UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-K

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☒ 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 1-12378 

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NVR, Inc.

(Exact Name of Registrant as Specified in its Charter)

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Virginia	54-1394360
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

11700 Plaza America Drive, Suite 500
Reston,	Virginia	20190
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (703) 956-4000

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, par value $0.01 per share	NVR	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

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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  ☒    No ☐

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal controls over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(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 Act). Yes  ☐    No  ☒

The aggregate market value of the voting stock held by non-affiliates of NVR, Inc. on June 30, 2020, the last business day of NVR, Inc.’s most recently completed second fiscal quarter, was approximately $11,374,674,000.

As of February 8, 2021 there were 3,681,181 total shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement of NVR, Inc. to be filed with the Securities and Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934 on or prior to April 30, 2021 are incorporated by reference into Part III of this report.

NVR, Inc.

Form 10-K

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	1
Item 1A.	Risk Factors	4
Item 1B.	Unresolved Staff Comments	9
Item 2.	Properties	9
Item 3.	Legal Proceedings	9
Item 4.	Mine Safety Disclosures	10
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	10
Item 6.	Selected Financial Data	12
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 7A.	Quantitative and Qualitative Disclosure About Market Risk	28
Item 8.	Financial Statements and Supplementary Data	30
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	30
Item 9A.	Controls and Procedures	30
Item 9B.	Other Information	30
PART III
Item 10.	Directors, Executive Officers, and Corporate Governance	30
Item 11.	Executive Compensation	30
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	31
Item 13.	Certain Relationships and Related Transactions, and Director Independence	31
Item 14.	Principal Accountant Fees and Services	31
PART IV
Item 15.	Exhibits and Financial Statement Schedules	32

PART I

Item 1.    Business.

General

NVR, Inc., a Virginia corporation, was formed in 1980 as NVHomes, Inc. Our primary business is the construction and sale of single-family detached homes, townhomes and condominium buildings, all of which are primarily constructed on a pre-sold basis. To more fully serve customers of our homebuilding operations, we also operate a mortgage banking and title services business. We conduct our homebuilding activities directly. Our mortgage banking operations are operated primarily through a wholly owned subsidiary, NVR Mortgage Finance, Inc. (“NVRM”). Unless the context otherwise requires, references to “NVR”, “we”, “us” or “our” include NVR, Inc. and its consolidated subsidiaries.

We are one of the largest homebuilders in the United States. We operate in thirty-three metropolitan areas in fourteen states, and Washington, D.C. During 2020, approximately 18% and 7% of our home settlements occurred in the Washington, D.C. and Baltimore, MD metropolitan areas, respectively, which accounted for approximately 24% and 10%, respectively, of our 2020 homebuilding revenues. Our homebuilding operations include the construction and sale of single-family detached homes, townhomes and condominium buildings under three trade names: Ryan Homes, NVHomes and Heartland Homes. Our Ryan Homes product is marketed primarily to first-time and first-time move-up buyers. Ryan Homes operates in thirty-three metropolitan areas located in Maryland, Virginia, Washington, D.C., West Virginia, Pennsylvania, New York, North Carolina, South Carolina, Florida, Ohio, New Jersey, Delaware, Indiana, Illinois and Tennessee. Our NVHomes and Heartland Homes products are marketed primarily to move-up and luxury buyers. NVHomes operates in Delaware and the Washington, D.C., Baltimore, MD and Philadelphia, PA metropolitan areas. Heartland Homes operates in the Pittsburgh, PA metropolitan area.

We generally do not engage in land development (see discussion below of our land development activities). Instead, we typically acquire finished building lots from various third party land developers pursuant to fixed price finished lot purchase agreements (“LPAs”) that require deposits that may be forfeited if we fail to perform under the LPAs. The deposits required under the LPAs are in the form of cash or letters of credit in varying amounts and typically range up to 10% of the aggregate purchase price of the finished lots.

We believe that our lot acquisition strategy avoids the financial requirements and risks associated with direct land ownership and land development. We may, at our option, choose for any reason and at any time not to perform under these LPAs by delivering notice of our intent not to acquire the finished lots under contract. Our sole legal obligation and economic loss for failure to perform under these LPAs is limited to the amount of the deposit pursuant to the liquidated damage provision contained within the LPAs. We do not have any financial guarantees or completion obligations and we typically do not guarantee lot purchases on a specific performance basis under these LPAs. None of the creditors of any of the development entities with which we have entered these LPAs have recourse to our general credit. We generally seek to maintain control over a supply of lots believed to be suitable to meet our five-year business plan.

In addition to constructing homes primarily on a pre-sold basis and utilizing what we believe is a conservative lot acquisition strategy, we focus on obtaining and maintaining a leading market position in each market we serve. This strategy allows us to gain valuable efficiencies and competitive advantages in our markets, which we believe contributes to minimizing the adverse effects of regional economic cycles and provides growth opportunities within these markets. Our continued success is contingent upon our ability to control an adequate supply of finished lots on which to build. As a result, in certain specific strategic circumstances we deviate from our historical lot acquisition strategy and engage in joint venture arrangements with land developers or directly acquire raw ground already zoned for its intended use for development. Once we acquire control of raw ground, we determine whether to sell the raw parcel to a developer and enter into an LPA with the developer to purchase the finished lots or hire a developer to develop the land on our behalf. While joint venture arrangements and direct land development activity are not our preferred method of acquiring finished building lots, we may enter into additional transactions in the future on a limited basis where there exists a compelling strategic or prudent financial reason to do so. We expect, however, to continue to acquire substantially all of our finished lot inventory using LPAs with forfeitable deposits. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this Form 10-K for additional discussion of lots controlled.  In addition, see Notes 3, 4 and 5 in the accompanying consolidated financial statements included herein for additional information regarding LPAs, joint ventures and land under development, respectively.

In addition to building and selling homes, we provide a number of mortgage-related services through our mortgage banking operations. Through operations in each of our homebuilding markets, NVRM originates mortgage loans almost exclusively for our homebuyers. NVRM generates revenues primarily from origination fees, gains on sales of loans and title fees. NVRM sells all of the mortgage loans it closes into the secondary markets on a servicing released basis.

Segment information for our homebuilding and mortgage banking businesses is included in Note 2 in the accompanying consolidated financial statements.

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Homebuilding

Products

We offer single-family detached homes, townhomes and condominium buildings with many different basic home designs. These home designs have a variety of elevations and numerous other options. Our homes combine traditional, transitional, cottage or urban exterior designs with contemporary interior designs and amenities, generally include two to four bedrooms and range from approximately 1,000 to 9,000 finished square feet. During 2020, the prices at which we settled homes ranged from approximately $140,000 to $1.5 million and averaged $370,800. During 2019, our average price of homes settled was $367,100.

Markets

Our four reportable homebuilding segments operate in the following geographic regions:

Mid Atlantic:	Maryland, Virginia, West Virginia, Delaware and Washington, D.C.
North East:	New Jersey and Eastern Pennsylvania
Mid East:	New York, Ohio, Western Pennsylvania, Indiana and Illinois
South East:	North Carolina, South Carolina, Florida and Tennessee

Backlog

Backlog, which represents homes sold but not yet settled with the customer, totaled 11,549 units and approximately $4.6 billion at December 31, 2020 compared to 8,233 units and approximately $3.1 billion at December 31, 2019. Backlog may be impacted by customer cancellations for various reasons that are beyond our control, such as the customer’s failure to obtain mortgage financing, inability to sell an existing home, job loss or a variety of other reasons. In any period, a portion of the cancellations that we experience are related to new sales that occurred during the same period, and a portion are related to sales that occurred in prior periods and therefore appeared in the opening backlog for the current period. Expressed as the total of all cancellations during the period as a percentage of gross sales during the period, our cancellation rate was 14.9%, 14.6% and 14.5% in 2020, 2019, and 2018, respectively. Additionally, approximately 6% in both 2020 and 2019, and 5% in 2018, of a reporting quarter’s opening backlog balance cancelled during the quarter. We can provide no assurance that our historical cancellation rates are indicative of the actual cancellation rate that may occur in future periods. Other than those units that are cancelled, we expect to settle substantially all of our December 31, 2020 backlog during 2021. See “Risk Factors” in Item 1A and “Seasonality” in Item 7 of this Form 10-K.

Further discussion of settlements, new orders and backlog activity by our homebuilding reportable segment for each of the last three years can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this Form 10-K.

Construction

We utilize independent subcontractors under fixed price contracts to perform construction work on our homes. We use many independent subcontractors in our various markets and we are not dependent on any single subcontractor or on a small number of subcontractors.

Sales and Marketing

Our preferred marketing method is for customers to visit a furnished model home featuring many built-in options and a landscaped lot. The garages of these model homes are usually converted into temporary sales centers where alternative facades and floor plans are displayed and designs for other models are available for review. Sales representatives are compensated predominantly on a commission basis.

Regulation

We and our subcontractors must comply with various federal, state and local zoning, building, environmental, advertising and consumer credit statutes, rules and regulations, as well as other regulations and requirements in connection with our construction and sales activities. All of these regulations have increased the cost to produce and market our products, and in some instances, have delayed our developers’ ability to deliver finished lots to us. Counties and cities in which we build homes have at times declared moratoriums on the issuance of building permits and imposed other restrictions in the areas in which sewage treatment facilities and other public facilities do not reach minimum standards. In addition, our homebuilding operations are regulated in certain areas by restrictive zoning and density requirements that limit the number of homes that can be built within the boundaries of a particular area. To date, restrictive zoning laws and the imposition of moratoriums have not had a material adverse effect on our construction activities.

Competition and Market Factors

The housing industry is highly competitive. We compete with numerous homebuilders of varying size, ranging from local to national in scope, some of which have greater financial resources than we do. We also face competition from the home resale market.

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Our homebuilding operations compete primarily on the basis of price, location, design, quality, service and reputation. Historically, we have been one of the market leaders in each of the markets where we build homes.

The housing industry is cyclical and is affected by consumer confidence levels, prevailing economic conditions and interest rates. Other factors that affect the housing industry and the demand for new homes include: the availability and the cost of land, labor and materials; changes in consumer preferences; demographic trends; and the availability of mortgage finance programs. See “Risk Factors” in Item 1A of this Form 10-K for additional information regarding these risks.

We are dependent upon building material suppliers for a continuous flow of raw materials. Whenever possible, we utilize standard products available from multiple sources. In the past, such raw materials have been generally available to us in adequate supply.

Mortgage Banking

We provide a number of mortgage related services to our homebuilding customers through our mortgage banking operations. Our mortgage banking operations also include separate subsidiaries that broker title insurance and perform title searches in connection with mortgage loan closings for which they receive commissions and fees. Because NVRM originates mortgage loans almost exclusively for our homebuilding customers, NVRM is dependent on our homebuilding segment. In 2020, NVRM closed approximately 16,700 loans with an aggregate principal amount of approximately $5.3 billion as compared to approximately 16,500 loans with an aggregate principal amount of approximately $5.2 billion in 2019.

NVRM sells all of the mortgage loans it closes to investors in the secondary markets on a servicing released basis, typically within 30 days from the loan closing. NVRM is an approved seller/servicer for Fannie Mae (“FNMA”) and Freddie Mac ("FHLMC") mortgage loans and an approved seller/issuer of Ginnie Mae (“GNMA”), Department of Veterans Affairs (“VA”) and Federal Housing Administration (“FHA”) mortgage loans.

Regulation

NVRM is subject to the rules and regulations of FNMA, GNMA, FHLMC, VA and FHA. These rules and regulations restrict certain activities of NVRM. NVRM is currently eligible and expects to remain eligible to participate in such programs. In addition, NVRM is subject to regulation at the state and federal level, including regulations issued by the Consumer Financial Protection Bureau (the “CFPB”) with respect to specific origination, selling and servicing practices.

Competition and Market Factors

NVRM’s main competition comes from national, regional, and local mortgage bankers, mortgage brokers, credit unions and banks in each of these markets. NVRM competes primarily on the basis of customer service, variety of products offered, interest rates offered, prices of ancillary services and relative financing availability and costs.

Pipeline

NVRM’s mortgage loans in process that had not closed had an aggregate principal balance of approximately $3.4 billion as of December 31, 2020 compared to approximately $2.2 billion as of December 31, 2019. NVRM’s cancellation rate was approximately 40%, 36% and 32% in 2020, 2019 and 2018, respectively. We can provide no assurance that our historical loan cancellation rates are indicative of the actual loan cancellation rate that may occur in future periods. See “Risk Factors” in Item 1A in this Form 10-K for additional information about factors that could increase our cancellation rate.

Human Capital

As of December 31, 2020, we had approximately 6,100 full time employees, of whom approximately 5,100 worked in our homebuilding operations, and approximately 1,000 worked in our mortgage banking operations, compared to December 31, 2019, when we had approximately 5,700 full time employees, of whom approximately 4,800 worked in our homebuilding operations, and approximately 900 worked in our mortgage banking operations. None of our employees are covered by collective bargaining agreements.

Our employees are our most important asset. We are committed to hiring and developing an inclusive workplace with a strong diversity of backgrounds and perspectives. All of our employees must adhere to our code of ethics and standards of business conduct that sets standards for appropriate behavior in the workplace. Our compensation philosophy has been consistent for over 20 years and is designed to motivate and retain highly qualified and experienced employees.

We provide tools for the advancement of our employees by offering training and development opportunities that align with each employee’s responsibilities and career path. We strive to promote employees from within our workforce, as we believe this provides both long-term success and continuity to our operations and growth for our employees. Our focus is demonstrated by the tenure of our executives and our regional and division leaders.

During the past year, despite the COVID-19 pandemic, we hired additional employees to meet the strong housing demand and generally increased our employees’ compensation and benefits packages. To protect our employees and homebuyers during the pandemic, we implemented safety protocols, such as social distancing on job sites, doing virtual house tours, working remotely and

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other health and safety standards as required by federal, state and local government agencies. We believe our employees adapted and successfully managed the business during the pandemic.

Available Information

We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). These filings are available to the public over the internet at the SEC’s website at www.sec.gov.

Our principal internet website can be found at www.nvrinc.com. We make available free of charge on or through our website, access to our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after such material is electronically filed, or furnished, to the SEC.

Our website also includes a corporate governance section which contains our Corporate Governance Guidelines (which includes our Directors’ Independence Standards), Code of Ethics, Board Committee Charters, Policies and Procedures for the Consideration of Board of Director Candidates, and Policies and Procedures Regarding Communications with the NVR, Inc. Board of Directors, the Independent Lead Director and the Non-Management Directors as a Group.

Forward-Looking Statements

Some of the statements in this Form 10-K, as well as statements made by us in periodic press releases or other public communications, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Certain, but not necessarily all, of such forward-looking statements can be identified by the use of forward-looking terminology, such as “believes,” “expects,” “may,” “will,” “should,” or “anticipates” or the negative thereof or other comparable terminology. All statements other than of historical facts are forward looking statements. Forward-looking statements contained in this document include those regarding market trends, NVR’s financial position, business strategy, the outcome of pending litigation, investigations or similar contingencies, projected plans and objectives of management for future operations. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance of NVR to be materially different from future results, performance or achievements expressed or implied by the forward-looking statements. Such risk factors include, but are not limited to the following: the economic impact of COVID-19, general economic and business conditions (on both a national and regional level); interest rate changes; access to suitable financing by NVR and NVR’s customers; increased regulation in the mortgage banking industry; the ability of our mortgage banking subsidiary to sell loans it originates into the secondary market; competition; the availability and cost of land and other raw materials used by NVR in its homebuilding operations; shortages of labor; weather related slow-downs; building moratoriums; governmental regulation; fluctuation and volatility of stock and other financial markets; mortgage financing availability; and other factors over which NVR has little or no control. NVR undertakes no obligation to update such forward-looking statements except as required by law.

Item 1A.    Risk Factors.

Our business is affected by the risks generally incident to the residential construction business, including, but not limited to:

•actual and expected direction of interest rates, which affect the availability of mortgage financing for potential purchasers of homes;

•the availability of adequate land in desirable locations on favorable terms;

•employment levels, consumer confidence and spending and unexpected changes in customer preferences; and

•changes in the national economy and in the local economies of the markets in which we operate.

All of these risks are discussed in detail below.

Business and Industry Risks

An economic downturn or decline in economic conditions could adversely affect our business and our results of operations.

Demand for new homes is sensitive to economic changes driven by conditions such as employment levels, job growth, consumer confidence, inflation and interest rates.  If the housing industry suffers a downturn, our sales may decline which could have a material adverse effect on our profitability, stock performance, ability to service our debt obligations and future cash flows.  

Interest rate movements, inflation and other economic factors can negatively impact our business.

High rates of inflation generally affect the homebuilding industry adversely because of their adverse impact on interest rates. High interest rates not only increase the cost of borrowed funds to homebuilders but also have a significant adverse effect on housing demand and on the affordability of permanent mortgage financing to prospective purchasers. We are also subject to potential volatility in the price of commodities that impact costs of materials used in our homebuilding business. Increases in prevailing interest rates

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could have a material adverse effect on our sales, profitability, stock performance, ability to service our debt obligations and future cash flows.

Our financial results also are affected by the risks generally incident to our mortgage banking business, including interest rate levels, the impact of government regulation on mortgage loan originations and servicing and the need to issue forward commitments to fund and sell mortgage loans. Our homebuilding customers account for almost all of our mortgage banking business. The volume of our continuing homebuilding operations therefore affects our mortgage banking business.

Our mortgage banking business also is affected by interest rate fluctuations. We also may experience marketing losses resulting from daily increases in interest rates to the extent we are unable to match interest rates and amounts on loans we have committed to originate with forward commitments from third parties to purchase such loans. Increases in interest rates may have a material adverse effect on our mortgage banking revenue, profitability, stock performance, ability to service our debt obligations and future cash flows.

Our operations may also be adversely affected by other economic factors within our markets such as negative changes in employment levels, job growth, wage growth, consumer confidence and household formation and availability of mortgage financing, one or all of which could result in reduced demand or price depression from current levels. Such negative trends could have a material adverse effect on homebuilding operations.

These factors and thus, the homebuilding and mortgage banking businesses, have at times in the past been cyclical in nature. Any downturn in the national economy or the local economies of the markets in which we operate could have a material adverse effect on our sales, profitability, stock performance and ability to service our debt obligations. In particular, during 2020, approximately 18% and 7% of our home settlements occurred in the Washington, D.C. and Baltimore, MD metropolitan areas, respectively, which accounted for approximately 24% and 10%, respectively, of our 2020 homebuilding revenues. Thus, we are dependent to a significant extent on the economy and demand for housing in those areas.

Because almost all of our customers require mortgage financing, the availability of suitable mortgage financing could impair the affordability of our homes, lower demand for our products, and limit our ability to fully deliver our backlog.

Our business and earnings depend on the ability of our potential customers to obtain mortgages for the purchase of our homes. In addition, many of our potential customers must sell their existing homes in order to buy a home from us. The tightening of credit standards and the availability of suitable mortgage financing could prevent customers from buying our homes and could prevent buyers of our customers’ homes from obtaining mortgages they need to complete that purchase, either of which could result in potential customers’ inability to buy a home from us. If potential customers or the buyers of our customers’ current homes are not able to obtain suitable financing, the result could have a material adverse effect on our sales, profitability, stock performance, ability to service our debt obligations and future cash flows.

If our ability to sell mortgages to investors is impaired, we may be required to fund these commitments ourselves, or we may not be able to originate loans at all.

Our mortgage banking business sells all of the loans it originates into the secondary market, usually within 30 days from the date of closing, and has up to $150 million available under a repurchase agreement to fund mortgage closings. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” in Item 7 of this Form 10-K for more information about the repurchase agreement. In the event that disruptions to the secondary markets tighten or eliminate the available liquidity within the secondary markets for mortgage loans, or the underwriting requirements by our secondary market investors continue to become more stringent, our ability to sell future mortgages could decline and we could be required, among other things, to fund our commitments to our buyers with our own financial resources, which is limited, or require our home buyers to find another source of financing. The result of such secondary market disruption could have a material adverse effect on our sales, profitability, stock performance, ability to service our debt obligations and future cash flows.

If the market value of our inventory or controlled lot position declines, our profit could decrease and we may incur losses.

Inventory risk can be substantial for homebuilders. The market value of building lots and housing inventories can fluctuate significantly as a result of changing market conditions. In addition, inventory carrying costs can be significant and can result in losses in a poorly performing community or market. We must continuously seek and make acquisitions of lots for expansion into new markets as well as for replacement and expansion within our current markets, which we generally accomplish by entering into LPAs and paying forfeitable deposits under the LPAs to developers for the contractual right to acquire the lots. In the event of adverse changes in economic, market or community conditions, we may cease further building activities in certain communities or restructure existing LPAs, resulting in forfeiture of some or all of any remaining land contract deposit paid to the developer. We may also have significant impairments of land under development. The forfeiture of land contract deposits or inventory impairments may result in a loss that could have a material adverse effect on our profitability, stock performance, ability to service our debt obligations and future cash flows.

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We face competition in our homebuilding and mortgage banking operations.

The homebuilding industry is highly competitive. We compete with numerous homebuilders of varying size, ranging from local to national in scope, some of whom have greater financial resources than we do. We face competition:

•for suitable and desirable lots at acceptable prices;

•from selling incentives offered by competing builders within and across developments; and

•from the existing home resale market.

Our homebuilding operations compete primarily on the basis of price, location, design, quality, service and reputation.

The mortgage banking industry is also competitive. Our main competition comes from national, regional and local mortgage bankers, credit unions, banks and mortgage brokers in each of these markets. Our mortgage banking operations compete primarily on the basis of customer service, variety of products offered, interest rates offered, prices of ancillary services and relative financing availability and costs.

We might not be able to continue to compete successfully in our homebuilding or mortgage banking operations. An inability to effectively compete may have an adverse impact on our sales, profitability, stock performance, ability to service our debt obligations and future cash flows.

Our inability to secure and control an adequate inventory of lots could adversely impact our operations.

The results of our homebuilding operations depend upon our continuing ability to control an adequate number of homebuilding lots in desirable locations. There can be no assurance that an adequate supply of building lots will continue to be available to us on terms similar to those available in the past, or that we will not be required to devote a greater amount of capital to controlling building lots than we have historically. An insufficient supply of building lots in one or more of our markets, an inability of our developers to deliver finished lots in a timely fashion due to their inability to secure financing to fund development activities or for other reasons, or our inability to purchase or finance building lots on reasonable terms could have a material adverse effect on our sales, profitability, stock performance, ability to service our debt obligations and future cash flows.

A shortage of building materials or labor, or increases in materials or labor costs may adversely impact our operations.

The homebuilding business has from time to time experienced building material and labor shortages, including fluctuating lumber prices and supply. In addition, strong construction market conditions could restrict the labor force available to our subcontractors and us in one or more of our markets. Significant increases in costs resulting from these shortages, or delays in construction of homes, could have a material adverse effect on our sales, profitability, stock performance, ability to service our debt obligations and future cash flows.

We rely on subcontractors to construct our homes. The failure of our subcontractors to properly construct our homes may be costly.

We engage subcontractors to perform the actual construction of our homes. Despite our quality control efforts, we may discover that our subcontractors have engaged in improper construction practices. The occurrence of such events could require us to repair the homes in accordance with our standards and as required by law. The cost of satisfying our legal obligations in these instances may be significant, and we may be unable to recover the cost of repair from subcontractors, suppliers and insurers.

Product liability litigation and warranty claims may adversely impact our operations.

Construction defect and home warranty claims are common and can represent a substantial risk for the homebuilding industry. The cost of insuring against construction defect and product liability claims, as well as the claims themselves, can be high. In addition, insurance companies limit coverage offered to protect against these claims. Further restrictions on coverage availability, or significant increases in premium costs or claims, could have a material adverse effect on our financial results.

We are subject to litigation proceedings that could harm our business if an unfavorable ruling were to occur.

From time to time, we are involved in litigation and other legal proceedings relating to claims arising from our operations in the normal course of business. As described in, but not limited to, Item 3, “Legal Proceedings” of this Form 10-K, we are currently subject to certain legal proceedings. Litigation is subject to inherent uncertainties, and unfavorable rulings may occur. These or other litigation or legal proceedings could materially affect our ability to conduct our business in the manner that we expect or otherwise adversely affect us should an unfavorable ruling occur.

If the underwriting quality of our mortgage originations is found to be deficient, our profit could decrease and we may incur losses.

We originate several different loan products to our customers to finance the purchase of their home. We sell all of the loans we originate into the secondary mortgage market generally within 30 days from the date of closing. All of the loans that we originate are underwritten to the standards and specifications of the ultimate investor. Insofar as we underwrite our originated loans to those standards, we bear no increased concentration of credit risk from the issuance of loans, except in certain limited instances where

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repurchases or early payment default occur. In the event that a substantial number of the loans that we have originated fall into default and the investors to whom we sold the loans determine that we did not underwrite the loans in accordance with their requirements, we could be required to repurchase the loans from the investor or indemnify the investor for any losses incurred. Any resulting losses could have a material adverse effect on our profitability, stock performance, ability to service our debt obligations and future cash flows.

We may be subject to claims on mortgage loans sold to third parties.

Our mortgage banking operations may be responsible for losses associated with mortgage loans originated and sold to investors in the event of errors or omissions relating to certain representations and warranties that the loans sold meet certain requirements, including representations as to underwriting standards, the type of collateral, the existence of private mortgage insurance, and the validity of certain borrower representations in connection with the loan. The resolution of claims related to alleged breaches of these representations and warranties and repurchase claims could have a material adverse effect on our financial condition, cash flows and results of operations and could result in losses that exceed existing estimates and accruals. Because of the uncertainties inherent in estimating these matters, there can be no assurance that any amounts reserved will be adequate or that any potential inadequacies will not have a material adverse effect on our results of operations.

The loss of key personnel could adversely impact our business.

We rely on our key personnel to effectively operate and manage our business. Specifically, our future success depends heavily on the performance of our senior management team. Our business may be adversely affected if we are unable to retain key personnel or attract qualified personnel to manage our business.

Our failure to maintain the security of our electronic and other confidential information could expose us to liability and materially adversely affect our financial condition and results of operations.

Privacy, security, and compliance concerns have continued to increase as technology has evolved. As part of our normal business activities, we collect and store certain confidential information, including personal information of homebuyers/borrowers and information about employees, vendors and suppliers. This information is entitled to protection under a number of federal and state laws. We may share some of this information with vendors who assist us with certain aspects of our business, particularly our mortgage and title businesses. We have implemented systems and processes intended to secure our information technology systems and prevent unauthorized access to or loss of sensitive, confidential and personal data, including through the use of encryption and authentication technologies. Additionally, we have continued to elevate our monitoring capabilities to enhance early detection and rapid response to potential security anomalies. We also require employees to complete training sessions regarding matters such as cybersecurity threats and data protection on a regular basis. These security measures may not be sufficient for all possible occurrences and may be vulnerable to hacking, employee error, malfeasance, system error, faulty password management or other irregularities. Further, development and maintenance of these measures are costly and require ongoing monitoring and updating as technologies change and efforts to overcome security measures become increasingly sophisticated. Our failure to maintain the security of the data we are required to protect, including via the penetration of our network security and the misappropriation of confidential and personal information, could result in business disruption, damage to our reputation, financial obligations to third parties, fines, penalties, regulatory proceedings and private litigation with potentially large costs, and also in deterioration in customers’ confidence in us and other competitive disadvantages, and thus could have a material adverse effect on our sales, profitability, stock performance, ability to service our debt obligations and future cash flows.

Volatility in the credit and capital markets may impact our ability to access necessary financing.

If we require working capital greater than that provided by our operations and our credit facility, we may be required to seek to increase the amount available under the facility or seek alternative financing, which might not be available on terms that are favorable or acceptable. If we are required to seek financing to fund our working capital requirements, volatility in credit or capital markets may restrict our flexibility to access financing. If we are at any time unsuccessful in obtaining sufficient capital to fund our planned homebuilding expenditures, we may experience a substantial delay in the completion of homes then under construction, or we may be unable to control or purchase finished building lots. Any delay could result in cost increases and could have a material adverse effect on our sales, profitability, stock performance, ability to service our debt obligations and future cash flows.

Our mortgage banking operations depend in part on the availability, cost and other terms of mortgage financing facilities, and may be adversely affected by any shortage or increased cost of such financing. Additional or replacement financing might not be available on terms that are favorable or acceptable. Our mortgage banking operations are also dependent upon the securitization market for mortgage-backed securities, and could be materially adversely affected by any fluctuation or downturn in such market.

Our current indebtedness may impact our future operations.

As of December 31, 2020 we had $1.5 billion in senior notes outstanding. Our existing indebtedness contains restrictive covenants and any future indebtedness may also contain such covenants. These covenants include, or could include, restrictions on our ability to create, incur, assume or guarantee secured debt, enter into sale and leaseback transactions and conditions related to mergers and/or the sale of assets. Substantial losses by us or other action or inaction by us or our subsidiaries could result in the violation of

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one or more of these covenants, which could result in decreased liquidity or a default on our current or future indebtedness, thereby having a material adverse effect on our sales, profitability, stock performance, ability to service our debt obligations and future cash flows.

Regulatory Risk

Government regulations and environmental matters could negatively affect our operations.

We are subject to various local, state and federal statutes, ordinances, rules and regulations concerning zoning, building design, construction and similar matters, including local regulations that impose restrictive zoning and density requirements in order to limit the number of homes that can eventually be built within the boundaries of a particular area. These regulations may further increase the cost to produce and market our products. In addition, we have from time to time been subject to, and may also be subject in the future to, periodic delays in our homebuilding projects due to building moratoriums in the areas in which we operate or delays in receiving the necessary governmental approvals. Changes in regulations that restrict homebuilding activities in one or more of our principal markets could have a material adverse effect on our sales, profitability, stock performance, ability to service our debt obligations and future cash flows.

In addition, new housing developments are often subject to various assessments or impact fees for schools, parks, streets, highways and other public improvements. The cost of these assessments is subject to substantial change and could cause increases in the construction cost of our homes, which, in turn, could reduce our profitability.

We are also subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning the protection of health and the environment. We are subject to a variety of environmental conditions that can affect our business and our homebuilding projects. The particular environmental laws that apply to any given homebuilding site vary greatly according to the location and environmental condition of the site and the present and former uses of the site and adjoining properties. Environmental laws and conditions may result in delays, cause us to incur substantial compliance and other costs, or prohibit or severely restrict homebuilding activity in certain environmentally sensitive regions or areas, thereby adversely affecting our sales, profitability, stock performance, ability to service our debt obligations and future cash flows.

Increased regulation of the mortgage industry could harm our future sales and earnings.

The mortgage industry remains under intense scrutiny and continues to face increasing regulation at the federal, state and local level. Potential changes to federal laws and regulations could have the effect of limiting the activities of FNMA and FHLMC, the entities that provide liquidity to the secondary mortgage market, which could lead to increases in mortgage interest rates. Tighter underwriting requirements and fee restrictions and the increasingly complex regulatory environment may negatively impact our mortgage loan origination business in the form of lower demand, decreased revenue and increased operating costs.

We are an approved seller/servicer of FNMA and FHLMC mortgage loans and an approved seller/issuer of GNMA, VA and FHA mortgage loans, and are subject to all of those agencies’ rules and regulations. Any significant impairment of our eligibility to sell/service these loans could have a material adverse impact on our mortgage operations. In addition, we are subject to regulation at the state and federal level with respect to specific origination, selling and servicing practices including the Real Estate Settlement and Protection Act. Adverse changes in governmental regulation may have a negative impact on our mortgage loan origination business.

Risks Related to the COVID-19 Pandemic and Other External Risks

Health epidemics, including the recent COVID-19 pandemic, have had, and could in the future have, an adverse impact on our business and operations, and the markets, states and local communities in which we operate.

Our business and operations could be adversely affected by health epidemics, including the recent COVID-19 pandemic, impacting the markets, states and local communities in which we operate. The COVID-19 pandemic has been declared a national emergency. Efforts to contain the virus have led to significant disruptions to commerce, increased unemployment, lower consumer confidence and consumer demand for goods and services. General uncertainty persists regarding the near-term and long-term impact of the COVID-19 virus on the domestic and international economy and on public health. These developments and other consequences of the outbreak could materially and adversely affect our operations, profitability and cash flows.

The duration, severity, and scope of the COVID-19 outbreak is highly uncertain. The COVID-19 pandemic has adversely impacted and may continue to adversely impact our business. To date, our primary focus as we face this challenge has been to do everything we can to ensure the safety and well-being of our employees, customers and trade partners.

State and local governments in every market in which we operate have instituted social distancing and other restrictions, which have resulted in significant changes to the way we conduct our homebuilding and mortgage banking businesses. We are operating in accordance with the guidelines issued by the Centers for Disease Control and Prevention, as well as state and local guidelines, in all of our markets.

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The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. There is uncertainty regarding governmental actions that may occur, and the effects of economic relief efforts on the U.S. economy, either of which could be potential disruptors to our business. Over the long term, these disruptions related to COVID-19 could lower demand for our products, impair our ability to sell and/or build homes in our normal manner, increase our losses on contract land deposits, and negatively impact our lending and secondary mortgage market activities.

The full extent to which the COVID-19 pandemic will affect our operations cannot be predicted at this time, including, but not limited to, the duration and severity of the outbreak, governmental reactions and policies, the impact of such on our employees, customers and trade partners, and the length of time required for normal economic and operating conditions to resume. There is no assurance that we will not face shutdowns similar to those we experienced in Pennsylvania and New York in April and May of 2020, in those or other markets in which we operate in future periods. While the spread of COVID-19 may eventually be mitigated, there is no guarantee that a future outbreak of this or any other widespread epidemics will not occur, or that the U.S. economy will recover, either of which could seriously harm our business.

Weather-related and other events beyond our control may adversely impact our operations.

Extreme weather or other events, such as significant snowfalls, hurricanes, tornadoes, earthquakes, forest fires, floods, terrorist attacks or war may affect our markets, our operations and our profitability. These events may impact our physical facilities or those of our suppliers or subcontractors and our housing inventories, causing us material increases in costs, or delays in construction of homes, which could have a material adverse effect upon our sales, profitability, stock performance, ability to service our debt obligations and future cash flows.

Our continued success is dependent on positive perceptions of us and our brands which, if eroded, could adversely affect our business and our relationships with our customers.

We believe that one of the reasons our customers buy from us, our employees choose NVR as a place of employment, and our vendors choose to do business with us is the reputation we have built over many years. To be successful in the future, we must continue to preserve our reputation. Reputational value is based in large part on perceptions, and broad access to social media makes it easy for anyone to provide public feedback that can influence perceptions of the brands under which we do business. It may be difficult to control negative publicity, regardless of whether it is accurate. While reputations may take decades to build, negative incidents can quickly erode trust and confidence, could damage our reputation, reduce the demand for our homes or negatively impact the morale and performance of our employees, all of which could adversely affect our business.

Item 1B.    Unresolved Staff Comments.

None.

Item 2.    Properties.

Our corporate offices are located in Reston, Virginia, where we currently lease approximately 61,000 square feet of office space. The current corporate office lease expires in April 2026.

In connection with the operation of the homebuilding segment, we lease production facilities in the following seven locations: Thurmont, Maryland; Burlington County, New Jersey; Farmington, New York; Kings Mountain, North Carolina; Darlington, Pennsylvania; Portland, Tennessee; and Richmond, Virginia. These facilities range in size from approximately 40,000 square feet to 400,000 square feet and total approximately one million square feet. Each of these leases contains various options for extensions of the lease and for the purchase of the facility. Additionally, certain facility leases have early termination options. These leases currently expire between 2022 and 2039. In addition, we own a production facility of approximately 100,000 square feet in Dayton, Ohio. Our plant utilization was 56% and 49% of total capacity in 2020 and 2019, respectively.

In connection with both our homebuilding and mortgage banking businesses, we also lease office space in multiple locations for homebuilding divisional offices and mortgage banking and title services branches under leases expiring at various times through 2027, none of which are individually material to our business.

We anticipate that, upon expiration of existing production facility and office leases, we will be able to renew them or obtain comparable facilities on terms acceptable to us.

Item 3.    Legal Proceedings.

We are involved in various litigation matters arising in the ordinary course of business. In the opinion of management, and based on advice of legal counsel, these matters are not expected to have a material adverse effect on our financial position, results of operations or cash flows. Legal costs incurred in connection with outstanding litigation matters are expensed as incurred.

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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.

    (dollars in thousands, except per share data)

Our shares of common stock are listed and principally traded on the New York Stock Exchange under the trading symbol “NVR.” As of the close of business on February 8, 2021, there were 186 shareholders of record of our common stock.

We have never paid a cash dividend on our shares of common stock and have no current intention to do so in the future.

We had three share repurchase authorizations outstanding during the quarter ended December 31, 2020. On November 6, 2019, February 12, 2020 and December 14, 2020 we publicly announced the Board of Directors’ approval to repurchase our outstanding common stock in one or more open market and/or privately negotiated transactions, up to an aggregate of $300,000 per authorization. The repurchase authorizations do not have expiration dates. The following table provides information regarding common stock repurchases during the quarter ended December 31, 2020:

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
October 1 - 31, 2020	—	$	—	—	$	400,559
November 1 - 30, 2020	1,210	$	3,998.84	1,210	$	395,721
December 1 - 31, 2020 (1)	37,525	$	3,988.23	37,525	$	546,062
Total	38,735	$	3,988.56	38,735

(1) 24,011 outstanding shares were repurchased under the November 6, 2019 share repurchase authorization, which fully utilized the authorization. The remaining 13,514 outstanding shares were repurchased under the February 12, 2020 share repurchase authorization.

The information required by this item in respect to securities authorized for issuance under equity compensation plans is provided under Item 12 of this annual report on Form 10-K.

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STOCK PERFORMANCE GRAPH

The following graph compares the cumulative total return to holders of our common stock since December 31, 2015 with the Dow Jones US Home Construction Index and the S&P 500 Index for that same period, assuming that $100 was invested in NVR stock and the indices on December 31, 2015.

	For the Year Ended December 31,
Comparison of 5 Year Cumulative Total Return	2015		2016		2017		2018		2019		2020
NVR, Inc.	$	100	$	102	$	214	$	148	$	232	$	248
S&P 500	$	100	$	112	$	136	$	130	$	171	$	203
Dow Jones US Home Construction	$	100	$	93	$	165	$	113	$	166	$	206

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Item 6.    Selected Financial Data.

    (in thousands, except per share amounts)

The following tables set forth selected consolidated financial data. The selected income statement and balance sheet data have been derived from our consolidated financial statements for each of the periods presented and are not necessarily indicative of results of future operations. The selected financial data should be read in conjunction with, and are qualified in their entirety by, the accompanying consolidated financial statements and related notes included herein.

	Year Ended December 31,
	2020		2019		2018		2017		2016
Consolidated income statement data:
Homebuilding data:
Revenues	$	7,328,889	$	7,220,844	$	7,004,304	$	6,175,521	$	5,709,223
Gross profit	$	1,391,488	$	1,370,982	$	1,312,177	$	1,185,143	$	1,001,362
Homebuilding income	$	937,960	$	923,879	$	871,106	$	776,370	$	601,102
Mortgage Banking data:
Mortgage banking fees	$	208,034	$	167,820	$	159,370	$	130,319	$	113,321
Mortgage banking income	$	140,073	$	101,916	$	88,626	$	70,541	$	60,595
Consolidated data:
Net income	$	901,248	$	878,539	$	797,197	$	537,521	$	425,262
Earnings per share:
Basic	$	244.11	$	241.31	$	219.58	$	144.00	$	110.53
Diluted	$	230.11	$	221.13	$	194.80	$	126.77	$	103.61
Weighted average number of shares outstanding:
Basic	3,692		3,641		3,631		3,733		3,847
Diluted	3,917		3,973		4,092		4,240		4,104
	December 31,
	2020		2019		2018		2017		2016
Consolidated balance sheet data:
Homebuilding inventory	$	1,709,082	$	1,347,288	$	1,253,110	$	1,246,199	$	1,092,100
Contract land deposits, net	$	387,628	$	413,851	$	396,177	$	370,429	$	379,844
Total assets	$	5,777,141	$	3,809,815	$	3,165,933	$	2,989,279	$	2,643,943
Senior notes	$	1,517,395	$	598,301	$	597,681	$	597,066	$	596,455
Shareholders’ equity	$	3,103,074	$	2,341,244	$	1,808,562	$	1,605,492	$	1,304,441
Cash dividends per share	$	—	$	—	$	—	$	—	$	—

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Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.

    (dollars in thousands, except per share data)

Results of Operations

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 our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Overview

Business Environment and the Impact of COVID-19

The pandemic, caused by the novel strain of coronavirus ("COVID-19"), has had a significant impact on all facets of our business. Our primary focus as we face this challenge is to do everything we can to ensure the safety and well-being of our employees, customers and trade partners. Residential construction has been deemed an essential business in each of our markets since the beginning of the pandemic, except Pennsylvania and New York, where we faced closures into May 2020. In each of our markets, we continue to operate in accordance with the guidelines issued by the Centers for Disease Control and Prevention as well as state and local guidelines, which has resulted in significant changes to the way we conduct business.

We experienced elevated sales cancellations and decreased new orders during March and April; however, the demand for new homes began to strengthen in May and remained strong through December. Despite high unemployment rates attributable to the COVID-19 pandemic, demand has increased primarily as a result of historically low mortgage interest rates coupled with low resale inventory levels.

From March through May, there were significant disruptions in the mortgage market as investors tightened their credit standards or exited the market, which resulted in significantly lower values for mortgage servicing rights and fewer customers able to qualify for a mortgage. During the second half of 2020, the mortgage market stabilized as mortgage demand increased.

Although current demand for new homes is strong, there is uncertainty regarding the extent and timing of disruption to our business that may result from COVID-19 and related governmental actions. There is also uncertainty as to the effects of the pandemic and related economic relief efforts on the U.S. economy, unemployment, consumer confidence, demand for our homes and the mortgage market, including lending standards and secondary mortgage markets. We are unable to predict the extent to which this will impact our operational and financial performance, including the impact of future developments such as the duration and spread of COVID-19, corresponding governmental actions, and the impact of such on our employees, customers and trade partners.

We expect to continue to face gross profit margin pressure which will be impacted by our ability to manage land and construction costs as well as balancing sales pace and pricing. We also expect to face pressure on mortgage banking profit due to the competitive pricing pressures in the mortgage market. We believe that we are well positioned to take advantage of opportunities that may arise from future economic and homebuilding market volatility due to the strength of our balance sheet.

Business

Our primary business is the construction and sale of single-family detached homes, townhomes and condominium buildings, all of which are primarily constructed on a pre-sold basis. To fully serve customers of our homebuilding operations, we also operate a mortgage banking and title services business. We primarily conduct our operations in mature markets. Additionally, we generally grow our business through market share gains in our existing markets and by expanding into markets contiguous to our current active markets. Our four homebuilding reportable segments consist of the following regions: 

Mid Atlantic:	Maryland, Virginia, West Virginia, Delaware and Washington, D.C.
North East:	New Jersey and Eastern Pennsylvania
Mid East:	New York, Ohio, Western Pennsylvania, Indiana and Illinois
South East:	North Carolina, South Carolina, Florida and Tennessee

Our lot acquisition strategy is predicated upon avoiding the financial risks associated with direct land ownership and development. We generally do not engage in land development (see discussion below of our land development activities). Instead, we typically acquire finished lots from various third party land developers pursuant to LPAs. These LPAs require deposits, typically ranging up to 10% of the aggregate purchase price of the finished lots, in the form of cash or letters of credit that may be forfeited if we fail to perform under the LPA. This strategy has allowed us to maximize inventory turnover, which we believe enables us to minimize market risk and to operate with less capital, thereby enhancing rates of return on equity and total capital.

In addition to constructing homes primarily on a pre-sold basis and utilizing what we believe is a conservative lot acquisition strategy, we focus on obtaining and maintaining a leading market position in each market we serve. This strategy allows us to gain valuable efficiencies and competitive advantages in our markets, which we believe contributes to minimizing the adverse effects of

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regional economic cycles and provides growth opportunities within these markets. Our continued success is contingent upon our ability to control an adequate supply of finished lots on which to build.

In limited specific strategic circumstances, we deviate from our historical lot acquisition strategy and engage in joint venture arrangements with land developers or directly acquire raw ground already zoned for its intended use for development. Once we acquire control of raw ground, we determine whether to sell the raw parcel to a developer and enter into an LPA with the developer to purchase the finished lots or to hire a developer to develop the land on our behalf. While joint venture arrangements and direct land development activity are not our preferred method of acquiring finished building lots, we may enter into additional transactions in the future on a limited basis where there exists a compelling strategic or prudent financial reason to do so. We expect, however, to continue to acquire substantially all of our finished lot inventory using LPAs with forfeitable deposits.

As of December 31, 2020, we controlled lots as described below.

Lot Purchase Agreements ("LPAs")

We controlled approximately 103,000 lots under LPAs with third parties through deposits in cash and letters of credit totaling approximately $438,500 and $8,100, respectively. Included in the number of controlled lots are approximately 7,700 lots for which we have recorded a contract land deposit impairment reserve of approximately $52,200 as of December 31, 2020.

Joint Venture Limited Liability Corporations (“JVs”)

We had an aggregate investment totaling approximately $23,600 in four JVs, expected to produce approximately 5,200 lots. Of the lots to be produced by the JVs, approximately 2,200 lots were controlled by us and approximately 3,000 lots were either under contract with unrelated parties or currently not under contract.

Land Under Development

We directly owned three separate raw land parcels, zoned for their intended use, with a current cost basis, including development costs, of approximately $62,800 that we intend to develop into approximately 500 finished lots. We had additional funding commitments of approximately $5,100 under a joint development agreement related to one parcel, a portion of which we expect will be offset by development credits of approximately $2,600.

See Notes 3, 4 and 5 to the consolidated financial statements included herein for additional information regarding LPAs, JVs and land under development, respectively.

Raw Land Purchase Agreements

In addition to the lots we currently control as discussed above, we have certain properties under contract with land owners that are expected to yield approximately 6,100 lots. Some of these properties may require rezoning or other approvals to achieve the expected yield. These properties are controlled with cash deposits and letters of credit totaling approximately $1,300 and $100, respectively, as of December 31, 2020, of which approximately $1,000 is refundable if we do not perform under the contract. We generally expect to assign the raw land contracts to a land developer and simultaneously enter into an LPA with the assignee if the project is determined to be feasible.

Key Financial Results

Our consolidated revenues for the year ended December 31, 2020 totaled $7,536,923, an increase of 2% from $7,388,664 in 2019. Our net income for 2020 was $901,248, or $230.11 per diluted share, increases of 3% and 4% compared to 2019 net income and diluted earnings per share, respectively. Our homebuilding gross profit margin percentage was 19.0% in both 2020 and 2019. New orders, net of cancellations (“New Orders”) during 2020 were 23,082, an increase of 18% from 2019 while our average New Order sales price increased 3% to $380.1 in 2020. Our backlog of homes sold but not yet settled with the customer as of December 31, 2020 increased on a unit basis by 40% to 11,549 units and increased on a dollar basis by 46% to $4,575,899 when compared to December 31, 2019. Income before tax from our mortgage banking segment totaled $140,073 in 2020, an increase of 37% when compared to $101,916 in 2019 due primarily to an increase in secondary marketing gains on sales of loans.

Homebuilding Operations

The following table summarizes the results of our consolidated homebuilding operations and certain operating activity for each of the last three years:

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	Year Ended December 31,
	2020			2019			2018
Financial data:
Revenues	$	7,328,889		$	7,220,844		$	7,004,304
Cost of sales	$	5,937,401		$	5,849,862		$	5,692,127
Gross profit margin percentage	19.0		%	19.0		%	18.7		%
Selling, general and administrative expenses	$	431,008		$	447,547		$	428,874
Operating data:
New orders (units)	23,082			19,536			18,281
Average new order price	$	380.1		$	368.4		$	376.3
Settlements (units)	19,766			19,668			18,447
Average settlement price	$	370.8		$	367.1		$	379.7
Backlog (units)	11,549			8,233			8,365
Average backlog price	$	396.2		$	380.2		$	376.9
New order cancellation rate	14.9		%	14.6		%	14.5		%

Consolidated Homebuilding

Homebuilding revenues increased 2% in 2020 compared to 2019, as a result of a 1% increase in the average settlement price coupled with a slight increase in the number of units settled year over year. Settlements in 2020 were negatively impacted by the COVID-19 pandemic primarily during the first and second quarters of 2020. Gross profit margin percentage in 2020 remained flat year over year at 19.0%.  

The number of New Orders and the average sales price of New Orders increased 18% and 3%, respectively, in 2020 when compared to 2019.  The increase in New Orders was favorably impacted by increased demand in the second half of 2020 due to favorable market conditions driven by historically low mortgage interest rates coupled with low resale home inventory levels. New Orders were higher in each of our reportable segments in both the third and fourth quarters of 2020 compared to the same periods of 2019, due to these favorable market conditions. The increase in the average sales price of New Orders was primarily attributable to improved pricing power in each of our markets.   

Selling, general and administrative ("SG&A") expenses in 2020 decreased by 4% compared to 2019, and as a percentage of revenue decreased to 5.9% in 2020 from 6.2% in 2019. SG&A expenses were lower primarily due to an approximate $26,800 decrease in equity-based compensation expense due primarily to the stock options granted in 2014 under the 2014 Equity Incentive Plan becoming fully vested in 2019, offset partially by an increase in personnel costs attributable to an increase of approximately $11,200 in management incentive expense based on an increase in eligible employees and improved results.

Our backlog represents homes sold but not yet settled with our customers. Backlog units and dollars were 11,549 units and $4,575,899, respectively, as of December 31, 2020 compared to 8,233 units and $3,130,282, respectively, as of December 31, 2019.  The increases in backlog units and dollars is attributable to the increases in New Orders and the average sales price of New Orders as discussed above, coupled with a lower backlog turnover rate year over year.

In addition to the impact of the COVID-19 pandemic, our backlog may be impacted by customer cancellations for various reasons that are beyond our control, such as failure to obtain mortgage financing, inability to sell an existing home, job loss, or a variety of other reasons.  In any period, a portion of the cancellations that we experience are related to New Orders that occurred during the same period, and a portion are related to New Orders that occurred in prior periods and therefore appeared in the beginning backlog for the current period.  Additionally, a substantial majority of our cancellations occur prior to starting construction on a home. Expressed as the total of all cancellations during the period as a percentage of gross New Orders during the period, our cancellation rate was 14.9%, 14.6% and 14.5% in 2020, 2019, and 2018, respectively. Additionally, approximately 6% in both 2020 and 2019 and 5% in 2018, of a reporting quarter’s opening backlog cancelled during the quarter. We can provide no assurance that our historical cancellation rates are indicative of the actual cancellation rate that may occur in future years. Other than those units that are cancelled, and subject to potential construction delays resulting from COVID-19 related restrictions, we expect to settle substantially all of our December 31, 2020 backlog during 2021. See “Risk Factors” in Item 1A of this Form 10-K.

The backlog turnover rate is impacted by various factors, including, but not limited to, changes in New Order activity, internal production capacity, external subcontractor capacity and other external factors over which we do not exercise control, such as the impact of government orders to cease or limit construction activities as a result of COVID-19.

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Reportable Homebuilding Segments

Homebuilding segment profit includes all revenues and income generated from the sale of homes, less the cost of homes sold, SG&A expenses, and a corporate capital allocation charge determined by corporate management. The corporate capital allocation charge eliminates in consolidation and is based on the segment’s average net assets employed. The corporate capital allocation charged to the operating segment allows the Chief Operating Decision Maker to determine whether the operating segment is providing the desired rate of return after covering our cost of capital.

We record impairment charges on contract land deposits when we determine that it is probable that recovery of the deposit is impaired. For segment reporting purposes, impairments on contract land deposits are generally charged to the operating segment upon the termination of an LPA with the developer, or the restructuring of an LPA resulting in the forfeiture of the deposit. We evaluate our entire net contract land deposit portfolio for impairment each quarter. For presentation purposes below, the contract land deposit reserve at December 31, 2020 and 2019 has been allocated to the reportable segments for the respective years to show contract land deposits on a net basis. The net contract land deposit balances below also include approximately $8,100 and $5,500 at December 31, 2020 and 2019, respectively, of letters of credit issued as deposits in lieu of cash.

The following tables summarize certain homebuilding operating activity by reportable segment for each of the last three years:

Selected Segment Financial Data:

	Year Ended December 31,
	2020		2019		2018
Revenues:
Mid Atlantic	$	3,668,542	$	3,901,573	$	3,893,358
North East	538,772		514,804		580,726
Mid East	1,524,667		1,501,139		1,455,834
South East	1,596,908		1,303,328		1,074,386

	Year Ended December 31,
	2020		2019		2018
Gross profit margin:
Mid Atlantic	$	690,058	$	734,017	$	726,655
North East	102,621		100,520		115,169
Mid East	282,443		285,091		279,050
South East	327,483		260,804		211,870

	Year Ended December 31,
	2020		2019		2018
Gross profit margin percentage:
Mid Atlantic	18.8	%	18.8	%	18.7	%
North East	19.0	%	19.5	%	19.8	%
Mid East	18.5	%	19.0	%	19.2	%
South East	20.5	%	20.0	%	19.7	%

	Year Ended December 31,
	2020		2019		2018
Segment profit:
Mid Atlantic	$	437,849	$	478,537	$	462,178
North East	50,677		51,728		69,789
Mid East	168,605		173,374		175,134
South East	205,029		155,144		118,296

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Segment Operating Activity:

	Year Ended December 31,
	2020			2019			2018
	Units	Average Price		Units	Average Price		Units	Average Price
New orders, net of cancellations:
Mid Atlantic	9,230	$	453.8	8,799	$	424.4	8,906	$	429.4
North East	1,738	$	416.6	1,349	$	390.8	1,296	$	400.4
Mid East	5,780	$	330.9	4,628	$	323.2	4,314	$	328.0
South East	6,334	$	307.7	4,760	$	302.6	3,765	$	297.7
Total	23,082	$	380.1	19,536	$	368.4	18,281	$	376.3

	Year Ended December 31,
	2020			2019			2018
	Units	Average Price		Units	Average Price		Units	Average Price
Settlements:
Mid Atlantic	8,363	$	438.6	9,335	$	417.9	8,982	$	433.4
North East	1,375	$	391.8	1,325	$	388.5	1,415	$	410.4
Mid East	4,719	$	323.1	4,621	$	324.8	4,406	$	330.4
South East	5,309	$	300.8	4,387	$	297.1	3,644	$	294.8
Total	19,766	$	370.8	19,668	$	367.1	18,447	$	379.7

	Year Ended December 31,
	2020			2019			2018
	Units	Average Price		Units	Average Price		Units	Average Price
Backlog:
Mid Atlantic	4,479	$	470.9	3,612	$	440.1	4,148	$	423.4
North East	950	$	447.8	587	$	408.8	563	$	404.1
Mid East	2,874	$	344.5	1,813	$	332.0	1,806	$	336.2
South East	3,246	$	323.7	2,221	$	314.6	1,848	$	304.1
Total	11,549	$	396.2	8,233	$	380.2	8,365	$	376.9

 Operating Data:

	Year Ended December 31,
	2020		2019		2018
New order cancellation rate:
Mid Atlantic	14.9	%	15.0	%	15.2	%
North East	13.1	%	13.0	%	12.5	%
Mid East	14.5	%	14.1	%	12.9	%
South East	15.8	%	14.9	%	15.5	%

	Year Ended December 31,
	2020	2019	2018
Average active communities:
Mid Atlantic	177	206	234
North East	40	33	36
Mid East	138	134	119
South East	112	97	88
Total	467	470	477

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Homebuilding Inventory:

	As of December 31,
	2020		2019
Sold inventory:
Mid Atlantic	$	704,595	$	575,216
North East	140,461		77,965
Mid East	278,510		190,700
South East	336,902		230,640
Total (1)	$	1,460,468	$	1,074,521

	As of December 31,
	2020		2019
Unsold lots and housing units inventory:
Mid Atlantic	$	76,690	$	104,459
North East	7,941		28,331
Mid East	13,252		15,333
South East	23,220		35,420
Total (1)	$	121,103	$	183,543

(1)Total segment inventory differs from consolidated inventory due to certain consolidation adjustments necessary to convert the reportable segments’ results, which are predominantly maintained on a cash basis, to a full accrual basis for external financial statement presentation purposes. These consolidation adjustments are not allocated to our operating segments.

Lots Controlled and Land Deposits:

	As of December 31,
	2020	2019
Total lots controlled:
Mid Atlantic	42,100	42,400
North East	10,500	9,900
Mid East	22,000	24,200
South East	31,100	28,400
Total	105,700	104,900

	As of December 31,
	2020		2019
Contract land deposits, net:
Mid Atlantic	$	212,742	$	205,433
North East	32,949		50,348
Mid East	49,222		57,053
South East	100,864		106,523
Total	$	395,777	$	419,357

	Year Ended December 31,
	2020		2019		2018
Contract land deposit impairments (recoveries), net:
Mid Atlantic	$	114	$	(141)	$	2,743
North East	60		1,050		1,033
Mid East	293		175		211
South East	1,045		21		1,911
Total	$	1,512	$	1,105	$	5,898

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Mid Atlantic

The Mid Atlantic segment had an approximate $40,700, or 9%, decrease in segment profit in 2020 compared to 2019, driven by a decrease in segment revenues of approximately $233,000, or 6%, year over year. Segment revenues decreased due to a 10% decrease in the number of units settled, offset partially by a 5% increase in the average settlement price year over year. The decrease in the number of units settled was impacted by a 13% lower backlog unit balance entering 2020 compared to the backlog unit balance entering 2019, coupled with a lower backlog turnover rate year over year. The increase in the average settlement price was primarily attributable to a 4% higher average sales price of units in backlog entering 2020 compared to backlog entering 2019. The Mid Atlantic segment’s gross profit margin percentage remained flat at 18.8% in both 2020 and 2019.

Segment New Orders and the average sales price of New Orders increased 5% and 7%, respectively, in 2020 compared to 2019. New Orders increased despite a 14% decrease in the average number of active communities year over year, due to higher absorption rates attributable to favorable market conditions in the second half of 2020, driven primarily by historically low mortgage interest rates and low resale inventory levels. The increase in the average sales price of New Orders was primarily attributable to improved pricing power in the segment.  

North East

The North East segment had an approximate $1,100, or 2%, decrease in segment profit in 2020 compared to 2019, despite an increase in segment revenues of approximately $24,000, or 5%, year over year. The increase in segment revenues was attributable to a 4% increase in the number of units settled and a 1% increase in the average settlement price year over year. The increase in the number of units settled was attributable to a 4% higher backlog unit balance entering 2020 compared to the backlog unit balance entering 2019, coupled with a 27% increase in New Orders in the first nine months of 2020 compared to the same period in 2019. The segment’s gross profit margin percentage decreased to 19.0% in 2020 from 19.5% in 2019 due primarily to increases in lumber and certain other commodity prices year over year.

Segment New Orders and the average sales price of New Orders increased 29% and 7%, respectively, in 2020 compared to 2019. New Orders increased due to a 19% increase in the average number of active communities year over year and favorable market conditions in the second half of 2020, driven primarily by historically low mortgage interest rates and low resale inventory levels. The average sales price of New Orders was favorably impacted by the previously mentioned favorable market conditions which provided us some pricing power, as well as to a relative market shift in New Orders to higher priced communities within certain markets in the segment.

Mid East

The Mid East segment had an approximate $4,800, or 3%, decrease in segment profit in 2020 compared to 2019, despite an increase in segment revenues of approximately $23,500, or 2%, year over year. Segment revenues increased primarily due to a 2% increase in the number of units settled year over year. The increase in units settled was largely attributable to a 24% increase in settlements in the fourth quarter of 2020 compared to the same period in 2019 as settlements in the first half of 2020 were delayed in our Western Pennsylvania and New York markets due to the state and local governments in those markets issuing various orders that prohibited residential construction from the end of March through April 2020 as a result of the COVID-19 pandemic. The segment’s gross profit margin percentage decreased to 18.5% in 2020 from 19.0% in 2019 due to increases in lumber and certain other commodity prices year over year.

Segment New Orders and the average sales price of New Orders increased 25% and 2%, respectively, in 2020 compared to 2019. New Orders increased primarily due to higher absorption rates attributable to favorable market conditions driven primarily by historically low mortgage interest rates and low resale inventory levels.

South East

The South East segment had an approximate $49,900, or 32%, increase in segment profit in 2020 compared to 2019. The increase in segment profit was primarily driven by an increase in segment revenues of approximately $293,600, or 23%, coupled with improved gross profit margins year over year. The increase in revenues was attributable to a 21% increase in the number of units settled and a 1% increase in the average settlement price year over year. The number of units settled were favorably impacted by a 20% higher backlog unit balance entering 2020 compared to the same period in 2019, coupled with a 21% increase in New Orders in the first six months of 2020 compared to the same period in 2019. The segment’s gross profit margin percentage increased to 20.5% in 2020 from 20.0% in 2019 due to a relative shift in settlements to higher margin communities.

Segment New Orders and the average sales price of New Orders increased 33% and 2%, respectively, in 2020 compared to 2019. New Orders increased due to to a 15% increase in the average number of active communities year over year, coupled with higher absorption rates attributable to favorable market conditions in the second half of 2020, driven primarily by historically low mortgage interest rates and low resale inventory levels.

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Homebuilding Segment Reconciliations to Consolidated Homebuilding Operations

In addition to the corporate capital allocation and contract land deposit impairments discussed above, the other reconciling items between homebuilding segment profit and homebuilding consolidated profit before tax include unallocated corporate overhead (which includes all management incentive compensation), equity-based compensation expense, consolidation adjustments and external corporate interest expense. Our overhead functions, such as accounting, treasury and human resources, are centrally performed and the costs are not allocated to our operating segments. Consolidation adjustments consist of such items to convert the reportable segments’ results, which are predominantly maintained on a cash basis, to a full accrual basis for external financial statement presentation purposes, and are not allocated to our operating segments. External corporate interest expense is primarily comprised of interest charges on our 3.95% Senior Notes due 2022 and 3.00% Senior Notes due 2030, and is not charged to the operating segments because the charges are included in the corporate capital allocation discussed above.  

	Year Ended December 31,
	2020		2019		2018
Homebuilding consolidated gross profit:
Mid Atlantic	$	690,058	$	734,017	$	726,655
North East	102,621		100,520		115,169
Mid East	282,443		285,091		279,050
South East	327,483		260,804		211,870
Consolidation adjustments and other	(11,117)		(9,450)		(20,567)
Homebuilding consolidated gross profit	$	1,391,488	$	1,370,982	$	1,312,177

	Year Ended December 31,
	2020		2019		2018
Homebuilding consolidated profit before taxes:
Mid Atlantic	$	437,849	$	478,537	$	462,178
North East	50,677		51,728		69,789
Mid East	168,605		173,374		175,134
South East	205,029		155,144		118,296
Reconciling items:
Contract land deposit impairment reserve (1)	(24,633)		1,644		783
Equity-based compensation expense (2)	(47,548)		(75,156)		(70,865)
Corporate capital allocation (4)	239,233		224,468		213,903
Unallocated corporate overhead	(114,921)		(105,125)		(89,973)
Consolidation adjustments and other (3)	63,025		43,486		15,829
Corporate interest expense	(39,356)		(24,221)		(23,968)
Reconciling items sub-total	75,800		65,096		45,709
Homebuilding consolidated profit before taxes	$	937,960	$	923,879	$	871,106

(1)This item represents changes to the contract land deposit impairment reserve, which are not allocated to the reportable segments. See further discussion of contract land deposit impairment charges in Note 3 in the accompanying consolidated financial statements.

(2)The decrease in equity-based compensation expense in 2020 was primarily attributable to stock options issued in 2014 under the 2014 Equity Incentive Plan becoming fully vested in 2019. In addition, there were higher stock option forfeitures in 2020 compared to 2019.

(3)The increase in 2020 relates primarily to the significant increase in lumber prices during the second half of 2020. Our reportable segments' results include intercompany profits of our production facilities, which were negatively impacted by the increase in lumber costs. The increase in lumber costs related to homes not yet settled is eliminated through the consolidation adjustment. As these homes currently in inventory are settled in subsequent quarters, our consolidated homebuilding margins will be negatively impacted by the higher lumber costs.

(4)This item represents the elimination of the corporate capital allocation charge included in the respective homebuilding reportable segments. The corporate capital allocation charge is based on the segment’s monthly average asset balance and is as follows for the years presented:

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	Year Ended December 31,
	2020		2019		2018
Corporate capital allocation charge:
Mid Atlantic	$	124,426	$	123,130	$	123,855
North East	22,850		19,755		17,893
Mid East	40,256		37,263		35,803
South East	51,701		44,320		36,352
Total corporate capital allocation charge	$	239,233	$	224,468	$	213,903

Mortgage Banking Segment

We conduct our mortgage banking activity through NVRM, a wholly owned subsidiary. NVRM focuses almost exclusively on serving the homebuilding segment customer base. The following table summarizes the results of our mortgage banking operations and certain statistical data for each of the last three years:

	Year Ended December 31,
	2020			2019			2018
Loan closing volume:
Total principal	$	5,317,811		$	5,164,725		$	4,829,406
Loan volume mix:
Adjustable rate mortgages	2		%	8		%	10		%
Fixed-rate mortgages	98		%	92		%	90		%
Operating profit:
Segment profit	$	143,319		$	105,292		$	93,462
Equity-based compensation expense	(3,246)			(3,376)			(4,836)
Mortgage banking income	$	140,073		$	101,916		$	88,626
Capture rate:	90		%	90		%	88		%
Mortgage banking fees:
Net gain on sale of loans	$	168,720		$	128,642		$	122,755
Title services	38,554			38,537			36,001
Servicing fees	760			641			614
	$	208,034		$	167,820		$	159,370

Loan closing volume in 2020 increased by approximately $153,100, or 3%, from 2019.  The increase was primarily attributable to a 1% increase in the number of loans closed year over year due primarily to the aforementioned increase in the homebuilding segment’s number of settlements in 2020 as compared to 2019 and a 2% increase in the average loan amount in 2020 compared to 2019.

Segment profit in 2020 increased by approximately $38,000, or 36%, from 2019.  The increase in segment profit was primarily attributable to an increase in mortgage banking fees.  Mortgage banking fees increased by approximately $40,200, or 24%, resulting from the aforementioned increase in loan closing volume and an increase in secondary marketing gains on sales of loans.

Mortgage Banking – Other

We sell all of the loans we originate into the secondary mortgage market.  Insofar as we underwrite our originated loans to the standards and specifications of the ultimate investor, we have no further financial obligations from the issuance of loans, except in certain limited instances where repurchases or early payment default occur.  Those underwriting standards are typically equal to or more stringent than the underwriting standards required by FNMA, GNMA, FHLMC, VA and FHA.  Because we sell all of our loans and do not service them, there is often a substantial delay between the time that a loan goes into default and the time that the investor

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requests us to reimburse them for losses incurred because of the default.  We believe that all of the loans that we originate are underwritten to the standards and specifications of the ultimate investor to whom we sell our originated loans.  We employ a quality control department to ensure that our underwriting controls are effective, and further assess the underwriting function as part of our assessment of internal controls over financial reporting.

We maintain a reserve for losses on mortgage loans originated that reflects our judgment of the present loss exposure from the loans that we have originated and sold. At December 31, 2020 and 2019, we had repurchase reserves of approximately $20,500 and $18,500, respectively.

NVRM is dependent on our homebuilding operation’s customers for business.  If new orders and selling prices of the homebuilding segment decline, NVRM’s operations will also be adversely affected.  In addition, NVRM’s operating results may be adversely affected in future periods due to tightening and volatility of the credit markets, changes in investor funding times, increased regulation of mortgage lending practices and increased competition in the mortgage market.

Seasonality

We generally have higher New Order activity in the first half of the year and higher home settlements, revenues and net income in the second half of the year, however, COVID-19 related restrictions negatively impacted our New Order activity in March and April, affecting our typical seasonal New Order trend.

Effective Tax Rate

Our consolidated effective tax rate in 2020, 2019 and 2018 was 16.40%, 14.36% and 16.94%, respectively. The higher effective tax rate in 2020 compared to 2019 was attributable primarily to the retroactive reinstatement of certain expired energy tax credits under The Further Consolidated Appropriations Act in 2019, which resulted in the recognition of a tax benefit of approximately $15,100 in 2019 related to homes settled in 2018 and 2019. For the year ended December 31, 2020, we recognized approximately $10,200 in energy tax credits.

Additionally, our effective tax rates in 2020, 2019 and 2018 were favorably impacted by the recognition of an income tax benefit related to excess tax benefits from stock option exercises of $92,234, $101,466 and $77,478, respectively. We expect continued tax rate volatility in future years attributable to the recognition of excess tax benefits from equity plan activity and distributions from the deferred compensation plans.  

Recent Accounting Pronouncements Pending Adoption

See Note 1 to the accompanying consolidated financial statements for discussion of recently issued accounting pronouncements applicable to us.

Liquidity and Capital Resources

Lines of Credit and Notes Payable

We had a very strong liquidity position as of December 31, 2020, with approximately $2,8 billion in cash and cash equivalents, approximately $187,200 in unused committed capacity under our revolving credit facility and $150,000 in unused committed capacity under our revolving mortgage repurchase facility.

Our homebuilding segment funds its operations from cash flows provided by operating activities, a short-term unsecured working capital revolving credit facility and capital raised in the public debt and equity markets.

Senior Notes

On September 10, 2012, we completed an offering for $600,000 aggregate principal amount of 3.95% Senior Notes due 2022 (the "2022 Senior Notes"). The 2022 Senior Notes were issued at a discount to yield 3.97% and have been reflected net of the unamortized discount in the accompanying consolidated balance sheet. The 2022 Senior Notes mature on September 15, 2022 and bear interest at 3.95%, payable semi-annually in arrears on March 15 and September 15.

On May 4, 2020, we issued $600,000 of 3.00% Senior Notes due 2030 (the "2030 Senior Notes"). The 2030 Senior Notes were issued at a discount to yield 3.02% and have been reflected net of the unamortized discount and unamortized debt issuance costs in the accompanying consolidated balance sheet. The offering of the 2030 Senior Notes resulted in aggregate net proceeds of approximately $595,200, after deducting underwriting discount and offering expenses. The 2030 Senior Notes mature on May 15, 2030 and bear interest at 3.00%, payable semi-annually in arrears on May 15 and November 15.

On September 9 and September 17, 2020, we issued an additional $250,000 and $50,000, respectively, of 3.00% 2030 Senior Notes (the "2030 Additional Notes" and together with the 2030 Senior Notes and the 2022 Senior Notes, the "Senior Notes"). The

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2030 Additional Notes were issued at a premium to yield 2.00% and have been reflected net of the unamortized premium and unamortized debt issuance costs in the accompanying consolidated balance sheet. The offering of the 2030 Additional Notes resulted in aggregate net proceeds of approximately $323,600, including the underwriting premium, less offering expenses. The 2030 Additional Notes form a single series with the 2030 Senior Notes and have substantially identical terms as the 2030 Senior Notes.

The Senior Notes are senior unsecured obligations and rank equally in right of payment with any of our existing and future unsecured senior indebtedness, will rank senior in right of payment to any of our future indebtedness that is by its terms expressly subordinated to the Senior Notes and will be effectively subordinated to any of our existing and future secured indebtedness to the extent of the value of the collateral securing such indebtedness. The indenture governing the Senior Notes does not contain any financial covenants; however, it does contain, among other items, and subject to certain exceptions, covenants that restrict our ability to create, incur, assume or guarantee secured debt, enter into sale and leaseback transactions and conditions related to mergers and/or the sale of assets. We were in compliance with all covenants under the Senior Notes at December 31, 2020.

Credit Agreement

On July 15, 2016, we entered into an unsecured Credit Agreement (the “Credit Agreement”) with Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, Merrill Lynch, Pierce, Fenner & Smith Incorporated as Sole Lead Arranger and Sole Book Runner, and the other lenders party thereto, which provides for aggregate revolving loan commitments of $200,000 (the “Facility”). Proceeds of the borrowings under the Facility will be used for working capital and general corporate purposes. Under the Credit Agreement, we may request increases of up to $300,000 to the Facility in the form of revolving loan commitments or term loans to the extent that new or existing lenders agree to provide additional revolving loan or term loan commitments.

The Credit Agreement provides for a $100,000 sublimit for the issuance of letters of credit of which there was approximately $12,800 outstanding at December 31, 2020, and a $25,000 sublimit for a swing line commitment. Borrowings under the Credit Agreement generally bear interest for Base Rate Loans at a Base Rate equal to the highest of (i) a Federal Funds Rate plus one-half of one percent, (ii) Bank of America’s publicly announced “prime rate,” and (iii) the Eurodollar Rate plus one percent, plus the Applicable Rate which is based on our debt rating, or for Eurodollar Rate Loans, at the Eurodollar Rate equal to LIBOR plus the Applicable Rate.  

The Credit Agreement contains various representations and affirmative and negative covenants that are generally customary for credit facilities of this type.  Such covenants include, among others, the following financial maintenance covenants: (i) minimum consolidated tangible net worth, (ii) minimum interest coverage ratio or minimum liquidity and (iii) a maximum leverage ratio. The negative covenants include, among others, certain limitations on liens, investments and fundamental changes.  The Credit Agreement termination date is July 15, 2021. We were in compliance with all covenants under the Credit Agreement at December 31, 2020.  There were no borrowings outstanding under the Credit Agreement as of December 31, 2020.

On February 12, 2021, we entered into The Amended and Restated Credit Agreement with Bank of America, N.A., as Administrative Agent, BOFA Securities, Inc. as Sole Lead Arranger and Sole Bookrunner, and other lenders party thereto (the "Amended Credit Agreement"). The Amended Credit Agreement amends and restates the Credit Agreement, discussed above, which was scheduled to expire on July 15, 2021. The Amended Credit Agreement provides for aggregate revolving loan commitments of $300,000 (the "New Facility") and terminates on February 12, 2026. Under the Amended Credit Agreement, we may request increases of up to $300,000 to the New Facility in the form of revolving loan commitments or term loans to the extent that new or existing lenders agree to provide additional revolving loan or term loan commitments. In addition, the Amended Credit Agreement provides for a $100,000 sublimit for the issuance of letters of credit. All other terms of the Amended Credit Agreement, including interest on borrowings and affirmative and negative covenants, are materially consistent with the Credit Agreement it replaces. The Amended Credit Agreement is filed as Exhibit 10.48 in this Form 10-K. The above summary of the material terms of the Amended Credit Agreement is qualified in its entirety by reference to Exhibit 10.48.

Repurchase Agreement

Our mortgage banking subsidiary, NVRM, provides for its mortgage origination and other operating activities using cash generated from operations, borrowings from its parent company, NVR, as well as a revolving mortgage repurchase facility, which is non-recourse to NVR. In July 2020, NVRM entered into the Twelfth Amendment (the “Amendment”) to its Amended and Restated Master Repurchase Agreement dated August 2, 2011 with U.S. Bank National Association (as amended by the Amendment and ten earlier amendments, the “Repurchase Agreement”). The Repurchase Agreement provides borrowing capacity up to $150,000, subject to certain sublimits. The purpose of the Repurchase Agreement is to finance the origination of mortgage loans by NVRM. The Repurchase Agreement expires on July 21, 2021. Advances under the Repurchase Agreement carry a Pricing Rate based on the LIBOR Rate plus the LIBOR Margin, as determined under the Repurchase Agreement, provided that the Pricing Rate shall not be less than 1.75%. There are several restrictions on purchased loans, including that they cannot be sold to others, they cannot be pledged to anyone other than the agent, and they cannot support any other borrowing or repurchase agreement.

The Repurchase Agreement contains various affirmative and negative covenants. The negative covenants include among others, certain limitations on transactions involving acquisitions, mergers, the incurrence of debt, sale of assets and creation of liens upon any of its Mortgage Notes. Additional covenants include (i) a tangible net worth requirement, (ii) a minimum liquidity requirement, (iii) a

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minimum net income requirement, and (iv) a maximum leverage ratio requirement. NVRM was in compliance with all covenants under the Repurchase Agreement at December 31, 2020. At December 31, 2020, there was no debt outstanding under the Repurchase Agreement and there were no borrowing base limitations.

Common Stock Repurchases

In addition to funding growth in our homebuilding and mortgage banking operations, we historically have used a substantial portion of our excess liquidity to repurchase outstanding shares of our common stock in open market and privately negotiated transactions. This ongoing repurchase activity is conducted pursuant to publicly announced Board authorizations, and is typically executed in accordance with the safe-harbor provisions of Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended. In addition, the Board resolutions authorizing us to repurchase shares of our common stock specifically prohibit us from purchasing shares from our officers, directors, Profit Sharing Plan Trust or Employee Stock Ownership Plan Trust. The repurchase program assists us in accomplishing our primary objective, creating increases in shareholder value. See “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” in Item 5 of this Form 10-K for disclosure of amounts repurchased during the fourth quarter of 2020. For the year ended December 31, 2020, we repurchased 93,346 shares of our common stock at an aggregate purchase price of $371,078. As of December 31, 2020, we had $546,062 available under Board approved repurchase authorizations.

Cash Flows

For the year ended December 31, 2020, cash, restricted cash and cash equivalents increased by $1,648,978. Net cash provided by operating activities was $925,269, due primarily to cash provided by earnings in 2020 and net proceeds of $212,636 from mortgage loan activity. Additionally, cash was provided by an increase in customer deposits attributable to the increase in our ending backlog year over year. Cash was primarily used to fund the increase in inventory of $362,384, attributable to an increase in units under construction at December 31, 2020 compared to December 31, 2019.

Net cash used in investing activities in 2020 was $3,933. Cash was used for purchases of property, plant and equipment of $16,119, offset partially by the receipt of capital distributions from our unconsolidated JVs totaling $11,625.

Net cash provided by financing activities in 2020 was $727,642, due primarily to the net proceeds received from the issuance of the 2030 Senior Notes, as discussed above, and by $180,866 in proceeds from stock option exercises in 2020. Cash was used during the period to repurchase shares of our common stock under our ongoing common stock repurchase program as discussed above.

For the year ended December 31, 2019, cash, restricted cash and cash equivalents increased by $428,556. Net cash provided by operating activities was $866,535, due primarily to cash provided by earnings in 2019 and net proceeds of $91,178 from mortgage loan activity. Cash was primarily used to fund the increase in inventory of $94,178, attributable to an increase in units under construction at December 31, 2019 compared to December 31, 2018. Net cash used in investing activities in 2019 of $13,284 was attributable primarily to cash used for purchases of property, plant and equipment of $22,699, offset partially by the receipt of capital distributions from our unconsolidated JVs totaling $8,247. Net cash used in financing activities of $424,695 resulted primarily from our repurchase of 220,965 shares of our common stock for an aggregate purchase price of $698,417 under our ongoing common stock repurchase program as discussed above, offset partially by $274,028 in proceeds from stock option exercises.

At December 31, 2020 and 2019, the homebuilding segment had restricted cash of $28,912 and $17,943, respectively. Restricted cash in each year was attributable to customer deposits for certain home sales.

We believe that our current cash holdings, cash generated from operations, and cash available under our short-term unsecured credit agreement, revolving mortgage repurchase facility and the public debt and equity markets will be sufficient to satisfy near and long term cash requirements for working capital and debt service in both our homebuilding and mortgage banking operations.

Off-Balance Sheet Arrangements

Lot Acquisition Strategy

We generally do not engage in land development. Instead, we typically acquire finished building lots from various land developers under LPAs that require deposits that may be forfeited if we fail to perform under the agreement. The deposits required under the LPAs are in the form of cash or letters of credit in varying amounts and represent a percentage, typically ranging up to 10%, of the aggregate purchase price of the finished lots.

We believe that our lot acquisition strategy reduces the financial risks associated with direct land ownership and land development. We may, at our option, choose for any reason and at any time not to perform under these LPAs by delivering notice of our intent not to acquire the finished lots under contract. Our sole legal obligation and economic loss for failure to perform under these purchase agreements is limited to the amount of the deposit pursuant to the liquidated damage provision contained in the LPAs. We do not have any financial guarantees or completion obligations and we typically do not guarantee lot purchases on a specific performance basis under these LPAs.

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At December 31, 2020, we controlled approximately 105,700 lots through LPAs, JVs and land under development, with an aggregate purchase price of approximately $10,300,000. These lots are controlled by making or committing to make deposits of approximately $661,600 in the form of cash and letters of credit. Our entire risk of loss pertaining to the aggregate purchase price contractual commitment resulting from our non-performance under the contracts is limited to $438,500 in deposits paid and $8,100 in letters of credit issued as of December 31, 2020, plus approximately $215,000 related to deposits to be paid subsequent to December 31, 2020 assuming that contractual development milestones are met by the developers and we exercise our option. As of December 31, 2020, we had recorded an impairment valuation allowance of approximately $52,200 related to certain cash deposits currently outstanding. Additionally, as of December 31, 2020, we had funding commitments totaling $3,100 to one of our JVs and approximately $5,100 under a joint development agreement related to our land under development, a portion of which we expect will be offset by development credits of approximately $2,600.

In addition, we have certain properties under contract with land owners that are expected to yield approximately 6,100 lots, which are not included in our number of total lots controlled above.  Some of these properties may require rezoning or other approvals to achieve the expected yield.  These properties are controlled with cash deposits and letters of credit of approximately $1,300 and $100, respectively, as of December 31, 2020, of which approximately $1,000 is refundable if we do not perform under the contract and the remainder is at risk of loss. We generally expect to assign the raw land contracts to a land developer and simultaneously enter into an LPA with the assignee if the project is determined to be feasible. Please refer to Note 1 in the accompanying consolidated financial statements for a further discussion of the contract land deposits and Note 3 in the accompanying consolidated financial statements for a description of our lot acquisition strategy in relation to our accounting for variable interest entities.

Bonds and Letters of Credit

We enter into bond or letter of credit arrangements with local municipalities, government agencies, or land developers to collateralize our obligations under various contracts. We had approximately $40,600 of contingent obligations under such agreements as of December 31, 2020, inclusive of the $8,100 of lot acquisition deposits in the form of letters of credit discussed above. We believe we will fulfill our obligations under the related contracts and do not anticipate any material losses under these bonds or letters of credit.

Mortgage Commitments and Forward Sales

In the normal course of business, NVRM enters into contractual commitments to extend credit to our homebuyers with fixed expiration dates. The commitments become effective when the borrowers “lock-in” a specified interest rate within time frames established by us. All mortgagors are evaluated for credit worthiness prior to the extension of the commitment. Market risk arises if interest rates move adversely between the time of the “lock-in” of rates by the borrower and the sale date of the loan to an investor. To mitigate the effect of the interest rate risk inherent in providing rate lock commitments to borrowers, we enter into optional or mandatory delivery forward sale contracts to sell whole loans and mortgage-backed securities to investors. The forward sale contracts lock in a range of interest rates and prices for the sale of loans similar to the specific rate lock commitments. We do not engage in speculative or trading derivative activities. Both the rate lock commitments to borrowers and the forward sale contracts to investors are undesignated derivatives, and, accordingly, are marked to fair value through earnings. At December 31, 2020, we had contractual commitments to extend credit to borrowers aggregating $617,308 and open forward delivery contracts aggregating $916,588, which hedge both the rate lock commitments and closed loans held for sale (see Note 15 in the accompanying consolidated financial statements for a description of our fair value accounting).

Contractual Obligations

Our fixed, non-cancelable obligations as of December 31, 2020, were as follows:

	Payments due by year
	Total		2021		2022 to 2023		2024 to 2025		2026 and Later
Debt (1)	$	1,500,000	$	—	$	600,000	$	—	$	900,000
Interest on debt (1)	293,472		50,700		70,722		54,000		118,050
Finance leases (2)	19,512		1,744		3,503		3,523		10,742
Operating leases (2)	84,965		30,111		34,418		13,795		6,641
Purchase obligations (3)	220,104		*		*		*		*
Uncertain tax positions (4)	29,085		*		*		*		*
Total	$	2,147,138	$	82,555	$	708,643	$	71,318	$	1,035,433

(1)See Note 9 in the accompanying consolidated financial statements for additional information regarding the Senior Notes.

(2)See Note 13 in the accompanying consolidated financial statements for additional information regarding our finance and operating leases.

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(3)Amount represents expected payments of forfeitable deposits with land developers under existing LPAs assuming that contractual development milestones are met by the developers and we exercise our option, and estimated contractual obligations for land development agreements. We expect to make the majority of payments of the deposits with land developers within the next three years, but due to the nature of the contractual development milestones that must be met we are unable to accurately estimate the portion of the deposit obligation that will be made within one year and that portion that will be made within one to three years.

(4)Due to the nature of the uncertain tax positions, we are unable to make a reasonable estimate as to the period of settlement with the respective taxing authorities.

Critical Accounting Policies

General

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. We continually evaluate the estimates we use to prepare the consolidated financial statements and update those estimates as necessary. In general, our estimates are based on historical experience, on information from third party professionals, and other various assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ materially from those estimates made by management.

Homebuilding Inventory

The carrying value of inventory is stated at the lower of cost or market value. Cost of lots and completed and uncompleted housing units represent the accumulated actual cost of the units. Field construction supervisors’ salaries and related direct overhead expenses are included in inventory costs. Interest costs are not capitalized into inventory, with the exception of land under development and joint venture investments, as applicable (see below). Upon settlement, the cost of the unit is expensed on a specific identification basis. Cost of building materials is determined on a first-in, first-out basis.

Sold inventory is evaluated for impairment based on the contractual selling price compared to the total estimated cost to construct. Unsold inventory is evaluated for impairment by analyzing recent comparable sale prices within the applicable community compared to the costs incurred to date plus the expected costs to complete. Any calculated impairments are recorded immediately in cost of sales.

Contract Land Deposits and Land Under Development

Contract Land Deposits

We purchase finished lots under LPAs that require deposits that may be forfeited if we fail to perform under the contract. The deposits are in the form of cash or letters of credit in varying amounts and represent a percentage of the aggregate purchase price of the finished lots.

We maintain an allowance for losses on contract land deposits that reflects our judgment of the present loss exposure in the existing contract land deposit portfolio at the end of the reporting period. To analyze contract land deposit impairments, we conduct a loss contingency analysis each quarter. In addition to considering market and economic conditions, we assess contract land deposit impairments on a community-by-community basis pursuant to the purchase contract terms, analyzing quantitative and qualitative information including, as applicable, current sales absorption levels, recent sales’ profit margin, the dollar differential between the contractual purchase price and the current market price for lots, a developer’s performance, a developer’s financial ability or willingness to reduce lot prices to current market prices, if necessary, and the contract’s default status by either us or the developer along with an analysis of the expected outcome of any such default.

Our analysis is focused on whether we can sell houses at an acceptable margin and sales pace in a particular community in the current market with which we are faced. Because we do not own the finished lots on which we had placed a contract land deposit, if the above analysis leads to a determination that we cannot sell homes at an acceptable margin and sales pace at the current contractual lot price, we then determine whether we will elect to default under the contract, forfeit our deposit and terminate the contract, or whether we will attempt to restructure the lot purchase contract, which may require us to forfeit the deposit to obtain contract concessions from a developer. We also assess whether an impairment is present due to collectability issues resulting from a developer’s non-performance because of financial or other conditions.

Although we consider the allowance for losses on contract land deposits reflected on the December 31, 2020 consolidated balance sheet to be adequate (see Note 1 to the accompanying consolidated financial statements included herein), there can be no assurance that this allowance will prove to be adequate over time to cover losses due to unanticipated adverse changes in the economy or other events adversely affecting specific markets or the homebuilding industry.

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Land Under Development

On a limited basis, we directly acquire raw parcels of land already zoned for its intended use to develop into finished lots. Land under development includes the land acquisition costs, direct improvement costs, capitalized interest, where applicable, and real estate taxes.

Land under development, including the land under development held by our unconsolidated JVs and the related joint venture investments, is reviewed for potential write-downs when impairment indicators are present. In addition to considering market and economic conditions, we assess land under development impairments on a community-by-community basis, analyzing, as applicable, current sales absorption levels, recent sales’ profit margin, and the dollar differential between the projected fully-developed cost of the lots and the current market price for lots. If indicators of impairment are present for a community, we perform an analysis to determine if the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts, and if so, impairment charges are required to be recorded in an amount by which the carrying amount of the assets exceeds the fair value of such assets. Our determination of fair value is primarily based on discounting the estimated future cash flows at a rate commensurate with the inherent risks associated with the assets and related estimated cash flow streams.

At December 31, 2020, we had approximately $62,800 in land under development in three separate communities. In addition, at December 31, 2020, we had an aggregate investment totaling approximately $23,600 in four separate JVs that controlled land under development. During 2020, we recognized an impairment of approximately $1,800 related to one of our JVs. None of the communities classified as land under development nor any of the undeveloped land held by the JVs had any indicators of impairment at December 31, 2020. As such, we do not believe that any of the land under development is impaired at this time. However, there can be no assurance that we will not incur impairment charges in the future due to unanticipated adverse changes in the economy or other events adversely affecting specific markets or the homebuilding industry.

Warranty/Product Liability Accruals

We establish warranty and product liability reserves to provide for estimated future expenses as a result of construction and product defects, product recalls and litigation incidental to our homebuilding business. Liability estimates are determined based on our judgment considering such factors as historical experience, the likely current cost of corrective action, manufacturers’ and subcontractors’ participation in sharing the cost of corrective action, consultations with third party experts such as engineers, and discussions with our General Counsel and outside counsel retained to handle specific product liability cases. Although we consider the warranty and product liability accrual reflected on the December 31, 2020 consolidated balance sheet to be adequate (see Note 14 to the accompanying consolidated financial statements included herein), there can be no assurance that this accrual will prove to be adequate over time to cover losses due to increased costs for material and labor, the inability or refusal of manufacturers or subcontractors to financially participate in corrective action, unanticipated adverse legal settlements, or other unanticipated changes to the assumptions used to estimate the warranty and product liability accrual.

Equity-Based Compensation Expense

We recognize equity-based compensation expense within our income statement for all share-based payment arrangements, which include non-qualified stock options to purchase shares of NVR common stock ("Options") and restricted share units ("RSUs"). Compensation expense is based on the grant-date fair value of the Options and RSUs granted, and is recognized on a straight-line basis over the requisite service period for the entire award (from the date of grant through the period of the last separately vesting portion of the grant). Options and RSUs which are subject to a performance condition are treated as a separate award from the “service-only” Options and RSUs, and compensation expense is recognized when it becomes probable that the stated performance target will be achieved. We calculate the fair value of our Options, which are non-publicly traded, using the Black-Scholes option-pricing model. The grant date fair value of the RSUs is the closing price of our common stock on the day immediately preceding the date of grant. The reversal of compensation expense previously recognized for grants forfeited is recorded in the period in which the forfeiture occurs.

As noted above, we calculate the fair value of our Options, which are non-publicly traded, using the Black-Scholes option-pricing model. While the Black-Scholes model is a widely accepted method to calculate the fair value of options, its results are dependent on input variables, two of which, expected term and expected volatility, are significantly dependent on management’s judgment. We have concluded that our historical exercise experience is the best estimate of future exercise patterns to determine an Option’s expected term. To estimate expected volatility, we analyze the historical volatility of our common stock over a period equal to the Option’s expected term. Changes in management’s judgment of the expected term and the expected volatility could have a material effect on the grant-date fair value calculated and expensed within the income statement.

In addition, when recognizing equity-based compensation cost related to “performance condition” Option and RSU grants, we are required to make a determination as to whether the performance conditions will be met prior to the completion of the actual performance period.  The performance metric is based on our return on capital performance during a specified three year period based on the date of Option grant. While we currently believe that this performance condition will be satisfied at the target level and are recognizing compensation expense related to such Options and RSUs accordingly, our future expected activity levels could cause us to

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make a different determination, resulting in a change to the compensation expense to be recognized related to performance condition Option and RSU grants that would otherwise have been recognized to date.  

Although we believe that the compensation costs recognized in 2020 are representative of the cumulative ratable amortization of the grant-date fair value of unvested Options and RSUs outstanding, changes to the estimated input values such as expected term and expected volatility and changes to the determination of whether performance condition grants will vest, could produce widely different expense valuations and recognition.

Mortgage Repurchase Reserve

We originate several different loan products to our customers to finance the purchase of their home. We sell all of the loans we originate into the secondary mortgage market, on a servicing released basis, typically within 30 days from closing. All of the loans that we originate are underwritten to the standards and specifications of the ultimate investor. Those underwriting standards are typically equal to or more stringent than the underwriting standards required by FNMA, GNMA, FHLMC, VA and FHA. Insofar as we underwrite our originated loans to those standards, we bear no increased concentration of credit risk from the issuance of loans, except in certain limited instances where repurchases or early payment default occur. We employ a quality control department to ensure that our underwriting controls are effectively operating, and further assess the underwriting function as part of our assessment of internal controls over financial reporting. We maintain a reserve for losses on mortgage loans originated that reflects our judgment of the present loss exposure in the loans that we have originated and sold. The reserve is calculated based on an analysis of historical experience and exposure. Although we consider the mortgage repurchase reserve reflected on the December 31, 2020 consolidated balance sheet to be adequate (see Note 16 to the accompanying consolidated financial statements included herein), there can be no assurance that this reserve will prove to be adequate over time to cover losses due to unanticipated changes to the assumptions used to estimate the mortgage repurchase reserve.

Impact of Inflation, Changing Prices and Economic Conditions

See “Risk Factors” included in Item 1A of this Form 10-K for a description of the impact of inflation, changing prices and economic conditions on our business and our financial results. See also the discussion of the current business environment in the Overview section above.

Item 7A.    Quantitative and Qualitative Disclosure About Market Risk.

    (dollars in thousands)

Market risk is the risk of loss arising from adverse changes in market prices and interest rates. Our market risk arises from interest rate risk inherent in our financial instruments and debt obligations. Interest rate risk results from the possibility that changes in interest rates will cause unfavorable changes in net income or in the value of interest rate-sensitive assets, liabilities and commitments. Lower interest rates tend to increase demand for mortgage loans for home purchasers, while higher interest rates make it more difficult for potential borrowers to purchase residential properties and to qualify for mortgage loans. We have no market rate sensitive instruments held for speculative or trading purposes.

We are exposed to interest rate risk as it relates to our fixed rate debt, primarily our Senior Notes and our variable rate credit facility and loan repurchase facility. Changes to interest rates generally affect the fair value of fixed-rate debt instruments, but not earnings or cash flows. For variable rate debt, interest rate changes generally will not affect the fair value of the variable debt instruments but will affect earnings and cash flow. At December 31, 2020, there was no debt outstanding under our credit facility or loan repurchase facility. See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 9 to the accompanying consolidated financial statements included herein for further discussion of these debt instruments.

Our mortgage banking segment is exposed to interest rate risk as it relates to its lending activities, including originating mortgage loans and providing rate lock commitments to borrowers. To mitigate the effect of the interest rate risk inherent in providing rate lock commitments to borrowers, we enter into optional or mandatory delivery forward sales contracts to sell whole loans and mortgage-backed securities to investors. The forward sales contracts lock-in a range of interest rates and prices for the sale of loans similar to the specific rate lock commitments. We do not engage in speculative or trading derivative activities. All of the mortgage banking segment’s loan portfolio is held for sale and subject to forward sale commitments. See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 15 to the accompanying consolidated financial statements included herein for further discussion of these items.

The following table represents the contractual balances of our on-balance sheet financial instruments at the expected maturity dates, as well as the fair values of those on-balance sheet financial instruments at December 31, 2020. The expected maturity categories take into consideration the actual and anticipated amortization of principal and do not take into consideration the reinvestment of cash or the refinancing of existing indebtedness. Because we sell all of the mortgage loans we originate into the secondary markets, we have made the assumption that the portfolio of mortgage loans held for sale will mature in the first year.

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	Maturities (000's)
	2021			2022			2023	2024	2025	Thereafter			Total			Fair Value
Mortgage banking segment
Interest rate sensitive assets:
Mortgage loans held for sale	$	439,718		—			—	—	—	—			$	439,718		$	449,760
Average interest rate	2.8		%	—			—	—	—	—			2.8		%
Other:
Forward trades of mortgage-backed securities (a)	$	(5,216)		—			—	—	—	—			$	(5,216)		$	(5,216)
Forward loan commitments (a)	$	10,757		—			—	—	—	—			$	10,757		$	10,757
Homebuilding segment
Interest rate sensitive assets:
Interest-bearing deposits	$	2,278,488		—			—	—	—	—			$	2,278,488		$	2,278,488
Average interest rate	0.2		%	—			—	—	—	—			0.2		%
Interest rate sensitive liabilities:
Fixed rate obligations	$	—		$	600,000		—	—	—	$	900,000		$	1,500,000		$	1,612,620
Average interest rate	—			4.0		%	—	—	—	2.7		%	3.2		%

(a)Represents the fair value recorded pursuant to ASC 815, Derivatives and Hedging.

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Item 8.    Financial Statements and Supplementary Data.

The financial statements listed in Item 15 are filed as part of this report and are incorporated herein by reference.

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A.    Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”).

Based on that evaluation, the principal executive officer and principal financial officer concluded that the design and operation of these disclosure controls and procedures as of December 31, 2020 were effective to provide reasonable assurance that information required to be disclosed in our reports under the Exchange Act, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control – Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of December 31, 2020. There have been no changes in our internal control over financial reporting identified in connection with the evaluation referred to above that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our internal control over financial reporting as of December 31, 2020 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their attestation report which is included herein.

Item 9B.    Other Information.

None.

PART III

Item 10.    Directors, Executive Officers, and Corporate Governance.

The information required by this item will be included under the captions "Proposal No.1 - Election of Directors", "Executive Summary" within "Compensation Discussion and Analysis", "Corporate Governance Principles and Board Matters" and ""Delinquent Section 16(a) Reports" within "Security Ownership of Beneficial Owners and Management" in our definitive Proxy Statement for the 2021 Annual Meeting of Shareholders ("2021 Proxy Statement") and is incorporated herein by reference. Our 2021 Proxy Statement is expected to be filed with the Securities and Exchange Commission on or prior to April 30, 2021.

Item 11.    Executive Compensation.

The information required by this item will be included under the caption "Compensation Discussion and Analysis" in our 2021 Proxy Statement and is incorporated herein by reference. Our 2021 Proxy Statement is expected to be filed with the Securities and Exchange Commission on or prior to April 30, 2021.

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Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Equity Compensation Plan Information

The following table summarizes our equity compensation plans as of December 31, 2020:

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column)
Equity compensation plans approved by security holders (1)	611,024	$	2,229.01	281,280
Equity compensation plans not approved by security holders	—	$	—	—
Total	611,024	$	2,229.01	281,280

(1)This category includes the restricted share units (“RSUs”) authorized to be issued under the 2010 and 2018 Equity Incentive Plans. At December 31, 2020, there were 17,598 RSUs outstanding. Of the total 281,280 shares remaining available for future issuance under the shareholder approved plans, up to a total of 36,520 may be issued as RSUs. The weighted-average exercise price of outstanding options under security holder approved plans was $2,295.11.

The remaining information required by this item will be included under the caption "Security Ownership of Certain Beneficial Owners and Management" in our 2021 Proxy Statement and is incorporated herein by reference. Our 2021 Proxy Statement is expected to be filed with the Securities and Exchange Commission on or prior to April 30, 2021.

Item 13.    Certain Relationships and Related Transactions, and Director Independence.

The information required by this item will be included under the caption "Corporate Governance Principles and Board Matters" in our 2021 Proxy Statement and is incorporated herein by reference. Our 2021 Proxy Statement is expected to be filed with the Securities and Exchange Commission on or prior to April 30, 2021.

Item 14.    Principal Accountant Fees and Services.

The information required by this item will be included under the caption "Proposal No. 2 - Ratification of Appointment of Independent Auditor"in our 2021 Proxy Statement and is incorporated herein by reference. Our 2021 Proxy Statement expected to be filed with the Securities and Exchange Commission on or prior to April 30, 2021.

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PART IV

Item 15.    Exhibits and Financial Statement Schedules.

The following documents are filed as part of this report:

1.    Financial Statements

    NVR, Inc. - Consolidated Financial Statements

    Reports of Independent Registered Public Accounting Firm

    Consolidated Balance Sheets

    Consolidated Statements of Income

    Consolidated Statements of Shareholders’ Equity

    Consolidated Statements of Cash Flows

    Notes to Consolidated Financial Statements

 2.    Exhibits

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File Number	Exhibit Number	Filing Date
3.1	Restated Articles of Incorporation of NVR, Inc.	10-K		3.1	2/25/2011
3.2	Bylaws, as amended, of NVR, Inc.	8-K		3.1	3/17/2016
4.1	Indenture dated as of April 14, 1998 between NVR, Inc., as issuer and the Bank of New York as trustee.	8-K		4.3	4/23/1998
4.2	Form of Note (included in Indenture).	8-K		4.5	4/23/1998
4.3	Fifth Supplemental Indenture dated September 10, 2012 among NVR, Inc. and U.S. Bank Trust National Association.	8-K		4.1	9/10/2012
4.4	Sixth Supplemental Indenture dated as of May 4, 2020 among NVR, Inc. and U.S. Bank Trust National Association.	8-K		4.1	5/4/2020
4.5	Seventh Supplemental Indenture dated September 9, 2020 between NVR, Inc. and U.S. Bank Trust National Association.	8-K		4.1	9/9/2020
4.6	Eighth Supplemental Indenture dated September 17, 2020 between NVR, Inc. and U.S. Bank Trust National Association.	8-K		4.2	9/17/2020
4.7	Form of Global Note.	8-K		4.2	9/10/2012
4.8	Description of Securities of NVR, Inc.	10-K		4.5	2/19/2020
10.1*	Amended and Restated Employment Agreement between NVR, Inc. and Paul C. Saville dated November 4, 2015.	10-Q		10.1	11/6/2015
10.2*	Amended and Restated Employment Agreement between NVR, Inc. and Daniel D. Malzahn dated November 4, 2015.	10-Q		10.2	11/6/2015
10.3*	Amended and Restated Employment Agreement between NVR, Inc. and Eugene J. Bredow dated November 4, 2015.	10-Q		10.4	11/6/2015
10.4*	Amendment No. 1 to Employment Agreement between NVR, Inc. and Eugene J. Bredow dated March 1, 2018.	10-Q		10.1	5/1/2018
10.5*	Amendment No. 2 to Employment Agreement between NVR, Inc. and Eugene J. Bredow dated April 1, 2019.	10-Q		10.2	5/1/2019
10.6*	Employment Agreement between NVR, Inc. and Paul W. Praylo dated January 28, 2019.	10-K		10.8	2/13/2019
10.7*	Extension of Employment Agreement between NVR, Inc. and Paul C. Saville date November 4, 2020.	10-Q		10.1	11/4/2020

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		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File Number	Exhibit Number	Filing Date
10.8*	Extension of Employment Agreement between NVR, Inc. and Daniel D. Malzahn date November 4, 2020.	10-Q		10.2	11/4/2020
10.9*	Extension of Employment Agreement between NVR, Inc. and Paul W. Praylo date November 4, 2020.	10-Q		10.3	11/4/2020
10.10*	Extension of Employment Agreement between NVR, Inc. and Eugene J. Bredow date November 4, 2020.	10-Q		10.4	11/4/2020
10.11*	Profit Sharing Plan of NVR, Inc. and Affiliated Companies.	S-8	333-29241	4.1	6/13/1997
10.12*	Employee Stock Ownership Plan of NVR, Inc.	10-K/A			12/31/1994
10.13*	Amended and Restated NVR, Inc. Nonqualified Deferred Compensation Plan.	10-Q		10.5	11/6/2015
10.14*	First Amendment to NVR, Inc. Nonqualified Deferred Compensation Plan.	10-K		10.36	2/15/2017
10.15*	Description of the Board of Directors’ compensation arrangement.	10-K		10.15	2/13/2019
10.16*	NVR, Inc. 2018 Equity Incentive Plan	S-8	333-224629	10.1	5/3/2018
10.17*	The Form of Non-Qualified Stock Option Agreement (Management time-based grants) under the NVR, Inc. 2018 Equity Incentive Plan.	8-K		10.1	5/14/2018
10.18*	The Form of Non-Qualified Stock Option Agreement (Director time-based grants) under the NVR, Inc. 2018 Equity Incentive Plan.	8-K		10.2	5/14/2018
10.19*	The Form of Non-Qualified Stock Option Agreement (Management performance-based grants) under the NVR, Inc. 2018 Equity Incentive Plan.	8-K		10.3	5/14/2018
10.20*	The Form of Non-Qualified Stock Option Agreement (Director performance-based grants) under the NVR, Inc. 2018 Equity Incentive Plan.	8-K		10.4	5/14/2018
10.21*	The Form of Restricted Share Units Agreement (Management grants) under the NVR, Inc. 2018 Equity Incentive Plan.	8-K		10.5	5/14/2018
10.22*	The Form of Restricted Share Units Agreement (Director grants) under the NVR, Inc. 2018 Equity Incentive Plan.	8-K		10.6	5/14/2018
10.23*	NVR, Inc. 2014 Equity Incentive Plan.	S-8	333-195756	10.1	5/7/2014
10.24*	The Form of Non-Qualified Stock Option Agreement (Management time-based grants) under the NVR, Inc. 2014 Equity Incentive Plan.	10-K		10.2	2/14/2018
10.25*	The Form of Non-Qualified Stock Option Agreement (Director time-based grants) under the NVR, Inc. 2014 Equity Incentive Plan.	8-K		10.2	5/7/2014
10.26*	The Form of Non-Qualified Stock Option Agreement (Management performance-based grants) under the NVR, Inc. 2014 Equity Incentive Plan.	10-K		10.17	2/14/2018
10.27*	The Form of Non-Qualified Stock Option Agreement (Director performance-based grants) under the NVR, Inc. 2014 Equity Incentive Plan.	8-K		10.4	5/7/2014
10.28*	NVR, Inc. 2010 Equity Incentive Plan.	S-8	333-166512	10.1	5/4/2010
10.29*	The Amended Form of Non-Qualified Stock Option Agreement (Management grants) under the NVR, Inc. 2010 Equity Incentive Plan.	10-K		10.29	2/13/2019

33

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File Number	Exhibit Number	Filing Date
10.30*	The Form of Non-Qualified Stock Option Agreement (Management performance-based grants) under the NVR, Inc. 2010 Equity Incentive Plan.	10-K		10.30	2/13/2019
10.31*	The Form of Non-Qualified Stock Option Agreement (Director grants) under the NVR, Inc. 2010 Equity Incentive Plan.	8-K		10.2	5/6/2010
10.32*	The Form of Restricted Share Units Agreement (Management grants) under the NVR, Inc. 2010 Equity Incentive Plan.	10-Q		10.2	7/30/2013
10.33*	The Form of Restricted Share Units Agreement (Director grants) under the NVR, Inc. 2010 Equity Incentive Plan.	8-K		10.4	5/6/2010
10.34	Amended and Restated Master Repurchase Agreement dated as of August 2, 2011, between NVR Mortgage Finance, Inc. and U.S. Bank National Association.	8-K		10.1	1/21/2016
10.35	First Amendment to Amended and Restated Master Repurchase Agreement dated as of August 1, 2012, between NVR Mortgage Finance, Inc. and U.S. Bank National Association.	8-K		10.2	1/21/2016
10.36	Second Amendment to Amended and Restated Master Repurchase Agreement dated as of November 13, 2012, between NVR Mortgage Finance, Inc. and U.S. Bank National Association.	8-K		10.3	1/21/2016
10.37	Third Amendment to Amended and Restated Master Repurchase Agreement dated as of November 29, 2012, between NVR Mortgage Finance, Inc. and U.S. Bank National Association.	8-K		10.4	1/21/2016
10.38	Fourth Amendment to Amended and Restated Master Repurchase Agreement dated as of July 31, 2013, between NVR Mortgage Finance, Inc. and U.S. Bank National Association.	8-K		10.5	1/21/2016
10.39	Fifth Amendment to Amended and Restated Master Repurchase Agreement dated as of July 30, 2014, between NVR Mortgage Finance, Inc. and U.S. Bank National Association.	8-K		10.6	1/21/2016
10.40	Sixth Amendment to Amended and Restated Master Repurchase Agreement dated as of July 29, 2015, between NVR Mortgage Finance, Inc. and U.S. Bank National Association.	8-K		10.7	1/21/2016
10.41	Seventh Amendment to Amended and Restated Master Repurchase Agreement dated as of January 18, 2016, between NVR Mortgage Finance, Inc. and U.S. Bank National Association.	8-K		10.8	1/21/2016
10.42	Eighth Amendment to Amended and Restated Master Repurchase Agreement dated as of July 27, 2016, between NVR Mortgage Finance, Inc. and U.S. Bank National Association.	10-Q		10.2	7/28/2016
10.43	Ninth Amendment to Amended and Restated Master Repurchase Agreement dated as of July 26, 2017, between NVR Mortgage Finance, Inc. and U.S. Bank National Association.	10-Q		10.1	7/28/2017
10.44	Tenth Amendment to Amended and Restated Master Repurchase Agreement dated as of July 25, 2018 between NVR Mortgage Finance, Inc. and U.S. Bank National Association.	10-Q		10.1	7/30/2018

34

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File Number	Exhibit Number	Filing Date
10.45	Eleventh Amendment to Amended and Restated Master Repurchase Agreement dated as of July 24, 2019 between NVR Mortgage Finance, Inc. and U.S. Bank National Association.	10-Q		10.1	7/31/2019
10.46	Twelfth Amendment to Amended and Restated Master Repurchase Agreement dated as of July 8, 2020 between NVR Mortgage Finance, Inc. and U.S. Bank National Association.	10-Q		10.1	8/3/2020
10.47	Credit Agreement dated as of July 15, 2016 among NVR, Inc. and the lenders party hereto, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, and Merrill Lynch, Pierce, Fenner & Smith Incorporated as Sole Lead Arranger and Sole Book Runner.	8-K		10.1	7/18/2016
10.48	Amended and Restated Credit Agreement dated as of February 12, 2021 among NVR, Inc. and the lenders party hereto, Bank of America, N.A., as Administrative Agent and BofA Securities, Inc. as Sole Lead Arranger and Sole Book Runner. Filed herewith.
10.49	Summary of 2021 Executive Officer Incentive Compensation plan. Filed herewith.
21	NVR, Inc. Subsidiaries. Filed herewith.
23	Consent of KPMG LLP (Independent Registered Public Accounting Firm). Filed herewith.
31.1	Certification of NVR’s Chief Executive Officer pursuant to Rule 13a-14(a). Filed herewith.
31.2	Certification of NVR’s Chief Financial Officer pursuant to Rule 13a-14(a). Filed herewith.
32	Certification of NVR’s Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.
101.INS	XBRL Instance Document - the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
	* Exhibit is a management contract or compensatory plan or arrangement.

35

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

NVR, Inc.
By:	/s/ Paul C. Saville
	Paul C. Saville
	President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Dwight C. Schar	Chairman	February 12, 2021
Dwight C. Schar