 %
Mountain3,337 1,818,833 545.1 4.462,410 1,189,193 493.4 3.0438 %53 %10 %47 %
East1,576 562,419 356.9 4.271,166 342,469 293.7 3.6835 %64 %22 %16 %
Total11,012 $5,459,836 $495.8 4.857,839 $3,495,151 $445.9 3.5640 %56 %11 %36 %

December 31,
20192018% Change
HomesDollar
Value
Average
Price
Monthly
Absorption
Rate *
HomesDollar ValueAverage PriceMonthly
Absorption Rate *
HomesDollar ValueAverage PriceMonthly
Absorption
Rate *
(Dollars in thousands)
West4,263 $1,963,489 $460.6 3.913,316 $1,535,438 $463.0 3.7129 %28 %(1)%%
Mountain2,410 1,189,193 493.4 3.041,908 972,826 509.9 2.6326 %22 %(3)%15 %
East1,166 342,469 293.7 3.68750 262,518 350.0 2.7855 %30 %(16)%32 %
Total7,839 $3,495,151 $445.9 3.565,974 $2,770,782 $463.8 3.1631 %26 %(4)%13 %
*Calculated as total net new orders in period ÷ average active communities during period ÷ number of months in period
Active SubdivisionsAverage Active Subdivisions
December 31,Year Ended December 31,
20202019% Change20202019% Change
West103 89 16 %96 90 %
Mountain60 65 (8)%62 66 (6)%
East31 31 — %31 27 15 %
Total194 185 %189 183 %
West Segment Commentary
For the year ended December 31, 2020, the increase in net new orders was primarily due to an increase in the monthly sales absorption rates in all of our markets in the West segment. An increase in active subdivisions within our California markets also contributed to the increase in net new orders. The increase in average selling price was due to price increases implemented over the past twelve months within nearly all of our communities as well as a shift in mix of homes sold to more expensive Southern California markets. These increases were slightly offset by a shift in mix to lower priced communities, consistent with our ongoing strategy of offering more affordable home plans.
Mountain Segment Commentary
For the year ended December 31, 2020, the increase in net new orders was due to an increase in the monthly sales absorption rates in each of our Colorado and Utah markets. The increase in average selling price was due to price increases implemented over the last twelve months within nearly all of our communities.
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East Segment Commentary
For the year ended December 31, 2020, the increase in net new orders was driven by increases in the monthly sales absorption rate and the number of average active subdivisions. The increase in the average selling price of net new orders is due to price increases implemented over the last twelve months within nearly all of our communities. Additionally, we experienced a shift in mix to our mid-Atlantic market resulting from an increase in net new orders that was driven by increases in both monthly sales absorption rates and average active subdivisions.
Cancellation Rate:
Cancellations As a Percentage of Gross Sales
December 31,
2020
Change
2019
Change
2018
West
17 %(1)%18 %(2)%20 %
Mountain
22 %(2)%24 %(3)%27 %
East
24 %— %24 %(8)%32 %
Total
19 %(2)%21 %(3)%24 %
Our cancellations as a percentage of gross sales (“cancellation rate”) decreased from 21% for the year ended December 31, 2019 to 19% for the year ended December 31, 2020. While our full year cancellation rate decreased, we did experience higher cancellation rates during the first and second quarter of 2020 as a result of general economic uncertainty surrounding the pandemic.
Consistent with our quarterly homebuilding operating data provided, we have also included below the cancellations as a percentage of homes in beginning backlog for each quarter during the years ended December 31, 2020 and 2019.
Cancellations As a Percentage of Homes in Beginning Backlog
20202019
Three Months Ended
Dec 31
Sep 30
Jun 30
Mar 31
Dec 31
Sep 30
Jun 30
Mar 31
West
%11 %14 %15 %11 %12 %13 %14 %
Mountain
%12 %20 %22 %14 %16 %13 %14 %
East
10 %18 %22 %23 %17 %22 %18 %11 %
Total
%12 %17 %18 %13 %15 %14 %14 %

    Backlog:
December 31,
20202019
% Change
Homes
Dollar
Value
Average
Price
Homes
Dollar
Value
Average
Price
Homes
Dollar
Value
Average Price
(Dollars in thousands)
West
3,710 $1,831,205 $493.6 2,023 $960,057 $474.6 83 %91 %%
Mountain
2,018 1,090,557 540.4 1,211 624,672 515.8 67 %75 %%
East
927 341,439 368.3 567 160,618 283.3 63 %113 %30 %
Total
6,655 $3,263,201 $490.3 3,801 $1,745,347 $459.2 75 %87 %%
At December 31, 2020, we had 6,655 homes in backlog with a total value of $3.26 billion, representing respective increases of 75% and 87% from December 31, 2019. The increase in the number of homes in backlog is primarily a result of the year-over-year increase in net new orders in the second half of 2020. The increase in the average selling price of homes in backlog is due to price increases implemented over the past twelve months in nearly all of our communities as well as a shift in our net new order mix in our East segment as discussed above. These increases were slightly offset by a shift in mix to lower priced communities, consistent with our ongoing strategy of offering more affordable home plans. Our ability to convert backlog into closings could be negatively impacted in future periods by the pandemic, the extent to which is highly uncertain and depends on future developments.
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Homes Completed or Under Construction:
December 31,
20202019
% Change
Unsold:
Completed
48 122 (61)%
Under construction
131 255 (49)%
Total unsold started homes
179 377 (53)%
Sold homes under construction or completed
4,797 2,779 73 %
Model homes under construction or completed
498 473 %
Total homes completed or under construction
5,474 3,629 51 %
The increase in sold homes under construction or completed is due to the year-over-year increase in the number of homes in backlog noted above. Total unsold started homes have decreased year-over-year due to the strong demand for new homes.
Lots Owned and Optioned (including homes completed or under construction):
December 31, 2020December 31, 2019
Lots
Owned
Lots
Optioned
Total
Lots
Owned
Lots
Optioned
Total
Total %
Change
West
12,3353,46015,7959,5382,80512,34328 %
Mountain
6,2792,5918,8706,6543,87910,533(16)%
East
2,8681,9364,8042,3132,1974,510%
Total
21,4827,98729,46918,50518,5058,88127,386%
Our total owned and optioned lots at December 31, 2020 were 29,469, up 8% from December 31, 2019, due to our land acquisition approval activity over the past year across nearly all of our markets. We believe that our total lot supply can support growth in future periods. See "Forward-Looking Statements" above.
Financial Services
Year Ended December 31,
Change
Change
2020
Amount
%
2019
Amount
%
2018
(Dollars in thousands)
Financial services revenues
Mortgage operations
$101,675 $46,453 84 %$55,222 $1,746 %$53,476 
Other
34,157 1,374 %32,783 2,854 10 %29,929 
Total financial services revenues
$135,832 $47,827 54 %$88,005 $4,600 %$83,405 
Financial services pretax income
Mortgage operations
$71,017 $41,705 142 %$29,312 $(2,608)(8)%$31,920 
Other
7,978 (22,937)(74)%30,915 16,475 114 %14,440 
Total financial services pretax income
$78,995 $18,768 31 %$60,227 $13,867 30 %$46,360 
For the year ended December 31, 2020, our financial services pretax income increased $18.8 million or 31% from the same period in the prior year. The increase was due to our mortgage operations, which saw an increase in pretax income of $42 million due to (1) a higher interest rate lock volume driven by the year-over-year increase in homes in backlog, (2) an increased Capture Rate and (3) an increased profit margin on loans originated during the year due to diminished competition driven by the refinance volume experienced by the mortgage industry during the year. This increase was partially offset by a decrease in our other financial services segment, which had $8.3 million of net losses on equity securities during the period as compared to $11.8 million of net gains for the same period in the prior year.
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The table below sets forth information for our mortgage operations relating to mortgage loans originated and capture rate.
Year Ended December 31,
2020% or Percentage Change2019% or Percentage Change2018
(Dollars in thousands)
Total Originations:
Loans5,688 30 %4,361 15 %3,783 
Principal$2,140,229 35 %$1,585,487 15 %$1,380,164 
Capture Rate Data:
Capture rate as % of all homes delivered69 %%62 %%61 %
Capture rate as % of all homes delivered (excludes cash sales)72 %%67 %%66 %
Mortgage Loan Origination Product Mix:
FHA loans22 %%19 %%15 %
Other government loans (VA & USDA)21 %%20 %