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What changed in M/I HOMES, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of M/I HOMES, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+314 added−337 removedSource: 10-K (2024-02-16) vs 10-K (2023-02-17)

Top changes in M/I HOMES, INC.'s 2023 10-K

314 paragraphs added · 337 removed · 251 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

57 edited+16 added−13 removed75 unchanged
Biggest changeThe following table sets forth our land position in lots (including lots held in joint venture arrangements) at December 31, 2022: Lots Owned Region Developed Lots Lots Under Development Undeveloped Lots (a) Total Lots Owned Lots Under Contract Total Northern 4,254 1,125 2,593 7,972 7,406 15,378 Southern 4,273 4,524 8,235 17,032 9,643 26,675 Total 8,527 5,649 10,828 25,004 17,049 42,053 (a) Includes our interest in raw land held by joint venture arrangements expected to be developed into 2,988 lots.
Biggest changeIn situations where we believe targeted returns are no longer likely to be achieved, we may choose to terminate certain land purchase contracts which may result in write-offs of deposits and/or pre-acquisition costs. 9 The following table sets forth our land position in lots (including lots held in joint venture arrangements) at December 31, 2023: Lots Owned Region Developed Lots Lots Under Development Undeveloped Lots (a) Total Lots Owned Lots Under Contract Total Northern 3,918 592 2,342 6,852 8,935 15,787 Southern 4,806 4,686 8,030 17,522 12,351 29,873 Total 8,724 5,278 10,372 24,374 21,286 45,660 (a) Includes our interest in raw land held by joint venture arrangements expected to be developed into 2,649 lots.
Information on our website, including the Environmental, Social and Governance Report, is not incorporated by reference in or otherwise considered a part of this Annual Report on Form 10-K.
Information on our website, including the Environmental, Social and Governance Report, is not incorporated by reference in or otherwise considered a part of this Annual Report on Form 10-K.
We continue to develop new floor plans and communities specifically for the growing empty-nester market. These plans (primarily ranch and main floor master bedroom type plans) focus on move-down buyers, are smaller in size, and feature outdoor living potential, fewer bedrooms, and improved community amenities. Our homebuilding divisions often share successful plans with other divisions, when appropriate.
We also continue to develop new floor plans and communities specifically for the growing empty-nester market. These plans (primarily ranch and main floor master bedroom type plans) focus on move-down buyers, are smaller in size, and feature outdoor living potential, fewer bedrooms, and improved community amenities. Our homebuilding divisions often share successful floor plans with other divisions, when appropriate.
We believe that our ability to offer financing to customers on competitive terms as a part of the sales process is an important factor in completing sales. 9 M/I Financial has been approved by the U.S. Department of Housing and Urban Development, FHA, VA and USDA to originate mortgages that are insured and/or guaranteed by these entities.
We believe that our ability to offer financing to customers on competitive terms as a part of the sales process is an important factor in completing sales. M/I Financial has been approved by the U.S. Department of Housing and Urban Development, FHA, VA and USDA to originate mortgages that are insured and/or guaranteed by these entities.
For some prospective buyers, selling their existing home has become a less predictable process and, as a result, when they sell their home, they often need to find, buy and move into a new home in 7 90 days or less. Other buyers simply prefer the certainty provided by being able to fully visualize a home before purchasing it.
For some prospective buyers, selling their existing home has become a less predictable process and, as a result, when they sell their home, they often need to find, buy and move into a new home in 90 days or less. Other buyers simply prefer the certainty provided by being able to fully visualize a home before purchasing it.
We consider a number of factors, including projected rates of return, estimated gross margins, and projected pace of absorption and 8 sales prices of the homes to be built, all of which are impacted by our evaluation of population and employment growth patterns, demographic trends and competing new home subdivisions and resales in the relevant sub-market.
We consider a number of factors, including projected rates of return, estimated gross margins, and projected pace of absorption and sales prices of the homes to be built, all of which are impacted by our evaluation of population and employment growth patterns, demographic trends and competing new home subdivisions and resales in the relevant sub-market.
The DEI Committee is responsible for developing the guiding principles of our diversity, equity and inclusion program and a strategy to further these principles and achieve our goals. We believe in developing each employee’s professional skill set and promoting career development. Our operating divisions assign training to our employees based upon their particular roles and responsibilities.
The DEI Committee is responsible for developing the guiding principles of our diversity, equity and inclusion program and a strategy to further these principles and achieve our goals. 11 We believe in developing each employee’s professional skill set and promoting career development. Our operating divisions assign training to our employees based upon their particular roles and responsibilities.
Our Design Studios allow our homebuyers to select from a variety of product and design options that are available for purchase as part of the original construction of their homes. Our centers are staffed with Design Consultants who help our homebuyers select the right combination of options to meet their budget, lifestyle and design sensibilities.
Our Design Studios allow our homebuyers to select from a variety of product and design options that are available for purchase as part of the original construction of their homes. Our centers are staffed with Design Consultants who help our homebuyers select the right 5 combination of options to meet their budget, lifestyle and design sensibilities.
Through these entities, we serve as a title insurance agent by providing title insurance policies and examination and closing services to purchasers of our homes in all of our housing markets except for North Carolina. TransOhio Residential Title Agency Ltd. provides examination and title insurance services to our housing markets in the Raleigh and Charlotte markets.
Through these entities, we serve as a title insurance agent by providing title insurance policies and examination and closing services to purchasers of our homes in all of our housing markets except for North Carolina and Nashville. TransOhio Residential Title Agency Ltd. provides examination and title insurance services to our housing markets in the Raleigh and Charlotte markets.
Our communities are designed as neighborhoods that fit existing land characteristics. We strive to achieve diversity among architectural styles within a community by offering a variety of house models and several exterior design options for each model.
Our communities are designed as neighborhoods that fit existing land characteristics. We strive to achieve diversity among architectural styles within a community by offering a variety of house models and several exterior design 6 options for each model.
We also pass along to our homebuyers all warranties provided by the manufacturers or suppliers of components installed in each home. Although our subcontractors are generally required to repair and replace any product or labor defects during their respective warranty periods, we are ultimately responsible to the homeowner for making such repairs during our applicable warranty period.
We also pass along to our homebuyers all warranties provided by the manufacturers or suppliers of components installed in each home. Although our subcontractors are generally required to repair and replace any product or labor defect during their respective warranty periods, we are ultimately responsible to the homeowner for making such repairs during our applicable warranty period.
As a result, we can provide no assurance that the positive trends reflected in our financial and operating metrics in 2022 will continue in 2023. Sales and Marketing In 2022, we continued to focus our marketing efforts on first-time and move-up homebuyers, including home designs targeted to first-time, millennial, multi-generational and empty-nester homebuyers.
As a result, we can provide no assurance that the positive trends reflected in our financial and operating metrics in 2023 will continue in 2024. Sales and Marketing In 2023, we continued to focus our marketing efforts on first-time and move-up homebuyers, including home designs targeted to first-time, millennial, multi-generational and empty-nester homebuyers.
We use the term “community” to refer to a single development in which we construct homes. At times, “multiple communities” can exist in a single development where we offer multiple product types. We primarily construct homes in planned development communities and mixed-use communities. We are currently offering homes for sale in 196 communities within 17 markets located in ten states.
We use the term “community” to refer to a single development in which we construct homes. At times, “multiple communities” can exist in a single development where we offer multiple product types. We primarily construct homes in planned development communities and mixed-use communities. We are currently offering homes for sale in 213 communities within 17 markets located in ten states.
In most of our markets, we offer our homebuyers the option to consider and make design planning decisions using our Envision Online Design Center.
In most of our markets, we offer our homebuyers the option to consider and make design planning decisions using our Online Design Center.
Our financial services operations support our homebuilding operations by providing mortgage loans and title services to the customers of our homebuilding operations and are reported as an independent segment. Our homebuilding operations comprise the most significant portion of our business, representing 98% of consolidated revenue in both 2022 and 2021.
Our financial services operations support our homebuilding operations by providing mortgage loans and title services to the customers of our homebuilding operations and are reported as an independent segment. Our homebuilding operations comprise the most significant portion of our business, representing 98% of consolidated revenue in both 2023 and 2022.
Item 1. BUSINESS General M/I Homes, Inc. and subsidiaries is one of the nation’s leading builders of single-family homes. The Company commenced homebuilding activities in 1976. Since that time, the Company has sold over 143,400 homes.
Item 1. BUSINESS General M/I Homes, Inc. and subsidiaries is one of the nation’s leading builders of single-family homes. The Company commenced homebuilding activities in 1976. Since that time, the Company has sold over 151,400 homes.
We provide our homebuyers with the following products, programs and services which we believe differentiate our brand: (1) homes with high quality construction located in attractive areas and desirable communities that are supported by our 10-year transferable structural warranty in all of our markets; (2) our Whole Home Building Standards which are designed to deliver features and benefits that satisfy the buyer’s expectation for a better-built home, including a more eco-friendly and energy efficient home that we believe will generally save our customers up to 30% on their energy costs compared to a home that is built to minimum code requirements; (3) our Design Studios and Design Consultants that assist our homebuyers in selecting product and design options; (4) fully furnished model homes and highly-trained sales consultants to build the buyer’s confidence and enhance the quality of the homebuying experience; (5) our mortgage financing programs that we offer through M/I Financial, including competitive fixed-rate and adjustable-rate loans; (6) our Ready Now Homes program which offers homebuyers the opportunity to close on certain new homes in 90 days or less; and (7) our unwavering focus on customer care and customer satisfaction.
We provide our homebuyers with the following products, programs and services which we believe differentiate our brand: (1) homes with high quality construction located in attractive areas and desirable communities that are supported by our 10-year transferable structural warranty; (2) our Whole Home Building Standards which are designed to deliver features and benefits that satisfy the buyer’s expectation for a better-built home, including a more eco-friendly and energy efficient home that we believe will generally save our customers up to 30% on their energy costs compared to a home that is built to minimum code requirements; (3) our onsite and online Design Studios and Design Consultants that assist our homebuyers in selecting product and design options; (4) fully furnished model homes and highly-trained sales consultants to build the buyer’s confidence and enhance the quality of the homebuying experience; (5) our mortgage financing programs that we offer through M/I Financial, including competitive fixed-rate and adjustable-rate loans and, in certain cases, interest rate buy-down incentives; (6) our Ready Now Homes program which offers homebuyers the opportunity to close on certain new homes in 90 days or less; and (7) our unwavering focus on customer care and customer satisfaction.
In 2022, we developed over 80% of our lots internally, primarily due to a lack of availability of developed lots in desirable locations in our markets. Raw land that requires development generally remains more available.
In 2023, we developed over 80% of our lots internally, primarily due to a lack of availability of developed lots in desirable locations in our markets. Raw land that requires development generally remains more available.
We believe our communities have attractive entrances with distinctive signage and landscaping and that our attention to community detail avoids a “development” appearance and gives each community a diversified neighborhood appearance. We offer homes ranging from a base sales price of approximately $200,000 to $800,000 and from approximately 1,000 to 5,500 square feet.
We believe our communities have attractive entrances with distinctive signage and landscaping and that our attention to community detail avoids a “development” appearance and gives each community a diversified neighborhood appearance. We offer homes ranging from a base sales price of approximately $190,000 to $1,000,000 and from approximately 1,000 to 5,500 square feet.
In locations where development has progressed, the amount of development work remaining to be completed is typically less than the remaining amount of bonds or letters of credit due to timing delays in obtaining release of the bonds or letters of credit.
In locations where development has progressed, the amount of development work remaining to be completed is typically less than the remaining amount of bonds or letters of credit due to timing delays in obtaining releases of the bonds or letters of credit.
Future economic and homebuilding industry conditions and the demand for homes are subject to continued uncertainty due to numerous factors, including the impacts of mortgage availability, inflation, increasing labor and supply costs, and supply chain disruptions and labor shortages. These factors are highly uncertain and outside our control.
Future economic and homebuilding industry conditions and the demand for homes are subject to continued uncertainty due to numerous factors, including the impacts of mortgage availability, inflation, interest rate increases, increasing labor and supply costs, and supply chain disruptions and labor shortages. These factors are highly uncertain and outside our control.
Environmental, Social and Governance During 2022, our environmental, social and governance (“ESG”) working group (which we formed in 2020 and is comprised of certain members of our leadership team and other members from a cross section of the Company) continued to focus on 11 advancing our ESG practices and reporting.
Environmental, Social and Governance During 2023, our environmental, social and governance (“ESG”) working group (which we formed in 2020 and is comprised of certain members of our leadership team and other members from a cross section of the Company) continued to focus on advancing our ESG practices and reporting.
As affordability remains a key driver of sales, our “Smart Series” has become more important than ever and represented approximately 50% of our total sales for the year ended December 31, 2022. Our “Smart Series” is market specific and intended to offer buyers excellent value, desirable locations, and pre-selected packages of upgraded finishes and appliances.
As affordability remains a key driver of sales, our “Smart Series” has become more important than ever and represented approximately 55% of our total sales for the year ended December 31, 2023. Our “Smart Series” is market specific and intended to offer buyers excellent value, desirable locations, and pre-selected packages of upgraded finishes and appliances.
The “Smart Series” targets entry-level and move-down buyers and focuses significant attention on affordability, livability and offering some design flexibility to our customers. We continue to increase our multi-family Smart Series offerings in several of our divisions.
The “Smart Series” targets entry-level and move-down buyers and focuses significant attention on affordability, livability and design flexibility. We continue to increase our multi-family Smart Series offerings in several of our divisions.
We may also experience extended timelines for receiving required approvals 10 from municipalities or other government agencies that can delay our anticipated development and construction activities in our communities. During 2022, we experienced delays in receiving governmental and municipality approvals in certain of our community locations, and we expect that we may experience a similar level of delays in 2023.
We may also experience extended timelines for receiving required approvals from municipalities or other government agencies that can delay our anticipated development and construction activities in our communities. During 2023, we experienced delays in receiving governmental and municipality approvals in certain of our community locations, and we may experience a similar level of delays in 2024.
We give significant attention to the ongoing training of all sales personnel to assure a high level of professionalism and product knowledge. As of December 31, 2022, we employed 236 home sales consultants. We also offer specialized mortgage financing programs through M/I Financial to assist our homebuyers.
We give significant attention to the ongoing training of all sales personnel to assure a high level of professionalism and product knowledge. As of December 31, 2023, we employed 240 home sales consultants. We also offer specialized mortgage financing programs through M/I Financial to assist our homebuyers.
Consistent with our focus on improving long-term financial results, we expect to continue to emphasize the following strategic business objectives in 2023: • managing our land spend and inventory levels; • opening new communities; • managing overhead spend; • maintaining a strong balance sheet and liquidity levels; and • emphasizing customer service, product quality and design, and premier locations.
Consistent with our focus on improving long-term financial results, we expect to continue to emphasize the following strategic business objectives in 2024: • managing our land spend and inventory levels; • improving our construction cycle times; • opening new communities; • managing overhead spend; • maintaining a strong balance sheet and liquidity levels; and • emphasizing customer service, product quality and design, and premier locations.
We generally employ subcontractors for the installation of site improvements and the construction of homes. The construction of each home is supervised by a Personal Construction Supervisor who reports to a Production Manager, both of whom are employees of the Company. Our Personal Construction Supervisors manage the scheduling and construction process.
We generally employ subcontractors to install site improvements and construct homes. The construction of each home is supervised by a Personal Construction Supervisor who reports to a Production Manager, both of whom are employees of the Company. Our Personal Construction Supervisors manage the scheduling and construction process.
We are committed to a culture of diversity, equity and inclusion. In 2020, we established a Diversity, Equity and Inclusion Committee (the “DEI Committee”) which is comprised of certain members of our executive team and senior leaders in our human resources department and our mortgage and business operations divisions.
In 2020, we established a Diversity, Equity and Inclusion Committee (the “DEI Committee”) which is comprised of certain members of our executive team and senior leaders in our human resources department and our mortgage and business operations divisions.
Our financial services operations accounted for 2% and 3% of our consolidated revenues in 2022 and 2021, respectively. See the “Financial Services” section below for additional information regarding our financial services operations. Our principal executive offices are located at 4131 Worth Avenue, Suite 500, Columbus, Ohio 43219.
Our financial services operations accounted for 2% of our consolidated revenues in both 2023 and 2022. See the “Financial Services” section below for additional information regarding our financial services operations. Our principal executive offices are located at 4131 Worth Avenue, Suite 500, Columbus, Ohio 43219.
Among other things, the ESG working group continued to evaluate the impact of our business on the environment and how our actions contribute to environmentally responsible sustainability (including through green space preservation, redevelopment and infill activities and incorporation of energy efficient technology and building standards), the potential impact of climate change on our business, our human capital management policies and practices (including our DEI and employee engagement and safety initiatives), our community engagement and our corporate governance practices.
Among other things, the ESG working group continued to evaluate the impact of our business on the environment and how our actions contribute to environmentally responsible sustainability (including through green space preservation and dedication, redevelopment and infill activities, prioritizing development of locations with proximity to infrastructure and incorporation of energy efficient inputs and technology and building standards), the potential impact of climate change on our business, our human capital management policies and practices (including our DEI and employee engagement and safety initiatives), our community engagement and our corporate governance practices.
Of the total number of homes closed in 2022 and 2021, 43% and 35%, respectively, were inventory homes which include both homes started as inventory homes and homes that started under a contract that were later cancelled and became inventory homes as a result.
Of the total number of homes closed in 2023 and 2022, 57% and 43%, respectively, were inventory homes which include both homes started as inventory homes and homes that started under a contract that were later cancelled and became inventory homes as a result.
We offer homes ranging from a base sales price of approximately $200,000 to $800,000 and believe that this range of price points allows us to appeal to and attract a wide range of buyers.
We offer homes ranging from a base sales price of approximately $190,000 to $1,000,000 and believe that this range of price points allows us to appeal to and attract a wide range of buyers.
The structural warranty is for 10 years for homes sold after December 31, 2021, 10 or 15 years for homes sold after December 1, 2015 and on or before December 31, 2021, and 10 or 30 years for homes sold after April 25, 1998 and on or before December 1, 2015.
The structural warranty is for 10 years for homes sold after December 31, 2021, 10 or 15 years for homes sold after December 1, 2015 and on or before December 31, 2021 (except for homes sold in Texas), and 10 or 30 years for homes sold after April 25, 1998 and on or before December 1, 2015 (except for homes solid in Texas).
As of December 31, 2022, we had a total of 3,137 homes in backlog with an aggregate sales value of $1.7 billion, in various stages of completion, including homes that are under contract but for which construction had not yet begun.
As of December 31, 2023, we had a total of 3,002 homes in backlog with an aggregate sales value of $1.6 billion, in various stages of completion, including homes that are under contract but for which construction had not yet begun.
We devote significant resources to the research, design and development of our homes to meet the demands of our buyers and evolving market requirements. We regularly review our plans offered per division to ensure that these home designs are still 6 relevant and appropriate for that particular market.
We devote significant resources to the research, design and development of our homes to meet the demands of our buyers and evolving market requirements. We regularly review the plans offered in each of our divisions to ensure that our home designs are still relevant and appropriate for that particular market.
Subcontractor work is performed pursuant to written agreements that require our subcontractors to comply with all applicable laws and labor practices, follow local building codes and permits, and meet performance, warranty, and insurance requirements.
Our subcontractors perform pursuant to written agreements that require them to comply with all applicable laws and labor practices, follow local building codes and permits, and meet performance, warranty, and insurance requirements.
We market and sell our homes primarily under the M/I Homes brand. Our marketing efforts are directed at driving interest in and preference for the M/I Homes brand over other homebuilders, the resale market, and in some cases the option to remodel an existing home.
We market and sell our homes under the M/I Homes brand. Our marketing efforts are directed at driving awareness, interest, demand and preference for the M/I Homes brand over other homebuilders, the resale market, and the option to remodel an existing older home.
We believe our construction process, and the construction cycle times resulting from product line design referenced above, generally reduce the time our subcontractors and vendors spend transporting labor, equipment, and materials to and from our communities and thereby also reduce the environmental impact and carbon emissions associated with construction for our homes.
We believe our construction process, and the construction cycle times resulting from our product line design, generally reduce the time our subcontractors and vendors spend transporting labor, equipment, and materials to and from our communities as well as the environmental impact and carbon emissions associated with the construction of our homes.
Our financial services operations also experience seasonality because their loan originations correspond with the delivery of homes in our homebuilding operations. Human Capital At December 31, 2022, we employed 1,663 people (including part-time employees), including 1,298 in homebuilding operations, 239 in financial services and 126 in management and administrative services.
Our financial services operations also experience seasonality because their loan originations correspond with the delivery of homes in our homebuilding operations. Human Capital At December 31, 2023, we employed 1,607 people (including part-time employees), including 1,247 in homebuilding operations, 233 in financial services and 127 in management and administrative services.
In 2022, we also published our third annual Environmental, Social and Governance Report which provides detailed information regarding our ESG policies, initiatives and strategies and includes certain quantifiable performance indicators for 2021. These performance indicators were based on the Sustainability Accounting Standards Board industry-specific standards and applicable aspects of the Global Reporting Initiative standards.
In 2023, we also published our fourth annual Environmental, Social and Governance Report which provides detailed information regarding our ESG policies, initiatives and strategies and includes certain quantifiable performance indicators for 2022. These performance indicators were largely based on the Sustainability Accounting Standards Board industry-specific standards.
The construction of our homes typically takes approximately four to six months from the start of construction to completion of the home, depending on the size and complexity of the particular home being built, weather conditions, and the availability of labor, materials, and supplies.
The construction of our homes typically takes approximately four to six months from the start of construction to completion of the home, depending on the size and complexity of the particular home being built, weather conditions, and the availability of labor, materials, and supplies. We remain focused on improving construction cycle times in all of our markets.
Our average sales price of homes delivered during 2022 was $479,000, and the average sales price of our homes in backlog at December 31, 2022 was $541,000.
Our average sales price of homes delivered during 2023 was $483,000, and the average sales price of our homes in backlog at December 31, 2023 was $525,000.
Our raw materials consist primarily of lumber, concrete and similar construction materials, and while these materials are generally available from a variety of sources, we have reduced construction and administrative costs by executing national purchasing contracts with select vendors. However, we experienced labor and supply shortages and price increases in 2022 as well as increased cycle times.
Our raw materials consist primarily of lumber, concrete and similar construction materials, and while these materials are generally available from a variety of sources, we have reduced construction and administrative costs by executing national purchasing contracts with select vendors. We experienced more normalized labor and supply markets in 2023 which improved our construction cycle times.
As of December 31, 2021, we had a total of 4,835 homes in backlog, with an aggregate sales value of $2.4 billion. Homes included in year-end backlog are typically included in homes delivered in the subsequent year.
As of December 31, 2022, we had a total of 3,137 homes in backlog, with an aggregate sales value of $1.7 billion. Homes included in year-end backlog are typically included in homes delivered in the subsequent year.
Government Regulation and Environmental Matters Our homebuilding operations are subject to various local, state and federal statutes, ordinances, rules and regulations concerning the protection of health and the environment, including the emission or discharge of materials into the environment, storm water and surface water management, soil, groundwater and wetlands protection, subsurface conditions and air quality protection and enhancement.
Principal competitive factors include pricing, mortgage loan terms, underwriting criteria, interest rates, customer service and other features of mortgage loan products available to the consumer. 10 Government Regulation and Environmental Matters Our homebuilding operations are subject to various local, state and federal statutes, ordinances, rules and regulations concerning the protection of health and the environment, including the emission or discharge of materials into the environment, storm water and surface water management, soil, groundwater and wetlands protection, subsurface conditions and air quality protection and enhancement.
For our buyers that are not interested in purchasing an inventory home (homes started in the absence of an executed contract), we begin construction on the homes after we have obtained a sales contract and preliminary written confirmation from the buyer’s lender that financing should be approved.
The agreements generally specify a fixed price for labor and materials and provide price protection for a majority of the higher-cost phases of construction for homes in our backlog. 7 For our buyers who are not interested in purchasing an inventory home (homes started in the absence of an executed contract), we begin construction on the home after we obtain a sales contract and preliminary written confirmation from the buyer’s lender that financing should be approved.
Land Acquisition and Development We continuously evaluate land acquisition opportunities in the normal course of our homebuilding business, and we focus on both replenishing our lot positions and adding to our lot positions in key submarkets to expand our market share.
Our warranty expense was approximately 0.6%, 0.7% and 0.6% of total housing revenue in 2023, 2022 and 2021, respectively. 8 Land Acquisition and Development We continuously evaluate land acquisition opportunities in the normal course of our homebuilding business, and we focus on both replenishing our lot positions and adding to our lot positions in key submarkets to expand our market share.
We believe these models showcase our homes at their maximum livability and potential and provide ideas and inspiration for our customers to incorporate desirable design options into their new home. 5 Our company-employed sales consultants are trained and prepared to meet the buyer’s expectations and build the buyer’s confidence by fully explaining the features and benefits of our homes, helping each buyer determine which home best suits the buyer’s needs, explaining the construction process, and assisting the buyer in choosing the best financing option.
Our company-employed sales consultants are trained and prepared to meet the buyer’s expectations and build the buyer’s confidence by fully explaining the features and benefits of our homes, helping each buyer determine which home best suits the buyer’s needs, explaining the construction process, and assisting the buyer in choosing the best financing option.
Environmental costs and accruals were not material to our operations, cash flows or financial position in 2022, 2021 or 2020. Our homebuilding operations are also subject to various local, state and federal statutes, ordinances, rules and regulations concerning building, zoning, design, construction, sales, consumer protection and similar matters.
Our homebuilding operations are also subject to various local, state and federal statutes, ordinances, rules and regulations concerning building, zoning, design, construction, sales, consumer protection and similar matters.
Backlog We sell our homes under standard purchase contracts, which generally require a homebuyer deposit at the time of signing the contract. The amount of the deposit varies among markets and communities. We also generally require homebuyers to pay additional deposits when they select options or upgrades for their homes.
The amount of the deposit varies among markets and communities. We also generally require homebuyers to pay additional deposits when they select options or upgrades for their homes. Most of our home purchase contracts stipulate that if a homebuyer cancels a contract with us, we have the right to retain the homebuyer’s deposits.
Our workforce development strategy is rooted in building a workforce in which individuals from a diverse mix of backgrounds, experiences and talents can thrive, contribute and develop professionally. We recognize the value of creating a collaborative, inclusive workplace, and to help foster such an environment, we promote a culture of mutual understanding and respect among employees, customers and building partners.
We recognize the value of creating a collaborative, inclusive workplace, and to help foster such an environment, we promote a culture of mutual understanding and respect among employees, customers and building partners. We are committed to a culture of diversity, equity and inclusion (“DEI”).
We construct inventory homes to facilitate delivery of homes on an immediate-need basis under our Ready Now Homes program and to provide presentation of new products.
In 2023, we reduced our average days under construction by more than 60 days. Continued improvement in supply chain and labor market conditions would enhance our ability to reduce production times. We construct inventory homes to facilitate delivery of homes on an immediate-need basis under our Ready Now Homes program and to provide presentation of new products.
None of our employees are represented by a collective bargaining agreement. In January 2023, we reduced our headcount by approximately 10% as a result of market conditions. We believe that our employees are our most important resource.
None of our employees are represented by a collective bargaining agreement. We believe that our employees are our most important resource. Our workforce development strategy is rooted in building a workforce in which individuals from a diverse mix of backgrounds, experiences and talents can thrive, contribute and develop professionally.
Our financial services operations compete with other mortgage lenders to arrange financings for homebuyers. Principal competitive factors include pricing, mortgage loan terms, underwriting criteria, interest rates, customer service and other features of mortgage loan products available to the consumer.
Our financial services operations compete with other mortgage lenders to arrange financing for homebuyers.
Despite the affordability issues and slowing demand resulting from the negative economic conditions, we believe long-term housing market fundamentals remain strong, including favorable demographics and a limited supply of new and resale inventory. 4 Business Strategy We remain focused on maximizing profitability, continuing to expand our market share using our more affordable designs, and being more selective investing in land and land development opportunities.
However, we cannot provide any assurances that our strategic business objectives will remain successful, and we may need to adjust elements of our strategy to address evolving market conditions more effectively. Business Strategy We are focused on maximizing profitability, continuing to expand our market share using our more affordable designs and being selective in land and land development investment opportunities.
The increase in the percentage of inventory homes closed in 2022 compared to 2021 was due to longer cycle times on new builds and the uncertain interest rate environment which we believe led buyers to purchase homes that could close quickly and, therefore, provide less interest rate risk.
The increase in the percentage of inventory homes closed in 2023 compared to 2022 was due to higher demand and more selective incentives offered on inventory homes compared to new builds.
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Industry Overview and Current Market Conditions Beginning in the second half of 2022, many of our markets began to experience a slowdown in homebuilding demand due to an unprecedented increase in mortgage interest rates and historically high inflation, which negatively impacted affordability and mortgage availability.
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Industry Overview and Current Market Conditions During 2023, housing market conditions stabilized compared to the more challenging housing market conditions that were present during the second half of 2022 and the first quarter of 2023.
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Homebuilding conditions also continued to be negatively impacted by labor and supply shortages and increasing costs of materials and labor.
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Housing demand deteriorated during most of 2022 in connection with significant increases to 30-year fixed mortgage rates resulting from the Federal Reserve's aggressive actions to combat inflation. We believe that this interest rate environment caused many potential homebuyers to stay on the sidelines and delay their home purchases which resulted in lower new contracts and higher cancellations in 2022.
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We began to adjust sales prices and provide sales incentives in most of our markets during the fourth quarter of 2022 as well as offer financing incentives, all of which had a negative impact on our revenues, gross margins and income in the fourth quarter of 2022 compared to what we have experienced over the past two years.
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The Federal Reserve implemented more modest interest rate changes in 2023 than in 2022 which we believe improved consumer confidence. We continued to offer sales incentives and interest rate buy-downs in select communities in 2023 to further stimulate demand which, in combination with product mix, lowered our average closing price in 2023 compared to 2022.
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We are focused on managing our investment in land inventory and land development based on current market conditions and our projected future sales absorption levels, in addition to managing overhead costs and minimizing raw material and construction costs.
Added
Inventory levels in the housing market remain undersupplied relative to demand due to (1) the underproduction of new homes over the past decade and (2) near record low levels of existing home resale inventory.
Removed
We believe that the economic uncertainties caused by increased interest rates, historically high inflation, labor and supply shortages, and increased cost pressures may continue into 2023.
Added
We believe that the 20% increase in new contracts during 2023 compared to 2022 resulted from the more stable interest rate environment, our sales incentives and interest rate buy-down offerings and the low inventory levels in the housing market. In addition, supply chain conditions also normalized to a large degree with average construction cycle times improving year-over-year.
Removed
Across all of our divisions, we currently offer nearly 400 different floor plans designed to reflect current lifestyles and design trends. With a growing at-home workforce, we have had to address evolving lifestyle needs. In particular, home offices are in high demand with features such as high ceilings, larger floor area and natural light.
Added
With respect to current market conditions, we believe that the underproduction of new homes over the past decade and the constrained supply of resale inventory will continue to benefit the housing industry over the long term. The current demand for new homes, however, remains subject to uncertainty due to ongoing inflation concerns, consumer confidence, and the current interest rate environment.
Removed
The agreements generally specify a fixed price for labor and materials and are structured to provide price protection for a majority of the higher-cost phases of construction for homes in our backlog.
Added
The potential effect of these factors is uncertain and could adversely impact our operations and financial results in future periods. 4 We believe that we are well positioned to manage through the ever-evolving housing industry market conditions with our affordable product offerings, land position and planned new community openings.
Removed
However, due to the strong overall housing demand in 2021 and early 2022, we experienced disruptions in our supply chain, including the availability of labor and the timely availability of certain materials, which lengthened our production cycle times in certain markets.
Added
We remain sensitive to potential changes in market conditions, and continue to focus on controlling overhead leverage, carefully managing our investment in land and land development spending, and selectively offering incentives. Our strong balance sheet and liquidity position should also provide us with flexibility through changing economic conditions.
Removed
As demand began to slow in the latter half of 2022, however, some of these disruptions began to subside in a number of our markets. We remain focused on improving cycle times in all of our markets. Continued improvement in supply chain and labor market conditions would enhance our ability to reduce production times.
Added
We believe these models showcase our homes at their maximum livability and potential and provide ideas and inspiration for our customers to incorporate desirable design options into their new home.
Removed
Most of our home purchase contracts stipulate that if a homebuyer cancels a contract with us, we have the right to retain the homebuyer’s deposits.
Added
Across all of our divisions, we currently offer over 500 different floor plans designed to reflect current lifestyles and design trends. Work-from-home needs for potential homebuyers continue to be an important planning tool for us, and we will continue to design and offer in-home spaces that are bright, functional and bring value to our buyers.
Removed
Our warranty expense (excluding stucco-related repair costs in certain of our Florida communities in 2020, as more fully discussed in Note 8 to our Consolidated Financial Statements) was approximately 0.7%, 0.6% and 0.7% of total housing revenue in 2022, 2021 and 2020, respectively.
Added
We continue to look for opportunities to develop more multi-family communities. In some cases where commercial and office developments are in less demand, we see potential to rezone to a higher density multi-family solution.
Removed
In situations where we believe targeted returns are no longer likely to be achieved, we may choose to terminate certain land purchase contracts which may result in write-offs of deposits and/or pre-acquisition costs.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

62 edited+13 added−10 removed83 unchanged
Biggest changeContinued decline in the homebuilding and mortgage lending industries and overall economy could decrease the market value of our inventory which could have a negative impact on our gross margins form home sales. A reduction in our gross margins from home sales could have a significantly negative impact on our financial position and results of operations.
Biggest changeHousing market conditions stabilized during 2023 compared to the latter half of 2022 as interest rate increases moderated and consumer confidence began to improve. However, any decline in the homebuilding and mortgage lending industries and overall economy could decrease the market value of our inventory which could have a negative impact on our gross margins from home sales.
There can be no assurance that this seasonality 20 pattern will continue to exist in future reporting periods. In addition, as a result of such variability, our historical performance may not be a meaningful indicator of future results. Damage to our corporate reputation or brand from negative publicity could adversely affect our business, financial results and/or stock price.
There can be no assurance that this seasonality pattern will continue to exist in future reporting periods. In addition, as a result of such variability, our historical performance may not be a meaningful indicator of future results. 20 Damage to our corporate reputation or brand from negative publicity could adversely affect our business, financial results and/or stock price.
The unintended and/or unauthorized public disclosure or the misappropriation of proprietary, personal identifying or 21 confidential information may also lead to litigation or other proceedings against us by affected individuals and/or business partners and/or by regulators, and the outcome of such proceedings, which could include losses, penalties, fines, injunctions, expenses and charges recorded against our earnings, could have a material and adverse effect on our financial condition, results of operations and cash flows and harm our reputation.
The unintended and/or unauthorized public disclosure or the misappropriation of 21 proprietary, personal identifying or confidential information may also lead to litigation or other proceedings against us by affected individuals and/or business partners and/or by regulators, and the outcome of such proceedings, which could include losses, penalties, fines, injunctions, expenses and charges recorded against our earnings, could have a material and adverse effect on our financial condition, results of operations and cash flows and harm our reputation.
For example: • a significant portion of our cash flow may be required to pay principal and interest on our indebtedness, which could reduce the funds available for working capital, capital expenditures, acquisitions or other purposes; • borrowings under the Credit Facility bear, and borrowings under any new facility could bear, interest at floating rates, which could result in higher interest expense in the event of an increase in interest rates; • the terms of our indebtedness could limit our ability to borrow additional funds or sell assets to raise funds, if needed, for working capital, capital expenditures, acquisitions or other purposes; • our debt level and the various covenants contained in the Credit Facility, the indentures governing our 2030 Senior Notes and 2028 Senior Notes and the documents governing our other indebtedness could place us at a relative competitive disadvantage compared to some of our competitors; and • the terms of our indebtedness could prevent us from raising the funds necessary to repurchase all of the 2030 Senior Notes and the 2028 Senior Notes tendered to us upon the occurrence of a change of control, which, in each case, would constitute a default under the applicable indenture, which in turn could trigger a default under the Credit Facility and the documents governing our other indebtedness.
For example: • a significant portion of our cash flow may be required to pay principal and interest on our indebtedness, which could reduce the funds available for working capital, capital expenditures, acquisitions or other purposes; • borrowings under the Credit Facility bear, and borrowings under any new facility could bear, interest at floating rates, which could result in higher interest expense in the event of an increase in interest rates; • the terms of our indebtedness could limit our ability to borrow additional funds or sell assets to raise funds, if needed, for working capital, capital expenditures, acquisitions or other purposes; • our debt level and the various covenants contained in the Credit Facility, the indentures governing our 2030 Senior Notes and 2028 Senior Notes and the documents governing our other indebtedness could place us at a relative competitive disadvantage compared to some of our competitors; and 17 • the terms of our indebtedness could prevent us from raising the funds necessary to repurchase all of the 2030 Senior Notes and the 2028 Senior Notes tendered to us upon the occurrence of a change of control, which, in each case, would constitute a default under the applicable indenture, which in turn could trigger a default under the Credit Facility and the documents governing our other indebtedness.
We cannot provide assurances that we will maintain cash reserves and generate cash flow from operations in an amount sufficient to enable us to service our debt or to fund other liquidity needs. 18 The availability of additional capital, whether from private capital sources or the public capital markets, fluctuates as our financial condition and general market conditions change.
We cannot provide assurances that we will maintain cash reserves and generate cash flow from operations in an amount sufficient to enable us to service our debt or to fund other liquidity needs. The availability of additional capital, whether from private capital sources or the public capital markets, fluctuates as our financial condition and general market conditions change.
Economic conditions could require that we sell homes or land at a loss, hold land in inventory longer than planned or walk away from land that we no longer intend to purchase resulting in write-offs of land deposits, which could significantly impact our financial condition, results of operations, cash flows and stock performance.
Economic conditions could require us to sell homes or land at a loss, hold land in inventory longer than planned or walk away from land that we no longer intend to purchase resulting in write-offs of land deposits, which could significantly impact our financial condition, results of operations, cash flows and stock performance.
We cannot provide any assurance that there will be a sufficient supply of, or satisfactory performance by, these unaffiliated third-party subcontractors, which could have a material adverse effect on our business. 15 Tax law changes could make home ownership more expensive and/or less attractive.
We cannot provide any assurance that there will be a sufficient supply of, or satisfactory performance by, these unaffiliated third-party subcontractors, which could have a material adverse effect on our business. Tax law changes could make home ownership more expensive and/or less attractive.
Any such increases, in addition to increases in personal income tax rates, could adversely impact demand for and/or selling prices of new homes, including our homes, and the effect on our consolidated financial statements could be adverse and material. We may not be able to offset the impact of inflation through price increases.
Any such increases, in addition to increases in personal income 15 tax rates, could adversely impact demand for and/or selling prices of new homes, including our homes, and the effect on our consolidated financial statements could be adverse and material. We may not be able to offset the impact of inflation through price increases.
If governmental authorities in which we operate take actions like these, it could have an adverse effect on our business by causing delays, increasing our costs, or limiting our ability to operate in the applicable area. We incur substantial costs related to compliance with legal and regulatory requirements.
If governmental authorities in locations in which we operate take actions like these, it could have an adverse effect on our business by causing delays, increasing our costs, or limiting our ability to operate in the applicable area. We incur substantial costs related to compliance with legal and regulatory requirements.
The additional increases forecasted by the Federal Reserve could further increase the costs of owning a home and reduce the demand for our homes. In addition, any reduction in the availability of the financing provided by Fannie Mae and Freddie Mac could adversely affect interest rates, mortgage availability and our sales of new homes and origination of mortgage loans.
Any additional increases by the Federal Reserve could further increase the costs of owning a home and reduce the demand for our homes. In addition, any reduction in the availability of the financing provided by Fannie Mae and Freddie Mac could adversely affect interest rates, mortgage availability and our sales of new homes and origination of mortgage loans.
The Company has recorded a liability to provide for the anticipated costs, including legal defense costs, associated with the resolution of these other legal proceedings. However, the costs to resolve these legal proceedings ultimately may exceed the recorded estimates and, therefore, have a material adverse effect on the Company’s results of operations, financial condition, and cash flows.
The Company has recorded a liability to provide for the anticipated costs, including legal defense costs, associated with the resolution of these legal proceedings. However, the costs to resolve these legal proceedings ultimately may exceed the recorded estimates and, therefore, have a material adverse effect on the Company’s results of operations, financial condition, and cash flows.
During 2022, we experienced delays in receiving governmental and municipality approvals in certain of our community locations, and we expect that we may experience a similar level of delays in 2023. Governmental authorities may also restrict or place moratoriums on the availability of utilities, such as water and sewer taps.
During 2022 and 2023, we experienced delays in receiving governmental and municipality approvals in certain of our community locations, and we expect that we may experience a similar level of delays in 2024. Governmental authorities may also restrict or place moratoriums on the availability of utilities, such as water and sewer taps.
While management currently believes that the ultimate resolution of these other legal proceedings, individually and in the aggregate, will not have a material adverse effect on the Company’s results of operations, financial condition or cash flows, such legal proceedings are subject to inherent uncertainties.
While management currently believes that the ultimate resolution of these legal proceedings, individually and in the aggregate, will not have a material adverse effect on the Company’s results of operations, financial condition or cash flows, such legal proceedings are subject to inherent uncertainties.
Competitive factors that affect our financial services operations include pricing, mortgage loan terms, underwriting criteria and customer service. To the extent that we are unable to adequately compete with other companies that originate mortgage loans, the results of operations from our mortgage operations may be negatively impacted.
Competitive factors that affect our financial services operations include pricing, mortgage loan terms, underwriting criteria and customer service. To the extent that we are unable to adequately compete with other companies that originate mortgage loans, the results of operations of our mortgage operations may be negatively impacted.
Competition for home orders is primarily based upon home sales price, location of property, home style, financing available to prospective homebuyers, quality of homes built, customer service and general reputation in the community, and may vary by market, sub-market and even by community.
Competition for new home orders is primarily based upon home sales price, location of property, home style, financing available to prospective homebuyers, quality of homes built, customer service and general reputation in the community, and may vary by market, sub-market and even by community.
Our ability to 17 comply with the foregoing restrictions and covenants may be affected by events beyond our control, including prevailing economic, financial and industry conditions. Our indebtedness could adversely affect our financial condition, and we and our subsidiaries may incur additional indebtedness, which could increase the risks created by our indebtedness.
Our ability to comply with the foregoing restrictions and covenants may be affected by events beyond our control, including prevailing economic, financial and industry conditions. Our indebtedness could adversely affect our financial condition, and we and our subsidiaries may incur additional indebtedness, which could increase the risks created by our indebtedness.
However, we may not always be able to cause our subcontractors to discontinue potentially improper practices, and even when we can, we may not be able to avoid claims against us for personal injury, property damage or other losses relating to prior actions of our subcontractors.
However, we may not always be able to 16 cause our subcontractors to discontinue potentially improper practices, and even when we can, we may not be able to avoid claims against us for personal injury, property damage or other losses relating to prior actions of our subcontractors.
Future rulings by the NLRB or other courts or governmental agencies could make us responsible for labor violations committed by our subcontractors. Governmental rulings that hold us responsible for labor practices by our subcontractors could create substantial exposures for us under our subcontractor relationships.
Future rulings by the NLRB or other courts or governmental agencies could make us responsible for labor violations committed by our subcontractors. Governmental rulings that hold us responsible for labor practices of our subcontractors could create substantial exposures for us under our subcontractor relationships.
These statutes, 19 ordinances, rules and regulations may cause delays, may cause us to incur substantial compliance, remediation or other costs, and can prohibit or severely restrict development and homebuilding activity.
These statutes, ordinances, rules and regulations may cause delays, may cause us to incur substantial compliance, remediation or other costs, and can prohibit or severely restrict development and homebuilding activity.
These developments are highly uncertain and outside of our control. To the extent an epidemic, pandemic or similar public health issue has a significant adverse effect on the U.S. economy, our business, results of operations, financial condition and/or cash flows could be materially adversely effected. 22 Item 1B. UNRESOLVED STAFF COMMENTS None.
These developments are highly uncertain and outside of our control. To the extent an epidemic, pandemic or similar public health issue has a significant adverse effect on the U.S. economy, our business, results of operations, financial condition and/or cash flows could be materially adversely affected. Item 1B. UNRESOLVED STAFF COMMENTS None. 22
Our ability to conduct our business may be impaired if these informational technology and computer resources, including our website, are compromised, degraded or damaged or if they fail, whether due to a virus or other harmful circumstance, intentional penetration or disruption of our information technology resources by a third party, natural disaster, hardware or software corruption or failure or error (including a failure of security controls incorporated into or applied to such hardware or software), telecommunications system failure, service provider error or failure or intentional or unintentional personnel actions (including the failure to follow our security protocols), or lost connectivity to our networked resources.
Our ability to conduct our business may be impaired if these informational technology and computer resources, including our website and customer-facing applications, are compromised, degraded or damaged or if they fail, whether due to a virus or other harmful circumstance, intentional penetration or disruption of our information technology resources by a third party, natural disaster, hardware or software corruption or failure or error (including a failure of security controls incorporated into or applied to such hardware or software), telecommunications system failure, service provider error or failure or intentional or unintentional personnel actions (including the failure to follow our security protocols), or lost connectivity to our networked resources.
These above conditions, among others, are complex and interrelated. Adverse changes in such business conditions may have a significant negative impact on our business. The negative impact may be national in scope but may also negatively affect some of the regions or markets in which we operate more than others.
These above conditions, among others, are complex and interrelated. Adverse changes in such business conditions may have a significantly negative impact on our business. The negative impact may be national in scope but may also negatively affect some of the regions or markets in which we operate more than others.
An epidemic, pandemic or similar public health issue, or fear of such an event, and the measures undertaken by governmental authorities to address it, could significantly disrupt or prevent us from operating our business in the ordinary course for an extended period, and thereby, and/or along with any associated economic and/or social instability or distress, have a material adverse effect on our business, results of operations, financial condition and/or cash flows.
An epidemic, pandemic or similar public health issue, or fear of such an event, and the measures undertaken by governmental authorities to address it, could significantly disrupt or prevent us from operating our business in the ordinary course for an extended period and, together with any associated economic and social instability or distress, have a material adverse effect on our business, results of operations, financial condition and/or cash flows.
Further reduction in the availability of mortgage financing or continued increases in mortgage interest rates or down payment requirements could adversely affect our business. Mortgage interest rates increased significantly in 2022 from historical lows, which increased the costs of owning a home and reduced the demand for our homes.
Further reduction in the availability of mortgage financing or continued increases in mortgage interest rates or down payment requirements could adversely affect our business. Mortgage interest rates increased significantly in 2022 and 2023 from historical low rates, which increased the costs of owning a home and reduced the demand for our homes.
Several of our markets, specifically our operations in Florida, North Carolina and Texas, are situated in geographical areas that are regularly impacted by severe storms, including hurricanes, flooding and tornadoes. In addition, our operations in the Northern Region can be impacted by severe storms, including tornadoes.
Several of our markets, specifically our operations in Florida, North Carolina and Texas, are situated in geographical areas that are regularly impacted by severe storms, including hurricanes, flooding and tornadoes. In addition, the operations of our Northern homebuilding segment can be impacted by severe storms, including tornadoes.
The impact of an epidemic, pandemic or similar public health issue on our business will depend on future developments, including whether governmental authorities impose additional health and safety measures, the outbreak, duration and severity of new variants, the acceptance and effectiveness of vaccines, and the impact of the pandemic on our employees, customers, and building partners.
The impact of an epidemic, pandemic or similar public health issue on our business will depend on future developments, including whether governmental authorities impose additional health and safety measures, the duration and severity of the public health issue, the acceptance and effectiveness of treatments including vaccines, and the impact of the public health issue on our employees, customers, and building partners.
Additionally, as conditions in the homebuilding industry decline, we are required to evaluate our inventory for potential impairment, which may result in additional valuation adjustments, which could be significant and could negatively impact our financial results and condition. We cannot make any assurances that the measures we employ to manage inventory risks and costs will be successful.
If conditions in the homebuilding industry decline, we are required to evaluate our inventory for potential impairment, which may result in additional valuation adjustments, which could be significant and could negatively impact our results of operations and financial condition. We cannot make any assurances that the measures we employ to manage inventory risks and costs will be successful.
In addition, breaches of our information technology systems or data security systems, including cyber attacks, could result in the unintended and/or unauthorized public disclosure or the misappropriation of proprietary, personal identifying and confidential information (including information we collect and retain in connection with our business about our homebuyers, business partners and employees), and require us to incur significant expense (that we may not be able to recover in whole or in part from our service providers or responsible parties, or their or our insurers) to address and remediate or otherwise resolve.
In addition, breaches of our information technology systems or data security systems, including cyberattacks and malicious uses of artificial intelligence, could result in the unintended and/or unauthorized public disclosure or the misappropriation of proprietary, personal identifying and confidential information (including information we collect and retain in connection with our business about our homebuyers, business partners and employees), and require us to incur significant expense (that we may not be able to recover in whole or in part from our service providers or responsible parties, or their or our insurers) to address and remediate or otherwise resolve.
Because of the high degree of judgment required in determining these liability reserves, our actual future liability could differ significantly from our reserves. Given the inherent uncertainties, we cannot provide assurance that our insurance coverage, our subcontractor arrangements and our reserves will be adequate to address all of our construction 16 defect, product liability and warranty claims.
Because of the high degree of judgment required in determining these liability reserves, our actual future liability could differ significantly from our reserves. Given the inherent uncertainties, we cannot provide assurance that our insurance coverage, our subcontractor arrangements and our reserves will adequately address all of our construction defect, product liability and warranty claims.
The ability to obtain surety bonds also can be impacted by the willingness of insurance companies and sureties to issue performance bonds. If we cannot obtain surety bonds when required, our results of operations and/or cash flows could be adversely impacted. The M/I Financial warehouse facilities will expire in 2023.
The ability to obtain surety bonds also can be impacted by the willingness of insurance companies and sureties to issue performance bonds. If we cannot obtain surety bonds when required, our results of operations and/or cash flows could be adversely impacted. The M/I Financial repurchase facility will expire in 2024.
Transition risks, such as government restrictions, standards or regulations intended to reduce greenhouse gas emissions and potential climate change impacts, are emerging and may increase in the future in the form of additional restrictions or regulations on land development and home construction in certain areas.
Government restrictions, standards and regulations intended to mitigate climate change, such as greenhouse gas emissions standards, are emerging and may increase in the future in the form of additional restrictions or regulations on land development and home construction in certain areas.
As a result of the historically high rates of inflation in 2022, we experienced, and expect to continue to experience into 2023, increases in the costs of land, materials and labor.
As a result of the historically high rates of inflation we experienced in 2022 and into early 2023, we experienced increases in the costs of land, materials and labor.
Increased competition levels in the homebuilding and mortgage lending industries could result in a reduction in our new contracts and homes delivered, along with decreases in the average sales prices of homes delivered and/or decreased mortgage originations, which would have a negative impact on our results of operations. The homebuilding industry is fragmented and highly competitive.
Increased competition levels in the homebuilding and mortgage lending industries could reduce our new contracts and homes delivered, decrease the average sales prices of homes delivered and decrease mortgage originations, which would have a negative impact on our results of operations. The homebuilding industry is fragmented and highly competitive.
In addition to the legal proceedings related to stucco discussed above, the Company and certain of its subsidiaries have been named as defendants in certain other legal proceedings which are incidental to our business.
The Company and certain of its subsidiaries have been named as defendants in certain legal proceedings which are incidental to our business.
In addition, any failure to comply therewith could give rise to fines, penalties or other liabilities, obligations to remediate, permit revocations or other sanctions and have an adverse effect on our results of operations, financial condition or business. Recently, there has been growing concern from advocacy groups, government agencies and the general public regarding the impact of climate change.
In addition, any failure to comply therewith could 19 give rise to fines, penalties or other liabilities, obligations to remediate, permit revocations or other sanctions and have an adverse effect on our results of operations, financial condition or business. Various advocacy groups and government agencies and the general public are increasingly focusing on the impact of climate change.
Although our subcontractors have principal responsibility for defects in the work they do, we have ultimate responsibility to the homebuyers. When we identify these defects, we repair them in accordance with our warranty obligations. Improper construction processes and defective products widely used in the homebuilding industry can result in the need to perform extensive repairs to large numbers of homes.
When we identify these defects, we repair them in accordance with our warranty obligations. Improper construction processes and defective products widely used in the homebuilding industry can result in the need to perform extensive repairs to large numbers of homes.
Our financial services business is closely related to our homebuilding business, as it originates mortgage loans principally on behalf of purchasers of the homes we build. As the demand for our homes declined during 2022, the financial results of our financial services segment also declined.
Our financial services business is closely related to our homebuilding business, as it originates mortgage loans principally on behalf of purchasers of the homes we build. If demand for our homes declines in the future, the financial results of our financial services segment will also decline.
If we are unable to renew or replace the warehousing facilities when they mature, the activities of our financial services segment could be impeded and our home sales and our homebuilding and financial services results of operations may be adversely affected.
If we are unable to renew or replace the MIF Mortgage Repurchase Facility when it matures, the activities of our financial services segment could be impeded and our home sales and homebuilding and financial services results of operations may be adversely affected.
We may write-off intangible assets, such as goodwill. We recorded goodwill in connection with our acquisition of the assets and operations of Pinnacle Homes. On an ongoing basis, we will evaluate whether facts and circumstances indicate any impairment of the value of intangible assets.
We recorded goodwill in connection with our acquisition of the assets and operations of Pinnacle Homes. On an ongoing basis, we evaluate whether facts and circumstances indicate any impairment of the value of intangible assets. As circumstances change, we cannot provide any assurance that we will realize the value of these intangible assets.
General Risk Factors Because of the seasonal nature of our business, our quarterly operating results can fluctuate. We have historically experienced seasonality and quarter-to-quarter variability in homebuilding activity levels. In general, the number of homes delivered and associated home sales revenue have increased during the third and fourth quarters, compared with the first and second quarters.
We have historically experienced seasonality and quarter-to-quarter variability in homebuilding activity levels. In general, the number of homes delivered and associated home sales revenue have increased during the third and fourth quarters, compared with the first and second quarters.
If our ability to resell mortgages to investors is impaired, we may be required to broker loans. M/I Financial sells a portion of the loans originated on a servicing released, non-recourse basis, although M/I Financial remains liable for certain limited representations and warranties related to loan sales and for repurchase obligations in certain limited circumstances.
M/I Financial sells a portion of the loans originated on a servicing released, non-recourse basis, although M/I Financial remains liable for certain limited representations and warranties related to loan sales and for repurchase obligations in certain limited circumstances.
We may be unable to change the mix of our home offerings, reduce the costs of the homes we build or offer more affordable homes to 13 maintain our gross margins or satisfactorily address changing market conditions in other ways. In addition, cancellations of home sales contracts in backlog may continue to increase.
In the future, our pricing strategies may be limited by market conditions. We may be unable to change the mix of our home offerings, reduce the costs of the homes we build or offer more affordable homes to maintain our gross margins or satisfactorily address changing market conditions in other ways.
We have implemented systems and processes intended to address ongoing and evolving cyber security risks, secure our information technology, applications and computer systems, and prevent unauthorized access to or loss of sensitive, confidential and personal data. We adhere to the NIST CSF Framework to ensure we have proper controls in place to reduce our risk to cyber security threats.
We have implemented systems and processes intended to address ongoing and evolving cyber security risks, secure our information technology, applications and computer systems, and prevent unauthorized access to or loss of sensitive, confidential and personal data.
As of December 31, 2022, we had approximately $692.5 million of indebtedness (net of debt issuance costs), excluding issuances of letters of credit, our $200 million secured mortgage warehousing agreement, with M/I Financial as borrower (the “MIF Mortgage Warehousing Agreement”), and our $90 million mortgage repurchase facility, with M/I Financial as borrower (the “MIF Mortgage Repurchase Facility”), and we had $555.1 million of remaining availability for borrowings under the Credit Facility.
As of December 31, 2023, we had approximately $693.7 million of indebtedness (net of debt issuance costs), excluding issuances of letters of credit and our $300 million mortgage repurchase facility, with M/I Financial as borrower (the “MIF Mortgage Repurchase Facility”), and we had $579.3 million of remaining availability for borrowings under the Credit Facility.
The cost of labor may also be adversely affected by shortages of qualified subcontractors and construction personnel, changes in laws and regulations relating to union activity and changes in immigration laws and trends in labor migration.
We have experienced, and may continue to experience, labor shortages in certain of our markets. The cost of labor may also be adversely affected by shortages of qualified subcontractors and construction personnel (including as a result of the trade population), changes in laws and regulations relating to union activity and changes in immigration laws and trends in labor migration.
We have operations in Ohio, Indiana, Illinois, Michigan, Minnesota, North Carolina, Florida, Tennessee and Texas. Our limited geographic diversification could adversely impact us if the demand for new homes or the level of homebuilding activity in our current markets declines, since there may not be a balancing opportunity in a stronger market in other geographic regions.
Our limited geographic diversification could adversely impact us if the demand for new homes or the level of homebuilding activity in our current markets declines, since there may not be a balancing opportunity in a stronger market in other geographic regions. We may write-off intangible assets, such as goodwill.
Similarly, if additional legal proceedings are filed against us in the future, including with respect to stucco installation in our Florida communities, the negative outcome of one or more of such legal proceedings could have a material adverse effect on our results of operations, financial condition and cash flows.
Similarly, if additional legal proceedings are filed against us in the future, the negative outcome of one or more of such legal proceedings could have a material adverse effect on our results of operations, financial condition and cash flows. General Risk Factors Because of the seasonal nature of our business, our quarterly operating results can fluctuate.
If, due to the factors discussed above, M/I Financial is limited from making or unable to make loan products available to our homebuyers, our home sales and our homebuilding and financial services results of operations may be adversely affected. 14 If land is not available at reasonable prices or terms, our homes sales revenue and results of operations could be negatively impacted and/or we could be required to scale back our operations in a given market.
If, due to the factors discussed above, M/I Financial is limited from making or unable to make loan products available to our homebuyers, our home sales and our homebuilding and financial services results of operations may be adversely affected.
There can be no assurance that we will not have significant liabilities in respect of such claims in the future, which could exceed our reserves, or that the impact of such claims on our results of operations will not be material. Homebuilding is subject to construction defect, product liability and warranty claims that can be significant and costly.
There can be no assurance that we will not have significant liabilities in respect of such claims in the future, which could exceed our reserves, or that the impact of such claims on our results of operations will not be material. If our ability to resell mortgages to investors is impaired, we may be required to broker loans.
Additionally, if the secondary mortgage market declines significantly, our ability to sell mortgages could be adversely impacted and we would be required to make arrangements with banks or other financial institutions to fund our buyers’ closings.
If M/I Financial is unable to sell loans to viable purchasers in the marketplace, our ability to originate and sell mortgage loans at competitive prices could be limited which would negatively affect our operations and our profitability. 18 Additionally, if the secondary mortgage market declines significantly, our ability to sell mortgages could be adversely impacted and we would be required to make arrangements with banks or other financial institutions to fund our buyers’ closings.
As circumstances change, we cannot provide any assurance that we will realize the value of these intangible assets. If we determine that a significant impairment has occurred, we will be required to write-off the impaired portion of intangible assets, which could have a material adverse effect on our results of operations in the period in which the write-off occurs.
If we determine that a significant impairment has occurred, we will be required to write-off the impaired portion of intangible assets, which could have a material adverse effect on our results of operations in the period in which the write-off occurs. Homebuilding is subject to construction defect, product liability and warranty claims that can be significant and costly.
We are closely monitoring our sales prices and have begun to offer sales incentives and mortgage rate buy-down programs and adjust base sales prices in certain circumstances and in certain communities, which will negatively impact our sales prices and future gross margins.
We closely monitor our sales prices and offer sales incentives and mortgage rate buy-down programs and adjust base sales prices in certain circumstances and in certain communities, which negatively impacted our sales prices and gross margins in 2023. We may or may not continue to offer these incentives in 2024.
In such a highly inflationary environment, we may not be able to raise home prices enough to keep pace with the increased costs of land and house construction, which could reduce our profit margins. Our limited geographic diversification could adversely affect us if the demand for new homes in our markets declines.
We may continue to experience high rates of inflation in the future, and in a high inflationary environment, we may not be able to raise home prices enough to keep pace with the increased costs of land and house construction, which could reduce our profit margins.
In addition, we have deployed monitoring capabilities to support early detection, internal and external escalation, and effective responses to potential anomalies. Many of our information technology and other computer resources are provided to us and/or maintained on our behalf by third-party service providers pursuant to agreements that specify to varying degrees certain security and service level standards.
Many of our information technology and other computer resources are provided to us and/or maintained on our behalf by third-party service providers pursuant to agreements that specify to varying degrees certain security and service level standards. We also rely upon our third-party service providers to maintain effective cyber security measures to keep our information secure and to carry cyber insurance.
M/I Financial uses two mortgage warehouse facilities to finance eligible residential mortgage loans originated by M/I Financial, the MIF Mortgage Warehousing Agreement and the MIF Mortgage Repurchase Facility. These facilities will expire on May 26, 2023 and October 23, 2023, respectively.
M/I Financial uses the MIF Mortgage Repurchase Facility to finance eligible residential mortgage loans originated by M/I Financial. This facility will expire on October 22, 2024.
Our subcontractors can expose us to warranty and other risks. We rely on subcontractors to construct our homes, and in many cases, to select and obtain building materials. Despite our detailed specifications and quality control procedures, in some cases, it may be determined that subcontractors used improper construction processes or defective materials in the construction of our homes.
Despite our detailed specifications and quality control procedures, in some cases, it may be determined that subcontractors used improper construction processes or defective materials in the construction of our homes. Although our subcontractors have principal responsibility for defects in the work they do, we have ultimate responsibility to the homebuyers.
If the costs to resolve these claims exceed our estimates, our results of operations, financial condition and cash flows could be adversely affected.
If the costs to resolve these claims exceed our estimates, our results of operations, financial condition and cash flows could be adversely affected. Our subcontractors can expose us to warranty and other risks. We rely on subcontractors to construct our homes, and in many cases, select and obtain building materials.
Additional external factors, such as foreclosure rates, mortgage availability, high inflation, and unemployment rates, could also negatively impact our results. Increased mortgage interest rates have made it increasingly difficult for potential customers to qualify for sufficient financing, which is contributing to the affordability issues negatively impacting the homebuilding and mortgage lending industries.
Increased mortgage interest rates have made it increasingly difficult for potential customers to qualify for sufficient financing, which is contributing to the affordability issues negatively impacting the homebuilding and mortgage lending industries. Customers may be less willing or able to buy our homes if these conditions continue to impact the homebuilding industry.
In 2022, we were able to manage through these disruptions and cost increases by raising prices and managing other costs. However, if labor and building material shortages, and cost increases continue, our gross margins and results of operations could be adversely affected if we are unable to continue to increase prices or achieve other cost savings.
However, if labor and building material shortages and cost increases continue, our gross margins and results of operations could be adversely affected if we are unable to continue to increase prices or achieve other cost savings. We depend on the continued availability of and satisfactory performance of subcontracted labor for the construction of our homes and to provide related materials.
We also depend on various partners and providers, and our mortgage software service partners, to secure our home buyers’ personal identifiable and confidential information. We provide regular personnel awareness training regarding potential cyber security threats, including the use of internal tips, reminders and phishing assessments, to help ensure employees remain diligent in identifying potential risks.
We provide regular personnel awareness training regarding potential cyber security threats, including the use of internal tips, reminders and phishing assessments, to help ensure employees remain diligent in identifying potential risks. In addition, we have deployed monitoring capabilities to support early detection, internal and external escalation, and effective responses to potential anomalies.
Our absorption rate during 2022 declined to 3.1 per community compared to prior year’s 4.1 (a record high). Any further decline in sales activity could adversely affect our results of operations, financial condition and cash flows.
In addition, cancellations of home sales contracts in backlog may increase. 13 Although our absorption rate and new contracts improved during 2023 compared to prior year, any decline in sales activity could adversely affect our results of operations, financial condition and cash flows.
We continued to experience disruptions in our supply chain during 2022, including the availability and shortage of labor and certain building materials and finishing products, such as cabinets and appliances, which lengthened the production cycles in certain markets and increased costs for labor and building materials.
Supply chain disruptions began to subside during 2023, and we began to experience an improvement in the availability and shortage of labor and certain building products, which positively impacted our construction cycle times.
Removed
We began to experience a slowdown in the homebuilding and mortgage lending industries during the second half of 2022. As the national economy weakened and inflation and mortgage interest rates rose at unprecedented rates, we experienced a decline in the demand for our homes.
Added
A reduction in our gross margins from home sales could have a significantly negative impact on our financial position and results of operations. Additional external factors, such as foreclosure rates, mortgage availability, high inflation, a global economic slowdown, the prospect of a recession, and unemployment rates, could also negatively impact our results.
Removed
Customers may be less willing or able to buy our homes if these conditions continue to impact the homebuilding industry.
Added
We believe that the availability of mortgage financing, including through federal government agencies or government-sponsored enterprises (such as Freddie Mac, Fannie Mae, FHA and VA financing), is an important factor in marketing many of our homes. Any limitations or restrictions on the availability of mortgage financing could reduce our sales.
Removed
Our cancellation rate has increased significantly from 2021 as buyers are walking away from home purchases due to affordability issues. In the future, our pricing strategies may be limited by market conditions.
Added
In addition, if we are unable to originate mortgages for any reason going forward, our customers may experience significant mortgage loan funding issues, which could have a material impact on our homebuilding and financial services results of operations. 14 If land is unavailable at reasonable prices or terms, our homes sales revenue and results of operations could be negatively impacted and/or we could be required to scale back our operations in a given market.
Removed
We recorded an aggregate loss of $18.4 million during the fourth quarter of 2022 that included $10.2 million of write-offs of land deposits for land we no longer intend to purchase as a result of our efforts to right-size our land portfolio and $8.2 million of asset impairment charges.
Added
Periodically, as part of our normal course of business, we record asset impairment charges or write-off deposits for land that we no longer intend to purchase.
Removed
To the extent that market conditions prevent the recovery of increased costs, including, among other things, subcontracted labor, developed lots, building materials, and other resources, through higher sales prices, our gross margins from home sales and results of operations could be adversely affected.
Added
Our limited geographic diversification could adversely affect us if the demand for new homes in our markets declines. We have operations in Ohio, Indiana, Illinois, Michigan, Minnesota, North Carolina, Florida, Tennessee and Texas.
Removed
We depend on the continued availability of and satisfactory performance of subcontracted labor for the construction of our homes and to provide related materials. As noted above, we have experienced, and may continue to experience, labor and material shortages in certain of our markets.
Added
The inability of our lenders to satisfy their obligations under our credit facilities could adversely affect our liquidity and financial condition. The U.S. banking industry experienced bank failures and other significant challenges in 2023.
Removed
We have received claims related to stucco installation from homeowners in certain of our communities in our Tampa and Orlando, Florida markets and have been named as a defendant in legal proceedings initiated by certain of such homeowners. While we have estimated our overall future stucco repair costs, our estimate is based on our judgment, various assumptions and internal data.
Added
The failure of other banks or financial institutions could have an adverse effect on our liquidity or consolidated financial statements if we have deposits at the failed banks or financial institutions, or if the failed banks or financial institutions, or any substitute or additional banks or financial institutions, participate in our Credit Facility.
Removed
Given the inherent uncertainties, we cannot provide assurance that the final costs to resolve these claims will not exceed our accrual and adversely affect our results of operations, financial condition and cash flows. See Note 1 and Note 8 to the Company’s Consolidated Financial Statements for further information regarding these stucco claims and our warranty reserves.
Added
Under our Credit Facility, non-defaulting lenders still have an obligation to fund amounts up to their commitment level under the Credit Facility.
Removed
If M/I Financial is unable to sell loans to viable purchasers in the marketplace, our ability to originate and sell mortgage loans at competitive prices could be limited which would negatively affect our operations and our profitability.
Added
However, non-defaulting lenders are not obligated to cover or acquire a defaulting lender’s respective commitment to fund loans or to issue letters of credit and may be unwilling to issue additional letters of credit if we do not enter into arrangements to address the risk with respect to the defaulting lender (which may include cash collateral).

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeBUSINESS – Land Acquisition and Development” and “Item 1. BUSINESS – Backlog.” Item 3. LEGAL PROCEEDINGS The Company’s legal proceedings are discussed in Note 8 to the Company’s Consolidated Financial Statements. Item 4. MINE SAFETY DISCLOSURES None. 23 PART II
Biggest changeBUSINESS – Land Acquisition and Development” and “Item 1. BUSINESS – Backlog.” Item 3. LEGAL PROCEEDINGS The Company’s legal proceedings are discussed in Note 8 to the Company’s Consolidated Financial Statements. Item 4. MINE SAFETY DISCLOSURES None. 24 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeItem 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market for Common Shares and Dividends The Company’s common shares are traded on the New York Stock Exchange under the symbol “MHO.” As of February 15, 2023, there were approximately 386 record holders of the Company’s common shares.
Biggest changeItem 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market for Common Shares and Dividends The Company’s common shares are traded on the New York Stock Exchange under the symbol “MHO.” As of February 14, 2024, there were approximately 298 record holders of the Company’s common shares.
Performance Graph The following graph illustrates the Company’s performance in the form of cumulative total return to holders of our common shares for the last five calendar years through December 31, 2022, assuming a hypothetical investment of $100 and reinvestment of all dividends paid on such investment, compared to the cumulative total return of the same hypothetical investment in both the Standard and Poor’s 500 Stock Index and the Standard & Poor’s 500 Homebuilding Index.
Performance Graph The following graph illustrates the Company’s performance in the form of cumulative total return to holders of our common shares for the last five calendar years through December 31, 2023, assuming a hypothetical investment of $100 and reinvestment of all dividends paid on such investment, compared to the cumulative total return of the same hypothetical investment in both the Standard and Poor’s 500 Stock Index and the Standard & Poor’s 500 Homebuilding Index.
At that date, there were 30,137,141 common shares issued and 27,668,364 common shares outstanding.
At that date, there were 30,137,141 common shares issued and 27,806,899 common shares outstanding.
Removed
Period Ending Index 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 M/I Homes, Inc. $ 100.00 $ 61.10 $ 114.39 $ 128.75 $ 180.76 $ 134.24 S&P 500 100.00 95.62 125.72 148.85 191.58 156.88 S&P 500 Homebuilding Index 100.00 67.75 102.16 127.18 191.22 154.40 24 Share Repurchases There were no repurchases made by, or on behalf of, the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of the Company’s common shares during the fourth quarter of the fiscal year ended December 31, 2022.
Added
Period Ending Index 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 M/I Homes, Inc. $ 100.00 $ 187.20 $ 210.70 $ 295.81 $ 219.70 $ 655.28 S&P 500 100.00 131.49 155.68 200.37 164.08 207.21 S&P 500 Homebuilding Index 100.00 150.80 187.72 282.25 227.91 396.71 25 Share Repurchases Common shares purchased during each month during the fourth quarter ended December 31, 2023 were as follows: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (1) October 1, 2023 - October 31, 2023 20,000 $ 82.13 20,000 51,243,976 November 1, 2023 - November 30, 2023 210,000 $ 99.70 210,000 130,307,968 December 1, 2023 - December 31, 2023 23,000 $ 108.98 23,000 127,801,416 Quarter ended December 31, 2023 253,000 $ 99.15 253,000 127,801,416 (1) On July 28, 2021, the Company announced that its Board of Directors authorized the 2021 Share Repurchase Program pursuant to which the Company may purchase up to $100 million of its outstanding common shares through open market transactions, privately negotiated transactions or otherwise in accordance with all applicable laws, including pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934.
Added
On February 17, 2022, the Company announced that its Board of Directors approved an increase to the 2021 Share Repurchase Program by an additional $100 million, and on November 15, 2023, the Company announced that its Board of Directors approved an additional $100 million increase.
Added
As of December 31, 2023, $127.8 million remained available for repurchase under the 2021 Share Repurchase Program. The 2021 Share Repurchase Program does not have an expiration date and may be modified, suspended or discontinued at any time. See Note 16 to our Consolidated Financial Statements for additional information.
Added
See Note 11 to our Consolidated Financial Statements for more information regarding the limit imposed by the indenture governing our 2028 Senior Notes on our ability to pay dividends on, and repurchase, our common shares to the amount of the positive balance in our “restricted payments basket,” as defined in the indenture. ITEM 6. Reserved 26

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeOn December 9, 2022, the company entered into an amendment to the Credit Facility, which, among other things, (1) increased the commitments from lenders to $650 million, (2) extended the maturity to December 9, 2026, (3) increased the accordion feature pursuant to which the maximum borrowing availability may be increased to an aggregate of $800 million, subject to obtaining additional commitments from lenders, (4) increased the sub-facility for letters of credit included in the Credit Facility to $250 million from $150 million, and (5) replaced LIBOR with the secured overnight financing rate (“SOFR”) as an interest rate bench mark (subject to a floor of 0.25%) and permitted the Company to select an index rate for each borrowing from multiple interest rate options, including one, three or six month adjusted term SOFR, plus a margin of 1.75 basis points (subject to adjustment in subsequent quarterly periods based on the Company’s then applicable leverage ratio).
Biggest changeInterest on amounts borrowed under the Credit Facility is payable at multiple interest rate options, including one, three, or six month adjusted term secured overnight financing rate (“SOFR”) (subject to a floor of 0.25%) plus a margin of 175 basis points (subject to adjustment in subsequent quarterly periods based on the Company’s leverage ratio).
The guarantees are “full and unconditional,” as those terms are used in Regulation S-X, Rule 3-10(b)(3), except that the indentures governing the 2030 Senior Notes and the 2028 Senior Notes provide that a Subsidiary Guarantor’s guarantee will be released if: (1) all of the assets of such Subsidiary Guarantor have been sold or otherwise disposed of in a transaction in 43 compliance with the terms of the applicable indenture; (2) all of the Equity Interests (as defined in the applicable indenture) held by M/I Homes, Inc. and the Restricted Subsidiaries (as defined in the applicable Indenture) of such Subsidiary Guarantor have been sold or otherwise disposed of to any person other than M/I Homes, Inc. or a Restricted Subsidiary in a transaction in compliance with the terms of the applicable indenture; (3) the Subsidiary Guarantor is designated an Unrestricted Subsidiary (or otherwise ceases to be a Restricted Subsidiary (including by way of liquidation or merger)) in compliance with the terms of the applicable indenture; (4) M/I Homes, Inc. exercises its legal defeasance option or covenant defeasance option under the applicable indenture; or (5) all obligations under the applicable indenture are discharged in accordance with the terms of the applicable indenture.
The guarantees are “full and unconditional,” as those terms are used in Regulation S-X, Rule 3-10(b)(3), except that the indentures governing the 2030 Senior Notes and the 2028 Senior Notes provide that a Subsidiary Guarantor’s guarantee will be released if: (1) all of the assets of such Subsidiary Guarantor have been sold or otherwise disposed of in a transaction in compliance with the terms of the applicable indenture; (2) all of the Equity Interests (as defined in the applicable indenture) held by M/I Homes, Inc. and the Restricted Subsidiaries (as defined in the applicable Indenture) of such Subsidiary Guarantor have been sold or otherwise disposed of to any person other than M/I Homes, Inc. or a Restricted Subsidiary in a transaction in compliance with the terms of the applicable indenture; (3) the Subsidiary Guarantor is designated an Unrestricted Subsidiary (or otherwise ceases to be a Restricted Subsidiary (including by way of liquidation or merger)) in compliance with the terms of the applicable indenture; (4) M/I Homes, Inc. exercises its legal defeasance option or covenant defeasance option under the applicable indenture; or (5) all obligations under the applicable indenture are discharged in accordance with the terms of the applicable indenture.
The Company’s obligations under the Credit Facility are guaranteed by all of the Company’s subsidiaries, with the exception of subsidiaries that are primarily engaged in the business of mortgage financing, title insurance or similar financial businesses relating to the homebuilding and home sales business, certain subsidiaries that are not 100%-owned by the Company or another subsidiary, and other subsidiaries designated by the Company as Unrestricted Subsidiaries, subject to limitations on the aggregate amount invested in such Unrestricted Subsidiaries.
The Company’s obligations under the Credit Facility are guaranteed by all of the Company’s subsidiaries, with the exception of subsidiaries that are primarily engaged in the business of mortgage financing, title insurance or similar financial businesses relating to the homebuilding and home sales business, certain subsidiaries that are not 100%-owned by the Company or another subsidiary, and other subsidiaries designated by the Company as Unrestricted Subsidiaries (as defined in the Credit Facility), subject to limitations on the aggregate amount invested in such Unrestricted Subsidiaries.
In certain circumstances, a court could void the guarantees, subordinate amounts owing under the guarantees or order other relief detrimental to the holders of the 2030 Senior Notes and the 2028 Senior Notes. The following tables present summarized financial information on a combined basis for M/I Homes, Inc. and the Subsidiary Guarantors.
In certain circumstances, a court could void the guarantees, subordinate amounts owing under the guarantees or order other relief detrimental to the holders of the 2030 Senior Notes and the 2028 Senior Notes. 42 The following tables present summarized financial information on a combined basis for M/I Homes, Inc. and the Subsidiary Guarantors.
Because each inventory asset is unique, there are numerous inputs and assumptions used in our valuation techniques, including estimated average selling price, construction and development costs, absorption pace (reflecting any product mix change strategies implemented or to be implemented), selling strategies, alternative land uses (including disposition of all or a portion of the land owned), or discount rates, which could materially impact future cash flow and fair value estimates. 27 If communities are not recoverable based on estimated future undiscounted cash flows, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets.
Because each inventory asset is unique, there are numerous inputs and assumptions used in our valuation techniques, including estimated average selling price, construction and development costs, absorption pace (reflecting any product mix change strategies implemented or to be implemented), selling strategies, alternative land uses (including disposition of all or a portion of the land owned), or discount rates, which could materially impact future cash flow and fair value estimates. 28 If communities are not recoverable based on estimated future undiscounted cash flows, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets.
The amount borrowed will also be impacted by other cash receipts and payments, any capital markets transactions or other additional financings by the Company, any repayments or redemptions of outstanding debt, any additional share 44 repurchases under the 2021 Share Repurchase Program and any other extraordinary events or transactions.
The amount borrowed will also be impacted by other cash receipts and payments, any capital markets transactions or other additional financings by the Company, any repayments or redemptions of outstanding debt, any additional share repurchases under the 2021 Share Repurchase Program and any other extraordinary events or transactions.
The Credit Facility contains various representations, warranties and covenants which require, among other things, that the Company maintain (1) a minimum level of Consolidated Tangible Net Worth of $1.3 billion at December 31, 2022 (subject to increase over time based on earnings and proceeds from equity offerings), (2) a leverage ratio not in excess of 60%, and (3) either a minimum Interest Coverage Ratio of 1.5 to 1.0 or a minimum amount of available liquidity.
The Credit Facility contains various representations, warranties and covenants which require, among other things, that the Company maintain (1) a minimum level of Consolidated Tangible Net Worth of $1.5 billion at December 31, 2023 (subject to increase over time based on earnings and proceeds from equity offerings), (2) a leverage ratio not in excess of 60%, and (3) either a minimum Interest Coverage Ratio of 1.5 to 1.0 or a minimum amount of available liquidity.
Pursuant to the registration statement, the Company may, from time to time, offer debt securities, common shares, preferred shares, depositary shares, warrants to purchase debt securities, common shares, preferred shares, depositary shares or units of two or more of those securities, rights to purchase debt securities, common shares, preferred shares or depositary shares, stock purchase contracts and units.
Pursuant to the registration statement, the Company may, from time to time, offer debt securities, common shares, preferred shares, depositary shares, warrants to purchase debt securities, common shares, preferred shares, depositary shares or units of two or more of those securities, rights 43 to purchase debt securities, common shares, preferred shares or depositary shares, stock purchase contracts and units.
We continue to closely review all of our land acquisition and land development spending and monitor our ongoing pace of home sales and deliveries, and we will 30 adjust our land and investment spend accordingly.
We continue to closely review all of our land acquisition and land development spending and monitor our ongoing pace of home sales and deliveries, and we will adjust our land and investment spend accordingly.
We expect to continue managing our balance sheet and liquidity carefully in 2023 by managing our spending on land acquisition and development and construction of inventory homes, as well as overhead expenditures, relative to our ongoing volume of home deliveries, and we expect to meet our current and anticipated cash requirements in 2023 from cash receipts and availability under our credit facilities, as well as excess cash balances.
We expect to continue managing our balance sheet and liquidity carefully in 2024 by managing our spending on land acquisition and development and construction of inventory homes, as well as overhead expenditures, relative to our ongoing volume of home deliveries, and we expect to meet our current and anticipated cash requirements in 2024 from cash receipts, excess cash balances and availability under our credit facilities.
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW M/I Homes, Inc. and subsidiaries is one of the nation’s leading builders of single-family homes, having sold over 143,400 homes since commencing homebuilding activities in 1976. The Company’s homes are marketed and sold primarily under the M/I Homes brand.
ITEM 7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW M/I Homes, Inc. and subsidiaries is one of the nation’s leading builders of single-family homes, having sold over 151,400 homes since commencing homebuilding activities in 1976. The Company’s homes are marketed and sold primarily under the M/I Homes brand.
The fair value of a community is estimated by discounting management’s cash flow projections using an appropriate risk-adjusted interest rate. As of December 31, 2022, we utilized discount rates ranging from 13% to 16% in our valuations.
The fair value of a community is estimated by discounting management’s cash flow projections using an appropriate risk-adjusted interest rate. As of December 31, 2023, we utilized discount rates ranging from 13% to 16% in our valuations.
These covenants are subject to a number of exceptions and qualifications as described in the indenture governing the 2030 Senior Notes. As of December 31, 2022, the Company was in compliance with all terms, conditions, and covenants under the indenture. 4.95% Senior Notes.
These covenants are subject to a number of exceptions and qualifications as described in the indenture governing the 2030 Senior Notes. As of December 31, 2023, the Company was in compliance with all terms, conditions, and covenants under the indenture. 4.95% Senior Notes.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 17, 2022.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 17, 2023.
The guarantors for the Credit Facility are the same subsidiaries that guarantee our 2030 Senior Notes and our 2028 Senior Notes. As of December 31, 2022, the Company was in compliance with all covenants of the Credit Facility, including financial covenants.
The guarantors for the Credit Facility are the same subsidiaries that guarantee our 2030 Senior Notes and our 2028 Senior Notes. As of December 31, 2023, the Company was in compliance with all covenants of the Credit Facility, including financial covenants.
(d) Other income is comprised of the gain on the sale of a non-operating asset during the fourth quarter of 2021 as well as equity in (income) loss from joint venture arrangements.
(b) Other income is comprised of the gain on the sale of a non-operating asset during the fourth quarter of 2021 as well as equity in (income) loss from joint venture arrangements.
Contract liabilities expected to be recognized as revenue, excluding revenue pertaining to contracts that have an original expected duration of one year or less, is not material. 26 A performance obligation is a promise in a contract to transfer a distinct good or service to the customer.
Contract liabilities expected to be recognized as revenue, excluding revenue pertaining to contracts that have an original expected duration of one year or less, are not material. 27 A performance obligation is a promise in a contract to transfer a distinct good or service to the customer.
The financing needs of our homebuilding and financial services operations depend on anticipated sales volume in the current year as well as future years, inventory levels and related turnover, forecasted land and lot purchases, debt maturity dates, and other factors.
The financing needs of our homebuilding and financial services operations depend on anticipated sales and home delivery volume in the current year as well as future years, inventory levels and related turnover, forecasted land and lot 39 purchases, debt maturity dates, and other factors.
Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 For a comparison of our results of operations for the fiscal years ended December 31, 2021 and December 31, 2020, see “Part II, Item 7.
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 For a comparison of our results of operations for the fiscal years ended December 31, 2022 and December 31, 2021, see “Part II, Item 7.
As is typical for similar credit facilities in the mortgage origination industry, at closing, the expiration of the MIF 42 Mortgage Repurchase Facility was set at approximately one year, and is under consideration for extension annually by the participating lender.
As is typical for similar credit facilities in the mortgage origination industry, at closing, the expiration of the MIF Mortgage Repurchase Facility was set at approximately one year and is under consideration for extension annually by the participating lenders.
In addition, the Credit Facility contains covenants that limit the Company’s number of 41 unsold housing units, as well as the amount of Investments in Unrestricted Subsidiaries and Joint Ventures (each as defined in the Credit Facility).
In addition, the Credit Facility contains covenants that limit the Company’s number of unsold housing units and model homes, as well as the amount of Investments in Unrestricted Subsidiaries and Joint Ventures (each as defined in the Credit Facility).
Our use of these arrangements is for the purpose of securing the most desirable lots on which to build homes for our homebuyers in a manner that we believe reduces the overall risk to the Company. See Note 6 to our Consolidated Financial Statements for more information regarding these arrangements. Operating Cash Flow Activities .
We use these arrangements to secure the most desirable lots on which to build homes for our homebuyers in a manner that we believe reduces the overall risk to the Company. See Note 6 to our Consolidated Financial Statements for more information regarding these arrangements. Operating Cash Flow Activities .
In order to fund these uses of cash, we used proceeds from home deliveries, the sale of mortgage loans, as well as excess cash balances, borrowings under our credit facilities, and other sources of liquidity.
In order to fund these uses of cash, we used proceeds from home deliveries, the sale of mortgage loans, the sale of mortgage servicing rights, excess cash balances, borrowings under our credit facilities, and other sources of liquidity.
During the twelve months ended December 31, 2022, the average daily amount outstanding under the Credit Facility was $9.0 million and the maximum amount outstanding under the Credit Facility was $82.5 million which occurred during September.
During the twelve months ended December 31, 2023, the average daily amount outstanding and the maximum amount outstanding under the Credit Facility were both zero, and during the twelve months ended December 31, 2022, the average daily amount outstanding under the Credit Facility was $9.0 million and the maximum amount outstanding under the Credit Facility was $82.5 million which occurred during September.
We expect to continue to emphasize the following strategic business objectives in 2023: • managing our land spend and inventory levels; • opening new communities; • managing overhead spend; • maintaining a strong balance sheet and liquidity levels; and • emphasizing customer service, product quality and design, and premier locations.
We expect to continue to emphasize the following strategic business objectives in 2024: • managing our land spend and inventory levels; • improving our construction cycle times; • opening new communities; • managing overhead spend; • maintaining a strong balance sheet and liquidity levels; and • emphasizing customer service, product quality and design, and premier locations.
The increase in selling, general and administrative expense was attributable to a $12.2 million increase in general and administrative expense, which was primarily related to a $5.2 million increase in compensation related expenses as a result of an increase in incentive compensation due to our strong financial performance during the period, a $4.7 million increase in land-related expenses and a $2.3 million increase in miscellaneous expenses, offset, in part, by a $3.4 million decrease in selling expense.
The increase in selling, general and administrative expense was attributable to a $3.3 million increase in general and administrative expense, which was primarily related to a $4.2 million increase in compensation related expenses as a result of an increase in incentive compensation due to our strong financial performance during the period and a $0.4 million increase in land-related expenses, partially offset by a $1.3 million decrease in miscellaneous expenses.
The Company may also experience significant variation in cash and Credit Facility balances from week to week due to the timing of such receipts and payments. There were $94.9 million of letters of credit issued and outstanding under the Credit Facility at December 31, 2022.
The Company may also experience significant variation in cash and Credit Facility balances from week to week due to the timing of such receipts and payments. There were $70.7 million of letters of credit issued and outstanding under the Credit Facility at December 31, 2023.
On an ongoing basis, management evaluates such estimates and assumptions and makes adjustments as deemed necessary. Actual results could differ from these estimates using different estimates and assumptions, or if conditions are significantly different in the future. See “Forward - Looking Statements” above in Part I.
On an ongoing basis, management evaluates such estimates and assumptions and makes adjustments as deemed necessary. Actual results could differ from these estimates using different estimates and assumptions, or if conditions are significantly different in the future. See “Special Note of Caution Regarding Forward - Looking Statements” above in Part I.
The decrease in our weighted average borrowing rate was due to lower interest rates on our credit facilities in 2022 compared to the prior year. At both December 31, 2022 and December 31, 2021, we had no borrowings outstanding under the Credit Facility.
The increase in our weighted average borrowing rate was due to higher interest rates on our credit facilities in 2023 compared to the prior year. At both December 31, 2023 and December 31, 2022, we had no borrowings outstanding under the Credit Facility.
The discount rate used in determining each asset’s estimated fair value reflects the inherent risks associated with the related estimated cash flow stream, as well as current risk-free rates available in the market and estimated market risk premiums.
The discount rate used in determining each asset’s estimated fair value reflects the inherent risks associated with the related estimated cash flow stream, as well as current risk-free rates available in the market and estimated market risk premiums. Our quarterly assessments reflect management’s best estimates.
These factors are highly uncertain and outside our control. As a result, our past performance may not be indicative of future results. Segment Reporting We have determined our reportable segments are: Northern homebuilding; Southern homebuilding; and financial services operations.
As a result, our past performance may not be indicative of future results. 31 Segment Reporting We have determined our reportable segments are: Northern homebuilding; Southern homebuilding; and financial services operations.
Our principal uses of cash during 2022 were investment in land and land development, construction of homes, mortgage loan originations, investment in joint ventures, operating expenses, short-term working capital, and debt service requirements, including the repayment of amounts outstanding under our credit facilities, and the repurchase of $55.3 million of our outstanding common shares under our 2021 Share Repurchase Program during the first, second and third quarters of 2022.
Our principal uses of cash during 2023 were investment in land and land development, construction of homes, mortgage loan originations, investment in joint ventures, operating expenses, short-term working capital, and debt service requirements, including the repayment of amounts outstanding under our credit facilities, and the repurchase of $65.3 million of our outstanding common shares under our 2021 Share Repurchase Program (as defined below) during 2023.
As of December 31, 2022, we had outstanding notes payable (consisting primarily of notes payable for our financial services operations, the 2030 Senior Notes and the 2028 Senior Notes) with varying maturities totaling an aggregate principal amount of $946 million, with $246 million payable within 12 months.
As of December 31, 2023, we had outstanding notes payable (consisting primarily of notes payable for our financial services operations, the 2030 Senior Notes and the 2028 Senior Notes) with varying maturities in an aggregate principal amount of $866 million, with $166 million payable within 12 months.
We believe that we are well positioned to manage through these challenging economic conditions with our affordable product offerings, lot supply and planned new community openings.
However, we believe that we are well positioned to manage through these economic conditions with our affordable product offerings, land position and planned new community openings.
For the twelve months ended December 31, 2022, homebuilding revenue in our Southern region increased $282.8 million, from $2.05 billion in 2021 to $2.33 billion in 2022.
For the twelve months ended December 31, 2023, homebuilding revenue in our Southern region increased $84.8 million, from $2.33 billion in 2022 to $2.42 billion in 2023.
As a result, the full $650 million commitment amount of the facility was available, less any borrowings and letters of credit outstanding. There were no borrowings outstanding and $94.9 million of letters of credit outstanding at December 31, 2022, leaving $555.1 million available. The Credit Facility has an expiration date of December 9, 2026.
As a result, the full $650 million commitment amount of the facility was available, less any borrowings and letters of credit outstanding. There were no borrowings outstanding and $70.7 million of letters of credit outstanding at December 31, 2023, leaving $579.3 million available. The Credit Facility has an expiration date of December 9, 2026.
The annual rate of inflation in the United States was 6.5% in December 2022, as measured by the Consumer Price Index (CPI), down slightly from 9.1% in June 2022 which was the highest inflation rate we have experienced in 40 years.
The annual rate of inflation in the United States was 3.4% in December 2023, as measured by the Consumer Price Index, down from 6.5% in December 2022 and from 9.1% in June 2022 (which was the highest inflation rate experienced in 40 years).
Included in the table below is a summary of our available sources of cash from the Credit Facility, the MIF Mortgage Warehousing Agreement and the MIF Mortgage Repurchase Facility as of December 31, 2022: (In thousands) Expiration Date Outstanding Balance Available Amount Notes payable – homebuilding (a) (a) $ — $ 555,144 Notes payable – financial services (b) (b) $ 245,741 $ 2,489 (a) The available amount under the Credit Facility is computed in accordance with the borrowing base calculation under the Credit Facility, which applies various advance rates for different categories of inventory and totaled $1.6 billion of availability for additional senior debt at December 31, 2022.
Included in the table below is a summary of our available sources of cash from the Credit Facility and the MIF Mortgage Repurchase Facility as of December 31, 2023: (In thousands) Expiration Date Outstanding Balance Available Amount Notes payable – homebuilding (a) (a) $ — $ 579,313 Notes payable – financial services (b) (b) $ 165,844 $ 58 (a) The available amount under the Credit Facility is computed in accordance with the borrowing base calculation under the Credit Facility, which applies various advance rates for different categories of inventory and totaled $2.0 billion of availability for additional senior debt at December 31, 2023.
On July 28, 2021, the Company announced that its Board of Directors authorized a new share repurchase program pursuant to which the Company may purchase up to $100 million of its outstanding common shares (see Note 16 to our Consolidated Financial Statements).
On July 28, 2021, the Company announced that its Board of Directors authorized a new share repurchase program pursuant to which the Company may purchase up to $100 million of its outstanding common shares (the “2021 Share Repurchase Program”).
With respect to our homebuilding gross margin, our gross margin on homes delivered (housing gross margin) improved 29 $142.3 million, due to the 14% increase in the average sales price of homes delivered ($59,000 per home delivered) compared to prior year, partially offset by the 3% decrease in the number of homes delivered.
With respect to our homebuilding gross margin, our gross margin on homes delivered (housing gross margin) declined $24.2 million, due to the 3% decrease in the number of homes delivered, offset partially by the 1% increase in the average sales price of homes delivered ($4,000 per home delivered) compared to prior year.
We sell a variety of home types in various communities and markets, each of which yields a different gross margin. The timing of the openings of new replacement communities as well as underlying lot costs varies from year to year.
We opened 76 new communities during 2023, our second highest number in Company history. We sell a variety of home types in various communities and markets, each of which yields a different gross margin. The timing of the openings of new replacement communities as well as underlying lot costs varies from year to year.
We ended 2022 with approximately 42,100 lots under control, which represents a 5.0 year supply of lots based on 2022 homes delivered, including certain lots that we anticipate selling to third parties. This represents a 4% decrease from our approximately 44,000 lots under control at the end of 2021.
We ended 2023 with approximately 45,700 lots under control, which represents a 5.6 year supply of lots based on 2023 homes delivered, including certain lots that we anticipate selling to third parties. This represents a 9% increase from our approximately 42,100 lots under control at the end of 2022.
The financial covenants, as more fully described and defined in the MIF Mortgage Warehousing Agreement, are summarized in the following table, which also sets forth M/I Financial’s compliance with such covenants as of December 31, 2022: Financial Covenant Covenant Requirement Actual (Dollars in millions) Leverage Ratio ≤ 12.0 to 1.0 8.4 to 1.0 Liquidity ≥ $ 10.0 $ 42.4 Adjusted Net Income > $ 0.0 $ 21.7 Tangible Net Worth ≥ $ 20.0 $ 33.9 MIF Mortgage Repurchase Facility.
The financial covenants, as more fully described and defined in the MIF Mortgage Repurchase Facility, are summarized in the following table, which also sets forth M/I Financial’s compliance with such covenants as of December 31, 2023: Financial Covenant Covenant Requirement Actual (Dollars in millions) Leverage Ratio ≤ 12.0 to 1.0 4.73 to 1.0 Liquidity ≥ $ 10.0 $ 34.2 Adjusted Net Income > $ 0.0 $ 20.0 Tangible Net Worth ≥ $ 25.0 $ 39.9 Senior Notes. 3.95% Senior Notes.
LIQUIDITY AND CAPITAL RESOURCES Overview of Capital Resources and Liquidity At December 31, 2022, we had $311.5 million of cash, cash equivalents and restricted cash, with $310.6 million of this amount comprised of unrestricted cash and cash equivalents, which represents a $74.5 million increase in unrestricted cash and cash equivalents from December 31, 2021.
LIQUIDITY AND CAPITAL RESOURCES Overview of Capital Resources and Liquidity At December 31, 2023, we had $732.8 million of cash, cash equivalents and restricted cash, with $732.6 million of this amount comprised of unrestricted cash and cash equivalents, which represents a $422.0 million increase in unrestricted cash and cash equivalents from December 31, 2022.
The following table summarizes the most significant restrictive covenant thresholds under the Credit Facility and our compliance with such covenants as of December 31, 2022: Financial Covenant Covenant Requirement Actual (Dollars in millions) Consolidated Tangible Net Worth ≥ $ 1,317.0 $ 1,980.7 Leverage Ratio ≤ 0.60 0.19 Interest Coverage Ratio ≥ 1.5 to 1.0 22.9 to 1.0 Investments in Unrestricted Subsidiaries and Joint Ventures ≤ $ 594.2 $ 6.0 Unsold Housing Units ≤ 3,087 1,505 Notes Payable - Financial Services.
The following table summarizes the most significant restrictive covenant thresholds under the Credit Facility and our compliance with such covenants as of December 31, 2023: Financial Covenant Covenant Requirement Actual (Dollars in millions) Consolidated Tangible Net Worth ≥ $ 1,534.4 $ 2,435.5 Leverage Ratio ≤ 0.60 0.01 Interest Coverage Ratio ≥ 1.5 to 1.0 19.9 to 1.0 Investments in Unrestricted Subsidiaries and Joint Ventures ≤ $ 730.6 $ 6.0 Unsold Housing Units and Model Homes ≤ 2,881 1,477 40 Notes Payable - Financial Services.
(b) The available amount is computed in accordance with the borrowing base calculations under the MIF Mortgage Warehousing Agreement and the MIF Mortgage Repurchase Facility, each of which may be increased by pledging additional mortgage collateral, not to exceed the maximum aggregate commitment amount of M/I Financial's warehousing agreements as of December 31, 2022, which was $390 million, which included a temporary increase for the MIF Mortgage Warehouse Agreement applicable through February 6, 2023 (as described below) at which time the maximum aggregate commitment amount under the two agreements reverted to $290 million.
(b) The available amount is computed in accordance with the borrowing base calculations under the MIF Mortgage Repurchase Facility, which may be increased by pledging additional mortgage collateral, not to exceed the maximum aggregate commitment amount of M/I Financial's repurchase agreement as of December 31, 2023, which was $300 million, which included a temporary increase applicable through February 9, 2024 (as described below) at which time the maximum aggregate commitment amount under the agreement reverts to $240 million through September 17, 2024.
(e) Loss on early extinguishment of debt relates to the early redemption of our 5.625% senior notes due 2025 (the “2025 Senior Notes”) during the third quarter of 2021, consisting of a $7.1 million prepayment premium due to early redemption and $2.0 million for the write-off of unamortized debt issuance costs. 32 The following tables show total assets by segment at December 31, 2022, 2021 and 2020: At December 31, 2022 (In thousands) Northern Southern Corporate, Financial Services and Unallocated Total Deposits on real estate under option or contract $ 8,138 $ 47,601 $ — $ 55,739 Inventory (a) 1,100,472 1,672,391 — 2,772,863 Investments in joint venture arrangements — 51,554 — 51,554 Other assets 38,265 103,182 (b) 693,320 834,767 Total assets $ 1,146,875 $ 1,874,728 $ 693,320 $ 3,714,923 At December 31, 2021 (In thousands) Northern Southern Corporate, Financial Services and Unallocated Total Deposits on real estate under option or contract $ 4,123 $ 48,795 $ — $ 52,918 Inventory (a) 987,258 1,412,258 — 2,399,516 Investments in joint venture arrangements — 57,121 — 57,121 Other assets 37,527 63,844 (b) 628,927 730,298 Total assets $ 1,028,908 $ 1,582,018 $ 628,927 $ 3,239,853 At December 31, 2020 (In thousands) Northern Southern Corporate, Financial Services and Unallocated Total Deposits on real estate under option or contract $ 5,031 $ 40,326 $ — $ 45,357 Inventory (a) 847,524 1,023,727 — 1,871,251 Investments in unconsolidated joint ventures 1,378 33,295 — 34,673 Other assets 37,465 57,588 (b) 596,711 691,764 Total assets $ 891,398 $ 1,154,936 $ 596,711 $ 2,643,045 (a) Inventory includes: single-family lots, land and land development costs; land held for sale; homes under construction; model homes and furnishings; community development district infrastructure; and consolidated inventory not owned.
(c) Loss on early extinguishment of debt relates to the early redemption of our 5.625% senior notes due 2025 (the “2025 Senior Notes”) during the third quarter of 2021, consisting of a $7.1 million prepayment premium due to early redemption and $2.0 million for the write-off of unamortized debt issuance costs . 33 The following tables show total assets by segment at December 31, 2023, 2022 and 2021: At December 31, 2023 (In thousands) Northern Southern Corporate, Financial Services and Unallocated Total Deposits on real estate under option or contract $ 8,990 $ 42,618 $ — $ 51,608 Inventory (a) 1,016,982 1,728,561 — 2,745,543 Investments in joint venture arrangements — 44,011 — 44,011 Other assets 37,171 104,306 (b) 1,039,801 1,181,278 Total assets $ 1,063,143 $ 1,919,496 $ 1,039,801 $ 4,022,440 At December 31, 2022 (In thousands) Northern Southern Corporate, Financial Services and Unallocated Total Deposits on real estate under option or contract $ 8,138 $ 47,601 $ — $ 55,739 Inventory (a) 1,100,472 1,672,391 — 2,772,863 Investments in joint venture arrangements — 51,554 — 51,554 Other assets 38,265 103,182 (b) 693,320 834,767 Total assets $ 1,146,875 $ 1,874,728 $ 693,320 $ 3,714,923 At December 31, 2021 (In thousands) Northern Southern Corporate, Financial Services and Unallocated Total Deposits on real estate under option or contract $ 4,123 $ 48,795 $ — $ 52,918 Inventory (a) 987,258 1,412,258 — 2,399,516 Investments in unconsolidated joint ventures — 57,121 — 57,121 Other assets 37,527 63,844 (b) 628,927 730,298 Total assets $ 1,028,908 $ 1,582,018 $ 628,927 $ 3,239,853 (a) Inventory includes: single-family lots, land and land development costs; land held for sale; homes under construction; model homes and furnishings; community development district infrastructure; and consolidated inventory not owned.
Based on our currently anticipated spending on home construction, overhead expenses, share repurchases and land acquisition and development in 2023, offset by expected cash receipts from home deliveries and other sources, we may borrow under the Credit Facility during 2023, but do not expect the peak amount outstanding to exceed approximately $100 million.
Based on our currently anticipated spending on home construction, overhead expenses, share repurchases and land acquisition and development in 2024, offset by expected cash receipts from home deliveries and other sources, we do not expect to incur borrowings under the Credit Facility during 2024.
Our land sale gross margin declined $0.9 million as a result of the mix of lots sold in the current year compared to the prior year and fewer land sales compared to prior year.
Our land sale gross margin declined $8.4 million as a result of fewer land sales in 2023 compared to 2022 as well as due to the mix of lots sold in the current year compared to the prior year.
The actual amount borrowed in 2023 (and the estimated peak amount outstanding) and the related timing will be subject to numerous factors, which are subject to significant variation as a result of the timing and amount of land and house construction expenditures, payroll and other general and administrative expenses, and cash receipts from home deliveries.
To the extent we elect to borrow under the Credit Facility during 2024, the actual amount borrowed and the related timing will be subject to numerous factors, which are subject to significant variation as a result of the timing and amount of land and house construction expenditures, payroll and other general and administrative expenses, and cash receipts from home deliveries.
Future interest payments associated with these notes payable totaled $198 million as of December 31, 2022, with $32 million payable within 12 months. As of December 31, 2022, there were no borrowings outstanding and $94.9 million of letters of credit outstanding under our $650 million Credit Facility, leaving $555.1 million available.
Future interest payments associated with these notes payable totaled $166 million as of December 31, 2023, with $32 million payable within 12 months. As of December 31, 2023, there were no borrowings outstanding and $70.7 million of letters of credit outstanding under our Credit Facility, leaving $579.3 million available.
The mix of communities delivering homes may cause fluctuations in our new contracts and housing gross margin from year to year. For 2022, selling, general and administrative expense increased $15.8 million, which partially offset the increase in our gross margin discussed above, but improved as a percentage of revenue to 9.8% in 2022 from 10.4% in 2021.
The mix of communities delivering homes may cause fluctuations in our new contracts and housing gross margin from year to year. For 2023, selling, general and administrative expense increased $25.3 million, and increased as a percentage of revenue to 10.7% in 2023 from 9.8% in 2022.
We are selectively acquiring and developing lots in our markets to replenish and increase our lot supply and are being more selective in investing in land and land development opportunities in response to the current market conditions. We will continue to monitor market conditions and our pace of home sales and deliveries and adjust our land spending accordingly.
We are actively acquiring and developing lots in our markets to replenish our lot supply and will continue to monitor market conditions and our pace of home sales and deliveries and adjust our land spending accordingly.
Operating income in our Southern region increased $139.2 million from $312.7 million in 2021 to $451.9 million in 2022. This increase in operating income was the result of a $148.0 million improvement in our gross margin, offset, in part, by an $8.8 million increase in selling, general, and administrative expense.
Operating income in our Southern region decreased $11.7 million from $451.9 million in 2022 to $440.2 million in 2023. This decrease in operating income was the result of an $18.4 million increase in selling, general, and administrative expense, offset, in part, by a $6.7 million improvement in our gross margin.
Paul, Minnesota Austin, Texas Detroit, Michigan Dallas/Fort Worth, Texas Houston, Texas San Antonio, Texas Charlotte, North Carolina Raleigh, North Carolina Nashville, Tennessee 31 The following table shows, by segment: revenue; gross margin; selling, general and administrative expense; operating income (loss); interest expense (income); and depreciation and amortization for the years ended December 31, 2022, 2021 and 2020: Year Ended (In thousands) 2022 2021 2020 Revenue: Northern homebuilding $ 1,714,236 $ 1,595,746 $ 1,256,405 Southern homebuilding 2,330,962 2,048,113 1,702,727 Financial services (a) 86,195 102,028 87,013 Total revenue $ 4,131,393 $ 3,745,887 $ 3,046,145 Gross margin: Northern homebuilding $ 334,300 $ 331,521 $ 232,915 Southern homebuilding (b) 623,347 475,366 356,415 Financial services (a) 86,195 102,028 87,013 Total gross margin (b) (c) $ 1,043,842 $ 908,915 $ 676,343 Selling, general and administrative expense: Northern homebuilding $ 116,801 $ 119,563 $ 107,327 Southern homebuilding 171,473 162,705 153,854 Financial services (a) 41,813 39,737 33,618 Corporate 76,304 68,614 62,283 Total selling, general and administrative expense $ 406,391 $ 390,619 $ 357,082 Operating income (loss): Northern homebuilding $ 217,499 $ 211,958 $ 125,588 Southern homebuilding (b) 451,874 312,661 202,561 Financial services (a) 44,382 62,291 53,395 Less: Corporate selling, general and administrative expense (76,304) (68,614) (62,283) Total operating income (b) (c) $ 637,451 $ 518,296 $ 319,261 Interest expense (income): Northern homebuilding $ (469) $ 76 $ 2,465 Southern homebuilding (1,447) (464) 4,292 Financial services (a) 5,122 3,912 2,927 Corporate (956) (1,368) — Total interest expense $ 2,250 $ 2,156 $ 9,684 Other income (d) $ (6) $ (2,046) $ (466) Loss on early extinguishment of debt (e) — 9,072 — Income before income taxes $ 635,207 $ 509,114 $ 310,043 Depreciation and amortization: Northern homebuilding $ 3,308 $ 3,407 $ 3,342 Southern homebuilding 2,790 3,644 4,468 Financial services 2,178 2,227 3,034 Corporate 8,898 7,637 6,734 Total depreciation and amortization $ 17,174 $ 16,915 $ 17,578 (a) Our financial services operational results should be viewed in connection with our homebuilding business as its operations originate loans and provide title services primarily for our homebuyers, with the exception of a small amount of mortgage refinancing.
Paul, Minnesota Austin, Texas Detroit, Michigan Dallas/Fort Worth, Texas Houston, Texas San Antonio, Texas Charlotte, North Carolina Raleigh, North Carolina Nashville, Tennessee 32 The following table shows, by segment: revenue; gross margin; selling, general and administrative expense; operating income (loss); interest (income) expense; and depreciation and amortization for the years ended December 31, 2023, 2022 and 2021: Year Ended (In thousands) 2023 2022 2021 Revenue: Northern homebuilding $ 1,523,943 $ 1,714,236 $ 1,595,746 Southern homebuilding 2,415,730 2,330,962 2,048,113 Financial services (a) 93,829 86,195 102,028 Total revenue $ 4,033,502 $ 4,131,393 $ 3,745,887 Gross margin: Northern homebuilding $ 294,994 $ 334,300 $ 331,521 Southern homebuilding 630,106 623,347 475,366 Financial services (a) 93,829 86,195 102,028 Total gross margin $ 1,018,929 $ 1,043,842 $ 908,915 Selling, general and administrative expense: Northern homebuilding $ 118,674 $ 116,801 $ 119,563 Southern homebuilding 189,938 171,473 162,705 Financial services (a) 45,115 41,813 39,737 Corporate 77,980 76,304 68,614 Total selling, general and administrative expense $ 431,707 $ 406,391 $ 390,619 Operating income (loss): Northern homebuilding $ 176,320 $ 217,499 $ 211,958 Southern homebuilding 440,168 451,874 312,661 Financial services (a) 48,714 44,382 62,291 Less: Corporate selling, general and administrative expense (77,980) (76,304) (68,614) Total operating income $ 587,222 $ 637,451 $ 518,296 Interest (income) expense - net: Northern homebuilding $ (186) $ (469) $ 76 Southern homebuilding (1,703) (1,447) (464) Financial services (a) 10,360 5,122 3,912 Corporate (28,493) (956) (1,368) Total interest (income) expense - net $ (20,022) $ 2,250 $ 2,156 Other income (b) $ (33) $ (6) $ (2,046) Loss on early extinguishment of debt (c) — — 9,072 Income before income taxes $ 607,277 $ 635,207 $ 509,114 Depreciation and amortization: Northern homebuilding $ 3,673 $ 3,308 $ 3,407 Southern homebuilding 2,965 2,790 3,644 Financial services 810 2,178 2,227 Corporate 8,343 8,898 7,637 Total depreciation and amortization $ 15,791 $ 17,174 $ 16,915 (a) Our financial services operational results should be viewed in connection with our homebuilding business as its operations originate loans and provide title services primarily for our homebuyers, with the exception of a small amount of mortgage refinancing.
Our financial service operations ended 2022 with a $17.9 million decrease in operating income compared to 2021, which was primarily due to the decrease in revenue discussed above in addition to a $2.1 million increase in selling, general and administrative expense compared to 2021.
Our financial service operations ended 2023 with a $4.3 million increase in operating income compared to 2022, which was primarily due to the increase in revenue discussed above, partially offset by a $3.3 million increase in selling, general and administrative expense compared to 2022.
During 2022, we generated $184.1 million of cash in operating activities, compared to using $16.8 million of cash from operating activities in 2021.
During 2023, we generated $552.1 million of cash in operating activities, compared to generating $184.1 million of cash from operating activities in 2022.
(b) Includes development reimbursements from local municipalities. 33 Reportable Segments The following table presents, by reportable segment, selected operating and financial information as of and for the years ended December 31, 2022, 2021 and 2020: Year Ended December 31, (Dollars in thousands) 2022 2021 2020 Northern Region Homes delivered 3,581 3,592 3,071 New contracts, net 2,747 3,667 3,743 Backlog at end of period 1,056 1,890 1,815 Average sales price of homes delivered $ 478 $ 443 $ 408 Average sales price of homes in backlog $ 523 $ 484 $ 436 Aggregate sales value of homes in backlog $ 552,451 $ 914,130 $ 792,029 Housing revenue $ 1,711,627 $ 1,591,125 $ 1,252,597 Land sale revenue $ 2,609 $ 4,621 $ 3,808 Operating income homes (a) $ 217,309 $ 210,841 $ 125,410 Operating income land $ 190 $ 1,117 $ 178 Number of average active communities 92 86 93 Number of active communities, end of period 98 90 90 Southern Region Homes delivered 4,785 5,046 4,638 New contracts, net 3,921 5,417 5,684 Backlog at end of period 2,081 2,945 2,574 Average sales price of homes delivered $ 480 $ 404 $ 364 Average sales price of homes in backlog $ 551 $ 493 $ 406 Aggregate sales value of homes in backlog $ 1,145,719 $ 1,452,743 $ 1,044,878 Housing revenue $ 2,298,800 $ 2,039,344 $ 1,687,365 Land sale revenue $ 32,162 $ 8,769 $ 15,362 Operating income homes (a) (b) $ 440,329 $ 310,550 $ 201,750 Operating income land $ 11,545 $ 2,111 $ 811 Number of average active communities 86 96 122 Number of active communities, end of period 98 85 112 Total Homebuilding Regions Homes delivered 8,366 8,638 7,709 New contracts, net 6,668 9,084 9,427 Backlog at end of period 3,137 4,835 4,389 Average sales price of homes delivered $ 479 $ 420 $ 381 Average sales price of homes in backlog $ 541 $ 490 $ 419 Aggregate sales value of homes in backlog $ 1,698,170 $ 2,366,873 $ 1,836,907 Housing revenue $ 4,010,427 $ 3,630,469 $ 2,939,962 Land sale revenue $ 34,771 $ 13,390 $ 19,170 Operating income homes (a) (b) (c) $ 657,638 $ 521,391 $ 327,160 Operating income land $ 11,735 $ 3,228 $ 989 Number of average active communities 179 183 215 Number of active communities, end of period 196 175 202 (a) Includes the effect of total homebuilding selling, general and administrative expense for the region as disclosed in the first table set forth in this “Outlook” section.
(b) Includes development reimbursements from local municipalities. 34 Reportable Segments The following table presents, by reportable segment, selected operating and financial information as of and for the years ended December 31, 2023, 2022 and 2021: Year Ended December 31, (Dollars in thousands) 2023 2022 2021 Northern Region Homes delivered 3,169 3,581 3,592 New contracts, net 3,361 2,747 3,667 Backlog at end of period 1,248 1,056 1,890 Average sales price of homes delivered $ 479 $ 478 $ 443 Average sales price of homes in backlog $ 531 $ 523 $ 484 Aggregate sales value of homes in backlog $ 663,180 $ 552,451 $ 914,130 Housing revenue $ 1,519,488 $ 1,711,627 $ 1,591,125 Land sale revenue $ 4,455 $ 2,609 $ 4,621 Operating income homes (a) $ 176,074 $ 217,309 $ 210,841 Operating income land $ 246 $ 190 $ 1,117 Number of average active communities 101 92 86 Number of active communities, end of period 102 98 90 Southern Region Homes delivered 4,943 4,785 5,046 New contracts, net 4,616 3,921 5,417 Backlog at end of period 1,754 2,081 2,945 Average sales price of homes delivered $ 485 $ 480 $ 404 Average sales price of homes in backlog $ 520 $ 551 $ 493 Aggregate sales value of homes in backlog $ 912,463 $ 1,145,719 $ 1,452,743 Housing revenue $ 2,394,884 $ 2,298,800 $ 2,039,344 Land sale revenue $ 20,846 $ 32,162 $ 8,769 Operating income homes (a) $ 437,054 $ 440,329 $ 310,550 Operating income land $ 3,114 $ 11,545 $ 2,111 Number of average active communities 101 86 96 Number of active communities, end of period 111 98 85 Total Homebuilding Regions Homes delivered 8,112 8,366 8,638 New contracts, net 7,977 6,668 9,084 Backlog at end of period 3,002 3,137 4,835 Average sales price of homes delivered $ 483 $ 479 $ 420 Average sales price of homes in backlog $ 525 $ 541 $ 490 Aggregate sales value of homes in backlog $ 1,575,643 $ 1,698,170 $ 2,366,873 Housing revenue $ 3,914,372 $ 4,010,427 $ 3,630,469 Land sale revenue $ 25,301 $ 34,771 $ 13,390 Operating income homes (a) $ 613,128 $ 657,638 $ 521,391 Operating income land $ 3,360 $ 11,735 $ 3,228 Number of average active communities 202 179 183 Number of active communities, end of period 213 196 175 (a) Includes the effect of total homebuilding selling, general and administrative expense for the region as disclosed in the first table set forth in this “Outlook” section.
Operating income in our Northern region increased $5.5 million, from $212.0 million in 2021 to $217.5 million in 2022. The increase in operating income was primarily the result of a $2.7 million increase in our gross margin in addition to a $2.8 million decrease in selling, general, and administrative expense.
Operating income in our Northern region decreased $41.2 million, from $217.5 million in 2022 to $176.3 million in 2023. The decrease in operating income was primarily the result of a $39.3 million decrease in our gross margin in addition to a $1.9 million increase in selling, general, and administrative expense.
The increase was primarily due to a $2.8 million increase in compensation expense due to increased headcount during the period, a $1.9 million increase related to costs associated with new information systems and a $3.0 million increase in miscellaneous expenses. Other income.
The increase was primarily due to a $4.2 million increase in compensation expense primarily due to our strong financial performance during the period, partially offset by a $0.8 million decrease related to costs associated with new information systems and a $1.7 million decrease in miscellaneous expenses. Other income.
In 2022 and 2021, our weighted average borrowings outstanding were $811.0 million and $716.7 million, respectively, with a weighted average interest rate of 4.96% and 5.55%, respectively. The increase in our weighted average borrowings related to increased borrowings under our two M/I Financial credit facilities during 2022 compared to 2021 due to an increase in average loan amounts in 2022.
In 2023 and 2022, our weighted average borrowings outstanding were $749.7 million and $811.0 million, respectively, with a weighted average interest rate of 5.33% and 4.96%, respectively. The decrease in our weighted average borrowings related to decreased borrowings under our then-outstanding M/I Financial credit facilities during 2023 compared to 2022.
Total gross margin (total revenue less total land and housing costs) increased $135.0 million in 2022 compared to 2021 as a result of a $150.8 million improvement in the gross margin of our homebuilding operations (the sum of housing gross margin and land gross margin), offset partially by a $15.8 million decline in the gross margin of our financial services operations.
Total gross margin (total revenue less total land and housing costs) decreased $24.9 million in 2023 compared to 2022 as a result of a $32.5 million decline in the gross margin of our homebuilding operations (the sum of housing gross margin and land gross margin), offset partially by a $7.6 million improvement in the gross margin of our financial services operations.
During the twelve months ended December 31, 2022, homebuilding revenue in our Northern region increased $118.5 million, from $1.60 billion in 2021 to $1.71 billion in 2022.
During the twelve months ended December 31, 2023, homebuilding revenue in our Northern region decreased $190.3 million, from $1.71 billion in 2022 to $1.52 billion in 2023.
During 2022, the average daily amount of letters of credit outstanding under the Credit Facility was $92.6 million and the maximum amount of letters of credit outstanding under the Credit Facility was $107.8 million. At December 31, 2022, M/I Financial had $200.9 million outstanding under the MIF Mortgage Warehousing Agreement.
During 2023, the average daily amount of letters of credit outstanding under the Credit Facility was $79.5 million and the maximum amount of letters of credit outstanding under the Credit Facility was $94.9 million. At December 31, 2023, M/I Financial had $165.8 million outstanding under the MIF Mortgage Repurchase Facility.
During 2022, the average daily amount outstanding under the MIF Mortgage Repurchase Facility was $40.5 million and the maximum amount outstanding was $80.4 million, which occurred during October. Universal Shelf Registration. In June 2022, the Company filed a universal shelf registration statement with the SEC, which registration statement became effective upon filing and will expire in June 2025.
During 2023, the average daily amount outstanding under our then-outstanding MIF credit facilities was $49.7 million and the maximum amount outstanding was $245.7 million, which occurred during January. Universal Shelf Registration. In June 2022, the Company filed a universal shelf registration statement with the SEC, which registration statement became effective upon filing and will expire in June 2025.
The decrease in selling, general and administrative expense was attributable to a $3.8 million decrease in selling expense, due to a $5.8 million decrease in variable selling expenses resulting from decreases in sales commissions produced by the lower number of homes delivered offset, in part, by a $2.0 million increase in non-variable selling expenses primarily related to costs associated with our sales offices and models.
The increase in selling, general and administrative expense was attributable to a $1.7 million increase in selling expense, due to a $1.2 million increase in variable selling expenses resulting from an increase in realtor commissions and a $0.5 million increase in non-variable selling expenses primarily related to costs associated with our sales offices and models.
These covenants are subject to a number of exceptions and qualifications as described in the indenture governing the 2028 Senior Notes. As of December 31, 2022, the Company was in compliance with all terms, conditions, and covenants under the indenture.
These covenants are subject to a number of exceptions and qualifications as described in the indenture governing the 2028 Senior Notes.
Approximately 78% of our homes delivered during 2022 were financed through M/I Financial, compared to 84% during 2021. Capture rate is influenced by financing availability and can fluctuate from quarter to quarter. Corporate Selling, General and Administrative Expenses. Corporate selling, general and administrative expense increased $7.7 million, from $68.6 million in 2021 to $76.3 million in 2022.
At December 31, 2023, M/I Financial provided financing services in all of our markets. Approximately 83% of our homes delivered during 2023 were financed through M/I Financial, compared to 78% during 2022. Capture rate is influenced by financing availability and can fluctuate from quarter to quarter. Corporate Selling, General and Administrative Expenses.
Our gross margin on land sales (land gross margin) improved $8.6 million in 2022 compared to 2021 as a result of the mix of lots sold in the current year compared to the prior year.
Our land sale gross margin improved $0.1 million as a result of more land sales in 2023 as well as due to the mix of lots sold in the current year compared to the prior year.
Revenue from our financial services segment decreased 16% to $86.2 million in 2022 as a result of a decrease in loans closed and sold during the year, in addition to lower margins on loans sold during the period compared to the prior year.
Revenue from our financial services segment increased 9% to $93.8 million in 2023 as a result of an increase in loans closed and sold during the year, in addition to higher margins on loans sold during the period compared to the prior year.
Selling, general and administrative expense decreased $2.8 million from $119.6 million in 2021 to $116.8 million in 2022, and improved as a percentage of revenue to 6.8% in 2022 from 7.5% in 2021.
Selling, general and administrative expense increased $1.9 million from $116.8 million in 2022 to $118.7 million in 2023 and increased as a percentage of revenue to 7.8% in 2023 from 6.8% in 2022.
In 2022, we recorded record total revenue of $4.13 billion, of which $4.01 billion was from homes delivered, $34.8 million was from land sales, and $86.2 million was from our financial services operations.
In 2023, we recorded total revenue of $4.03 billion, of which $3.91 billion was from homes delivered, $25.3 million was from land sales, and $93.8 million was from our financial services operations.
(c) Includes $18.4 million of asset impairment charges and deposit write-offs taken during the year ended December 31, 2022 and $8.4 million of asset impairment charges taken during the year ended December 31, 2020. 34 Year Ended December 31, (Dollars in thousands) 2022 2021 2020 Financial Services Number of loans originated 5,374 6,525 5,888 Value of loans originated $ 2,069,615 $ 2,239,928 $ 1,843,576 Revenue $ 86,195 $ 102,028 $ 87,013 Less: Selling, general and administrative expenses 41,813 39,737 33,618 Less: Interest expense 5,122 3,912 2,927 Income before income taxes $ 39,260 $ 58,379 $ 50,468 A home is included in “new contracts” when our standard sales contract is executed.
Year Ended December 31, (Dollars in thousands) 2023 2022 2021 Financial Services Number of loans originated 5,395 5,374 6,525 Value of loans originated $ 2,118,884 $ 2,069,615 $ 2,239,928 Revenue $ 93,829 $ 86,195 $ 102,028 Less: Selling, general and administrative expenses 45,115 41,813 39,737 Less: Interest expense 10,360 5,122 3,912 Income before income taxes $ 38,354 $ 39,260 $ 58,379 35 A home is included in “new contracts” when our standard sales contract is executed.
The cash used in operating activities in 2021 was primarily a result of a $508.2 million increase in inventory, along with payments for mortgage loan originations which exceeded the proceeds from the sale of mortgage loans by $43.9 million, offset by net income of $396.9 million and a $121.7 million increase in accounts payable, customer deposits and other liabilities.
The cash generated by operating activities in 2023 was primarily a result of net income of $465.4 million, proceeds from the sale of mortgage loans that exceeded mortgage loan originations by $72.9 million and a $46.7 million decrease in inventory, offset partially by a $35.2 million decrease in other liabilities and $31.9 million decrease in accounts payable and customer deposits.
Equity in income from joint venture arrangements represents our portion of pre-tax earnings from our joint venture arrangements where a special purpose entity is established (“LLCs”) with the other partners. The Company earned less than $0.1 million and $0.1 million of equity in income from its LLCs during 2022 and 2021, respectively. Interest Expense - Net.
Other income for 2023 and 2022 includes equity in income from joint venture arrangements. Equity in income from joint venture arrangements represents our portion of pre-tax earnings from our joint venture arrangements where a special 37 purpose entity is established (“LLCs”) with the other partners.
We expect to extend the MIF Mortgage Warehousing Agreement on or prior to the current expiration date of May 26, 2023, but we cannot provide any assurance that we will be able to obtain such an extension.
We expect to extend the MIF Mortgage Repurchase Facility on or prior to the current expiration date of October 22, 2024, but we cannot provide any assurance that we will be able to obtain such an extension. As of December 31, 2023, there was $165.8 million outstanding under the MIF Mortgage Repurchase Facility.
The gross margin of our financial services operations declined $15.8 million in 2022 compared to 2021 as a result of a decreases in the number of loan originations and lower margins on loans sold, partially offset by an increase in the average loan amount during 2022 compared to prior year. We opened an all-time record 101 new communities during 2022.
The gross margin of our financial services operations, however, improved by $7.6 million in 2023 compared to 2022 as a result of an increase in the number of loan originations, higher margins on loans sold, and an increase in the average loan amount during 2023 compared to prior year.
See Note 11 to our Consolidated Financial Statements for more information regarding the 2030 Senior Notes and the 2028 Senior Notes. Supplemental Financial Information. As of December 31, 2022, M/I Homes, Inc. had $300.0 million aggregate principal amount of its 2030 Senior Notes and $400.0 million aggregate principal amount of its 2028 Senior Notes outstanding.
As of December 31, 2023, M/I Homes, Inc. had $300.0 million aggregate principal amount of its 2030 Senior Notes and $400.0 million aggregate principal amount of its 2028 Senior Notes outstanding.
The Company is a party to three primary credit agreements: (1) the Credit Facility, our $650 million unsecured revolving credit facility, dated July 18, 2013, as amended (the “Credit Facility”), with M/I Homes, Inc. as borrower and guaranteed by the Company’s wholly-owned homebuilding subsidiaries; (2) the MIF Mortgage Warehousing Agreement, our $200 million secured mortgage warehousing agreement (which increased to $275 million from September 19, 2022 to November 13, 2022 39 and to $300 million from November 14, 2022 to February 6, 2023), with M/I Financial as borrower; and (3) the MIF Mortgage Repurchase Facility, our $90 million mortgage repurchase agreement, with M/I Financial as borrower.
The Company is a party to two primary credit agreements: (1) a $650 million unsecured revolving credit facility, dated July 18, 2013, as amended (the “Credit Facility”), with M/I Homes, Inc. as borrower and guaranteed by the Company’s wholly-owned homebuilding subsidiaries and (2) a $300 million (subject to increases and decreases during certain periods) mortgage repurchase agreement, dated October 24, 2023, with M/I Financial as borrower (the “MIF Mortgage Repurchase Facility”).
Revenue from land sales increased $21.4 million from 2021 due primarily to more land sales in the current year compared to the prior year.
Revenue from land sales decreased $9.5 million from 2022 due primarily to fewer land sales in the current year compared to the prior year.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe table below shows the notional amounts of our financial instruments at December 31, 2022 and 2021: December 31, Description of Financial Instrument (in thousands) 2022 2021 Whole loan contracts and related committed IRLCs $ — $ 782 Uncommitted IRLCs 262,529 228,831 FMBSs related to uncommitted IRLCs 341,088 223,000 Whole loan contracts and related mortgage loans held for sale 16,507 3,785 FMBSs related to mortgage loans held for sale 232,518 251,000 Mortgage loans held for sale covered by FMBSs 233,378 263,088 The table below shows the measurement of assets and liabilities at December 31, 2022 and 2021: December 31, Description of Financial Instrument (in thousands) 2022 2021 Mortgage loans held for sale $ 242,539 $ 275,655 Forward sales of mortgage-backed securities (3,005) 4,477 Interest rate lock commitments 787 (487) Whole loan contracts (377) (62) Total $ 239,944 $ 279,583 The following table sets forth the amount of gain (loss) recognized on assets and liabilities for the years ended December 31, 2022, 2021 and 2020: Year Ended December 31, Description (in thousands) 2022 2021 2020 Mortgage loans held for sale $ 407 $ (2,586) $ 318 Forward sales of mortgage-backed securities (7,482) 6,117 (1,304) Interest rate lock commitments 1,282 (2,143) 964 Whole loan contracts (323) 353 (360) Total (loss) gain recognized $ (6,116) $ 1,741 $ (382) 46 The following table provides the expected future cash flows and current fair values of borrowings under our credit facilities and mortgage loan origination services that are subject to market risk as interest rates fluctuate, as of December 31, 2022.
Biggest changeThe table below shows the notional amounts of our financial instruments at December 31, 2023 and 2022: December 31, Description of Financial Instrument (in thousands) 2023 2022 Uncommitted IRLCs $ 174,274 $ 262,529 FMBSs related to uncommitted IRLCs 174,000 341,088 Whole loan contracts and related mortgage loans held for sale 10,398 16,507 FMBSs related to mortgage loans held for sale 152,000 232,518 Mortgage loans held for sale covered by FMBSs 160,547 233,378 44 The table below shows the measurement of assets and liabilities at December 31, 2023 and 2022: December 31, Description of Financial Instrument (in thousands) 2023 2022 Mortgage loans held for sale $ 176,329 $ 242,539 Forward sales of mortgage-backed securities (7,220) (3,005) Interest rate lock commitments 3,617 787 Whole loan contracts (335) (377) Total $ 172,391 $ 239,944 The following table sets forth the amount of gain (loss) recognized on assets and liabilities for the years ended December 31, 2023, 2022 and 2021: Year Ended December 31, Description (in thousands) 2023 2022 2021 Mortgage loans held for sale $ 6,739 $ 407 $ (2,586) Forward sales of mortgage-backed securities (4,215) (7,482) 6,117 Interest rate lock commitments 2,829 1,282 (2,143) Whole loan contracts 43 (323) 353 Total gain (loss) recognized $ 5,396 $ (6,116) $ 1,741 The following table provides the expected future cash flows and current fair values of borrowings under our credit facilities and mortgage loan origination services that are subject to market risk as interest rates fluctuate, as of December 31, 2023.
FMBSs 45 related to uncommitted IRLCs are classified and accounted for as non-designated derivative instruments and are recorded at fair value, with gains and losses recorded in current earnings. Mortgage Loans Held for Sale : Mortgage loans held for sale consist primarily of single-family residential loans collateralized by the underlying property.
FMBSs related to uncommitted IRLCs are classified and accounted for as non-designated derivative instruments and are recorded at fair value, with gains and losses recorded in current earnings. Mortgage Loans Held for Sale : Mortgage loans held for sale consist primarily of single-family residential loans collateralized by the underlying property.
Conversely, for variable-rate debt, changes in interest rates generally do not affect the fair market value of the debt instrument, but do affect our earnings and cash flow.
For fixed-rate debt, changes in interest rates generally affect the fair market value of the debt instrument, but not our earnings or cash flow. Conversely, for variable-rate debt, changes in interest rates generally do not affect the fair market value of the debt instrument but do affect our earnings and cash flow.
Because the MIF Mortgage Warehousing Agreement and MIF Mortgage Repurchase Facility are effectively secured by certain mortgage loans held for sale which are typically sold within 30 to 45 days, their outstanding balances are included in the most current period presented.
Because the MIF Mortgage Repurchase Facility is effectively secured by certain mortgage loans held for sale which are typically sold within 30 to 45 days, its outstanding balance is included in the most current period presented. The interest rates for our variable rate debt represent the weighted average interest rates in effect at December 31, 2023.
We are exposed to interest rate risk through borrowings under our revolving credit facilities, consisting of the Credit Facility, the MIF Mortgage Warehousing Agreement, and the MIF Mortgage Repurchase Facility which permitted borrowings of up to $1.04 billion at December 31, 2022, subject to availability constraints.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our primary market risk results from fluctuations in interest rates. We are exposed to interest rate risk through borrowings under our revolving credit facilities, consisting of the Credit Facility and the MIF Mortgage Repurchase Facility which permitted borrowings of up to $950.0 million at December 31, 2023, subject to availability constraints.
Expected Cash Flows by Period Fair Value (Dollars in thousands) 2023 2024 2025 2026 2027 Thereafter Total 12/31/2022 ASSETS: Mortgage loans held for sale: Fixed rate $250,216 — — — — — $250,216 $242,539 Weighted average interest rate 5.43% — — — — — 5.43% LIABILITIES: Long-term debt — fixed rate — — — — — $700,000 $700,000 $594,250 Weighted average interest rate — — — — — 4.52% 4.52% Short-term debt — variable rate $245,741 — — — — — $245,741 $245,741 Weighted average interest rate 6.18% — — — — — 6.18% 47
Expected Cash Flows by Period Fair Value (Dollars in thousands) 2024 2025 2026 2027 2028 Thereafter Total 12/31/2023 ASSETS: Mortgage loans held for sale: Fixed rate $178,862 — — — — — $178,862 $176,329 Weighted average interest rate 6.78% — — — — — 6.78% LIABILITIES: Long-term debt — fixed rate — — — — $400,000 $300,000 $700,000 $650,875 Weighted average interest rate — — — — 2.83% 1.69% 4.52% Short-term debt — variable rate $165,844 — — — — — $165,844 $165,844 Weighted average interest rate 7.20% — — — — — 7.20% 45
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our primary market risk results from fluctuations in interest rates.
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The interest rates for our variable rate debt represent the weighted average interest rates in effect at December 31, 2022. For fixed-rate debt, changes in interest rates generally affect the fair market value of the debt instrument, but not our earnings or cash flow.

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