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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number: 1-12378
NVR, Inc.
(Exact name of registrant as specified in its charter)
Virginia54-1394360
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
11700 Plaza America Drive, Suite 500
Reston, Virginia 20190
(703) 956-4000
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
Not Applicable
(Former name, former address, and former fiscal year if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common stock, par value $0.01 per shareNVRNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of April 30, 2021 there were 3,636,606 total shares of common stock outstanding.



NVR, Inc.
FORM 10-Q
TABLE OF CONTENTS
Page
PART I
Item 1.
Item 2.
PART II
Item 1A.
Item 2.
Item 6.




PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NVR, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(unaudited)
 March 31, 2021December 31, 2020
ASSETS  
Homebuilding:  
Cash and cash equivalents$2,753,123 $2,714,720 
Restricted cash36,193 28,912 
Receivables22,059 18,299 
Inventory:
Lots and housing units, covered under sales agreements with customers1,623,941 1,484,936 
Unsold lots and housing units116,141 123,197 
Land under development63,153 62,790 
Building materials and other26,557 38,159 
 1,829,792 1,709,082 
Contract land deposits, net396,903 387,628 
Property, plant and equipment, net55,720 57,786 
Operating lease right-of-use assets50,770 53,110 
Reorganization value in excess of amounts allocable to identifiable assets, net41,580 41,580 
Other assets219,479 203,399 
 5,405,619 5,214,516 
Mortgage Banking:  
Cash and cash equivalents21,061 63,547 
Restricted cash3,867 2,334 
Mortgage loans held for sale, net334,782 449,760 
Property and equipment, net4,460 4,544 
Operating lease right-of-use assets12,087 12,439 
Reorganization value in excess of amounts allocable to identifiable assets, net7,347 7,347 
Other assets31,585 22,654 
 415,189 562,625 
Total assets$5,820,808 $5,777,141 


See notes to condensed consolidated financial statements.

1


NVR, Inc.
Condensed Consolidated Balance Sheets (Continued)
(in thousands, except share and per share data)
(unaudited)
March 31, 2021December 31, 2020
LIABILITIES AND SHAREHOLDERS' EQUITY  
Homebuilding:  
Accounts payable$360,881 $339,867 
Accrued expenses and other liabilities458,849 440,671 
Customer deposits314,453 240,758 
Operating lease liabilities56,697 59,357 
Senior notes1,517,114 1,517,395 
 2,707,994 2,598,048 
Mortgage Banking:  
Accounts payable and other liabilities53,335 62,720 
Operating lease liabilities12,972 13,299 
 66,307 76,019 
Total liabilities2,774,301 2,674,067 
Commitments and contingencies
Shareholders' equity:  
Common stock, $0.01 par value; 60,000,000 shares authorized; 20,555,330 shares issued as of both March 31, 2021 and December 31, 2020
206 206 
Additional paid-in capital2,272,006 2,214,426 
Deferred compensation trust – 106,697 shares of NVR, Inc. common stock as of March 31, 2021 and December 31, 2020
(16,710)(16,710)
Deferred compensation liability16,710 16,710 
Retained earnings9,059,882 8,811,120 
Less treasury stock at cost – 16,915,721 and 16,859,753 shares as of March 31, 2021 and December 31, 2020, respectively
(8,285,587)(7,922,678)
Total shareholders' equity3,046,507 3,103,074 
Total liabilities and shareholders' equity$5,820,808 $5,777,141 


See notes to condensed consolidated financial statements.
2

Table of Contents
NVR, Inc.
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)
 Three Months Ended March 31,
 20212020
Homebuilding:  
Revenues$1,963,711 $1,555,707 
Other income1,586 5,336 
Cost of sales(1,577,453)(1,294,743)
Selling, general and administrative(121,419)(110,167)
Operating income266,425 156,133 
Interest expense(13,006)(6,214)
Homebuilding income253,419 149,919 
Mortgage Banking:  
Mortgage banking fees77,735 26,821 
Interest income2,032 2,469 
Other income867 649 
General and administrative(21,656)(18,211)
Interest expense(391)(272)
Mortgage banking income58,587 11,456 
Income before taxes312,006 161,375 
Income tax benefit (expense)(63,244)14,328 
Net income$248,762 $175,703 
Basic earnings per share$67.72 $47.97 
Diluted earnings per share$63.21 $44.96 
Basic weighted average shares outstanding3,673 3,663 
Diluted weighted average shares outstanding3,935 3,908 


See notes to condensed consolidated financial statements.
3

Table of Contents
NVR, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 Three Months Ended March 31,
 20212020
Cash flows from operating activities:  
Net income$248,762 $175,703 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization5,203 5,622 
Equity-based compensation expense14,471 7,492 
Contract land deposit and other (recoveries) impairments, net(6,183)36,336 
Gain on sale of loans, net(67,550)(18,400)
Mortgage loans closed(1,413,988)(1,133,283)
Mortgage loans sold and principal payments on mortgage loans held for sale1,583,701 1,228,025 
Net change in assets and liabilities:  
Increase in inventory(120,710)(168,352)
(Increase) decrease in contract land deposits(3,092)8,259 
Increase in receivables(4,243)(33,190)
Increase (decrease) in accounts payable and accrued expenses33,618 (39,438)
Increase in customer deposits73,695 15,275 
Other, net(15,426)(15,608)
Net cash provided by operating activities328,258 68,441 
Cash flows from investing activities:  
Investments in and advances to unconsolidated joint ventures(659) 
Purchase of property, plant and equipment(3,104)(3,510)
Proceeds from the sale of property, plant and equipment369 252 
Net cash used in investing activities(3,394)(3,258)
Cash flows from financing activities:  
Purchase of treasury stock(377,425)(216,582)
Principal payments on finance lease liabilities(329)(200)
Proceeds from the exercise of stock options57,625 109,062 
Net cash used in financing activities(320,129)(107,720)
Net increase (decrease) in cash, restricted cash, and cash equivalents4,735 (42,537)
Cash, restricted cash, and cash equivalents, beginning of the period2,809,782 1,160,804 
Cash, restricted cash, and cash equivalents, end of the period$2,814,517 $1,118,267 
Supplemental disclosures of cash flow information:  
Interest paid during the period, net of interest capitalized$12,614 $12,174 
Income taxes paid during the period, net of refunds$2,635 $2,438 


See notes to condensed consolidated financial statements.
4

Table of Contents
NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars and shares 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, 2020.  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 months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
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 months ended March 31, 2021 and 2020, 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 March 31, 2021 and December 31, 2020 was $273 and $269, respectively, and as of March 31, 2020 and December 31, 2019 was $274 and $281, 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 $314,453 and $240,758 as of March 31, 2021 and December 31, 2020, respectively. We expect that substantially all of the customer deposits held at December 31, 2020 will be recognized in revenue in 2021. Our prepaid sales compensation totaled approximately $25,600 and $22,500, as of March 31, 2021 and December 31, 2020, 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

Table of Contents
NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars and shares 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 March 31, 2021, we controlled approximately 106,100 lots under LPAs with third parties through deposits in cash and letters of credit totaling approximately $436,000 and $7,300, respectively.  Our sole legal obligation and economic loss for failure to perform under these LPAs is limited to the amount of the deposit pursuant to the liquidated damage provisions contained in the LPAs. For the three month period ended March 31, 2021, we recorded a net reversal of approximately $6,200 related to previously impaired lot deposits as market conditions have improved. For the three months ended March 31, 2020, we recorded pre-tax charges of approximately $36,400 related to impairments of lot deposits due to deteriorating market conditions in certain of our markets related to the onset of the COVID-19 pandemic. Our contract land deposit is shown net of a $46,008 and $52,205 impairment reserve at March 31, 2021 and December 31, 2020, respectively.
In addition, we have certain properties under contract with land owners that are expected to yield approximately 9,000 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 and letters of credit totaling approximately $7,000 and $100, respectively, as of March 31, 2021, of which approximately $2,000 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 March 31, 2021 and December 31, 2020, our total risk of loss was as follows:
March 31, 2021December 31, 2020
Contract land deposits$442,911 $439,833 
Loss reserve on contract land deposits(46,008)(52,205)
Contract land deposits, net396,903 387,628 
Contingent obligations in the form of letters of credit7,414 8,249 
Total risk of loss$404,317 $395,877 

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 March 31, 2021, we had an aggregate investment totaling approximately $25,900 in four JVs that are expected to produce approximately 5,050 finished lots, of which approximately 2,100 lots were controlled by us and the remaining approximately 2,950 lots were either under contract with unrelated parties or not currently under contract. We had additional funding commitments totaling approximately $3,100 to one of the JVs at March 31, 2021. We have determined that we are not the primary beneficiary of three of the JVs because we either share power with the other JV partner or the other JV partner has the controlling financial interest. The aggregate investment in unconsolidated JVs was approximately $25,900 and $23,600 at March 31, 2021 and December 31, 2020, respectively, and is reported in the “Other assets” line item on the accompanying condensed consolidated
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NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
(unaudited)
balance sheets. None of the unconsolidated JVs had any indicators of impairment as of March 31, 2021. For the remaining JV, we have concluded that we are the primary beneficiary because we have the controlling financial interest in the JV. As of December 31, 2019, all activities under the consolidated JV had been completed. As of March 31, 2021, we had no investment remaining in the JV and the JV had remaining balances of $273 in cash and $252 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 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.
As of March 31, 2021, we directly owned a total of three separate raw land parcels with a carrying value of $63,153 that are expected to produce approximately 500 finished lots. In April 2021, we sold one of the land parcels to a developer for approximately $45,750, which approximated our carrying value of the property as of the sale date. In conjunction with the sale, we entered into an LPA with the developer for the option to purchase the finished lots expected to be developed from the parcel. We have 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 $2,800. None of the raw parcels had any indicators of impairment as of March 31, 2021.
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 months ended March 31, 2021 and 2020:
 Three Months Ended March 31,
 20212020
Interest capitalized, beginning of period$1,025 $3,499 
Interest incurred13,422 6,635 
Interest charged to interest expense(13,397)(6,486)
Interest charged to cost of sales(221)(614)
Interest capitalized, end of period$829 $3,034 

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NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars and shares 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 months ended March 31, 2021 and 2020:
 Three Months Ended March 31,
 20212020
Weighted average number of shares outstanding used to calculate basic EPS3,673 3,663 
Dilutive securities:
Stock options and restricted share units262 245 
Weighted average number of shares and share equivalents outstanding used to calculate diluted EPS3,935 3,908 
The following non-qualified stock options ("Options") issued under equity incentive plans were outstanding during the three months ended March 31, 2021 and 2020, but were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive.
 Three Months Ended March 31,
 20212020
Anti-dilutive securities23 26 

7.    Shareholders’ Equity
A summary of changes in shareholders’ equity for the three months ended March 31, 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— — 248,762 — — — 248,762 
Purchase of common stock for treasury— — — (377,425)— — (377,425)
Equity-based compensation— 14,471 — — — — 14,471 
Proceeds from Options exercised— 57,625 — — — — 57,625 
Treasury stock issued upon option exercise and restricted share vesting— (14,516)— 14,516 — — — 
Balance, March 31, 2021$206 $2,272,006 $9,059,882 $(8,285,587)$(16,710)$16,710 $3,046,507 
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NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
(unaudited)
A summary of changes in shareholders’ equity for the three months ended March 31, 2020 is presented below:
 Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Treasury
Stock
Deferred
Compensation
Trust
Deferred
Compensation
Liability
Total
Balance, December 31, 2019$206 $2,055,407 $7,909,872 $(7,624,241)$(16,912)$16,912 $2,341,244 
Net income— — 175,703 — — — 175,703 
Purchase of common stock for treasury— — — (216,582)— — (216,582)
Equity-based compensation— 7,492 — — — — 7,492 
Proceeds from Options exercised— 109,062 — — — — 109,062 
Treasury stock issued upon option exercise and restricted share vesting— (44,646)— 44,646 — — — 
Balance, March 31, 2020$206 $2,127,315 $8,085,575 $(7,796,177)$(16,912)$16,912 $2,416,919 

We repurchased approximately 87 and 58 shares of our common stock during the three months ended March 31, 2021 and 2020, respectively. We settle Option exercises and vesting of RSUs by issuing shares of treasury stock.  Approximately 31 and 99 shares were issued from the treasury account during the three months ended March 31, 2021 and 2020, respectively, in settlement of Option exercises and vesting of RSUs.  Shares are relieved from the treasury account based on the weighted average cost basis of treasury shares.
8.    Product Warranties
We establish warranty and product liability reserves (“Warranty Reserve”) to provide for estimated future expenses as a result of construction and product defects, product recalls and litigation incidental to our homebuilding business.  Liability estimates are determined based on management’s judgment, considering such factors as historical experience, the estimated current cost of corrective action, manufacturers’ and subcontractors’ participation in sharing the cost of corrective action, consultations with third party experts such as engineers, and discussions with our general counsel and outside counsel retained to handle specific product liability cases.
The following table reflects the changes in our Warranty Reserve during the three months ended March 31, 2021 and 2020:
 Three Months Ended March 31,
 20212020
Warranty reserve, beginning of period$119,638 $108,053 
Provision22,329 12,421 
Payments(17,131)(13,442)
Warranty reserve, end of period$124,836 $107,032 

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NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
(unaudited)
9.    Segment Disclosures
We disclose four homebuilding reportable segments that aggregate geographically our homebuilding operating segments, and our mortgage banking operations 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.
The following tables present segment revenues, profit and assets with reconciliations to the amounts reported for the consolidated enterprise, where applicable:
 Three Months Ended March 31,
 20212020
Revenues:
Homebuilding Mid Atlantic$936,141 $774,058 
Homebuilding North East162,193 106,136 
Homebuilding Mid East424,952 320,695 
Homebuilding South East440,425 354,818 
Mortgage Banking77,735 26,821 
Total consolidated revenues$2,041,446 $1,582,528 
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NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
(unaudited)

Three Months Ended March 31,
 20212020
Income before taxes:
Homebuilding Mid Atlantic$129,067 $81,673 
Homebuilding North East15,227 10,151 
Homebuilding Mid East48,941 31,164 
Homebuilding South East56,665 47,144 
Mortgage Banking59,562 11,879 
Total segment profit before taxes309,462 182,011 
Reconciling items:
Contract land deposit recoveries/(impairments) (1)6,196 (35,615)
Equity-based compensation expense (2)(14,471)(7,492)
Corporate capital allocation (3)61,551 56,650 
Unallocated corporate overhead(39,717)(37,639)
Consolidation adjustments and other1,967 9,654 
Corporate interest expense(12,982)(6,194)
Reconciling items sub-total2,544 (20,636)
Consolidated income before taxes$312,006 $161,375 
(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-month period ended March 31, 2021 was primarily attributable to the reversal of approximately $7,200 in equity based compensation during the first quarter of 2020 related to stock option forfeitures.
(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:
Three Months Ended March 31,
 20212020
Corporate capital allocation charge:
Homebuilding Mid Atlantic$30,596 $29,755 
Homebuilding North East6,038 5,558 
Homebuilding Mid East10,624 9,363 
Homebuilding South East14,293 11,974 
Total$61,551 $56,650 

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NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
(unaudited)
 March 31, 2021December 31, 2020
Assets:
Homebuilding Mid Atlantic$1,171,850 $1,140,910 
Homebuilding North East228,644 202,591 
Homebuilding Mid East403,637 377,448 
Homebuilding South East521,124 494,295 
Mortgage Banking407,842 555,278 
Total segment assets2,733,097 2,770,522 
Reconciling items:
Cash and cash equivalents2,753,123 2,714,720 
Deferred taxes134,930 132,980 
Intangible assets and goodwill49,640 49,678 
Operating lease right-of-use assets50,770 53,110 
Finance lease right-of-use assets15,419 15,772 
Contract land deposit reserve(46,008)(52,205)
Consolidation adjustments and other129,837 92,564 
Reconciling items sub-total3,087,711 3,006,619 
Consolidated assets$5,820,808 $5,777,141 

10.    Fair Value
GAAP assigns a fair value hierarchy to the inputs used to measure fair value.  Level 1 inputs are quoted prices in active markets for identical assets and liabilities.  Level 2 inputs are inputs other than quoted market prices that are observable for the asset or liability, either directly or indirectly.  Level 3 inputs are unobservable inputs.
Financial Instruments
The following table presents the estimated fair values and carrying values of our Senior Notes as of March 31, 2021 and December 31, 2020. The estimated fair value is based on recent market prices of similar transactions, which is classified as Level 2 within the fair value hierarchy. 
March 31, 2021December 31, 2020
Estimated Fair Values:
3.95% Senior Notes due 2022$620,400 $630,000 
3.00% Senior Notes due 2030922,500 982,620 
Total$1,542,900 $1,612,620 
Carrying Values:
3.95% Senior Notes due 2022$599,082 $598,925 
3.00% Senior Notes due 2030918,032 918,470 
Total$1,517,114 $1,517,395 
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NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
(unaudited)

Except as otherwise noted below, we believe that insignificant differences exist between the carrying value and the fair value of our financial instruments, which consist primarily of cash equivalents, due to their short term nature.
Derivative Instruments and Mortgage Loans Held for Sale
In the normal course of business, our wholly-owned mortgage subsidiary, NVR Mortgage Finance, Inc. (“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 NVRM.  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 a broker/dealer.  To mitigate the effect of the interest rate risk inherent in providing rate lock commitments to borrowers, NVRM enters into optional or mandatory delivery forward sale contracts to sell whole loans and mortgage-backed securities to broker/dealers.  The forward sales contracts lock in an interest rate and price for the sale of loans similar to the specific rate lock commitments.  NVRM does not engage in speculative or trading derivative activities.  Both the rate lock commitments to borrowers and the forward sale contracts to broker/dealers are undesignated derivatives and, accordingly, are marked to fair value through earnings.  At March 31, 2021, there were rate lock commitments to extend credit to borrowers aggregating $1,239,365 and open forward delivery contracts aggregating $1,392,437, which hedge both the rate lock commitments and closed loans held for sale.
The fair value of NVRM’s rate lock commitments to borrowers and the related input levels include, as applicable:
i)the assumed gain/loss of the expected resultant loan sale (Level 2);
ii)the effects of interest rate movements between the date of the rate lock and the balance sheet date (Level 2); and
iii)the value of the servicing rights associated with the loan (Level 2).
The assumed gain/loss considers the excess servicing to be received or buydown fees to be paid upon securitization of the loan.  The excess servicing and buydown fees are calculated pursuant to contractual terms with investors.  To calculate the effects of interest rate movements, NVRM utilizes applicable published mortgage-backed security prices, and multiplies the price movement between the rate lock date and the balance sheet date by the notional loan commitment amount.  NVRM sells all of its loans on a servicing released basis, and receives a servicing released premium upon sale.  Thus, the value of the servicing rights is included in the fair value measurement and is based upon contractual terms with investors and varies depending on the loan type.  NVRM assumes a fallout rate when measuring the fair value of rate lock commitments.  Fallout is defined as locked loan commitments for which NVRM does not close a mortgage loan and is based on historical experience.
The fair value of NVRM’s forward sales contracts to broker/dealers solely considers the market price movement of the same type of security between the trade date and the balance sheet date (Level 2).  The market price changes are multiplied by the notional amount of the forward sales contracts to measure the fair value.
Mortgage loans held for sale are recorded at fair value when closed, and thereafter are carried at the lower of cost or fair value, net of deferred origination costs, until sold.  Fair value is measured using Level 2 inputs.  As of March 31, 2021, the fair value of loans held for sale of $334,782 included on the accompanying condensed consolidated balance sheet has been decreased by $2,226 from the aggregate principal balance of $337,008. As of December 31, 2020, the fair value of loans held for sale of $449,760 were increased by $10,042 from the aggregate principal balance of $439,718.
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NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
(unaudited)
The fair value measurement of NVRM's undesignated derivative instruments was as follows:
March 31, 2021December 31, 2020
Rate lock commitments:
Gross assets$15,877 $10,844 
Gross liabilities7,983 87 
Net rate lock commitments$7,894 $10,757 
Forward sales contracts:
Gross assets$10,749 $1 
Gross liabilities286 5,217 
Net forward sales contracts$10,463 $(5,216)
As of March 31, 2021, both the net rate lock commitments and the net forward sales contracts are reported in mortgage banking "Other assets" on the accompanying condensed consolidated balance sheets. As of December 31, 2020, the net rate lock commitments are reported in mortgage banking "Other assets" and the net forward sales contracts are reported in mortgage banking "Accrued expenses and other liabilities".
The fair value measurement adjustment as of March 31, 2021 was as follows:
Notional or
Principal
Amount
Assumed
Gain/(Loss)
From Loan
Sale
Interest
Rate
Movement
Effect
Servicing
Rights
Value
Security
Price
Change
Total Fair
Value
Measurement
Gain/(Loss)
Rate lock commitments$1,239,365 $6,787 $(7,645)$8,752 $— $7,894 
Forward sales contracts$1,392,437 — — — 10,463 10,463 
Mortgages held for sale$337,008 1,925 (7,262)3,111 — (2,226)
Total fair value measurement$8,712 $(14,907)$11,863 $10,463 $16,131 

The total fair value measurement adjustment as of December 31, 2020 was $15,583. NVRM recorded a fair value adjustment to income of $548 for the three months ended March 31, 2021. NVRM recorded a fair value adjustment to expense of $10,721 for the three months ended March 31, 2020. Unrealized gains/losses from the change in the fair value measurements are included in earnings as a component of mortgage banking fees in the accompanying condensed consolidated statements of income.  The fair value measurement will be impacted in the future by the change in the value of the servicing rights, interest rate movements, security price fluctuations, and the volume and product mix of NVRM’s closed loans and locked loan commitments.
11.    Debt
As of March 31, 2021, we had the following debt instruments outstanding:
3.95% Senior Notes due 2022 ("2022 Senior Notes")
The 2022 Senior Notes have a principal balance of $600,000. 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. The 2022 Senior Notes were issued at a discount to yield 3.97% and have been reflected net of the unamortized discount and unamortized debt issuance costs in the accompanying condensed consolidated balance sheet.
3.00% Senior Notes due 2030 ("2030 Senior Notes")
The 2030 Senior Notes have an aggregate principal balance of $900,000 and mature on May 15, 2030. The 2030 Senior Notes bear interest at 3.00%, payable semi-annually in arrears on May 15 and November 15. The 2030 Senior Notes were issued in three separate issuances, $600,000 issued at a discount to yield 3.02%, and the two additional issuances totaling $300,000 issued at a premium to yield 2.00%. The 2030 Senior Notes have been
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NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
(unaudited)
reflected net of the unamortized discount or premium, as applicable, and the unamortized debt issuance costs in the accompanying condensed consolidated balance sheet.
Credit Agreement
We have an unsecured Credit Agreement (the “Credit Agreement”), which provides for aggregate revolving loan commitments of $300,000 (the “Facility”). 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 approximately $12,250 was outstanding at March 31, 2021. The Credit Agreement termination date is February 12, 2026. There was no debt outstanding under the Facility at March 31, 2021.
Repurchase Agreement
NVRM provides for its mortgage origination and other operating activities using cash generated from its operations, borrowings from its parent company, NVR, as well as a revolving mortgage repurchase agreement (the “Repurchase Agreement”), which is non-recourse to NVR.  The Repurchase Agreement provides for loan purchases up to $150,000, subject to certain sub-limits. Amounts outstanding under the Repurchase Agreement are collateralized by the Company’s mortgage loans held for sale.
The Repurchase Agreement expires on July 21, 2021. At March 31, 2021, there were no borrowing base limitations reducing the amount available under the Repurchase Agreement. There was no debt outstanding under the Repurchase Agreement at March 31, 2021.
12.    Commitments and Contingencies
We are involved in various litigation arising in the ordinary course of business. In the opinion of management, and based on advice of legal counsel, this litigation is 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 are expensed as incurred.
13.    Leases
We have operating leases for our corporate and division offices, production facilities, model homes, and certain office and production equipment. Additionally, we have finance leases for certain plant equipment and one of our production facilities which are recorded in homebuilding "Property, plant and equipment, net" and "Accrued expenses and other liabilities" on the accompanying condensed consolidated balance sheets. Our finance lease ROU assets and finance lease liabilities were $15,419 and $15,933, respectively, as of March 31, 2021, and $15,772 and $16,173, respectively, as of December 31, 2020. Our leases have remaining lease terms of up to 19.4 years, some of which include options to extend the leases for up to 20 years, and some of which include options to terminate the lease.
We recognize operating lease expense on a straight-line basis over the lease term. We have elected to use the portfolio approach for certain equipment leases which have similar lease terms and payment schedules. Additionally, for certain equipment we account for the lease and non-lease components as a single lease component. Our sublease income is de minimis.
We have certain leases, primarily the leases of model homes, which have initial lease terms of twelve months or less ("Short-term leases"). We elected to exclude these leases from the recognition requirements under Topic 842, and these leases have not been included in our recognized ROU assets and lease liabilities.
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NVR, Inc.
Notes to Condensed Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
(unaudited)
The components of lease expense were as follows:
Three Months Ended March 31,
20212020
Lease expense
Operating lease expense$7,577 $7,911 
Finance lease expense:
Amortization of ROU assets443 266 
Interest on lease liabilities110 49 
Short-term lease expense5,890 6,426 
Total lease expense$14,020 $14,652 

Other information related to leases was as follows:
Three Months Ended March 31,
20212020
Supplemental Cash Flows Information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$6,810 $6,718 
Operating cash flows from finance leases110 49 
Financing cash flows from finance leases329 200 
ROU assets obtained in exchange for lease obligations:
Operating leases$3,013 $3,784 
Finance leases$89 $440 
March 31, 2021December 31, 2020
Weighted-average remaining lease term (in years):
Operating leases4.64.7
Finance leases12.312.5
Weighted-average discount rate:
Operating leases3.3 %3.4 %
Finance leases2.8 %2.8 %

14.    Income Taxes
Our effective tax rate for the three months ended March 31, 2021 was an expense of 20.3% compared to a benefit of 8.9% for the three months ended March 31, 2020. The increase in the effective tax rate quarter over quarter is primarily attributable to recognizing a lower income tax benefit related to excess tax benefits from stock option exercises in the first quarter of 2021. For the three months ended March 31, 2021 and March 31, 2020, we recognized $17,377 and $55,655, respectively, in such income tax benefits.
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Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
(dollars in thousands, except per share data)
Forward-Looking Statements
Some of the statements in this Quarterly Report on Form 10-Q, 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 may include those regarding market trends, our financial position and financial results, 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 our actual results or performance 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 impact of COVID-19 on us and the economy generally; general economic and business conditions (on both a national and regional level); interest rate changes; access to suitable financing by us and our 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 us in our 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 we have little or no control.  We undertake no obligation to update such forward-looking statements except as required by law.  For additional information regarding risk factors, see Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A of NVR’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
Unless the context otherwise requires, references to “NVR,” “we,” “us,” or “our” include NVR and its consolidated subsidiaries.
Results of Operations for the Three Months Ended March 31, 2021 and 2020
Overview
Impact of COVID-19
The COVID-19 pandemic 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 throughout the pandemic. 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 have resulted in significant changes to the way we conduct business.
Although current demand for new homes is strong, there remains 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 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.

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Outlook
Strong demand for new homes continued through the first quarter of 2021, driven by historically low mortgage interest rates and low housing supply. This has led to strong sales absorptions and rising home prices, as well as increased construction activity and demand for building materials. During the first quarter, we experienced higher prices for lumber, certain other commodities and labor, along with some supply chain disruptions. We expect these issues to continue over the next several quarters as suppliers continue to work through COVID-19 restrictions to meet the increased demand.
Business
Our primary business is the construction and sale of single-family detached homes, townhomes and condominiums, 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 requirements and 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 building lots from various third party land developers pursuant to fixed price finished lot purchase agreements (“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 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 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 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 our finished lot inventory using LPAs with forfeitable deposits.
As of March 31, 2021, we controlled approximately 108,700 lots as described below.
Lot Purchase Agreements
We controlled approximately 106,100 lots under LPAs with third parties through deposits in cash and letters of credit totaling approximately $436,000 and $7,300, respectively. Included in the number of controlled lots are approximately 7,100 lots for which we have recorded a contract land deposit impairment reserve of approximately $46,000 as of March 31, 2021.
Joint Venture Limited Liability Corporations (“JVs”)
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We had an aggregate investment totaling approximately $25,900 in four JVs, expected to produce approximately 5,050 lots. Of the lots to be produced by the JVs, approximately 2,100 lots were controlled by us and approximately 2,950 were either under contract with unrelated parties or currently not under contract. We had additional funding commitments totaling approximately $3,100 to one of the JVs at March 31, 2021.
Land Under Development
We directly owned three separate raw land parcels, zoned for their intended use, with a cost basis, including development costs, of approximately $63,200 that we intend to develop into approximately 500 finished lots. In April 2021, we sold one of the land parcels to a developer for approximately $45,750, which approximated our carrying value of the property as of the sale date. In conjunction with the sale, we entered into an LPA with the developer for the option to purchase the finished lots expected to be developed from the parcel. 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 $2,800.
See Notes 2, 3 and 4 to the condensed consolidated financial statements included herein for additional information regarding LPAs, JVs and land under development, respectively.
Raw Land Purchase Agreements
In addition, we have certain properties under contract with land owners that are expected to yield approximately 9,000 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 and letters of credit totaling approximately $7,000 and $100, respectively, as of March 31, 2021, of which approximately $2,000 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.
Key Financial Results
Our consolidated revenues for the first quarter of 2021 totaled $2,041,446, a 29% increase from the first quarter of 2020.  Net income for the first quarter ended March 31, 2021 was $248,762, or $63.21 per diluted share, increases of 42% and 41% when compared to net income and diluted earnings per share in the first quarter of 2020, respectively.  Our homebuilding gross profit margin percentage increased to 19.7% in the first quarter of 2021 from 16.8% in the first quarter of 2020. The increase in gross profit margin was attributable primarily to gross profit margin in the first quarter of 2020 being negatively impacted by contract land deposit impairment charges of approximately $36,400, or 234 basis points of revenue. New orders, net of cancellations (“New Orders”) increased by 26% in the first quarter of 2021 compared to the first quarter of 2020. The average sales price for New Orders in the first quarter of 2021 increased by 10% to $410.5 compared to the first quarter of 2020.

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Homebuilding Operations
The following table summarizes the results of operations and other data for the consolidated homebuilding operations:
 Three Months Ended March 31,
 20212020
Financial Data:
Revenues$1,963,711 $1,555,707 
Cost of sales$1,577,453 $1,294,743 
Gross profit margin percentage19.7 %16.8 %
Selling, general and administrative expenses$121,419 $110,167 
Operating Data:
New orders (units)6,314 5,015 
Average new order price$410.5 $372.3 
Settlements (units)5,072 4,230 
Average settlement price$387.2 $367.8 
Backlog (units)12,791 9,018 
Average backlog price$406.9 $381.6 
New order cancellation rate9.6 %20.8 %

Consolidated Homebuilding - Three Months Ended March 31, 2021 and 2020
Homebuilding revenues increased 26% in the first quarter of 2021 compared to the same period in 2020, as a result of a 20% increase in the number of units settled and a 5% increase in the average settlement price. The increase in the number of units settled was attributable to a 40% higher backlog unit balance entering 2021 compared to the backlog unit balance entering 2020, offset partially by a lower backlog turnover rate quarter over quarter. The increase in the average settlement price was primarily attributable to a 4% higher average sales price of units in backlog entering 2021 compared to backlog entering 2020.
Gross profit margin percentage in the first quarter of 2021 increased to 19.7%, from 16.8% in the first quarter of 2020. The increase in gross profit margin was attributable primarily to gross profit margin in the first quarter of 2020 being negatively impacted by contract land deposit impairment charges of approximately $36,400, or 234 basis points of revenue.
The number of New Orders and the average sales price of New Orders increased 26% and 10%, respectively, in the first quarter of 2021 compared to the first quarter of 2020.  New Orders were higher in each of our market segments quarter over quarter due to favorable market conditions driven by historically low mortgage interest rates coupled with low resale inventory levels, which drove demand and provided us pricing power. Additionally, New Orders were favorably impacted by a lower cancellation rate in the first quarter of 2021, as sale cancellations increased significantly in March 2020 due to the impact of the onset of the COVID-19 pandemic on consumer demand.
Selling, general and administrative (“SG&A”) expense in the first quarter of 2021 increased by approximately $11,300, but as a percentage of revenue decreased to 6.2% from 7.1% quarter over quarter. The increase in SG&A expense quarter over quarter was higher primarily due to a $6,500 reversal of expense in the first quarter of 2020 from stock option forfeitures and $6,100 of increased personnel costs from higher headcount.   
Our backlog represents homes sold but not yet settled with our customers. As of March 31, 2021, our backlog increased on a unit basis by 42% to 12,791 units and increased on a dollar basis by 51% to $5,204,091 when compared to 9,018 units and $3,441,151, respectively, as of March 31, 2020. The increase in backlog units was primarily attributable to a 25% increase in New Orders during the six-month period ended March 31, 2021 compared to the same period in 2020, coupled with a lower backlog turnover rate quarter over quarter. Our backlog turnover rate was negatively impacted by a longer production cycle attributable to both internal production and
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external subcontractor capacity constraints as we work to expand production to meet our increased sales pace. Backlog dollars were higher due to the increase in backlog units and an 8% increase in the average sales price of New Orders during the six-month period ended March 31, 2021 compared to the same period in 2020.
In addition to the potential impact of the ongoing 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 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 approximately 10% and 21% in the first three months of 2021 and 2020, respectively.  During the most recent four quarters, approximately 5% of a reporting quarter’s opening backlog cancelled during the fiscal quarter. We can provide no assurance that our historical cancellation rates are indicative of the actual cancellation rate that may occur during the remainder of 2021 or 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 March 31, 2021 backlog within the next twelve months.
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, material supply chain disruptions and other external factors over which we do not exercise control, such as the impact of governmental orders to cease or limit construction activities as a result of COVID-19.
Reportable 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 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 March 31, 2021 and December 31, 2020 has been allocated to the respective year’s reportable segments to show contract land deposits on a net basis.  The net contract land deposit balances below also include approximately $7,300 and $8,100 at March 31, 2021 and December 31, 2020, respectively, of letters of credit issued as deposits in lieu of cash.
The following tables summarize certain homebuilding operating activity by reportable segment for the three months ended March 31, 2021 and 2020.
Selected Segment Financial Data:
 Three Months Ended March 31,
 20212020
Revenues:
Mid Atlantic$936,141 $774,058 
North East162,193 106,136 
Mid East424,952 320,695 
South East440,425 354,818 

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 Three Months Ended March 31,
 20212020
Gross profit margin:
Mid Atlantic$191,302 $144,328 
North East28,946 22,743 
Mid East77,504 58,288 
South East89,730 74,975 

 Three Months Ended March 31,
 20212020
Gross profit margin percentage:
Mid Atlantic20.4 %18.6 %
North East17.8 %21.4 %
Mid East18.2 %18.2 %
South East20.4 %21.1 %

 Three Months Ended March 31,
 20212020
Segment profit:
Mid Atlantic$129,067 $81,673 
North East15,227 10,151 
Mid East48,941 31,164 
South East56,665 47,144 
Operating Activity:
 Three Months Ended March 31,
 20212020
 UnitsAverage
Price
UnitsAverage
Price
New orders, net of cancellations:    
Mid Atlantic2,291 $502.2 2,061 $442.2 
North East440 $474.7 358 $382.2 
Mid East1,795 $350.4 1,225 $326.2 
South East1,788 $337.6 1,371 $305.6 
Total6,314 $410.5 5,015 $372.3 

 Three Months Ended March 31,
 20212020
 UnitsAverage
Price
UnitsAverage
Price
Settlements:    
Mid Atlantic2,010 $465.7 1,795 $431.2 
North East372 $436.0 281 $377.7 
Mid East1,263 $336.4 985 $325.6 
South East1,427 $308.6 1,169 $303.5 
Total5,072 $387.2 4,230 $367.8 

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 As of March 31,
 20212020
 UnitsAverage
Price
UnitsAverage
Price
Backlog:    
Mid Atlantic4,760 $488.2 3,878 $445.3 
North East1,018 $463.7 664 $407.6 
Mid East3,406 $350.6 2,053 $331.5 
South East3,607 $336.6 2,423 $314.9 
Total12,791 $406.9 9,018 $381.6 

 Three Months Ended March 31,
 20212020
New order cancellation rate:
Mid Atlantic9.5 %21.8 %
North East10.8 %21.7 %
Mid East8.4 %20.8 %
South East10.7 %19.1 %

 Three Months Ended March 31,
 20212020
Average active communities:
Mid Atlantic159 189 
North East35 40 
Mid East140 138 
South East111 108 
Total445 475 
Homebuilding Inventory:
 March 31, 2021December 31, 2020
Sold inventory:
Mid Atlantic$