UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission File Number: 1-12378

NVR, Inc.

(Exact name of registrant as specified in its charter)

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

11700 Plaza America Drive, Suite 500

Reston, Virginia 20190

(703) 956-4000

(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)

Not Applicable

(Former name, former address, and former fiscal year if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.01 per share	NVR	New York Stock Exchange

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

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

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 1, 2022 there were 3,282,665 total shares of common stock outstanding.

NVR, Inc.

FORM 10-Q

TABLE OF CONTENTS

		Page
PART I	FINANCIAL INFORMATION	1
Item 1.	Condensed Consolidated Financial Statements	1
	Condensed Consolidated Balance Sheets (unaudited)	1
	Condensed Consolidated Statements of Income (unaudited)	3
	Condensed Consolidated Statements of Cash Flows (unaudited)	4
	Notes to Condensed Consolidated Financial Statements (unaudited)	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	38
Item 4.	Controls and Procedures	38
PART II	OTHER INFORMATION	39
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 6.	Exhibits	40
	SIGNATURE	41

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NVR, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(unaudited)
	June 30, 2022		December 31, 2021
ASSETS
Homebuilding:
Cash and cash equivalents	$	1,483,445	$	2,545,069
Restricted cash	60,695		60,730
Receivables	29,007		18,552
Inventory:
Lots and housing units, covered under sales agreements with customers	2,138,456		1,777,862
Unsold lots and housing units	177,372		127,434
Land under development	16,274		12,147
Building materials and other	46,643		29,923
	2,378,745		1,947,366
Contract land deposits, net	524,398		497,139
Property, plant and equipment, net	57,397		56,979
Operating lease right-of-use assets	68,323		59,010
Reorganization value in excess of amounts allocable to identifiable assets, net	41,580		41,580
Other assets	233,987		229,018
	4,877,577		5,455,443
Mortgage Banking:
Cash and cash equivalents	16,158		28,398
Restricted cash	3,403		2,519
Mortgage loans held for sale, net	335,624		302,192
Property and equipment, net	3,296		3,658
Operating lease right-of-use assets	13,405		9,758
Reorganization value in excess of amounts allocable to identifiable assets, net	7,347		7,347
Other assets	30,889		25,160
	410,122		379,032
Total assets	$	5,287,699	$	5,834,475

See notes to condensed consolidated financial statements.

1

NVR, Inc.
Condensed Consolidated Balance Sheets (Continued)
(in thousands, except share and per share data)
(unaudited)
	June 30, 2022		December 31, 2021
LIABILITIES AND SHAREHOLDERS' EQUITY
Homebuilding:
Accounts payable	$	417,771	$	336,560
Accrued expenses and other liabilities	388,179		435,860
Customer deposits	439,119		417,463
Operating lease liabilities	73,075		64,128
Senior notes	915,801		1,516,255
	2,233,945		2,770,266
Mortgage Banking:
Accounts payable and other liabilities	47,868		51,394
Operating lease liabilities	14,220		10,437
	62,088		61,831
Total liabilities	2,296,033		2,832,097
Commitments and contingencies
Shareholders' equity:
Common stock, $0.01 par value; 60,000,000 shares authorized; 20,555,330 shares issued as of both June 30, 2022 and December 31, 2021	206		206
Additional paid-in capital	2,498,123		2,378,191
Deferred compensation trust – 106,697 shares of NVR, Inc. common stock as of both June 30, 2022 and December 31, 2021	(16,710)		(16,710)
Deferred compensation liability	16,710		16,710
Retained earnings	10,907,253		10,047,839
Less treasury stock at cost – 17,271,177 and 17,107,889 shares as of June 30, 2022 and December 31, 2021, respectively	(10,413,916)		(9,423,858)
Total shareholders' equity	2,991,666		3,002,378
Total liabilities and shareholders' equity	$	5,287,699	$	5,834,475

See notes to condensed consolidated financial statements.

2

NVR, Inc.

Condensed Consolidated Statements of Income

(in thousands, except per share data)

(unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Homebuilding:
Revenues	$	2,610,062	$	2,224,560	$	4,919,289	$	4,188,271
Other income	3,896		1,632		5,235		3,218
Cost of sales	(1,924,727)		(1,721,673)		(3,576,092)		(3,299,126)
Selling, general and administrative	(132,432)		(113,406)		(261,942)		(234,825)
Operating income	556,799		391,113		1,086,490		657,538
Interest expense	(11,852)		(12,850)		(24,656)		(25,856)
Homebuilding income	544,947		378,263		1,061,834		631,682
Mortgage Banking:
Mortgage banking fees	48,881		59,038		118,063		136,773
Interest income	2,772		2,209		4,846		4,241
Other income	1,303		988		2,375		1,855
General and administrative	(23,486)		(22,613)		(46,394)		(44,269)
Interest expense	(405)		(420)		(767)		(811)
Mortgage banking income	29,065		39,202		78,123		97,789
Income before taxes	574,012		417,465		1,139,957		729,471
Income tax benefit (expense)	(140,698)		(96,170)		(280,543)		(159,414)
Net income	$	433,314	$	321,295	$	859,414	$	570,057
Basic earnings per share	$	131.84	$	88.69	$	257.65	$	156.27
Diluted earnings per share	$	123.65	$	82.45	$	240.05	$	145.53
Basic weighted average shares outstanding	3,287		3,623		3,336		3,648
Diluted weighted average shares outstanding	3,504		3,897		3,580		3,917

See notes to condensed consolidated financial statements.

3

NVR, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Six Months Ended June 30,
	2022		2021
Cash flows from operating activities:
Net income	$	859,414	$	570,057
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	8,991		10,038
Equity-based compensation expense	31,755		27,850
Contract land deposit recoveries, net	(6,342)		(13,355)
Gain on sale of loans, net	(94,813)		(115,152)
Mortgage loans closed	(3,133,046)		(2,981,630)
Mortgage loans sold and principal payments on mortgage loans held for sale	3,195,784		3,194,279
Distribution of earnings from unconsolidated joint ventures	4,000		5,500
Net change in assets and liabilities:
Increase in inventory	(431,379)		(264,291)
Increase in contract land deposits	(20,917)		(24,318)
Increase in receivables	(16,394)		(4,327)
Increase in accounts payable and accrued expenses	25,716		7,943
Increase in customer deposits	21,656		124,685
Other, net	2,781		(16,259)
Net cash provided by operating activities	447,206		521,020
Cash flows from investing activities:
Investments in and advances to unconsolidated joint ventures	(9,222)		(659)
Purchase of property, plant and equipment	(8,751)		(6,620)
Proceeds from the sale of property, plant and equipment	346		657
Net cash used in investing activities	(17,627)		(6,622)
Cash flows from financing activities:
Purchase of treasury stock	(1,015,703)		(754,366)
Redemption of senior notes	(600,000)		—
Principal payments on finance lease liabilities	(723)		(661)
Proceeds from the exercise of stock options	113,822		95,673
Net cash used in financing activities	(1,502,604)		(659,354)
Net decrease in cash, restricted cash, and cash equivalents	(1,073,025)		(144,956)
Cash, restricted cash, and cash equivalents, beginning of the period	2,636,984		2,809,782
Cash, restricted cash, and cash equivalents, end of the period	$	1,563,959	$	2,664,826
Supplemental disclosures of cash flow information:
Interest paid during the period, net of interest capitalized	$	32,627	$	26,875
Income taxes paid during the period, net of refunds	$	291,721	$	172,563

See notes to condensed consolidated financial statements.

4

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

1. Significant Accounting Policies

Basis of Presentation

The accompanying unaudited, condensed consolidated financial statements include the accounts of NVR, Inc. (“NVR”, the “Company”, "we", "us" or "our") and its subsidiaries and certain other entities in which the Company is deemed to be the primary beneficiary (see Notes 2 and 3 to the accompanying condensed consolidated financial statements).  Intercompany accounts and transactions have been eliminated in consolidation.  The statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  Because the accompanying condensed consolidated financial statements do not include all of the information and footnotes required by GAAP, they should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021.  In the opinion of management, all adjustments (consisting only of normal recurring accruals except as otherwise noted herein) considered necessary for a fair presentation have been included.  Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Actual results could differ from those estimates.

For the three and six months ended June 30, 2022 and 2021, comprehensive income equaled net income; therefore, a separate statement of comprehensive income is not included in the accompanying condensed consolidated financial statements.

Cash and Cash Equivalents

The beginning-of-period and end-of-period cash, restricted cash, and cash equivalent balances presented on the accompanying condensed consolidated statements of cash flows includes cash related to a consolidated joint venture which is included in homebuilding "Other assets" on the accompanying condensed consolidated balance sheets. The cash related to this consolidated joint venture as of June 30, 2022 and December 31, 2021 was $258 and $268, respectively, and as of June 30, 2021 and December 31, 2020 was $273 and $269, respectively.

Revenue Recognition

Homebuilding revenue is recognized on the settlement date at the contract sales price, when control is transferred to our customers. Our contract liabilities, which consist of deposits received from customers on homes not settled, were $439,119 and $417,463 as of June 30, 2022 and December 31, 2021, respectively. We expect that substantially all of the customer deposits held at December 31, 2021 will be recognized in revenue in 2022. Our contract assets consist of prepaid sales compensation and totaled approximately $24,400 and $25,200, as of June 30, 2022 and December 31, 2021, respectively. Prepaid sales compensation is included in homebuilding “Other assets” on the accompanying condensed consolidated balance sheets.

2.    Variable Interest Entities ("VIEs")

Fixed Price Finished Lot Purchase Agreements (“LPAs”)

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

5

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

The deposit placed by us pursuant to the LPA is deemed to be a variable interest in the respective development entities.  Those development entities are deemed to be VIEs.  Therefore, the development entities with which we enter into LPAs, including the joint venture limited liability corporations discussed below, are evaluated for possible consolidation by us.  We have concluded that we are not the primary beneficiary of the development entities with which we enter into LPAs, and therefore, we do not consolidate any of these VIEs.

As of June 30, 2022, we controlled approximately 127,700 lots under LPAs with third parties through deposits in cash and letters of credit totaling approximately $541,400 and $8,100, respectively.  Our sole legal obligation and economic loss for failure to perform under these LPAs is limited to the amount of the deposit pursuant to the liquidated damage provisions contained in the LPAs and, in very limited circumstances, specific performance obligations. For the three and six months ended June 30, 2022, we recorded a net reversal of approximately $400 and $6,300, respectively, related to previously impaired lot deposits based on current market conditions. For the three and six months ended June 30, 2021, we recorded a net reversal of approximately $7,200 and $13,400, respectively, related to previously impaired lot deposits. Our contract land deposit asset is shown net of a $23,516 and $30,041 impairment reserve at June 30, 2022 and December 31, 2021, respectively.

In addition, we have certain properties under contract with land owners that are expected to yield approximately 23,900 lots, which are not included in the number of total lots controlled.  Some of these properties may require rezoning or other approvals to achieve the expected yield. These properties are controlled with deposits in cash totaling approximately $6,500 as of June 30, 2022, of which approximately $4,300 is refundable if certain contractual conditions are not met.  We generally expect to assign the raw land contracts to a land developer and simultaneously enter into an LPA with the assignee if the project is determined to be feasible.

Our total risk of loss related to contract land deposits is limited to the amount of the deposits pursuant to the liquidated damages provision of the LPAs. As of June 30, 2022 and December 31, 2021, our total risk of loss was as follows:

	June 30, 2022		December 31, 2021
Contract land deposits	$	547,914	$	527,180
Loss reserve on contract land deposits	(23,516)		(30,041)
Contract land deposits, net	524,398		497,139
Contingent obligations in the form of letters of credit	8,077		10,145
Total risk of loss	$	532,475	$	507,284

3.    Joint Ventures

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

At June 30, 2022, we had an aggregate investment totaling approximately $30,000 in five JVs that are expected to produce approximately 5,400 finished lots, of which approximately 5,050 lots were controlled by us and the remaining approximately 350 lots were either under contract with unrelated parties or not currently under contract. We had additional funding commitments totaling approximately $2,000 to one of the JVs at June 30, 2022.

We determined that we are not the primary beneficiary in four of the JVs because we and the other JV partner either share power or the other JV partner has the controlling financial interest. The aggregate investment in unconsolidated JVs was approximately $30,000 and $20,300 at June 30, 2022 and December 31, 2021, respectively, and is reported in the homebuilding “Other assets” line item on the accompanying condensed consolidated balance

6

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

sheets. None of the unconsolidated JVs had any indicators of impairment as of June 30, 2022. For the remaining JV, we concluded that we are the primary beneficiary because we have the controlling financial interest in the JV. All activities under the consolidated JV have been completed and we have no remaining investment in the JV. As of June 30, 2022, the JV had remaining balances of $258 in cash and $232 in accrued expenses, which are included in homebuilding "Other assets" and "Accrued expenses and other liabilities," respectively, in the accompanying condensed consolidated balance sheets.

We recognize income from the JVs as a reduction to the lot cost of the lots purchased from the respective JVs when the homes are settled, based on the expected total profitability and the total number of lots expected to be produced by the respective JVs.

We classify distributions received from unconsolidated JVs using the cumulative earnings approach. As a result, distributions received up to the amount of cumulative earnings recognized by us are reported as distributions of earnings and those in excess of that amount are reported as a distribution of capital. These distributions are classified within the accompanying condensed consolidated statements of cash flows as cash flows from operating activities and investing activities, respectively.

4.    Land Under Development

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

As of June 30, 2022, we owned land parcels with a carrying value of $16,274 that we intend to develop into approximately 450 finished lots. We have additional funding commitments of approximately $1,800 under a joint development agreement related to one parcel, a portion of which we expect will be offset by development credits of approximately $600. None of the raw parcels had any indicators of impairment as of June 30, 2022.

5.    Capitalized Interest

We capitalize interest costs to land under development during the active development of finished lots.  In addition, we capitalize interest costs on our JV investments while the investments are considered qualified assets pursuant to ASC Topic 835-20 - Interest. Capitalized interest is transferred to sold or unsold inventory as the development of finished lots is completed, then charged to cost of sales upon our settlement of homes and the respective lots.  Interest incurred in excess of the interest capitalizable based on the level of qualified assets is expensed in the period incurred.

The following table reflects the changes in our capitalized interest during the three and six months ended June 30, 2022 and 2021:

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Interest capitalized, beginning of period	$	640	$	829	$	593	$	1,025
Interest incurred	12,349		13,291		25,603		26,714
Interest charged to interest expense	(12,257)		(13,270)		(25,423)		(26,667)
Interest charged to cost of sales	(52)		(206)		(93)		(428)
Interest capitalized, end of period	$	680	$	644	$	680	$	644

7

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

6.    Earnings per Share

The following weighted average shares and share equivalents were used to calculate basic and diluted earnings per share ("EPS") for the three and six months ended June 30, 2022 and 2021:

	Three Months Ended June 30,		Six Months Ended June 30,
	2022	2021	2022	2021
Weighted average number of shares outstanding used to calculate basic EPS	3,286,574	3,622,635	3,335,644	3,647,874
Dilutive securities:
Stock options and restricted share units	217,730	274,074	244,445	269,230
Weighted average number of shares and share equivalents outstanding used to calculate diluted EPS	3,504,304	3,896,709	3,580,089	3,917,104

The following non-qualified stock options ("Options") and restricted stock units ("RSUs") issued under equity incentive plans were outstanding during the three and six months ended June 30, 2022 and 2021, but were not included in the computation of diluted EPS because the effect would have been anti-dilutive.

	Three Months Ended June 30,		Six Months Ended June 30,
	2022	2021	2022	2021
Anti-dilutive securities	217,662	18,182	189,988	19,002

8

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

7.    Equity-Based Compensation

Our equity-based compensation plans provide for the granting of Options and RSUs to key management employees, including executive officers and members of our Board of Directors ("Directors"). The exercise price of Options granted is equal to the closing price of our common stock on the New York Stock Exchange (the “NYSE”) on the day prior to the date of grant. Options are granted for a 10-year term and typically vest in separate tranches over periods of 3 to 6 years. RSUs generally vest in separate tranches over periods of 2 to 6 years. Grants to key management employees are generally divided such that vesting for 50% of the grant is contingent solely on continued employment, while vesting for the remaining 50% of the grant is contingent upon both continued employment and the achievement of a performance metric based on our return on capital performance relative to a peer group during a 3-year period specified on the date of grant. Grants to directors generally vest solely on continued service as a Director.

During the second quarter of 2022, we issued 165,456 Options and 16,864 RSUs in a block grant to key management employees and Directors. Block grants are generally made once every four years. Option and RSU grants for the six month period ended June 30, 2022 totaled 168,366 and 17,694, respectively, and were granted under the NVR, Inc. 2014 Equity Incentive Plan (the "2014 Plan") and the NVR, Inc. 2018 Equity Incentive Plan (the "2018 Plan") as follows:

Options Granted	2014 Plan	2018 Plan
Options - service-only (1)	55,415	31,351
Options - performance-based (2)	55,415	26,185
Total Options Granted	110,830	57,536
RSUs Granted
RSUs - service-only (3)	—	8,870
RSUs - performance-based (4)	—	8,824
Total RSUs Granted	—	17,694

(1)Of the 86,766 service-only Options granted, 68,466 Options will vest over four years in 25% increments on December 31, 2024, 2025, 2026, and 2027; 16,090 Options will vest over two years in 50% increments on December 31, 2026 and 2027; and the remaining 2,210 Options will vest over two years in 50% increments on December 31, 2024 and 2025. Vesting for the Options is contingent solely upon continued employment or continued service as a Director.

(2)Of the 81,600 performance-based Options granted, 63,300 will vest over four years in 25% increments on December 31, 2024, 2025, 2026, and 2027; 16,090 Options will vest over two years in 50% increments on December 31, 2026 and 2027; and the remaining 2,210 Options will vest over two years in 50% increments on December 31, 2024 and 2025. Vesting for the performance-based Options is contingent upon both continued employment and the Company's return on capital performance during 2022 through 2024.

(3)Of the 8,870 service-only RSUs granted, 5,109 will vest over two years in 50% increments on December 31, 2024 and 2025; 3,119 RSUs will vest over four years in 25% increments on December 31, 2024, 2025, 2026, and 2027; and the remaining 642 RSUs will vest over two years in 50% increments on December 31, 2026 and 2027. Vesting for the RSUs is contingent solely upon continued employment.

(4)Of the 8,824 performance-based RSUs granted, 5,109 will vest over two years in 50% increments on December 31, 2024 and 2025; 3,119 RSUs will vest over four years in 25% increments on December 31, 2024, 2025, 2026, and 2027; and the remaining 596 RSUs will vest over two years in 50% increments on December 31, 2026 and 2027. Vesting for the performance-based RSUs is contingent upon both continued employment and the Company's return on capital performance during 2022 through 2024.

All Options were granted at an exercise price equal to the closing price of the Company’s common stock on the day prior to the date of grant, and expire ten years from the date of grant.

9

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

The following table provides additional information relative to our equity-based compensation plans for the six months ended June 30, 2022:

	Shares	Weighted Avg. Per Share Exercise Price		Weighted Avg. Remaining Contract Life (years)	Aggregate Intrinsic Value
Stock Options
Outstanding at December 31, 2021	534,695	$	2,424.62
Granted	168,366	4,487.97
Exercised	(43,719)	2,598.73
Forfeited	(11,450)	3,406.42
Outstanding at June 30, 2022	647,892	$	2,931.72	6.1	$	788,955
Exercisable at June 30, 2022	297,665	$	1,927.47	3.6	$	618,152
RSUs
Outstanding at December 31, 2021	16,564
Granted	17,694
Vested	—
Forfeited	(1,314)
Outstanding at June 30, 2022	32,944				$	131,912
Vested, but not issued at June 30, 2022	—				$	—

To estimate the grant-date fair value of our Options, we use the Black-Scholes option-pricing model (the “Pricing Model”). The Pricing Model estimates the per share fair value of an option on its date of grant based on the following factors: the Option’s exercise price; the price of the underlying stock on the date of grant; the estimated dividend yield; a risk-free interest rate; the estimated option term; and the expected volatility. For the risk-free interest rate, we use U.S. Treasury STRIPS which mature at approximately the same time as the Option’s expected holding term. For expected volatility, we have concluded that our historical volatility over the Option’s expected holding term provides the most reasonable basis for this estimate.

The fair value of the Options granted during the first six months of 2022 was estimated on the grant date using the Pricing Model, based on the following assumptions:  

Estimated option life (years)	5.60
Risk free interest rate (range)	1.17%-3.07%
Expected volatility (range)	24.93%-30.52%
Expected dividend rate	—%
Weighted average grant-date fair value per share of options granted	$	1,434.57

The weighted average grant date fair value per share of $4,509.67 for the RSUs was the closing price of our common stock on the day immediately preceding the date of grant.

Compensation cost for Options and RSUs is recognized on a straight-line basis over the requisite service period for the entire award (from the date of grant through the period of the last separately vesting portion of the grant). For the recognition of equity-based compensation, the Options and RSUs that are subject to a performance condition are treated as a separate award from the “service-only” Options and RSUs, and compensation cost is recognized when it becomes probable that the stated performance target will be achieved. We currently believe that it is probable that the stated performance condition will be satisfied at the target level for all of our Options and

10

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

RSUs granted. Compensation cost is recognized within the income statement in the same expense line as the cash compensation paid to the respective employees.

We recognize forfeitures of equity-based awards as a reduction to compensation costs in the period in which they occur. During the three and six months ended June 30, 2022, we recognized $20,087 and $31,755 in equity-based compensation costs, respectively. During the three and six months ended June 30, 2021, we recognized $13,379 and $27,850 in equity-based compensation costs, respectively.

As of June 30, 2022, the total unrecognized compensation cost for all outstanding Options and RSUs equaled approximately $406,545. The unrecognized compensation cost will be recognized over each grant’s applicable vesting period with the latest vesting date being December 31, 2027. The weighted-average period over which the unrecognized compensation cost will be recorded is equal to approximately 2.8 years.

11

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

8.    Shareholders’ Equity

A summary of changes in shareholders’ equity for the three months ended June 30, 2022 is presented below:

	Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock		Deferred Compensation Trust		Deferred Compensation Liability		Total
Balance, March 31, 2022	$	206	$	2,416,660	$	10,473,939	$	(10,165,206)	$	(16,710)	$	16,710	$	2,725,599
Net income	—		—		433,314		—		—		—		433,314
Purchase of common stock for treasury	—		—		—		(266,915)		—		—		(266,915)
Equity-based compensation	—		20,087		—		—		—		—		20,087
Proceeds from Options exercised	—		79,581		—		—		—		—		79,581
Treasury stock issued upon Option exercise	—		(18,205)		—		18,205		—		—		—
Balance, June 30, 2022	$	206	$	2,498,123	$	10,907,253	$	(10,413,916)	$	(16,710)	$	16,710	$	2,991,666

A summary of changes in shareholders’ equity for the six months ended June 30, 2022 is presented below:

	Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock		Deferred Compensation Trust		Deferred Compensation Liability		Total
Balance, December 31, 2021	$	206	$	2,378,191	$	10,047,839	$	(9,423,858)	$	(16,710)	$	16,710	$	3,002,378
Net income	—		—		859,414		—		—		—		859,414
Purchase of common stock for treasury	—		—		—		(1,015,703)		—		—		(1,015,703)
Equity-based compensation	—		31,755		—		—		—		—		31,755
Proceeds from Options exercised	—		113,822		—		—		—		—		113,822
Treasury stock issued upon Option exercise	—		(25,645)		—		25,645		—		—		—
Balance, June 30, 2022	$	206	$	2,498,123	$	10,907,253	$	(10,413,916)	$	(16,710)	$	16,710	$	2,991,666

We repurchased 61,078 and 207,132 shares of our outstanding common stock during the three and six months ended June 30, 2022, respectively. We settle Option exercises and vesting of RSUs by issuing shares of treasury stock.  We issued 30,396 and 43,719 shares from the treasury account during the three and six months ended June 30, 2022, respectively, in settlement of Option exercises.  Shares are relieved from the treasury account based on the weighted average cost basis of treasury shares.

12

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

A summary of changes in shareholders’ equity for the three months ended June 30, 2021 is presented below:

	Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock		Deferred Compensation Trust		Deferred Compensation Liability		Total
Balance, March 31, 2021	$	206	$	2,272,006	$	9,059,882	$	(8,285,587)	$	(16,710)	$	16,710	$	3,046,507
Net income	—		—		321,295		—		—		—		321,295
Purchase of common stock for treasury	—		—		—		(376,941)		—		—		(376,941)
Equity-based compensation	—		13,379		—		—		—		—		13,379
Proceeds from Options exercised	—		38,048		—		—		—		—		38,048
Treasury stock issued upon Option exercise and RSU vesting	—		(8,869)		—		8,869		—		—		—
Balance, June 30, 2021	$	206	$	2,314,564	$	9,381,177	$	(8,653,659)	$	(16,710)	$	16,710	$	3,042,288

A summary of changes in shareholders’ equity for the six months ended June 30, 2021 is presented below:

	Common Stock		Additional Paid-In Capital		Retained Earnings		Treasury Stock		Deferred Compensation Trust		Deferred Compensation Liability		Total
Balance, December 31, 2020	$	206	$	2,214,426	$	8,811,120	$	(7,922,678)	$	(16,710)	$	16,710	$	3,103,074
Net income	—		—		570,057		—		—		—		570,057
Purchase of common stock for treasury	—		—		—		(754,366)		—		—		(754,366)
Equity-based compensation	—		27,850		—		—		—		—		27,850
Proceeds from Options exercised	—		95,673		—		—		—		—		95,673
Treasury stock issued upon Option exercise and RSU vesting	—		(23,385)		—		23,385		—		—		—
Balance, June 30, 2021	$	206	$	2,314,564	$	9,381,177	$	(8,653,659)	$	(16,710)	$	16,710	$	3,042,288

We repurchased 78,452 and 164,975 shares of our outstanding common stock during the three and six months ended June 30, 2021, respectively. We issued 18,033 and 48,588 shares from the treasury account during the three and six months ended June 30, 2021, respectively, in settlement of Option exercises and vesting of RSUs.  

9.    Product Warranties

We establish warranty and product liability reserves (“Warranty Reserve”) to provide for estimated future expenses as a result of construction and product defects, product recalls and litigation incidental to our homebuilding business.  Liability estimates are determined based on management’s judgment, considering such factors as historical experience, the estimated current cost of corrective action, manufacturers’ and subcontractors’ participation in sharing the cost of corrective action, consultations with third party experts such as engineers, and discussions with our general counsel and outside counsel retained to handle specific product liability cases.

13

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

The following table reflects the changes in our Warranty Reserve during the three and six months ended June 30, 2022 and 2021:

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Warranty reserve, beginning of period	$	135,341	$	124,836	$	134,859	$	119,638
Provision	24,551		21,760		42,518		44,089
Payments	(21,652)		(19,094)		(39,137)		(36,225)
Warranty reserve, end of period	$	138,240	$	127,502	$	138,240	$	127,502

10.    Segment Disclosures

Our homebuilding operations are aggregated geographically into four homebuilding reportable segments and our mortgage banking operations are presented as one reportable segment.  The homebuilding reportable segments are comprised of operating divisions in the following geographic areas:

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

Homebuilding profit before tax includes all revenues and income generated from the sale of homes, less the cost of homes sold, selling, general and administrative expenses and a corporate capital allocation charge.  The corporate capital allocation charge is eliminated in consolidation and is based on the segment’s average net assets employed.  The corporate capital allocation charged to the operating segment allows the Chief Operating Decision Maker (“CODM”) to determine whether the operating segment’s results are providing the desired rate of return after covering our cost of capital.  

Assets not allocated to the operating segments are not included in either the operating segment’s corporate capital allocation charge or the CODM’s evaluation of the operating segment’s performance.  We record charges on contract land deposits when it is determined that it is probable that recovery of the deposit is impaired.  For segment reporting purposes, impairments on contract land deposits are generally charged to the operating segment upon the termination of an LPA with the developer, or the restructuring of an LPA resulting in the forfeiture of the deposit.  Mortgage banking profit before tax consists of revenues generated from mortgage financing, title insurance and closing services, less the costs of such services and general and administrative costs.  Mortgage banking operations are not charged a corporate capital allocation charge.

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

14

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

The following tables present segment revenues, profit and assets with reconciliations to the amounts reported for the consolidated enterprise, where applicable:

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Revenues:
Homebuilding Mid Atlantic	$	1,208,312	$	1,048,416	$	2,350,020	$	1,984,556
Homebuilding North East	237,394		193,245		412,945		355,438
Homebuilding Mid East	521,038		478,179		982,442		903,132
Homebuilding South East	643,318		504,720		1,173,882		945,145
Mortgage Banking	48,881		59,038		118,063		136,773
Total consolidated revenues	$	2,658,943	$	2,283,598	$	5,037,352	$	4,325,044

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Income before taxes:
Homebuilding Mid Atlantic	$	251,739	$	174,481	$	501,520	$	303,548
Homebuilding North East	41,297		21,510		67,225		36,737
Homebuilding Mid East	82,512		59,887		153,695		108,828
Homebuilding South East	150,822		78,919		264,276		135,584
Mortgage Banking	28,800		40,372		78,906		99,934
Total segment profit before taxes	555,170		375,169		1,065,622		684,631
Reconciling items:
Contract land deposit recoveries (1)	419		7,178		6,345		13,374
Equity-based compensation expense (2)	(20,087)		(13,379)		(31,755)		(27,850)
Corporate capital allocation (3)	77,512		63,032		147,256		124,583
Unallocated corporate overhead	(32,282)		(33,668)		(77,543)		(73,804)
Consolidation adjustments and other (4)	5,096		31,944		54,603		34,330
Corporate interest expense	(11,816)		(12,811)		(24,571)		(25,793)
Reconciling items sub-total	18,842		42,296		74,335		44,840
Consolidated income before taxes	$	574,012	$	417,465	$	1,139,957	$	729,471

(1)This item represents changes to the contract land deposit impairment reserve, which are not allocated to the reportable segments. See further discussion of lot deposit impairment charges in Note 2.

(2)The increase in equity-based compensation expense for the three and six months ended June 30, 2022 was primarily attributable to a four year block grant of Options and RSUs in May 2022. See additional discussion of equity-based compensation in Note 7.

15

NVR, Inc.

Notes to Condensed Consolidated Financial Statements

(dollars in thousands, except per share data)

(unaudited)

(3)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 was as follows for the periods presented: