
		June 30, 2020		December 31, 2019			September 30, 2020		December 31, 2019

		(Dollars in thousands, except per share amounts)							(Dollars in thousands, except per share amounts)
ASSETS	ASSETS					ASSETS
Homebuilding:	Homebuilding:					Homebuilding:
Cash and cash equivalents	Cash and cash equivalents	$	482,702	$	424,186	Cash and cash equivalents	$	432,277	$	424,186
Restricted cash	Restricted cash	15,668		14,279		Restricted cash	19,732		14,279
Trade and other receivables	Trade and other receivables	88,279		65,829		Trade and other receivables	90,609		65,829
Inventories:	Inventories:					Inventories:
Housing completed or under construction	Housing completed or under construction	1,270,300		1,036,191		Housing completed or under construction	1,423,855		1,036,191
Land and land under development	Land and land under development	1,235,598		1,330,384		Land and land under development	1,221,854		1,330,384
Total inventories	Total inventories	2,505,898		2,366,575		Total inventories	2,645,709		2,366,575
Property and equipment, net	Property and equipment, net	62,516		60,414		Property and equipment, net	64,024		60,414
Deferred tax asset, net	Deferred tax asset, net	19,828		21,768		Deferred tax asset, net	13,297		21,768
Prepaid and other assets	Prepaid and other assets	69,484		78,358		Prepaid and other assets	78,421		78,358
Total homebuilding assets	Total homebuilding assets	3,244,375		3,031,409		Total homebuilding assets	3,344,069		3,031,409
Financial Services:	Financial Services:					Financial Services:
Cash and cash equivalents	Cash and cash equivalents	62,218		35,747		Cash and cash equivalents	70,435		35,747
Marketable securities	Marketable securities	—		56,747		Marketable securities	0		56,747
Mortgage loans held-for-sale, net	Mortgage loans held-for-sale, net	173,567		197,021		Mortgage loans held-for-sale, net	160,506		197,021
Other assets	Other assets	25,775		17,432		Other assets	37,764		17,432
Total financial services assets	Total financial services assets	261,560		306,947		Total financial services assets	268,705		306,947
Total Assets	Total Assets	$	3,505,935	$	3,338,356	Total Assets	$	3,612,774	$	3,338,356
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Homebuilding:	Homebuilding:					Homebuilding:
Accounts payable	Accounts payable	$	95,018	$	87,364	Accounts payable	$	103,260	$	87,364
Accrued and other liabilities	Accrued and other liabilities	278,543		245,940		Accrued and other liabilities	259,261		245,940
Revolving credit facility	Revolving credit facility	10,000		15,000		Revolving credit facility	10,000		15,000
Senior notes, net	Senior notes, net	1,037,062		989,422		Senior notes, net	1,037,225		989,422
Total homebuilding liabilities	Total homebuilding liabilities	1,420,623		1,337,726		Total homebuilding liabilities	1,409,746		1,337,726
Financial Services:	Financial Services:					Financial Services:
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	70,033		68,529		Accounts payable and accrued liabilities	84,168		68,529
Mortgage repurchase facility	Mortgage repurchase facility	142,094		149,616		Mortgage repurchase facility	130,861		149,616
Total financial services liabilities	Total financial services liabilities	212,127		218,145		Total financial services liabilities	215,029		218,145
Total Liabilities	Total Liabilities	1,632,750		1,555,871		Total Liabilities	1,624,775		1,555,871
Stockholders' Equity	Stockholders' Equity					Stockholders' Equity
Preferred stock, $0.01 par value; 25,000,000 shares authorized; NaN issued or outstanding	Preferred stock, $0.01 par value; 25,000,000 shares authorized; NaN issued or outstanding	—		—		Preferred stock, $0.01 par value; 25,000,000 shares authorized; NaN issued or outstanding	0		0
Common stock, $0.01 par value; 250,000,000 shares authorized; 63,384,866 and 62,574,961 issued and outstanding at June 30, 2020 and December 31, 2019, respectively		634		626
Common stock, $0.01 par value; 250,000,000 shares authorized; 64,865,577 and 62,574,961 issued and outstanding at September 30, 2020 and December 31, 2019, respectively						Common stock, $0.01 par value; 250,000,000 shares authorized; 64,865,577 and 62,574,961 issued and outstanding at September 30, 2020 and December 31, 2019, respectively	649		626
Additional paid-in-capital	Additional paid-in-capital	1,359,985		1,348,733		Additional paid-in-capital	1,397,220		1,348,733
Retained earnings	Retained earnings	512,566		433,126		Retained earnings	590,130		433,126
Total Stockholders' Equity	Total Stockholders' Equity	1,873,185		1,782,485		Total Stockholders' Equity	1,987,999		1,782,485
Total Liabilities and Stockholders' Equity	Total Liabilities and Stockholders' Equity	$	3,505,935	$	3,338,356	Total Liabilities and Stockholders' Equity	$	3,612,774	$	3,338,356


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2020		2019		2020		2019

		(Dollars in thousands, except per share amounts)															(Dollars in thousands, except per share amounts)
Homebuilding:	Homebuilding:									Homebuilding:
Home sale revenues	Home sale revenues	$	886,758	$	732,844	$	1,583,843	$	1,380,122	Home sale revenues	$	1,000,549	$	750,274	$	2,584,392	$	2,130,396
Home cost of sales	Home cost of sales	(707,789)		(590,172)		(1,266,436)		(1,114,724)		Home cost of sales	(795,172)		(609,316)		(2,061,608)		(1,724,040)
Inventory impairments	Inventory impairments	—		—		—		(610)		Inventory impairments	0		0		0		(610)
Total cost of sales	Total cost of sales	(707,789)		(590,172)		(1,266,436)		(1,115,334)		Total cost of sales	(795,172)		(609,316)		(2,061,608)		(1,724,650)
Gross profit	Gross profit	178,969		142,672		317,407		264,788		Gross profit	205,377		140,958		522,784		405,746
Selling, general and administrative expenses	Selling, general and administrative expenses	(92,316)		(82,712)		(181,637)		(164,973)		Selling, general and administrative expenses	(103,632)		(92,716)		(285,269)		(257,689)
Interest and other income	Interest and other income	720		2,764		2,609		5,155		Interest and other income	756		2,336		3,365		7,491
Other expense	Other expense	(2,452)		(1,110)		(3,789)		(2,301)		Other expense	(851)		(1,887)		(4,640)		(4,188)
Homebuilding pretax income	Homebuilding pretax income	84,921		61,614		134,590		102,669		Homebuilding pretax income	101,650		48,691		236,240		151,360

Financial Services:	Financial Services:									Financial Services:
Revenues	Revenues	32,964		18,597		54,850		36,001		Revenues	36,803		22,388		91,653		58,389
Expenses	Expenses	(12,178)		(9,574)		(23,107)		(18,531)		Expenses	(13,294)		(10,352)		(36,401)		(28,883)
Other income (expense), net	Other income (expense), net	5,931		3,694		(6,133)		9,798		Other income (expense), net	859		2,079		(5,274)		11,877
Financial services pretax income	Financial services pretax income	26,717		12,717		25,610		27,268		Financial services pretax income	24,368		14,115		49,978		41,383

Income before income taxes	Income before income taxes	111,638		74,331		160,200		129,937		Income before income taxes	126,018		62,806		286,218		192,743
Provision for income taxes	Provision for income taxes	(27,242)		(19,738)		(39,044)		(34,794)		Provision for income taxes	(27,080)		(12,226)		(66,124)		(47,020)
Net income	Net income	$	84,396	$	54,593	$	121,156	$	95,143	Net income	$	98,938	$	50,580	$	220,094	$	145,723

Comprehensive income	Comprehensive income	$	84,396	$	54,593	$	121,156	$	95,143	Comprehensive income	$	98,938	$	50,580	$	220,094	$	145,723

Earnings per share:	Earnings per share:									Earnings per share:
Basic	Basic	$	1.33	$	0.88	$	1.92	$	1.55	Basic	$	1.54	$	0.81	$	3.46	$	2.36
Diluted	Diluted	$	1.31	$	0.86	$	1.87	$	1.50	Diluted	$	1.49	$	0.79	$	3.37	$	2.29

Weighted average common shares outstanding:	Weighted average common shares outstanding:									Weighted average common shares outstanding:
Basic	Basic	63,015,827		61,336,404		62,755,310		61,138,982		Basic	63,868,486		61,978,195		63,129,077		61,422,925
Diluted	Diluted	64,080,940		63,323,267		64,538,835		63,023,149		Diluted	65,824,910		63,968,215		64,969,855		63,360,535

Dividends declared per share	Dividends declared per share	$	0.33	$	0.30	$	0.66	$	0.60	Dividends declared per share	$	0.33	$	0.30	$	0.99	$	0.90


		Six Months Ended June 30, 2020																					Nine Months Ended September 30, 2020
		Common Stock					Additional Paid-in Capital		Retained Earnings				Total	Common Stock						Additional Paid-in Capital			Retained Earnings			Total
		Shares	Amount													Shares			Amount			Additional Paid-in Capital			Retained Earnings		Total
Balance at December 31, 2019	Balance at December 31, 2019	62,574,961	$	626	$	1,348,733	$	433,126	$	1,782,485	Balance at December 31, 2019	62,574,961		$	626		$	1,348,733		$	433,126		$	1,782,485
Cumulative effect of newly adopted accounting standards (Note 2)	Cumulative effect of newly adopted accounting standards (Note 2)	—	—		—		(34)		(34)		Cumulative effect of newly adopted accounting standards (Note 2)	—		—			—			(34)			(34)
Balance at January 1, 2020	Balance at January 1, 2020	62,574,961	626		1,348,733		433,092		1,782,451		Balance at January 1, 2020	62,574,961		626			1,348,733			433,092			1,782,451
Net Income	Net Income	—	—		—		36,760		36,760		Net Income	—		—			—			36,760			36,760
Shares issued under stock-based compensation programs, net	Shares issued under stock-based compensation programs, net	477,582	5		8,189		—		8,194		Shares issued under stock-based compensation programs, net	477,582		5			8,189			0			8,194
Cash dividends declared	Cash dividends declared	—	—		—		(20,768)		(20,768)		Cash dividends declared	—		—			—			(20,768)			(20,768)
Stock-based compensation expense	Stock-based compensation expense	—	—		4,440		—		4,440		Stock-based compensation expense	—		—			4,440			—			4,440
Forfeiture of restricted stock	Forfeiture of restricted stock	(48)	—		—		—		—		Forfeiture of restricted stock	(48)		—			—			—			—
Balance at March 31, 2020	Balance at March 31, 2020	63,052,495	$	631	$	1,361,362	$	449,084	$	1,811,077	Balance at March 31, 2020	63,052,495		$	631		$	1,361,362		$	449,084		$	1,811,077
Net Income	Net Income	—	—		—		84,396		84,396		Net Income	—		0			0			84,396			84,396
Shares issued under stock-based compensation programs, net	Shares issued under stock-based compensation programs, net	334,178	3		(6,865)		—		(6,862)		Shares issued under stock-based compensation programs, net	334,178		3			(6,865)			0			(6,862)
Cash dividends declared	Cash dividends declared	—	—		—		(20,914)		(20,914)		Cash dividends declared	—		—			—			(20,914)			(20,914)
Stock-based compensation expense	Stock-based compensation expense	—	—		5,488		—		5,488		Stock-based compensation expense	—		—			5,488			—			5,488
Forfeiture of restricted stock	Forfeiture of restricted stock	(1,807)	—		—		—		—		Forfeiture of restricted stock	(1,807)		—			—			—			—
Balance at June 30, 2020	Balance at June 30, 2020	63,384,866	$	634	$	1,359,985	$	512,566	$	1,873,185	Balance at June 30, 2020	63,384,866		$	634		$	1,359,985		$	512,566		$	1,873,185
Net Income											Net Income	—		—			—			98,938			98,938
Shares issued under stock-based compensation programs, net											Shares issued under stock-based compensation programs, net	1,480,711		15			28,627			—			28,642
Cash dividends declared											Cash dividends declared	—		—			—			(21,374)			(21,374)
Stock-based compensation expense											Stock-based compensation expense	—		—			8,608			—			8,608
Balance at September 30, 2020											Balance at September 30, 2020	64,865,577		$	649		$	1,397,220		$	590,130		$	1,987,999


		Six Months Ended June 30, 2019																					Nine Months Ended September 30, 2019
		Common Stock					Additional Paid-in Capital		Retained Earnings				Total	Common Stock						Additional Paid-in Capital			Retained Earnings			Total
		Shares	Amount													Shares			Amount			Additional Paid-in Capital			Retained Earnings		Total
Balance at December 31, 2018	Balance at December 31, 2018	56,615,352	$	566	$	1,168,442	$	406,992	$	1,576,000	Balance at December 31, 2018	56,615,352		$	566		$	1,168,442		$	406,992		$	1,576,000
Cumulative effect of newly adopted accounting standards	Cumulative effect of newly adopted accounting standards	—	—		—		(67)		(67)		Cumulative effect of newly adopted accounting standards	—		—			—			(67)			(67)
Balance at January 1, 2019	Balance at January 1, 2019	56,615,352	566		1,168,442		406,925		1,575,933		Balance at January 1, 2019	56,615,352		566			1,168,442			406,925			1,575,933
Net Income	Net Income	—	—		—		40,550		40,550		Net Income	—		—			—			40,550			40,550
Shares issued under stock-based compensation programs, net	Shares issued under stock-based compensation programs, net	372,344	4		7,083		—		7,087		Shares issued under stock-based compensation programs, net	372,344		4			7,083			—			7,087
Cash dividends declared	Cash dividends declared	—	—		—		(17,019)		(17,019)		Cash dividends declared	—		—			—			(17,019)			(17,019)
Stock dividend declared	Stock dividend declared	4,534,908	45		138,950		(139,091)		(96)		Stock dividend declared	4,534,908		45			138,950			(139,091)			(96)
Stock-based compensation expense	Stock-based compensation expense	—	—		4,251		—		4,251		Stock-based compensation expense	—		—			4,251			—			4,251
Forfeiture of restricted stock	Forfeiture of restricted stock	(1,714)	—		—		—		—		Forfeiture of restricted stock	(1,714)		—			—			—			—
Balance at March 31, 2019	Balance at March 31, 2019	61,520,890	$	615	$	1,318,726	$	291,365	$	1,610,706	Balance at March 31, 2019	61,520,890		$	615		$	1,318,726		$	291,365		$	1,610,706
Net Income	Net Income	—	—		—		54,593		54,593		Net Income	—		—			—			54,593			54,593
Shares issued under stock-based compensation programs, net	Shares issued under stock-based compensation programs, net	405,094	4		10,237		—		10,241		Shares issued under stock-based compensation programs, net	405,094		4			10,237			—			10,241
Cash dividends declared	Cash dividends declared	—	—		—		(18,521)		(18,521)		Cash dividends declared	—		—			—			(18,521)			(18,521)
Stock-based compensation expense	Stock-based compensation expense	—	—		4,132		—		4,132		Stock-based compensation expense	—		—			4,132			—			4,132
Forfeiture of restricted stock	Forfeiture of restricted stock	(3,578)	—		—		—		—		Forfeiture of restricted stock	(3,578)		—			—			—			—
Balance at June 30, 2019	Balance at June 30, 2019	61,922,406	$	619	$	1,333,095	$	327,437	$	1,661,151	Balance at June 30, 2019	61,922,406		$	619		$	1,333,095		$	327,437		$	1,661,151
Net Income											Net Income	—		—			—			50,580			50,580
Shares issued under stock-based compensation programs, net											Shares issued under stock-based compensation programs, net	674,984		7			(1,030)			—			(1,023)
Cash dividends declared											Cash dividends declared	—		—			—			(18,700)			(18,700)
Stock-based compensation expense											Stock-based compensation expense	—		—			9,793			—			9,793
Balance at September 30, 2019											Balance at September 30, 2019	62,597,390		$	626		$	1,341,858		$	359,317		$	1,701,801


		Six Months Ended June 30,							Nine Months Ended September 30,
		2020		2019			2020		2019

		(Dollars in thousands)							(Dollars in thousands)
Operating Activities:	Operating Activities:					Operating Activities:
Net income	Net income	$	121,156	$	95,143	Net income	$	220,094	$	145,723
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense	Stock-based compensation expense	9,928		8,383		Stock-based compensation expense	18,536		18,178
Depreciation and amortization	Depreciation and amortization	11,527		9,941		Depreciation and amortization	18,881		15,478
Inventory impairments	Inventory impairments	—		610		Inventory impairments	0		610
Net (gain) loss on marketable equity securities	Net (gain) loss on marketable equity securities	8,285		(7,167)		Net (gain) loss on marketable equity securities	8,285		(7,934)
Deferred income tax expense	Deferred income tax expense	1,962		7,759		Deferred income tax expense	8,493		9,488
Net changes in assets and liabilities:	Net changes in assets and liabilities:					Net changes in assets and liabilities:
Trade and other receivables	Trade and other receivables	(23,445)		(36)		Trade and other receivables	(17,512)		(4,682)
Mortgage loans held-for-sale, net	Mortgage loans held-for-sale, net	23,454		39,874		Mortgage loans held-for-sale, net	36,515		32,191
Housing completed or under construction	Housing completed or under construction	(233,829)		(118,528)		Housing completed or under construction	(387,269)		(251,749)
Land and land under development	Land and land under development	94,918		24,438		Land and land under development	108,710		(10,461)
Prepaid and other assets	Prepaid and other assets	1,209		(4,206)		Prepaid and other assets	(20,314)		(3,889)
Accounts payable and accrued and other liabilities	Accounts payable and accrued and other liabilities	40,539		(546)		Accounts payable and accrued and other liabilities	35,023		23,929
Net cash provided by operating activities		55,704		55,665
Net cash provided by (used in) operating activities						Net cash provided by (used in) operating activities	29,442		(33,118)

Investing Activities:	Investing Activities:					Investing Activities:
Purchases of marketable securities	Purchases of marketable securities	(10,804)		(5,116)		Purchases of marketable securities	(10,804)		(10,340)
Sales of marketable securities	Sales of marketable securities	59,266		5,057		Sales of marketable securities	59,266		6,277
Purchases of property and equipment	Purchases of property and equipment	(12,968)		(13,860)		Purchases of property and equipment	(20,885)		(20,128)
Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	35,494		(13,919)		Net cash provided by (used in) investing activities	27,577		(24,191)

Financing Activities:	Financing Activities:					Financing Activities:
Payments on mortgage repurchase facility, net	Payments on mortgage repurchase facility, net	(7,522)		(33,776)		Payments on mortgage repurchase facility, net	(18,755)		(26,344)
Payments on homebuilding line of credit, net	Payments on homebuilding line of credit, net	(5,000)		—		Payments on homebuilding line of credit, net	(5,000)		0
Repayment of senior notes	Repayment of senior notes	(250,000)		—		Repayment of senior notes	(250,000)		0
Proceeds from issuance of senior notes	Proceeds from issuance of senior notes	298,050		—		Proceeds from issuance of senior notes	298,050		0
Dividend payments	Dividend payments	(41,682)		(35,636)		Dividend payments	(63,056)		(54,337)
Issuance of shares under stock-based compensation programs, net	Issuance of shares under stock-based compensation programs, net	1,332		17,328		Issuance of shares under stock-based compensation programs, net	29,974		16,304
Net cash used in financing activities	Net cash used in financing activities	(4,822)		(52,084)		Net cash used in financing activities	(8,787)		(64,377)

Net increase (decrease) in cash, cash equivalents and restricted cash	Net increase (decrease) in cash, cash equivalents and restricted cash	86,376		(10,338)		Net increase (decrease) in cash, cash equivalents and restricted cash	48,232		(121,686)
Cash, cash equivalents and restricted cash:	Cash, cash equivalents and restricted cash:					Cash, cash equivalents and restricted cash:
Beginning of period	Beginning of period	474,212		470,139		Beginning of period	474,212		470,139
End of period	End of period	$	560,588	$	459,801	End of period	$	522,444	$	348,453

Reconciliation of cash, cash equivalents and restricted cash:	Reconciliation of cash, cash equivalents and restricted cash:					Reconciliation of cash, cash equivalents and restricted cash:
Homebuilding:	Homebuilding:					Homebuilding:
Cash and cash equivalents	Cash and cash equivalents	$	482,702	$	390,061	Cash and cash equivalents	$	432,277	$	285,338
Restricted cash	Restricted cash	15,668		12,911		Restricted cash	19,732		16,325
Financial Services:	Financial Services:					Financial Services:
Cash and cash equivalents	Cash and cash equivalents	62,218		56,829		Cash and cash equivalents	70,435		46,790
Total cash, cash equivalents and restricted cash	Total cash, cash equivalents and restricted cash	$	560,588	$	459,801	Total cash, cash equivalents and restricted cash	$	522,444	$	348,453

The Unaudited Consolidated Financial Statements of M.D.C. Holdings, Inc. ("MDC," “the Company," “we,” “us,” or “our,” which refers to M.D.C. Holdings, Inc. and its subsidiaries) have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Accordingly, they do not include all information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements. These statements reflect all normal and recurring adjustments which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of MDC at ~~June~~September 30, 2020 and for all periods presented. These statements should be read in conjunction with MDC’s Consolidated Financial Statements and Notes thereto included in MDC’s Annual Report on Form 10-K for the year ended December 31, 2019.

Included in these footnotes are certain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding our business, financial condition, results of operations, cash flows, strategies and prospects. These forward-looking statements may be identified by terminology such as “likely,” “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained in this section are reasonable, we cannot guarantee future results. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from those expressed or implied by the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in subsequent reports on Forms 10-K, 10-Q and 8-K should be considered.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires measurement and recognition of expected credit losses for financial assets held. The amendments in ASU 2016-13 eliminate the probable threshold for initial recognition of a credit loss in current GAAP and reflect an entity’s current estimate of all expected credit losses. On January 1, 2020, we adopted ASU 2016-13 using the modified retrospective transition method, resulting in a cumulative effect adjustment that decreased the opening balance of retained earnings by less than $0.1 million. The standard did not materially impact our consolidated statements of operations and comprehensive income or consolidated cash flows.

In March 2020, the Securities and Exchange Commission (SEC) adopted amendments to the financial disclosure requirements applicable to registered debt offerings that include credit enhancements, such as subsidiary guarantees, in Rule 3-10 of Regulation S-X. The amended rule focuses on providing material, relevant and decision-useful information regarding guarantees and other credit enhancements, while eliminating certain prescriptive requirements. The rule is effective January 4, 2021 but earlier compliance is permitted. The Company adopted these amendments on June 30, 2020. As the combined assets, liabilities and results of operations of M.D.C. Holdings, Inc. and the Guarantor Subsidiaries (the “Obligor Group”) are not materially different from those in the homebuilding section of our consolidated balance sheets and consolidated statements of operations and comprehensive income, separate summarized financial information of the Obligor Group has not been included. See Note 20 for further information regarding subsidiary guarantees.

Our financial services business consists of the operations of the following operating segments: (1) HomeAmerican Mortgage Corporation (“HomeAmerican”); (2) Allegiant Insurance Company, Inc., A Risk Retention Group (“Allegiant”); (3) StarAmerican Insurance Ltd. (“StarAmerican”); (4) American Home Insurance Agency, Inc.; and (5) American Home Title and Escrow Company. Due to its contributions to consolidated pretax income, we consider HomeAmerican to be a reportable segment (“mortgage operations”). The remaining operating segments have been aggregated into 1 reportable segment (“other”) because they do not individually exceed 10 percent of: (1) consolidated revenue; (2) the greater of (a) the combined reported profit of all operating segments that did not report a loss or (b) the positive value of the combined reported loss of all operating segments that reported losses; or (3) consolidated assets.

Corporate is a non-operating segment that develops and implements strategic initiatives and supports our operating divisions by centralizing key administrative functions such as finance, treasury, information technology, insurance, risk management, litigation and human resources. Corporate also provides the necessary administrative functions to support MDC as a publicly traded company. A portion of the expenses incurred by Corporate are allocated to the homebuilding operating segments based on their respective percentages of assets, and to a lesser degree, a portion of Corporate expenses are allocated to the financial services segments. A majority of Corporate’s personnel and resources are primarily dedicated to activities relating to the homebuilding segments, and, therefore, the balance of any unallocated Corporate expenses is included in the homebuilding operations section of our consolidated statements of operations and comprehensive income.

On a periodic basis, we assess our Corporate cost allocation estimates. Our most recent assessment resulted in increases in Corporate cost allocations to both our homebuilding and financial services segments beginning January 1, 2020, to reflect the use of centralized administrative functions. Applying the most recent cost allocation estimate to the three and ~~six~~nine months ended ~~June~~September 30, 2019 would have resulted in decreased pretax income for our homebuilding segments of approximately ~~$2.7~~$2.8 million and ~~$5.4~~$8.2 million, respectively, and decreased pretax income for our financial services segments of approximately $0.4 million and ~~$0.8~~$1.2 million, respectively, with corresponding increases in our Corporate segment pretax income. Additionally, beginning January 1, 2020, we have reflected the expense associated with all homebuilding employee bonuses in the respective homebuilding segment to which the employee reports, consistent with how the CODM is now evaluating homebuilding division performance and making operating decisions. Had these bonuses been reflected in a similar manner during the three and ~~six~~nine months ended ~~June~~September 30, 2019, pretax income for our homebuilding segments would have decreased by an additional ~~$3.0~~$3.5 million and ~~$6.0~~$9.5 million, respectively, with a corresponding increase in our Corporate segment pretax income.


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2020		2019		2020		2019

		(Dollars in thousands)															(Dollars in thousands)
Homebuilding	Homebuilding									Homebuilding
West	West	$	490,117	$	384,530	$	895,615	$	754,088	West	$	552,319	$	410,414	$	1,447,934	$	1,164,502
Mountain	Mountain	316,666		287,476		539,524		496,668		Mountain	347,095		263,802		886,619		760,470
East	East	79,975		60,838		148,704		129,366		East	101,135		76,058		249,839		205,424
Total homebuilding revenues	Total homebuilding revenues	$	886,758	$	732,844	$	1,583,843	$	1,380,122	Total homebuilding revenues	$	1,000,549	$	750,274	$	2,584,392	$	2,130,396

Financial Services	Financial Services									Financial Services
Mortgage operations	Mortgage operations	$	24,363	$	11,689	$	38,988	$	21,863	Mortgage operations	$	28,548	$	14,395	$	67,536	$	36,258
Other	Other	8,601		6,908		15,862		14,138		Other	8,255		7,993		24,117		22,131
Total financial services revenues	Total financial services revenues	$	32,964	$	18,597	$	54,850	$	36,001	Total financial services revenues	$	36,803	$	22,388	$	91,653	$	58,389


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2020		2019		2020		2019

		(Dollars in thousands)															(Dollars in thousands)
Homebuilding	Homebuilding									Homebuilding
West	West	$	48,745	$	35,350	$	85,321	$	68,550	West	$	59,120	$	34,898	$	144,441	$	103,448
Mountain	Mountain	41,807		35,972		63,319		57,686		Mountain	48,053		31,391		111,372		89,077
East	East	3,073		2,152		3,973		3,625		East	6,020		2,136		9,993		5,761
Corporate	Corporate	(8,704)		(11,860)		(18,023)		(27,192)		Corporate	(11,543)		(19,734)		(29,566)		(46,926)
Total homebuilding pretax income	Total homebuilding pretax income	$	84,921	$	61,614	$	134,590	$	102,669	Total homebuilding pretax income	$	101,650	$	48,691	$	236,240	$	151,360
Financial Services	Financial Services									Financial Services
Mortgage operations	Mortgage operations	$	17,506	$	6,239	$	25,749	$	11,232	Mortgage operations	$	20,809	$	8,468	$	46,558	$	19,700
Other	Other	9,211		6,478		(139)		16,036		Other	3,559		5,647		3,420		21,683
Total financial services pretax income	Total financial services pretax income	$	26,717	$	12,717	$	25,610	$	27,268	Total financial services pretax income	$	24,368	$	14,115	$	49,978	$	41,383

Total pretax income	Total pretax income	$	111,638	$	74,331	$	160,200	$	129,937	Total pretax income	$	126,018	$	62,806	$	286,218	$	192,743


		June 30, 2020		December 31, 2019			September 30, 2020		December 31, 2019

		(Dollars in thousands)							(Dollars in thousands)
Homebuilding assets	Homebuilding assets					Homebuilding assets
West	West	$	1,575,620	$	1,461,645	West	$	1,660,583	$	1,461,645
Mountain	Mountain	893,282		869,665		Mountain	927,730		869,665
East	East	220,235		194,592		East	248,028		194,592
Corporate	Corporate	555,238		505,507		Corporate	507,728		505,507
Total homebuilding assets	Total homebuilding assets	$	3,244,375	$	3,031,409	Total homebuilding assets	$	3,344,069	$	3,031,409
Financial services assets	Financial services assets					Financial services assets
Mortgage operations	Mortgage operations	$	194,213	$	209,946	Mortgage operations	$	196,258	$	209,946
Other	Other	67,347		97,001		Other	72,447		97,001
Total financial services assets	Total financial services assets	$	261,560	$	306,947	Total financial services assets	$	268,705	$	306,947

Total assets	Total assets	$	3,505,935	$	3,338,356	Total assets	$	3,612,774	$	3,338,356

Accounting Standards Codification ("ASC") Topic 260, Earnings per Share ("ASC 260") requires a company that has participating security holders (for example, holders of unvested restricted stock that have non-forfeitable dividend rights) to utilize the two-class method for calculating earnings per share (“EPS”) unless the treasury stock method results in lower EPS. The two-class method is an allocation of earnings/(loss) between the holders of common stock and a company’s participating security holders. Under the two-class method, earnings/(loss) for the reporting period are allocated between common shareholders and other security holders based on their respective rights to receive distributed earnings (i.e., dividends) and undistributed earnings (i.e., net income/(loss)). Our common shares outstanding are comprised of shareholder owned common stock and shares of unvested restricted stock held by participating security holders. Basic EPS is calculated by dividing income or loss attributable to common stockholders by the weighted average number of shares of common stock outstanding, excluding participating shares in accordance with ASC 260. To calculate diluted EPS, basic EPS is adjusted to include the effect of potentially dilutive stock options outstanding. The table below shows our basic and diluted EPS calculations.


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2020		2019		2020		2019

		(Dollars in thousands, except per share amounts)															(Dollars in thousands, except per share amounts)
Numerator	Numerator									Numerator
Net income	Net income	$	84,396	$	54,593	$	121,156	$	95,143	Net income	$	98,938	$	50,580	$	220,094	$	145,723
Less: distributed earnings allocated to participating securities	Less: distributed earnings allocated to participating securities	(121)		(110)		(256)		(221)		Less: distributed earnings allocated to participating securities	(148)		(122)		(404)		(343)
Less: undistributed earnings allocated to participating securities	Less: undistributed earnings allocated to participating securities	(363)		(213)		(465)		(352)		Less: undistributed earnings allocated to participating securities	(502)		(202)		(952)		(554)
Net income attributable to common stockholders (numerator for basic earnings per share)	Net income attributable to common stockholders (numerator for basic earnings per share)	83,912		54,270		120,435		94,570		Net income attributable to common stockholders (numerator for basic earnings per share)	98,288		50,256		218,738		144,826
Add back: undistributed earnings allocated to participating securities	Add back: undistributed earnings allocated to participating securities	363		213		465		352		Add back: undistributed earnings allocated to participating securities	502		202		952		554
Less: undistributed earnings reallocated to participating securities	Less: undistributed earnings reallocated to participating securities	(357)		(209)		(455)		(345)		Less: undistributed earnings reallocated to participating securities	(488)		(195)		(929)		(540)
Numerator for diluted earnings per share under two class method	Numerator for diluted earnings per share under two class method	$	83,918	$	54,274	$	120,445	$	94,577	Numerator for diluted earnings per share under two class method	$	98,302	$	50,263	$	218,761	$	144,840

Denominator	Denominator									Denominator
Weighted-average common shares outstanding	Weighted-average common shares outstanding	63,015,827		61,336,404		62,755,310		61,138,982		Weighted-average common shares outstanding	63,868,486		61,978,195		63,129,077		61,422,925
Add: dilutive effect of stock options	Add: dilutive effect of stock options	1,065,113		1,435,739		1,494,841		1,333,043		Add: dilutive effect of stock options	1,810,624		1,990,020		1,599,722		1,570,194
Add: dilutive effect of performance share units	Add: dilutive effect of performance share units	—		551,124		288,684		551,124		Add: dilutive effect of performance share units	145,800		0		241,056		367,416
Denominator for diluted earnings per share under two class method	Denominator for diluted earnings per share under two class method	64,080,940		63,323,267		64,538,835		63,023,149		Denominator for diluted earnings per share under two class method	65,824,910		63,968,215		64,969,855		63,360,535

Basic Earnings Per Common Share	Basic Earnings Per Common Share	$	1.33	$	0.88	$	1.92	$	1.55	Basic Earnings Per Common Share	$	1.54	$	0.81	$	3.46	$	2.36
Diluted Earnings Per Common Share	Diluted Earnings Per Common Share	$	1.31	$	0.86	$	1.87	$	1.50	Diluted Earnings Per Common Share	$	1.49	$	0.79	$	3.37	$	2.29

ASC Topic 820, Fair Value Measurements (“ASC 820”), defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs, other than quoted prices in active markets, that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

Fair Value

Financial Instrument

Hierarchy

June 30,
2020

December 31,
2019

Financial Instrument

Hierarchy

September 30,
2020

December 31,
2019

(Dollars in thousands)

Marketable securities

Equity securities

Level 1

—

56,747

Equity securities

Level 1

56,747

Mortgage loans held-for-sale, net

Level 2

173,567

197,021

Mortgage loans held-for-sale, net

Level 2

160,506

197,021


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2020		2019		2020		2019

		(Dollars in thousands)															(Dollars in thousands)
Net gain (loss) recognized during the period on equity securities	Net gain (loss) recognized during the period on equity securities	$	4,983	$	2,327	$	(8,285)	$	7,167	Net gain (loss) recognized during the period on equity securities	$	0	$	767	$	(8,285)	$	7,934
Less: Net gain (loss) recognized during the period on equity securities sold during the period	Less: Net gain (loss) recognized during the period on equity securities sold during the period	4,983		—		(8,285)		237		Less: Net gain (loss) recognized during the period on equity securities sold during the period	0		299		(8,285)		536
Unrealized gain recognized during the reporting period on equity securities still held at the reporting date	Unrealized gain recognized during the reporting period on equity securities still held at the reporting date	$	—	$	2,327	$	—	$	6,930	Unrealized gain recognized during the reporting period on equity securities still held at the reporting date	$	0	$	468	$	0	$	7,398

Mortgage loans held-for-sale, net. Our mortgage loans held-for-sale, which are measured at fair value on a recurring basis, include (1) mortgage loans held-for-sale that are under commitments to sell and (2) mortgage loans held-for-sale that are not under commitments to sell. At ~~June~~September 30, 2020 and December 31, 2019, we had ~~$84.0~~$105.5 million and $136.8 million, respectively, of mortgage loans held-for-sale under commitments to sell. The fair value for those loans was based on quoted market prices for those mortgage loans, which are Level 2 fair value inputs. At ~~June~~September 30, 2020 and December 31, 2019, we had ~~$89.6~~$55.0 million and $60.2 million, respectively, of mortgage loans held-for-sale that were not under commitments to sell. The fair value for those loans was primarily based upon the estimated market price received from an outside party, which is a Level 2 fair value input.

Gains on sales of mortgage loans, net, are included as a component of revenues in the financial services section of our consolidated statements of operations and comprehensive income. For the three and ~~six~~nine months ended ~~June~~September 30, 2020, we recorded net gains on the sales of mortgage loans of ~~$20.8~~$26.8 million and ~~$37.5~~$64.3 million, respectively, compared to ~~$12.6~~$14.6 million and ~~$24.3~~$38.9 million for the same periods in the prior year, respectively.


		June 30, 2020						December 31, 2019							September 30, 2020				December 31, 2019
		Carrying Amount		Fair Value		Carrying Amount		Fair Value			Carrying Amount		Fair Value		Carrying Amount		Fair Value

		(Dollars in thousands)															(Dollars in thousands)
$250 million 5.625% Senior Notes due February 2020, net	$250 million 5.625% Senior Notes due February 2020, net	$	—	$	—	$	249,909	$	250,400	$250 million 5.625% Senior Notes due February 2020, net	$	0	$	0	$	249,909	$	250,400
$250 million 5.500% Senior Notes due January 2024, net	$250 million 5.500% Senior Notes due January 2024, net	249,117		266,983		249,005		272,083		$250 million 5.500% Senior Notes due January 2024, net	249,174		270,388		249,005		272,083
$300 million 3.850% Senior Notes due January 2030, net	$300 million 3.850% Senior Notes due January 2030, net	297,342		289,725		—		—		$300 million 3.850% Senior Notes due January 2030, net	297,400		313,505		0		0
$500 million 6.000% Senior Notes due January 2043, net	$500 million 6.000% Senior Notes due January 2043, net	490,603		527,662		490,508		528,542		$500 million 6.000% Senior Notes due January 2043, net	490,651		605,125		490,508		528,542
Total	Total	$	1,037,062	$	1,084,370	$	989,422	$	1,051,025	Total	$	1,037,225	$	1,189,018	$	989,422	$	1,051,025


		June 30, 2020		December 31, 2019			September 30, 2020		December 31, 2019

		(Dollars in thousands)							(Dollars in thousands)
Housing completed or under construction:	Housing completed or under construction:					Housing completed or under construction:
West	West	$	741,109	$	589,040	West	$	844,264	$	589,040
Mountain	Mountain	418,798		358,370		Mountain	463,690		358,370
East	East	110,393		88,781		East	115,901		88,781
Subtotal	Subtotal	1,270,300		1,036,191		Subtotal	1,423,855		1,036,191
Land and land under development:	Land and land under development:					Land and land under development:
West	West	719,517		772,189		West	698,099		772,189
Mountain	Mountain	425,503		468,718		Mountain	412,299		468,718
East	East	90,578		89,477		East	111,456		89,477
Subtotal	Subtotal	1,235,598		1,330,384		Subtotal	1,221,854		1,330,384
Total inventories	Total inventories	$	2,505,898	$	2,366,575	Total inventories	$	2,645,709	$	2,366,575

Our inventories are primarily associated with communities where we intend to construct and sell homes, including models and unsold homes. Costs capitalized to land and land under development primarily include: (1) land costs; (2) land development costs; (3) entitlement costs; (4) capitalized interest; (5) engineering fees; and (6) title insurance, real property taxes and closing costs directly related to the purchase of the land parcel. Components of housing completed or under construction primarily include: (1) land costs transferred from land and land under development; (2) direct construction costs associated with a house; (3) real property taxes, engineering fees, permits and other fees; (4) capitalized interest; and (5) indirect construction costs, which include field construction management salaries and benefits, utilities and other construction related costs. Land costs are transferred from land and land under development to housing completed or under construction at the point in time that construction of a home on an owned lot begins.

In accordance with ASC Topic 360, Property, Plant, and Equipment (“ASC 360”), homebuilding inventories, excluding those classified as held for sale, are carried at cost unless events and circumstances indicate that the carrying value of the underlying subdivision may not be recoverable. We evaluate inventories for impairment at each quarter end on a subdivision level basis as each such subdivision represents the lowest level of identifiable cash flows. In making this determination, we review, among other things, the following for each subdivision:

If events or circumstances indicate that the carrying value of our inventory may not be recoverable, assets are reviewed for impairment by comparing the undiscounted estimated future cash flows from an individual subdivision (including capitalized interest) to its carrying value. If the undiscounted future cash flows are less than the subdivision’s carrying value, the carrying value of the subdivision is written down to its then estimated fair value. We generally determine the estimated fair value of each subdivision by determining the present value of the estimated future cash flows at discount rates, which are Level 3 inputs, that are commensurate with the risk of the subdivision under evaluation. The evaluation for the recoverability of the carrying value of the assets for each individual subdivision can be impacted significantly by our estimates of future home sale revenues, home construction costs, and development costs per home, all of which are Level 3 inputs.

If land is classified as held for sale, we measure it in accordance with ASC 360 at the lower of the carrying value or fair value less estimated costs to sell. In determining fair value, we primarily rely upon the most recent negotiated price, which is a Level 2 input. If a negotiated price is not available, we will consider several factors including, but not limited to, current market conditions, recent comparable sales transactions and market analysis studies, which are considered Level 3 inputs. If the fair value less estimated costs to sell is lower than the current carrying value, the land is impaired down to its estimated fair value less costs to sell.


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2020		2019		2020		2019

		(Dollars in thousands)															(Dollars in thousands)
West	West	$	—	$	—	$	—	$	—	West	$	0	$	0	$	0	$	0
Mountain	Mountain	—		—		—		400		Mountain	0		0		0		400
East	East	—		—		—		210		East	0		0		0		210
Total inventory impairments	Total inventory impairments	$	—	$	—	$	—	$	610	Total inventory impairments	$	0	$	0	$	0	$	610

We capitalize interest to inventories during the period of development in accordance with ASC Topic 835, Interest (“ASC 835”). Homebuilding interest capitalized as a cost of inventories is included in cost of sales during the period that related units or lots are delivered. To the extent our homebuilding debt exceeds our qualified assets as defined in ASC 835, we expense a portion of the interest incurred. Qualified homebuilding assets consist of all lots and homes, excluding finished unsold homes or finished models, within projects that are actively selling or under development. The table set forth below summarizes homebuilding interest activity. For all periods presented below, our qualified assets exceeded our homebuilding debt and as such, all interest incurred has been capitalized.


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2020		2019		2020		2019

		(Dollars in thousands)															(Dollars in thousands)
Homebuilding interest incurred	Homebuilding interest incurred	$	15,094	$	15,980	$	31,628	$	32,011	Homebuilding interest incurred	$	14,799	$	15,879	$	46,427	$	47,890
Less: Interest capitalized	Less: Interest capitalized	(15,094)		(15,980)		(31,628)		(32,011)		Less: Interest capitalized	(14,799)		(15,879)		(46,427)		(47,890)
Homebuilding interest expensed	Homebuilding interest expensed	$	—	$	—	$	—	$	—	Homebuilding interest expensed	$	0	$	0	$	0	$	0

Interest capitalized, beginning of period	Interest capitalized, beginning of period	$	59,077	$	56,947	$	55,310	$	54,845	Interest capitalized, beginning of period	$	56,929	$	58,193	$	55,310	$	54,845
Plus: Interest capitalized during period	Plus: Interest capitalized during period	15,094		15,980		31,628		32,011		Plus: Interest capitalized during period	14,799		15,879		46,427		47,890
Less: Previously capitalized interest included in home cost of sales	Less: Previously capitalized interest included in home cost of sales	(17,242)		(14,734)		(30,009)		(28,663)		Less: Previously capitalized interest included in home cost of sales	(16,511)		(14,451)		(46,520)		(43,114)
Interest capitalized, end of period	Interest capitalized, end of period	$	56,929	$	58,193	$	56,929	$	58,193	Interest capitalized, end of period	$	55,217	$	59,621	$	55,217	$	59,621

Our property related leases typically have terms of between three and five years, with the exception of the lease governing the Company’s ~~headquarters, and~~headquarters. All of our property related leases are classified as operating leases. These leases do not contain any residual value guarantees or restrictive covenants and do not include variable lease payments, except for the payment of common area maintenance and real estate taxes. Many of our property related leases give us the option to extend the lease term for a period of time, generally consistent with the initial lease term. These options are excluded from our calculation of the right-of-use asset and lease liability until such time as we determine it is reasonably certain that the option will be exercised.


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2020		2019		2020		2019

		(Dollars in thousands)															(Dollars in thousands)
Operating lease cost ¹	Operating lease cost ¹	$	2,120	$	1,990	$	4,166	$	3,970	Operating lease cost 1	$	2,083	$	1,841	$	6,249	$	5,811
Less: Sublease income (Note 19)	Less: Sublease income (Note 19)	(38)		(38)		(76)		(75)		Less: Sublease income (Note 19)	(38)		(37)		(114)		(112)
Net lease cost	Net lease cost	$	2,082	$	1,952	$	4,090	$	3,895	Net lease cost	$	2,045	$	1,804	$	6,135	$	5,699


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2020		2019		2020		2019

		(Dollars in thousands)															(Dollars in thousands)
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:															Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	Operating cash flows from operating leases	$	1,741	$	1,792	$	3,647	$	3,563	Operating cash flows from operating leases	$	1,792	$	1,834	$	5,439	$	5,397
Leased assets obtained in exchange for new operating lease liabilities	Leased assets obtained in exchange for new operating lease liabilities	$	1,405	$	553	$	4,050	$	2,030	Leased assets obtained in exchange for new operating lease liabilities	$	0	$	646	$	4,050	$	2,676


		Year Ended December 31,			Year Ended December 31,
		(Dollars in thousands)			(Dollars in thousands)
2020 (excluding the six months ended June 30, 2020)		$	3,152
2020 (excluding the nine months ended September 30, 2020)				2020 (excluding the nine months ended September 30, 2020)	$	1,343
2021	2021	7,361		2021	7,421
2022	2022	7,054		2022	7,115
2023	2023	6,141		2023	6,203
2024	2024	5,543		2024	5,607
Thereafter	Thereafter	9,914		Thereafter	10,096
Total operating lease payments	Total operating lease payments	$	39,165	Total operating lease payments	$	37,785

Less: Interest	Less: Interest	5,772		Less: Interest	5,290
Present value of operating lease liabilities ¹	Present value of operating lease liabilities ¹	$	33,393	Present value of operating lease liabilities 1	$	32,495


		June 30, 2020		December 31, 2019			September 30, 2020		December 31, 2019

		(Dollars in thousands)							(Dollars in thousands)
Operating lease right-of-use asset (Note 8)	Operating lease right-of-use asset (Note 8)	$	31,584	$	30,277	Operating lease right-of-use asset (Note 8)	$	30,653	$	30,277
Land option deposits	Land option deposits	19,669		27,361		Land option deposits	25,925		27,361
Prepaid expenses	Prepaid expenses	6,084		7,294		Prepaid expenses	10,070		7,294
Goodwill	Goodwill	6,008		6,008		Goodwill	6,008		6,008
Deferred debt issuance costs on revolving credit facility, net	Deferred debt issuance costs on revolving credit facility, net	5,363		6,130		Deferred debt issuance costs on revolving credit facility, net	4,980		6,130
Other	Other	776		1,288		Other	785		1,288
Total		$	69,484	$	78,358
Total prepaid and other assets						Total prepaid and other assets	$	78,421	$	78,358


		June 30, 2020		December 31, 2019			September 30, 2020		December 31, 2019

		(Dollars in thousands)							(Dollars in thousands)
Customer and escrow deposits	Customer and escrow deposits	$	43,632	$	39,001	Customer and escrow deposits	$	59,468	$	39,001
Warranty accrual	Warranty accrual	30,458		31,386		Warranty accrual	32,097		31,386
Accrued compensation and related expenses	Accrued compensation and related expenses	34,076		45,003		Accrued compensation and related expenses	48,226		45,003
Lease liability (Note 8)	Lease liability (Note 8)	32,441		30,830		Lease liability (Note 8)	31,637		30,830
Accrued interest	Accrued interest	27,843		27,734		Accrued interest	13,825		27,734
Construction defect claim reserves	Construction defect claim reserves	8,393		8,196		Construction defect claim reserves	8,479		8,196
Land development and home construction accruals	Land development and home construction accruals	8,125		9,750		Land development and home construction accruals	8,630		9,750
Other accrued liabilities	Other accrued liabilities	93,575		54,040		Other accrued liabilities	56,899		54,040
Total accrued and other liabilities	Total accrued and other liabilities	$	278,543	$	245,940	Total accrued and other liabilities	$	259,261	$	245,940


		June 30, 2020		December 31, 2019			September 30, 2020		December 31, 2019

		(Dollars in thousands)							(Dollars in thousands)
Insurance reserves	Insurance reserves	$	55,488	$	52,219	Insurance reserves	$	58,601	$	52,219
Accounts payable and other accrued liabilities	Accounts payable and other accrued liabilities	14,545		16,310		Accounts payable and other accrued liabilities	25,567		16,310
Total accounts payable and accrued liabilities	Total accounts payable and accrued liabilities	$	70,033	$	68,529	Total accounts payable and accrued liabilities	$	84,168	$	68,529

Our homes are sold with limited third-party warranties and, under our agreement with the issuer of the third-party warranties, we are responsible for performing all of the work for the first two years of the warranty coverage and paying for substantially all of the work required to be performed during years three through ten of the warranties. We record accruals for general and structural warranty claims, as well as accruals for known, unusual warranty-related expenditures. Our warranty accrual is recorded based upon historical payment experience in an amount estimated to be adequate to cover expected costs of materials and outside labor during warranty periods. The determination of the warranty accrual rate for closed homes and the evaluation of our warranty accrual balance at period end are based on an internally developed analysis that includes known facts and interpretations of circumstances, including, among other things, our trends in historical warranty payment levels and warranty payments for claims not considered to be normal and recurring.

The table set forth below summarizes accrual, adjustment and payment activity related to our warranty accrual for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019. ~~For~~The warranty accrual increased due to the ~~three and six~~increase in the number of home closings, which was partially offset during the nine months ended ~~June~~September 30, 2020 ~~and 2019, we recorded~~by adjustments to ~~decrease~~ our per home warranty accrual rate due to lower than expected general warranty related expenditures in certain close of escrow years.


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2020		2019		2020		2019

		(Dollars in thousands)															(Dollars in thousands)
Balance at beginning of period	Balance at beginning of period	$	30,887	$	29,992	$	31,386	$	28,262	Balance at beginning of period	$	30,458	$	29,349	$	31,386	$	28,262
Expense provisions	Expense provisions	3,937		3,737		7,102		7,085		Expense provisions	4,493		3,557		11,595		10,642
Cash payments	Cash payments	(2,366)		(2,976)		(6,030)		(5,469)		Cash payments	(2,683)		(3,425)		(8,713)		(8,894)
Adjustments	Adjustments	(2,000)		(1,404)		(2,000)		(529)		Adjustments	(171)		389		(2,171)		(140)
Balance at end of period	Balance at end of period	$	30,458	$	29,349	$	30,458	$	29,349	Balance at end of period	$	32,097	$	29,870	$	32,097	$	29,870

The establishment of reserves for estimated losses associated with insurance policies issued by Allegiant and re-insurance agreements issued by StarAmerican are based on actuarial studies that include known facts and interpretations of circumstances, including our experience with similar cases and historical trends involving claim payment patterns, pending levels of unpaid claims, product mix or concentration, claim severity, frequency patterns depending on the business conducted, and changing regulatory and legal environments. It is possible that changes in the insurance payment experience used in estimating our ultimate insurance losses could have a material impact on our insurance reserves.

The establishment of reserves for estimated losses to be incurred by our homebuilding subsidiaries associated with: (1) the self-insured retention (“SIR”) portion of construction defect claims that are expected to be covered under insurance policies with Allegiant and (2) the entire cost of any construction defect claims that are not expected to be covered by insurance policies with Allegiant, are based on actuarial studies that include known facts similar to those for our insurance reserves. It is possible that changes in the payment experience used in estimating our ultimate losses for construction defect claims could have a material impact on our reserves.


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2020		2019		2020		2019

		(Dollars in thousands)															(Dollars in thousands)
Balance at beginning of period	Balance at beginning of period	$	61,450	$	56,219	$	60,415	$	55,308	Balance at beginning of period	$	63,881	$	56,817	$	60,415	$	55,308
Expense provisions	Expense provisions	3,586		2,745		6,504		5,210		Expense provisions	4,058		3,102		10,562		8,312
Cash payments, net of recoveries	Cash payments, net of recoveries	(1,155)		(2,147)		(3,038)		(3,701)		Cash payments, net of recoveries	(859)		(2,614)		(3,897)		(6,315)
Balance at end of period	Balance at end of period	$	63,881	$	56,817	$	63,881	$	56,817	Balance at end of period	$	67,080	$	57,305	$	67,080	$	57,305

In the ordinary course of business, we make payments from our insurance and construction defect claim reserves to settle litigation claims arising from our homebuilding activities. These payments are irregular in both their timing and their magnitude. As a result, the cash payments, net of recoveries shown for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019 are not necessarily indicative of what future cash payments will be for subsequent periods.

Our overall effective income tax rates were ~~24.4% for both the three~~21.5% and ~~six months ended June 30, 2020 and 26.6% and 26.8%~~23.1% for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 19.5% and 24.4% for the three and nine months ended September 30, 2019, respectively. The rates for the three and ~~six~~nine months ended ~~June~~September 30, 2020 resulted in income tax expense of ~~$27.2~~$27.1 million and ~~$39.0~~$66.1 million, respectively, compared to income tax expense of ~~$19.7~~$12.2 million and ~~$34.8~~$47.0 million for the three and ~~six~~nine months ended ~~June~~September 30, 2019, respectively. The year-over-year increase in our effective tax rate for the three months ended September 30, 2020 was primarily due to changes in the estimated amount of energy tax credits to be received. The year-over-year decrease in our effective tax rate for the ~~three and six~~nine months ended ~~June~~September 30, 2020 was primarily due to tax windfalls ~~on our~~recognized upon the vesting and exercise of equity ~~awards as well as energy tax credits that expired on December 31, 2017 and were retroactively extended by the Further Consolidated Appropriations Act, 2020~~ ~~(H.R. 1865, PL 116-94) signed by the President on December 20, 2019.~~awards.


		June 30, 2020		December 31, 2019			September 30, 2020		December 31, 2019

		(Dollars in thousands)							(Dollars in thousands)
5.625% Senior Notes due February 2020, net	5.625% Senior Notes due February 2020, net	$	—	$	249,909	5.625% Senior Notes due February 2020, net	$	0	$	249,909
5.500% Senior Notes due January 2024, net	5.500% Senior Notes due January 2024, net	249,117		249,005		5.500% Senior Notes due January 2024, net	249,174		249,005
3.850% Senior Notes due January 2030, net	3.850% Senior Notes due January 2030, net	297,342		—		3.850% Senior Notes due January 2030, net	297,400		0
6.000% Senior Notes due January 2043, net	6.000% Senior Notes due January 2043, net	490,603		490,508		6.000% Senior Notes due January 2043, net	490,651		490,508
Total	Total	$	1,037,062	$	989,422	Total	$	1,037,225	$	989,422

We account for share-based awards in accordance with ASC Topic 718 Compensation–Stock Compensation (“ASC 718”), which requires the fair value of stock-based compensation awards to be amortized as an expense over the vesting period. Stock-based compensation awards are valued at fair value on the date of grant. The following table sets forth share-based award expense activity for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, which is included as a component of selling general and administrative expenses and expenses in the homebuilding and financial services sections of our consolidated statements of operations and comprehensive income, respectively:


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2020		2019		2020		2019

		(Dollars in thousands)															(Dollars in thousands)
Stock option grants expense	Stock option grants expense	$	717	$	245	$	1,212	$	500	Stock option grants expense	$	814	$	429	$	2,026	$	929
Restricted stock awards expense	Restricted stock awards expense	1,053		677		2,570		1,588		Restricted stock awards expense	2,271		1,391		4,841		2,979
Performance share units expense	Performance share units expense	3,718		3,210		6,146		6,295		Performance share units expense	5,523		7,975		11,669		14,270
Total stock-based compensation	Total stock-based compensation	$	5,488	$	4,132	$	9,928	$	8,383	Total stock-based compensation	$	8,608	$	9,795	$	18,536	$	18,178

On August 20, 2020, August 5, 2019, May 23, 2018, June 20, 2017 and July 25, 2016, the Company granted long term performance share unit awards (“PSUs”) to each of the CEO, the COO, and the Chief Financial Officer (“CFO”) under the Company’s 2011 Equity Incentive Plan. The PSUs are earned based upon the Company’s performance over a period of three years (the “Performance Period”), measured by increasing home sale revenues over a “Base Period.” Each award is conditioned upon the Company achieving an average gross margin from home sales (excluding impairments) of at least fifteen percent (15%) over the Performance Period. Target goals will be earned if the Company’s three year average home sale revenues over the Performance Period (“Performance Revenues”) exceed the home sale revenues over the Base Period (“Base Revenues”) by at least 10% but less than 20%. If Performance Revenues exceed the Base Revenues by at least 5% but less than 10%, 50% of the Target Goals will be earned (“Threshold Goals”). If Performance Revenues exceed the Base Revenues by at least 20%, 200% of the Target Goals will be earned (“Maximum Goals”). For the PSUs granted in 2017, 2018, 2019 and ~~2019,~~2020, the number of PSUs earned shall be adjusted to be proportional to the partial performance between the Threshold Goals, Target Goals and Maximum Goals. Details for each defined term above for each grant has been provided in the table below.

Threshold Goal Target Goal Maximum Goal Maximum Potential Expense to be Recognized * Maximum Remaining Expense to be Recognized *
Date of Award Performance Period Base Period Base Period Revenues PSUs Home Sale Revenues PSUs Home Sale Revenues PSUs Home Sale Revenues Fair Value per Share
July 25, 2016 July 1, 2016 - June 30, 2019 July 1, 2015 - June 30, 2016 $1.975 billion 137,781 $2.074 billion 275,562 $2.173 billion 551,124 $2.370 billion $ 19.66 $ 10,834 $ —
June 20, 2017 April 1, 2017 - March 31, 2020 April 1, 2016 - March 31, 2017 $2.426 billion 144,342 $2.547 billion 288,684 $2.669 billion 577,368 $2.911 billion $ 27.83 $ 16,070 $ —
May 23, 2018 April 1, 2018 - March 31, 2021 April 1, 2017 - March 31, 2018 $2.543 billion 145,800 $2.670 billion 291,600 $2.797 billion 583,200 $3.052 billion $ 25.57 $ 14,915 $ 3,922
August 5, 2019 January 1, 2019 - December 31, 2021 January 1, 2018 - December 31, 2018 $2.982 billion 135,000 $3.131 billion 270,000 $3.280 billion 540,000 $3.578 billion $ 32.60 $ 17,604 $ 17,604


				Threshold Goal		Target Goal		Maximum Goal				Maximum Potential Expense to be Recognized *		Maximum Remaining Expense to be Recognized *
Date of Award	Performance Period	Base Period	Base Period Revenues	PSUs	Home Sale Revenues	PSUs	Home Sale Revenues	PSUs	Home Sale Revenues	Fair Value per Share
Jul 25, 2016	July 1, 2016 - June 30, 2019	July 1, 2015 - June 30, 2016	$1.975 billion	137,781	$2.074 billion	275,562	$2.173 billion	551,124	$2.370 billion	$	19.66	$	10,834	$	0

Jun 20, 2017	April 1, 2017 - March 31, 2020	April 1, 2016 - March 31, 2017	$2.426 billion	144,342	$2.547 billion	288,684	$2.669 billion	577,368	$2.911 billion	$	27.83	$	16,070	$	0

May 23, 2018	April 1, 2018 - March 31, 2021	April 1, 2017 - March 31, 2018	$2.543 billion	145,800	$2.670 billion	291,600	$2.797 billion	583,200	$3.052 billion	$	25.57	$	14,915	$	2,615

Aug 5, 2019	January 1, 2019 - December 31, 2021	January 1, 2018 - December 31, 2018	$2.982 billion	135,000	$3.131 billion	270,000	$3.280 billion	540,000	$3.578 billion	$	32.60	$	17,604	$	13,391

Aug 20, 2020	January 1, 2020 - December 31, 2022	January 1, 2019 - December 31, 2019	$3.205 billion	135,000	$3.366 billion	270,000	$3.526 billion	540,000	$3.846 billion	$	41.89	$	22,618	$	22,618

In accordance with ASC 718, the PSUs were valued on the date of grant at their fair value. The fair value of these grants was equal to the closing price of MDC stock on the date of grant less the discounted cash flows of expected future dividends over the respective vesting period (as these PSUs do not participate in dividends). The grant date fair value and maximum potential expense if the Maximum Goals were met for these awards has been provided in the table above. ASC 718 does not permit recognition of expense associated with performance-based stock awards until achievement of the performance targets are probable of occurring.

2017 PSU Grants. The 2017 PSU awards vested on May 5, 2020 at the Maximum Goal following the achievement of the Maximum Goals and certification by the Compensation Committee that the Maximum Goals had been achieved. For ~~both~~ the ~~three and six~~nine months ended ~~June~~September 30, 2020, the Company recorded share-based award expense of $1.4 million related to these awards. For the three and ~~six~~nine months ended ~~June~~September 30, 2019, the Company recorded share-based award expense of ~~$2.3~~$5.5 million and ~~$4.5~~$10.0 million, respectively, related to these awards.

2018 PSU Grants. As of ~~June~~September 30, 2020, the Company determined that achievement of the Maximum Goals for these awards was probable and, as such, the Company recorded share-based award expense related to the awards of ~~$3.7~~$1.3 million and ~~$4.7~~$6.0 million, respectively, for the three and ~~six~~nine months ended ~~June~~September 30, 2020. As of ~~June~~September 30, 2019, the Company determined that achievement between the Threshold and Target Goals for these awards was probable and as such, the Company recorded share-based award expense related to the awards of $2.5 million for both the three and nine months ended September 30, 2019.

2019 PSU Grants. As of September 30, 2020, the Company determined that achievement of the Target Goals for these awards was probable and as such, the Company recorded share-based award expense related to the awards of $4.2 million for both the three and nine months ended September 30, 2020. As of September 30, 2019, the Company concluded that achievement of any of the performance metrics had not met the level of probability required to record compensation expense and as such, 0 expense related to ~~the grant of~~ these awards had been ~~recognized as of June 30, 2019.~~recognized.

Surety Bonds and Letters of Credit. We are required to obtain surety bonds and letters of credit in support of our obligations for land development and subdivision improvements, homeowner association dues, warranty work, contractor license fees and earnest money deposits. At ~~June~~September 30, 2020, we had outstanding surety bonds and letters of credit totaling ~~$264.4~~$256.3 million and ~~$87.9~~$126.3 million, respectively, including ~~$62.0~~$100.9 million in letters of credit issued by HomeAmerican. The estimated cost to complete obligations related to these bonds and letters of credit were approximately ~~$89.7~~$96.0 million and ~~$47.4~~$82.5 million, respectively. All letters of credit as of ~~June~~September 30, 2020, excluding those issued by HomeAmerican, were issued under our unsecured revolving credit facility (see Note 18 for further discussion of the revolving credit facility). We expect that the obligations secured by these performance bonds and letters of credit generally will be performed in the ordinary course of business and in accordance with the applicable contractual terms. To the extent that the obligations are performed, the related performance bonds and letters of credit should be released and we should not have any continuing obligations. However, in the event any such performance bonds or letters of credit are called, our indemnity obligations could require us to reimburse the issuer of the performance bond or letter of credit.

Litigation. Due to the nature of the homebuilding business, we have been named as defendants in various claims, complaints and other legal actions arising in the ordinary course of business, including product liability claims and claims associated with the sale and financing of homes. In the opinion of management, the outcome of these ordinary course matters will not have a material adverse effect upon our financial condition, results of operations or cash flows.

Lot Option Contracts. In the ordinary course of business, we enter into lot option purchase contracts (“Option Contracts”), generally through a deposit of cash or a letter of credit, for the right to purchase land or lots at a future point in time with predetermined terms. The use of such land option and other contracts generally allow us to reduce the risks associated with direct land ownership and development, reduces our capital and financial commitments, and minimizes the amount of land inventories on our consolidated balance sheets. In certain cases, these contracts will be settled shortly following the end of the period. Our obligation with respect to Option Contracts is generally limited to forfeiture of the related deposits. At ~~June~~September 30, 2020, we had cash deposits and letters of credit totaling ~~$17.8~~$22.1 million and ~~$7.4~~$7.6 million, respectively, at risk associated with the option to purchase ~~7,327~~7,757 lots.

Coronavirus/COVID-19 Pandemic. ~~While the~~In response to the pandemic, ~~continues to evolve,~~ many state and local governments ~~began easing~~instituted restrictions ~~during~~that substantially limited the ~~second quarter that were put~~operations of non-essential businesses and the activities of individuals. While some of these restrictions have been eased, there is still significant uncertainty around the extent and duration of those still in place ~~earlier this year. Some areas are now experiencing an increase~~and the possibility for restrictions to be increased again in ~~cases leading to restrictions being re-instated in certain areas.~~the future. We continue to construct, market and sell homes in all markets in which we operate, but increased restrictions could have a negative impact on traffic at our sales centers and model homes, cancellation rates and our ability to physically construct homes. While the extent to which the pandemic will impact our financial results in the coming periods depends on future developments, including whether there are additional outbreaks of COVID-19 and the actions taken to contain or address the virus, the pandemic and its associated impact on the U.S. economy and consumer confidence could have a material impact to the Company’s future results of operations, financial condition and cash flows.

The derivative instruments we utilize in the normal course of business are interest rate lock commitments and forward sales of mortgage-backed securities, both of which typically are short-term in nature. Forward sales of mortgage-backed securities are utilized to hedge changes in fair value of our interest rate lock commitments as well as mortgage loans held-for-sale not under commitments to sell. For forward sales of mortgage-backed securities, as well as interest rate lock commitments that are still outstanding at the end of a reporting period, we record the changes in fair value of the derivatives in revenues in the financial services section of our consolidated statements of operations and comprehensive income with an offset to other assets or accounts payable and accrued liabilities in the financial services section of our consolidated balance sheets, depending on the nature of the change.

At ~~June~~September 30, 2020, we had interest rate lock commitments with an aggregate principal balance of ~~$233.0~~$254.7 million. Additionally, we had ~~$85.9~~$53.0 million of mortgage loans held-for-sale at ~~June~~September 30, 2020 that had not yet been committed to a mortgage purchaser. In order to hedge the changes in fair value of our interest rate lock commitments and mortgage loans held-for-sale that had not yet been committed to a mortgage purchaser, we had forward sales of securities totaling ~~$205.5~~$201.0 million at ~~June~~September 30, 2020.

Revolving Credit Facility. We have an unsecured revolving credit agreement (“Revolving Credit Facility”) with a group of lenders which may be used for general corporate purposes. This agreement was amended on November 1, 2018 to (1) extend the Revolving Credit Facility maturity to December 18, 2023, (2) increase the aggregate commitment from $700 million to $1.0 billion (the “Commitment”) and (3) provide that the aggregate amount of the commitments may increase to an amount not to exceed $1.5 billion upon our request, subject to receipt of additional commitments from existing or additional lenders and, in the case of additional lenders, the consent of the co-administrative agents. As defined in the Revolving Credit Facility, interest rates on base rate borrowings are equal to the highest of (1) 0.0%, (2) a prime rate, (3) a federal funds effective rate plus 1.50%, and (4) a specified eurocurrency rate plus 1.00% and, in each case, plus a margin that is determined based on our credit ratings and leverage ratio. Interest rates on eurocurrency borrowings are equal to a specified eurocurrency rate plus a margin that is determined based on our credit ratings and leverage ratio. At any time at which our leverage ratio, as of the last day of the most recent calendar quarter, exceeds 55%, the aggregate principal amount of all consolidated senior debt borrowings outstanding may not exceed the borrowing base. There is no borrowing base requirement if our leverage ratio, as of the last day of the most recent calendar quarter, is 55% or less.

The Revolving Credit Facility is fully and unconditionally guaranteed, jointly and severally, by most of our homebuilding segment subsidiaries. The facility contains various representations, warranties and covenants that we believe are customary for agreements of this type. The financial covenants include a consolidated tangible net worth test and a leverage test, along with a consolidated tangible net worth covenant, all as defined in the Revolving Credit Facility. A failure to satisfy the foregoing tests does not constitute an event of default, but can trigger a “term-out” of the facility. A breach of the consolidated tangible net worth covenant (but not the consolidated tangible net worth test) or a violation of anti-corruption or sanctions laws would result in an event of default.

The Revolving Credit Facility is subject to acceleration upon certain specified events of default, including breach of the consolidated tangible net worth covenant, a violation of anti-corruption or sanctions laws, failure to make timely payments, breaches of certain representations or covenants, failure to pay other material indebtedness, or another person becoming beneficial owner of 50% or more of our outstanding common stock. We believe we were in compliance with the representations, warranties and covenants included in the Revolving Credit Facility as of ~~June~~September 30, 2020.

We incur costs associated with unused commitment fees pursuant to the terms of the Revolving Credit Facility. At ~~June~~September 30, 2020 and December 31, 2019, there were ~~$25.9~~$25.4 million and $23.5 million, respectively, in letters of credit outstanding, which reduced the amounts available to be borrowed under the Revolving Credit Facility. At ~~June~~September 30, 2020 and December 31, 2019, we had $10.0 million and $15.0 million, respectively, outstanding under the Revolving Credit Facility. As of ~~June~~September 30, 2020, availability under the Revolving Credit Facility was approximately ~~$964.1~~$964.6 million.

Mortgage Repurchase Facility. HomeAmerican has a Master Repurchase Agreement (the “Mortgage Repurchase Facility”) with U.S. Bank National Association (“USBNA”). ~~Effective May 21, 2020, the Mortgage Repurchase Facility was amended to extend its termination date to May 20, 2021.~~ The Mortgage Repurchase Facility provides liquidity to HomeAmerican by providing for the sale of up to an aggregate of $75 million (subject to increase by up to $75 million under certain conditions) of eligible mortgage loans to USBNA with an agreement by HomeAmerican to repurchase the mortgage loans at a future date. Until such mortgage loans are transferred back to HomeAmerican, the documents relating to such loans are held by USBNA, as custodian, pursuant to the Custody Agreement (“Custody Agreement”), dated as of November 12, 2008, by and between HomeAmerican and USBNA. In the event that an eligible mortgage loan becomes ineligible, as defined under the Mortgage Repurchase Facility, HomeAmerican may be required to repurchase the ineligible mortgage loan immediately. The Mortgage Repurchase Facility terminates on May 20, 2021. Effective September 24, 2020, the Mortgage Repurchase Facility was amended to adjust the commitments to purchase for specific time periods and increase the Adjusted Tangible Net Worth Ratio from 8.0 to 1.0 to 10.0 to 1.0. As part of the amendment, the commitments to purchase were increased to $100 million for the periods September 24, 2020 through October 23, 2020 and March 25, 2021 through April 23, 2021 and $200 million for the period December 22, 2020 through February 4, 2021.

The maximum aggregate commitment of the Mortgage Repurchase Facility was temporarily increased by $50 million on ~~June 25,~~September 28, 2020 ~~from $75 million to $150 million~~ effective through ~~July 23,~~October 27, 2020. The maximum aggregate commitment of the Mortgage Repurchase Facility ~~also had a temporary increase in~~was temporarily increased by $75 million on December 24, 2019 effective through January 22, 2020, which increased the maximum aggregate commitment from $75 million to $150 ~~million on December 24, 2019 effective through January 22, 2020.~~million. At ~~June~~September 30, 2020 and December 31, 2019 HomeAmerican had ~~$142.1~~$130.9 million and $149.6 million, respectively, of mortgage loans that HomeAmerican was obligated to repurchase under the Mortgage Repurchase Facility. Mortgage loans that HomeAmerican is obligated to repurchase under the Mortgage Repurchase Facility are accounted for as a debt financing arrangement and are reported as mortgage repurchase facility in the consolidated balance sheets. Advances under the Mortgage Repurchase Facility carry a price range that is based on a LIBOR rate or successor benchmark rate.

The Mortgage Repurchase Facility contains various representations, warranties and affirmative and negative covenants that we believe are customary for agreements of this type. The negative covenants include, among others, (i) a minimum Adjusted Tangible Net Worth requirement, (ii) a maximum Adjusted Tangible Net Worth ratio, (iii) a minimum adjusted net income requirement, and (iv) a minimum Liquidity requirement. The foregoing capitalized terms are defined in the Mortgage Repurchase Facility. We believe HomeAmerican was in compliance with the representations, warranties and covenants included in the Mortgage Repurchase Facility as of ~~June~~September 30, 2020.

We contributed $1.5 million in cash to the MDC/Richmond American Homes Foundation (the “Foundation”) during the ~~six~~nine months ended ~~June~~September 30, 2020. The Foundation is a non-profit organization operated exclusively for charitable, educational and other purposes beneficial to social welfare within the meaning of Section 501(c)(3) of the Internal Revenue Code. The following Directors and/or officers of the Company served as directors of the Foundation at ~~June~~September 30, 2020, all of whom serve without compensation:

The Company has a sublease agreement with CVentures, Inc. Larry A. Mizel, the Chief Executive Officer of the Company, is the President of CVentures, Inc. The sublease is for office space that CVentures, Inc. has continuously leased from the Company since 2005. The current sublease term commenced November 1, 2016 and will continue through October 31, 2021, with an option to extend to October 31, 2026. The sublease agreement is for approximately 5,437 rentable square feet at a base rent that increases over the initial term from $26.50 to $28.68 per rentable square foot per year, and increasing over the extension term from $29.26 to $31.67 per rentable square foot per year. The sublease rent is an allocation of the rent under the master lease agreement based on the sublease square footage.

The senior note indentures do not provide for a suspension of the guarantees, but do provide that any Guarantor may be released from its guarantee so long as (1) no default or event of default exists or would result from release of such guarantee, (2) the Guarantor being released has consolidated net worth of less than 5% of the Company’s consolidated net worth as of the end of the most recent fiscal quarter, (3) the Guarantors released from their guarantees in any year-end period comprise in the aggregate less than 10% (or 15% if and to the extent necessary to permit the cure of a default) of the Company’s consolidated net worth as of the end of the most recent fiscal quarter, (4) such release would not have a material adverse effect on the homebuilding business of the Company and its subsidiaries and (5) the Guarantor is released from its guarantee(s) under all Specified Indebtedness (other than by reason of payment under its guarantee of Specified Indebtedness). Upon delivery of an officers’ certificate and an opinion of counsel stating that all conditions precedent provided for in the indenture relating to such transactions have been complied with and the release is authorized, the guarantee will be automatically and unconditionally released. “Specified Indebtedness” means indebtedness under the senior notes, the Company’s Indenture dated as of December 3, 2002, the Revolving Credit Facility, and any refinancing, extension, renewal or replacement of any of the foregoing.

As the combined assets, liabilities and results of operations of M.D.C. Holdings, Inc. and the Guarantor Subsidiaries (the “Obligor Group”) are not materially different from those in the homebuilding section of our consolidated balance sheets and consolidated statements of operations and comprehensive income, separate summarized financial information of the Obligor Group has not been included. As of ~~June~~September 30, 2020 and December 31, 2019, amounts due to non-guarantor subsidiaries from the Obligor Group totaled ~~$65.5~~$65.9 million and $24.2 million, respectively.

The following discussion should be read in conjunction with, and is qualified in its entirety by, the Unaudited Consolidated Financial Statements and Notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This item contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are based upon management’s experiences, observations, and analyses. Actual results may differ materially from those indicated in such forward-looking statements. Factors that may cause such a difference include, but are not limited to, those discussed in "Item 1A: Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2019 and this Quarterly Report on Form 10-Q.


		Three Months Ended June 30,									Six Months Ended June 30,										Three Months Ended September 30,						Nine Months Ended September 30,
		2020			2019			2020			2019				2020			2019			2020			2019

		(Dollars in thousands, except per share amounts)																						(Dollars in thousands, except per share amounts)
Homebuilding:	Homebuilding:													Homebuilding:
Home sale revenues	Home sale revenues	$	886,758		$	732,844		$	1,583,843		$	1,380,122		Home sale revenues	$	1,000,549		$	750,274		$	2,584,392		$	2,130,396
Home cost of sales	Home cost of sales	(707,789)			(590,172)			(1,266,436)			(1,114,724)			Home cost of sales	(795,172)			(609,316)			(2,061,608)			(1,724,040)
Inventory impairments	Inventory impairments	—			—			—			(610)			Inventory impairments	—			—			—			(610)
Total cost of sales	Total cost of sales	(707,789)			(590,172)			(1,266,436)			(1,115,334)			Total cost of sales	(795,172)			(609,316)			(2,061,608)			(1,724,650)
Gross profit	Gross profit	178,969			142,672			317,407			264,788			Gross profit	205,377			140,958			522,784			405,746
Gross margin	Gross margin	20.2		%	19.5		%	20.0		%	19.2		%	Gross margin	20.5		%	18.8		%	20.2		%	19.0		%
Selling, general and administrative expenses	Selling, general and administrative expenses	(92,316)			(82,712)			(181,637)			(164,973)			Selling, general and administrative expenses	(103,632)			(92,716)			(285,269)			(257,689)
Interest and other income	Interest and other income	720			2,764			2,609			5,155			Interest and other income	756			2,336			3,365			7,491
Other expense	Other expense	(2,452)			(1,110)			(3,789)			(2,301)			Other expense	(851)			(1,887)			(4,640)			(4,188)
Homebuilding pretax income	Homebuilding pretax income	84,921			61,614			134,590			102,669			Homebuilding pretax income	101,650			48,691			236,240			151,360
Financial Services:	Financial Services:													Financial Services:
Revenues	Revenues	32,964			18,597			54,850			36,001			Revenues	36,803			22,388			91,653			58,389
Expenses	Expenses	(12,178)			(9,574)			(23,107)			(18,531)			Expenses	(13,294)			(10,352)			(36,401)			(28,883)
Other income (expense), net	Other income (expense), net	5,931			3,694			(6,133)			9,798			Other income (expense), net	859			2,079			(5,274)			11,877
Financial services pretax income	Financial services pretax income	26,717			12,717			25,610			27,268			Financial services pretax income	24,368			14,115			49,978			41,383
Income before income taxes	Income before income taxes	111,638			74,331			160,200			129,937			Income before income taxes	126,018			62,806			286,218			192,743
Provision for income taxes	Provision for income taxes	(27,242)			(19,738)			(39,044)			(34,794)			Provision for income taxes	(27,080)			(12,226)			(66,124)			(47,020)
Net income	Net income	$	84,396		$	54,593		$	121,156		$	95,143		Net income	$	98,938		$	50,580		$	220,094		$	145,723

Earnings per share:	Earnings per share:													Earnings per share:
Basic	Basic	$	1.33		$	0.88		$	1.92		$	1.55		Basic	$	1.54		$	0.81		$	3.46		$	2.36
Diluted	Diluted	$	1.31		$	0.86		$	1.87		$	1.50		Diluted	$	1.49		$	0.79		$	3.37		$	2.29

Weighted average common shares outstanding:	Weighted average common shares outstanding:													Weighted average common shares outstanding:
Basic	Basic	63,015,827			61,336,404			62,755,310			61,138,982			Basic	63,868,486			61,978,195			63,129,077			61,422,925
Diluted	Diluted	64,080,940			63,323,267			64,538,835			63,023,149			Diluted	65,824,910			63,968,215			64,969,855			63,360,535

Dividends declared per share	Dividends declared per share	$	0.33		$	0.30		$	0.66		$	0.60		Dividends declared per share	$	0.33		$	0.30		$	0.99		$	0.90

Cash provided by (used in):	Cash provided by (used in):													Cash provided by (used in):
Operating Activities	Operating Activities	$	92,877		$	1,317		$	55,704		$	55,665		Operating Activities	$	(26,262)		$	(88,783)		$	29,442		$	(33,118)
Investing Activities	Investing Activities	$	42,512		$	(7,485)		$	35,494		$	(13,919)		Investing Activities	$	(7,917)		$	(10,272)		$	27,577		$	(24,191)
Financing Activities	Financing Activities	$	574		$	(10,097)		$	(4,822)		$	(52,084)		Financing Activities	$	(3,965)		$	(12,293)		$	(8,787)		$	(64,377)

Earlier this year, COVID-19 ~~pandemic devastated~~dampened the ~~US economy during the early portion of the second quarter, adversely impacting~~outlook for homebuilding, given a significant drop in both consumer ~~demand, financial markets~~confidence and employment levels. ~~Industries relying on in-person interaction, such as leisure and hospitality and retail, have been disproportionately impacted by~~However, the pandemic. The homebuilding industry was not immune to the impact of the pandemic as we experienced an industry wide decrease in traffic and order activity as well as increased cancellation levels during the months of March and April.

~~The~~ demand for new homes ~~has steadily improved subsequent~~surged during the third quarter, driven by low interest rates, a renewed focus on homeownership, and low home inventory levels. We believe that this potentially is the beginning of a period of growth for the homebuilding industry, with homeownership becoming more important due to ~~April across nearly all markets in which~~the increased prominence of remote work and school options and with many consumers migrating away from high cost, densely populated urban areas. While we ~~operate. This~~have seen an increase in demand is due to a number of factors, including: favorable interest rates, pent-up demand from stay-at-home and shelter-in-place orders during March and April, low existing home inventory and increased city-to-suburban migrationcertain building costs, most notably lumber, as a result of the ~~pandemic.~~ pandemic, we have been successful to this point in recouping these increased costs through home price increases.

The ~~degree~~dollar value of our homes in backlog was $3.1 billion as of September 30, 2020, which was a 47% increase from the prior year. The higher backlog not only puts us in a position for a strong end to 2020, but also provides us with the opportunity for significant year-over-year increases in home sale revenues and pretax income to start 2021. We are planning to grow community count in 2021, and, to that end, we acquired 3,555 lots during the third quarter, representing a 63% increase over the prior year period. Our liquidity to end the 2020 third quarter was $1.5 billion, which we believe provides us with sufficient resources to fund our continued growth. However, even as we plan for growth, we continue to closely monitor developments related to COVID-19 and the ~~pandemic will~~upcoming election cycle, which are highly uncertain and could adversely impact our operations and financial results in ~~the coming periods depends on~~ future ~~developments that are highly uncertain.~~

Our first priority with regard to the pandemic continues to be the health and safety of our employees, customers, subcontractors and suppliers, as well as the communities in which we operate. We continue to encourage employees to work remotely where practical, and we have increased sanitization procedures, implemented temperature checks and posted signage requiring the use of masks and promoting social distancing measures across all of our offices and subdivisions. We have successfully implemented and continue to rely on virtual processes for key operational activities that have traditionally been done in-person, such as model home tours, Home Gallery appointments, and pre-closing walk-throughs.periods.

For the three months ended ~~June~~September 30, 2020, our net income was ~~$84.4~~$98.9 million, or ~~$1.31~~$1.49 per diluted share, a ~~55%~~96% increase compared to net income of ~~$54.6~~$50.6 million, or ~~$0.86~~$0.79 per diluted share, for the same period in the prior year. Both our homebuilding and financial services businesses contributed to these year-over-year improvements, as pretax income from our homebuilding operations increased ~~$23.3~~$53.0 million, or ~~38%~~109%, and our financial services pretax income increased ~~$14.0~~$10.3 million, or ~~110%~~73%. The increase in homebuilding pretax income was the result of a ~~21%~~33% increase in home sale revenues and a 70370 basis point increase in our ~~gross~~operating margin. The increase in operating margin ~~from home sales and a 90 basis point decrease in~~is the result of our ~~selling, general and administrative expenses~~improved pricing over the last twelve months as ~~a percentage of revenue.~~well as better operating leverage as we continue to grow our homebuilding operations. The increase in financial services pretax income was due to our mortgage business, which experienced a higher interest rate lock volume, ~~driven by the year-over-year increase in homes in backlog as well as~~ an increase in the number of mortgages we originated as a percentage of our total homes delivered ("Capture Rate"), and ~~increased~~an increase in net interest income on loans originated during the quarter.

The dollar value of our net new home orders increased 8%89% from the prior year period, due to a 5%73% increase in the number of net new orders and a 3%10% increase in the average selling ~~price.~~price of those orders. The increase in the number of net new orders was ~~driven by increases~~due to an increase in ~~both~~ the monthly sales absorption rate ~~and the number of average active communities~~driven by strong demand during the ~~period, while the~~quarter as noted above. The increase in the average selling price was the result of price increases implemented over the past twelve months ~~offset slightly by~~as well as a shift in geographical mix to ~~lower~~some higher priced ~~communities.~~markets.

For the ~~six~~nine months ended ~~June~~September 30, 2020, our net income was ~~$121.2~~$220.1 million, or ~~$1.87~~$3.37 per diluted share, a ~~27%~~51% increase compared to net income of ~~$95.1~~$145.7 million, or ~~$1.50~~$2.29 per diluted share, for the same period in the prior year. Similar to the ~~second~~third quarter commentary above, the increase was driven by ~~a $31.9~~an $84.9 million increase in homebuilding pretax income and a ~~$14.5~~$26.9 million increase in mortgage operations pretax income. These increases were partially offset by a net loss on equity securities of $8.3 million during the ~~six~~nine months ended ~~June~~September 30, 2020, as compared to a net gain of ~~$7.2~~$7.9 million for the prior year period.

The steps taken during the six months ended June 30, 2020 to improve cash flow and reduce costs have reinforced our strong financial position as we deal with the continued uncertainties brought about by the pandemic. We ended the 2020 second quarter with cash and cash equivalents of nearly $550 million and available borrowing capacity on our Revolving Credit Facility exceeding $950 million, resulting in total liquidity of more than $1.5 billion. The dollar value of our homes in backlog was $2.4 billion as of June 30, 2020, which was 23% higher than the prior year period. The higher backlog puts us in a strong position to drive continued year-over-year improvement to our operating results during the back half of 2020. However, our financial position and ability to convert backlog into closings could be negatively impacted in future periods by the pandemic, the extent to which is highly uncertain and depends on future developments, including new information that may emerge concerning the severity of the pandemic, whether there are additional outbreaks of COVID-19 and the actions taken to contain or address the virus (see discussion in Industry Conditions above and in Risk Factors below).


		Three Months Ended										Six Months Ended											Three Months Ended								Nine Months Ended
		June 30,						Change						June 30,								Change					September 30,				Change				September 30,	Change
		2020		2019		Amount		%		2020		2019		Amount		%			2020		2019		Amount		%		2020		2019		Amount		%

		(Dollars in thousands)																															(Dollars in thousands)
West	West	$	48,745	$	35,350	$	13,395	38	%	$	85,321	$	68,550	$	16,771	24	%	West	$	59,120	$	34,898	$	24,222	69	%	$	144,441	$	103,448	$	40,993	40	%
Mountain	Mountain	41,807		35,972		5,835		16	%	63,319		57,686		5,633		10	%	Mountain	48,053		31,391		16,662		53	%	111,372		89,077		22,295		25	%
East	East	3,073		2,152		921		43	%	3,973		3,625		348		10	%	East	6,020		2,136		3,884		182	%	9,993		5,761		4,232		73	%
Corporate	Corporate	(8,704)		(11,860)		3,156		27	%	(18,023)		(27,192)		9,169		34	%	Corporate	(11,543)		(19,734)		8,191		42	%	(29,566)		(46,926)		17,360		37	%
Total Homebuilding pretax income	Total Homebuilding pretax income	$	84,921	$	61,614	$	23,307	38	%	$	134,590	$	102,669	$	31,921	31	%	Total Homebuilding pretax income	$	101,650	$	48,691	$	52,959	109	%	$	236,240	$	151,360	$	84,880	56	%

For the three months ended ~~June~~September 30, 2020, we recorded homebuilding pretax income of ~~$84.9~~$101.7 million, an increase of ~~$23.3 million~~109% from ~~$61.6~~$48.7 million for the same period in the prior year. The increase was due to a ~~21%~~33% increase in home sale revenues, a 70170 basis point increase in our gross margin from home sales and a 90200 basis point decrease in our selling, general and administrative expenses as a percentage of revenue.

Our West segment experienced a ~~$13.4~~$24.2 million year-over-year increase in pretax income, due to a ~~27%~~35% increase in home sales revenue and an improved gross margin, which were slightly offset by a ~~$3.3~~$3.7 million increase in general and administrative expenses resulting from the change in our Corporate cost allocation discussed below. Our Mountain segment experienced a ~~$5.8~~$16.7 million increase in pretax income from the prior year, as a result of a ~~10%~~32% increase in home sales revenue and an improved gross margin, which were slightly offset by a ~~$1.7~~$1.8 million increase in general and administrative expenses due to the change in our Corporate cost allocation. Our East segment experienced a ~~$0.9~~$3.9 million increase in pretax income from the prior year, due primarily to a ~~31%~~33% increase in home sales revenue and an improved gross margin, which ~~was~~were slightly offset by a ~~$0.7~~$0.8 million increase in general and administrative expenses resulting from the change in our Corporate cost allocation. Our Corporate segment experienced ~~a $3.1~~an $8.2 million increase in pretax income, due primarily to the impact of the change in our Corporate cost ~~allocation, which was partially offset by a $2.0 million decrease in interest income due to lower interest rates during the current period.~~allocation.

For the ~~six~~nine months ended ~~June~~September 30, 2020, we recorded homebuilding pretax income of ~~$134.6~~$236.2 million , an increase of ~~$31.9~~$84.9 million from ~~$102.7~~$151.4 million for the same period in the prior year. The increase was due to a ~~15%~~21% increase in home sale revenues, ~~an 80~~a 120 basis point increase in our gross margin from home sales and a 50110 basis point decrease in our selling, general and administrative expenses as a percentage of revenue. Commentary on the drivers of the increase in pretax income in our individual homebuilding segments is consistent with the 2020 ~~second~~third quarter discussion above.


		June 30, 2020		December 31, 2019		Change							September 30, 2020				December 31, 2019			Change
								Amount				%							Amount			%

		(Dollars in thousands)																		(Dollars in thousands)
West	West	$	1,575,620	$	1,461,645	113,975		8	%	West	$	1,660,583			$	1,461,645			198,938			14	%
Mountain	Mountain	893,282		869,665		23,617		3	%	Mountain	927,730		869,665				58,065			7	%
East	East	220,235		194,592		25,643		13	%	East	248,028		194,592				53,436			27	%
Corporate	Corporate	555,238		505,507		49,731		10	%	Corporate	507,728		505,507				2,221			0	%
Total homebuilding assets	Total homebuilding assets	$	3,244,375	$	3,031,409	$	212,966	7	%	Total homebuilding assets	$	3,344,069	$	3,031,409			$	312,660		10	%

Total homebuilding assets increased 7%10% from December 31, 2019 to ~~June~~September 30, 2020. Homebuilding assets increased in each of our operating segments largely due to a greater number of homes completed or under construction as of period-end. ~~Our Corporate assets also increased, primarily due to an~~This increase ~~in funds lent from our financial services segment. These increases were~~was slightly offset by a decrease in land and land under development in our West and Mountain Segments, where the total number of lots owned, excluding those currently under construction, has decreased slightly from December 31, 2019.


		Three Months Ended June 30,																															Three Months Ended September 30,
		2020								2019											% Change								2020						2019	% Change
		Homes	Home Sale Revenues		Average Price		Homes	Home Sale Revenues		Average Price		Homes		Home Sale Revenues		Average Price			Homes	Home Sale Revenues		Average Price		Homes	Home Sale Revenues		Average Price		Homes		Home Sale Revenues		Average Price

		(Dollars in thousands)																															(Dollars in thousands)
West	West	1,017	$	490,117	$	481.9	785	$	384,530	$	489.8	30	%	27	%	(2)	%	West	1,135	$	552,319	$	486.6	927	$	410,414	$	442.7	22	%	35	%	10	%
Mountain	Mountain	608	316,666		520.8		534	287,476		538.3		14	%	10	%	(3)	%	Mountain	677	347,095		512.7		537	263,802		491.2		26	%	32	%	4	%
East	East	275	79,975		290.8		195	60,838		312.0		41	%	31	%	(7)	%	East	335	101,135		301.9		249	76,058		305.5		35	%	33	%	(1)	%
Total	Total	1,900	$	886,758	$	466.7	1,514	$	732,844	$	484.0	25	%	21	%	(4)	%	Total	2,147	$	1,000,549	$	466.0	1,713	$	750,274	$	438.0	25	%	33	%	6	%

~~Table of Contents~~


	Nine Months Ended September 30,
	2020					2019					% Change
	Homes	Home Sale Revenues		Average Price		Homes	Home Sale Revenues		Average Price		Homes		Home Sale Revenues		Average Price

	(Dollars in thousands)
West	3,023	$	1,447,934	$	479.0	2,464	$	1,164,502	$	472.6	23	%	24	%	1	%
Mountain	1,720	886,619		515.5		1,480	760,470		513.8		16	%	17	%	0	%
East	851	249,839		293.6		641	205,424		320.5		33	%	22	%	(8)	%
Total	5,594	$	2,584,392	$	462.0	4,585	$	2,130,396	$	464.6	22	%	21	%	(1)	%

For both the three and ~~six~~nine months ended ~~June~~September 30, 2020, the increase in new home deliveries was primarily the result of an increase in the number of homes in backlog to begin the respective periods. This increase was partially offset by a decrease in backlog conversion rates in our Arizona, California and Washington markets due to construction delays as a result of (1) certain state and local governments not identifying residential construction as an essential business, which impacted our ability to physically construct homes and (2) more general construction related delays resulting from the pandemic coupled with an increase in the number of homes under construction . The average selling price of homes delivered ~~decreased as a result of a greater percentage of closings from our more affordable product offerings during the current periods.~~

For both the three and ~~six~~nine months ended ~~June~~September 30, 2020, the increase in new home deliveries was the result of an increase in the number of homes in backlog to begin the respective periods. For the ~~six~~three months ended ~~June~~September 30, 2020, ~~this~~the increase in new home deliveries also benefited from an increase in backlog conversion rates in our Colorado markets due to the construction status of homes in beginning backlog compared to the prior year. For the three months ended September 30, 2020, the increase in the average selling price of homes delivered was the result of price increases implemented across the majority of our communities over the past twelve months.

For the nine months ended September 30, 2020, the increase in new home deliveries was the result of an increase in the number of homes in backlog to begin the period. This was partially offset by a decrease in backlog conversion rates in most of our markets within this segment due to (1) a lower percentage of homes in backlog to start the period that were under construction at that time and (2) a lower percentage of homes both sold and delivered during the period. ~~The~~For the nine months ended September 30, 2020, the average selling price of homes delivered decreased as a result of a greater percentage of closings from our more affordable product offerings.

Our gross margin from home sales for the three months ended ~~June~~September 30, 2020, increased 70170 basis points year-over-year from ~~19.5%~~18.8% to ~~20.2%~~20.5%. ~~During the three months ended June 30, 2020 and 2019 we recorded decreases to~~Gross margin from home sales increased across each of our ~~warranty accrual of $2.0 million and $1.4 million, respectively. These adjustments positively impacted gross margin by 20 basis points in both periods. Gross margins increased~~segments on both build-to-order and speculative home deliveries driven by price increases implemented across ~~the majority~~nearly all of our communities over the past twelve months.

Our gross margin from home sales for the ~~six~~nine months ended ~~June~~September 30, 2020, increased 80120 basis points year-over-year from ~~19.2%~~19.0% to ~~20.0%~~20.2%. The primary drivers of the improved gross margin from home sales for the ~~six~~nine months ended ~~June~~September 30, 2020 are consistent with those noted above for the three months ended ~~June~~September 30, 2020. Gross margins were also positively impacted as a result of a lower percentage of speculative home deliveries in the six months ended June 30, 2020, which typically have a lower gross margin than our build-to-order deliveries.


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2020		2019		2020		2019

		(Dollars in thousands)															(Dollars in thousands)
West	West	$	—	$	—	$	—	$	—	West	$	—	$	—	$	—	$	—
Mountain	Mountain	—		—		—		400		Mountain	—		—		—		400
East	East	—		—		—		210		East	—		—		—		210
Total inventory impairments	Total inventory impairments	$	—	$	—	$	—	$	610	Total inventory impairments	—		—		—		610


		Three Months Ended June 30,														Six Months Ended June 30,														Three Months Ended September 30,					Nine Months Ended September 30,
		2020			2019			Change		2020			2019			Change			2020			2019			Change		2020			2019			Change

		(Dollars in thousands)																															(Dollars in thousands)
General and administrative expenses	General and administrative expenses	$	40,419		$	39,326		$	1,093	$	85,508		$	81,898		$	3,610	General and administrative expenses	$	45,980		$	46,951		$	(971)	$	131,488		$	128,849		$	2,639
General and administrative expenses as a percentage of home sale revenues	General and administrative expenses as a percentage of home sale revenues	4.6		%	5.4		%	-80 bps		5.4		%	5.9		%	-50 bps		General and administrative expenses as a percentage of home sale revenues	4.6		%	6.3		%	-170 bps		5.1		%	6.0		%	-90 bps
Marketing expenses	Marketing expenses	$	22,657		$	19,513		$	3,144	$	44,103		$	37,809		$	6,294	Marketing expenses	$	24,725		$	20,457		$	4,268	$	68,828		$	58,266		$	10,562
Marketing expenses as a percentage of home sale revenues	Marketing expenses as a percentage of home sale revenues	2.6		%	2.7		%	-10 bps		2.8		%	2.7		%	10 bps		Marketing expenses as a percentage of home sale revenues	2.5		%	2.7		%	-20 bps		2.7		%	2.7		%	0 bps
Commissions expenses	Commissions expenses	$	29,240		$	23,873		$	5,367	$	52,026		$	45,266		$	6,760	Commissions expenses	$	32,927		$	25,308		$	7,619	$	84,953		$	70,574		$	14,379
Commissions expenses as a percentage of home sale revenues	Commissions expenses as a percentage of home sale revenues	3.3		%	3.3		%	0 bps		3.3		%	3.3		%	0 bps		Commissions expenses as a percentage of home sale revenues	3.3		%	3.4		%	-10 bps		3.3		%	3.3		%	0 bps
Total selling, general and administrative expenses	Total selling, general and administrative expenses	$	92,316		$	82,712		$	9,604	$	181,637		$	164,973		$	16,664	Total selling, general and administrative expenses	$	103,632		$	92,716		$	10,916	$	285,269		$	257,689		$	27,580
Total selling, general and administrative expenses as a percentage of home sale revenues	Total selling, general and administrative expenses as a percentage of home sale revenues	10.4		%	11.3		%	-90 bps		11.5		%	12.0		%	-50 bps		Total selling, general and administrative expenses as a percentage of home sale revenues	10.4		%	12.4		%	-200 bps		11.0		%	12.1		%	-110 bps


		Three Months Ended June 30,																																					Three Months Ended September 30,
		2020											2019														% Change										2020							2019	% Change
		Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes		Dollar Value		Average Price		Monthly Absorption Rate			Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes		Dollar Value			Average Price		Monthly Absorption Rate

		(Dollars in thousands)																																					(Dollars in thousands)
West	West	1,309	$	574,996	$	439.3	4.62	1,246	$	550,742	$	442.0	4.46	5	%	4	%	(1)	%	4	%	West	1,955	$	932,111	$	476.8	6.58	1,168	$	516,000	$	441.8	4.09	67	%	81	%		8	%	61	%
Mountain	Mountain	758	362,228		477.9		3.99	690	318,275		461.3		3.56	10	%	14	%	4	%	12	%	Mountain	1,051	542,375		516.1		5.70	565	271,800		481.1		2.86	86	%	100	%		7	%	99	%
East	East	323	106,436		329.5		3.53	337	98,843		293.3		4.36	(4)	%	8	%	12	%	(19)	%	East	509	176,896		347.5		5.39	303	83,896		276.9		3.58	68	%	111	%		26	%	50	%
Total	Total	2,390	$	1,043,660	$	436.7	4.23	2,273	$	967,860	$	425.8	4.13	5	%	8	%	3	%	2	%	Total	3,515	$	1,651,382	$	469.8	6.10	2,036	$	871,696	$	428.1	3.59	73	%	89	%		10	%	70	%


		Six Months Ended June 30,																																					Nine Months Ended September 30,
		2020											2019														% Change										2020							2019	% Change
		Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes		Dollar Value		Average Price		Monthly Absorption Rate			Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes	Dollar Value		Average Price		Monthly Absorption Rate *	Homes		Dollar Value			Average Price		Monthly Absorption Rate

		(Dollars in thousands)																																					(Dollars in thousands)
West	West	2,691	$	1,262,330	$	469.1	4.88	2,211	$	1,003,236	$	453.7	4.15	22	%	26	%	3	%	18	%	West	4,646	$	2,265,557	$	487.6	5.47	3,379	$	1,543,584	$	456.8	4.14	37	%	47	%		7	%	32	%
Mountain	Mountain	1,451	722,197		497.7		3.76	1,409	669,523		475.2		3.53	3	%	8	%	5	%	7	%	Mountain	2,502	1,309,176		523.3		4.39	1,974	960,109		486.4		3.30	27	%	36	%		8	%	33	%
East	East	647	206,911		319.8		3.58	609	182,141		299.1		4.33	6	%	14	%	7	%	(17)	%	East	1,156	393,913		340.8		4.23	912	268,578		294.5		4.02	27	%	47	%		16	%	5	%
Total	Total	4,789	$	2,191,438	$	457.6	4.28	4,229	$	1,854,900	$	438.6	3.94	13	%	18	%	4	%	9	%	Total	8,304	$	3,968,646	$	477.9	4.91	6,265	$	2,772,271	$	442.5	3.82	33	%	43	%		8	%	28	%


						Average Active Subdivisions						Average Active Subdivisions														Average Active Subdivisions				Average Active Subdivisions
		Active Subdivisions						Three Months Ended									Six Months Ended								Active Subdivisions				Three Months Ended			Nine Months Ended
		June 30,				%	June 30,				%	June 30,							%		September 30,		%		September 30,		%		September 30,		%
		2020	2019	Change		2020	2019	Change		2020	2019	Change			2020	2019		Change			2020	2019	Change		2020	2019	Change
West	West	96	97	(1)	%	95	94	1	%	92	89	3	%	West	102	93		10		%	99	96	3	%	94	92	2	%
Mountain	Mountain	63	65	(3)	%	63	65	(3)	%	64	66	(3)	%	Mountain	61	67		(9)		%	62	66	(6)	%	63	66	(5)	%
East	East	33	25	32	%	31	26	19	%	30	23	30	%	East	31	30		3		%	32	29	10	%	30	25	20	%
Total	Total	192	187	3	%	189	185	2	%	186	178	4	%	Total	194	190		2		%	193	191	1	%	187	183	2	%

For both the three and ~~six~~nine months ended June 30, 2020, the increase in net new orders was primarily due to an increase in the monthly sales absorption rates, driven by our Phoenix and California markets. For the six months ended June 30, 2020 the increase in average selling price was due to price increases implemented over the past twelve months within the majority of our communities as well as a shift in mix of homes sold from Nevada to more expensive Southern California markets. For the three months ended June 30, 2020 these increases were offset by a higher percentage of our net new orders coming from an expanded offering of more affordable home plans, most notably in our Southern California markets.

For the three months ended ~~June~~September 30, 2020, the ~~decrease~~increase in net new orders was primarily driven by ~~a decrease~~an increase in the monthly sales absorption rates in each of our Florida and mid-Atlantic markets ~~due~~and to ~~(1)~~ a ~~decrease in gross sales due to the impact of the pandemic on Florida's large hospitality-based economy and (2)~~lesser extent an ~~increased cancellation rate (see further discussion below). This decrease in the monthly sales absorption rates was largely offset by a 19% year-over-year~~ increase in average active ~~subdivisions.~~subdivisions in our mid-Atlantic market.

For the ~~six~~nine months ended ~~June~~September 30, 2020, the increase in net new orders was driven by an increase in the number of average active subdivisions in each of our Florida and mid-Atlantic ~~markets. This~~markets and to a lesser extent an increase ~~was partially offset by a decrease~~ in the monthly sales absorption rate ~~due to (1) a decrease in close-out communities~~ in our mid-Atlantic ~~market and (2) an increased cancellation rate (see further discussion below).~~market.

For both the three and ~~six~~nine months ended ~~June~~September 30, 2020, the increase in average selling price was due to price increases implemented over the last twelve months ~~as well as~~within nearly all of our communities. Additionally, we experienced a shift in mix to our mid-Atlantic market resulting from ~~(1) a decrease in net new orders in our Florida markets as noted above and (2)~~ an increase in net new orders ~~in our mid-Atlantic market~~that was driven by ~~an increased~~increases in both monthly sales absorption ~~rate~~rates and ~~increased~~ average active subdivisions.


		Cancellations as a Percentage of Homes in Beginning Backlog															Cancellations as a Percentage of Homes in Beginning Backlog
		2020						2019							2020						2019
		Three Months Ended															Three Months Ended
		June 30,		March 31,		June 30,		March 31,			September 30,		June 30,		March 31,		September 30,		June 30,		March 31,
West	West	14	%	15	%	13	%	14	%	West	11	%	14	%	15	%	12	%	13	%	14	%
Mountain	Mountain	20	%	22	%	13	%	14	%	Mountain	12	%	20	%	22	%	16	%	13	%	14	%
East	East	22	%	23	%	18	%	11	%	East	18	%	22	%	23	%	22	%	18	%	11	%
Total	Total	17	%	18	%	14	%	14	%	Total	12	%	17	%	18	%	15	%	14	%	14	%

Our cancellations as a percentage of homes in beginning backlog to start the quarter (“cancellation rate”) ~~increased~~decreased on both a sequential and year-over-year basis in each of our segments. In general, we experienced a higher cancellation rate during the ~~month~~first and second quarter of ~~April due to the pandemic~~2020 as a result of general economic uncertainty and changes in our homebuyers' employment status. Cancellation rates in June were more consistent with our historical rates. Our Florida markets experienced some of the highest cancellation rates as a result of economic, and more specifically employment, uncertainty brought about bysurrounding the pandemic.


		June 30,																															September 30,
		2020								2019											% Change								2020						2019	% Change
		Homes	Dollar Value		Average Price		Homes	Dollar Value		Average Price		Homes		Dollar Value		Average Price			Homes	Dollar Value		Average Price		Homes	Dollar Value		Average Price		Homes		Dollar Value		Average Price

		(Dollars in thousands)																															(Dollars in thousands)
West	West	2,826	$	1,336,251	$	472.8	2,197	$	1,016,327	$	462.6	29	%	31	%	2	%	West	3,646	$	1,743,547	$	478.2	2,438	$	1,146,912	$	470.4	50	%	52	%	2	%
Mountain	Mountain	1,619	$	816,559	$	504.4	1,509	$	739,921	$	490.3	7	%	10	%	3	%	Mountain	1,993	1,033,264		518.4		1,537	768,317		499.9		30	%	34	%	4	%
East	East	698	$	220,362	$	315.7	587	$	173,436	$	295.5	19	%	27	%	7	%	East	872	298,965		342.9		641	183,856		286.8		36	%	63	%	20	%
Total	Total	5,143	$	2,373,172	$	461.4	4,293	$	1,929,684	$	449.5	20	%	23	%	3	%	Total	6,511	$	3,075,776	$	472.4	4,616	$	2,099,085	$	454.7	41	%	47	%	4	%

At ~~June~~September 30, 2020, we had ~~5,143~~6,511 homes in backlog with a total value of ~~$2.4~~$3.1 billion. This represented a ~~20%~~41% increase in the number of homes in backlog and a ~~23%~~47% increase in the dollar value of homes in backlog from ~~June~~September 30, 2019. The increase in the number of homes in backlog is primarily a result of the year-over-year increase in net new orders during the ~~six~~nine months ended ~~June~~September 30, 2020. The increase in the average selling price of homes in backlog is due to price increases implemented over the past twelve months in nearly all of our communities as well as ~~decreased incentives, which is~~a shift in our net new order mix in our East and West segments as discussed above. These increases were slightly offset by a shift in mix to lower priced communities, consistent with our ongoing strategy of offering more affordable home plans. Our ability to convert backlog into closings could be negatively impacted in future periods by the pandemic, the extent to which is highly uncertain and depends on future developments.


		June 30,						%	September 30,			%
		2020	2019	Change			2020		2019	Change
Unsold:	Unsold:					Unsold:
Completed	Completed	109	96	14	%	Completed	74		82	(10)	%
Under construction	Under construction	191	236	(19)	%	Under construction	129		255	(49)	%
Total unsold started homes	Total unsold started homes	300	332	(10)	%	Total unsold started homes	203		337	(40)	%
Sold homes under construction or completed	Sold homes under construction or completed	3,573	3,023	18	%	Sold homes under construction or completed	4,540		3,433	32	%
Model homes under construction or completed	Model homes under construction or completed	502	457	10	%	Model homes under construction or completed	505		455	11	%
Total homes completed or under construction	Total homes completed or under construction	4,375	3,812	15	%	Total homes completed or under construction	5,248		4,225	24	%

The increase in sold homes under construction or completed is due to the increase in the number of homes in backlog year-over-year noted above. Total unsold started homes have decreased year-over-year ~~despite~~due to the ~~increased cancellation rates as we have been successful in selling our speculative inventory in the current~~strong demand ~~environment. Speculative inventory comprised less than 10% of our total housing completed or under construction inventory balance at June 30, 2020.~~for new homes.


		June 30, 2020					June 30, 2019								September 30, 2020				September 30, 2019
		Lots Owned	Lots Optioned	Total	Lots Owned	Lots Optioned	Total	Total % Change			Lots Owned	Lots Optioned	Total	Lots Owned	Lots Optioned	Total	Total % Change
West	West	9,364	2,619	11,983	8,611	2,446	11,057	8	%	West	10,140	3,280	13,420	9,128	2,203	11,331	18	%
Mountain	Mountain	6,076	2,667	8,743	6,457	2,741	9,198	(5)	%	Mountain	6,217	2,708	8,925	6,456	3,139	9,595	(7)	%
East	East	2,260	2,041	4,301	2,085	1,267	3,352	28	%	East	2,716	1,769	4,485	2,014	2,003	4,017	12	%
Total	Total	17,700	7,327	25,027	17,153	6,454	23,607	6	%	Total	19,073	7,757	26,830	17,598	7,345	24,943	8	%

Our total owned and optioned lots at ~~June~~September 30, 2020 were ~~25,027,~~26,830, which was a ~~6% year-over-year~~8% increase but a decrease of 8% from March 31, 2020. The sequential decrease was the result of a planned slowdown in our rate of approval of new lot acquisitions during the quarter and the cancellation of some previously approved lot acquisitions due to the uncertainty caused by the pandemic.year-over-year. We believe that our total lot supply, coupled with our planned acquisition activity, can support growth in future periods. See "Forward-Looking Statements" below.


		Three Months Ended										Six Months Ended											Three Months Ended								Nine Months Ended
		June 30,						Change						June 30,								Change					September 30,				Change					September 30,	Change
		2020		2019		Amount		%		2020		2019		Amount		%			2020		2019		Amount		%		2020		2019		Amount			%

		(Dollars in thousands)																																(Dollars in thousands)
Financial services revenues	Financial services revenues																																Financial services revenues
Mortgage operations	Mortgage operations	$	24,363	$	11,689	$	12,674	108	%	$	38,988	$	21,863	$	17,125	78	%	Mortgage operations	$	28,548	$	14,395	$	14,153	98	%	$	67,536	$	36,258	$	31,278		86	%
Other	Other	8,601		6,908		1,693		25	%	15,862		14,138		1,724		12	%	Other	8,255		7,993		262		3	%	24,117		22,131		1,986			9	%
Total financial services revenues	Total financial services revenues	$	32,964	$	18,597	$	14,367	77	%	$	54,850	$	36,001	$	18,849	52	%	Total financial services revenues	$	36,803	$	22,388	$	14,415	64	%	$	91,653	$	58,389	$	33,264		57	%
Financial services pretax income	Financial services pretax income																	Financial services pretax income
Mortgage operations	Mortgage operations	$	17,506	$	6,239	$	11,267	181	%	$	25,749	$	11,232	$	14,517	129	%	Mortgage operations	$	20,809	$	8,468	$	12,341	146	%	$	46,558	$	19,700	$	26,858		136	%
Other	Other	9,211		6,478		2,733		42	%	(139)		16,036		(16,175)		(101)	%	Other	3,559		5,647		(2,088)		(37)	%	3,420		21,683		$	(18,263)		(84)	%
Total financial services pretax income	Total financial services pretax income	$	26,717	$	12,717	$	14,000	110	%	$	25,610	$	27,268	$	(1,658)	(6)	%	Total financial services pretax income	$	24,368	$	14,115	$	10,253	73	%	$	49,978	$	41,383	$	8,595		21	%

For the three months ended ~~June~~September 30, 2020, our financial services pretax income increased by ~~$14.0~~$10.3 million, or ~~110%~~73%, from the same period in the prior year. The increase was ~~primarily~~ due to our mortgage operations, which saw an increase in pretax income of ~~$11.3~~$12.3 million due to higher interest rate lock volume driven by the year-over-year increase in homes in backlog as well as an increased Capture Rate, and increased net interest income on loans originated during the period. ~~The~~This increase was partially offset by a decrease in our other financial services segment ~~was~~ due to ~~gains on equity securities during the quarter of $5.0 million compared to $2.3 million~~an increase in ~~the prior year quarter. During the three months ended June 30, 2020, we sold our portfolio of equity securities~~construction defect claim self-insurance expense driven by an increase in ~~light of recent market volatility. These proceeds remain invested~~home closings as well as an increase in ~~money market funds as of June 30, 2020.~~third-party insurance costs for excess construction defect claim coverage.

For the ~~six~~nine months ended ~~June~~September 30, 2020, our financial services pretax income ~~decreased $1.7~~increased $8.6 million, or 6%21%, from the same period in the prior year. The ~~decrease~~increase was due to our mortgage operations, which saw an increase in pretax income of $26.9 million. Commentary on the drivers of the increase in pretax income in our mortgage operations segment are consistent with the 2020 third quarter discussion above. This increase was partially offset by a decrease in our other financial services segment, which had $8.3 million of net losses on equity securities during the period as compared to ~~$7.2~~$7.9 million of net gains for the same period in the prior year. This was largely offset by an increase in our mortgage operations pretax income of $14.5 million. Commentary on the drivers of the increase in pretax income in our mortgage operations segment is consistent with the 2020 second quarter discussion above.


		Three Months Ended								% or Percentage			Six Months Ended											% or Percentage		Three Months Ended					% or Percentage				Nine Months Ended			% or Percentage
		June 30,														June 30,												September 30,							% or Percentage		September 30,		% or Percentage
		2020			2019			Change		2020			2019				Change			2020			2019			Change		2020			2019

		(Dollars in thousands)																																	(Dollars in thousands)
Total Originations (including transfer loans):	Total Originations (including transfer loans):																																	Total Originations (including transfer loans):
Loans	Loans	1,336			931			44	%	2,365			1,714				38	%	Loans	1,476			1,095			35	%	3,841			2,809				37	%
Principal	Principal	$	497,566		$	351,148		42	%	$	876,872		$	636,674			38	%	Principal	$	563,047		$	386,613		46	%	$	1,439,918		$	1,023,287			41	%
Capture Rate Data:	Capture Rate Data:																		Capture Rate Data:
Capture rate as % of all homes delivered	Capture rate as % of all homes delivered	69		%	61		%	8	%	68		%	60		%		8	%	Capture rate as % of all homes delivered	68		%	64		%	4	%	68		%	61		%		7	%
Capture rate as % of all homes delivered (excludes cash sales)	Capture rate as % of all homes delivered (excludes cash sales)	72		%	66		%	6	%	71		%	64		%		7	%	Capture rate as % of all homes delivered (excludes cash sales)	71		%	68		%	3	%	71		%	66		%		5	%
Mortgage Loan Origination Product Mix:	Mortgage Loan Origination Product Mix:																		Mortgage Loan Origination Product Mix:
FHA loans	FHA loans	21		%	15		%	6	%	21		%	16		%		5	%	FHA loans	20		%	20		%	—	%	21		%	17		%		4	%
Other government loans (VA & USDA)	Other government loans (VA & USDA)	21		%	19		%	2	%	22		%	19		%		3	%	Other government loans (VA & USDA)	22		%	20		%	2	%	22		%	20		%		2	%
Total government loans	Total government loans	42		%	34		%	8	%	43		%	35		%		8	%	Total government loans	42		%	40		%	2	%	43		%	37		%		6	%
Conventional loans	Conventional loans	58		%	66		%	(8)	%	57		%	65		%		(8)	%	Conventional loans	58		%	60		%	(2)	%	57		%	63		%		(6)	%
		100		%	100		%	—	%	100		%	100		%		—	%		100		%	100		%	—	%	100		%	100		%		—	%
Loan Type:	Loan Type:																		Loan Type:
Fixed rate	Fixed rate	100		%	97		%	3	%	99		%	97		%		2	%	Fixed rate	100		%	98		%	2	%	99		%	97		%		2	%
ARM	ARM	—		%	3		%	(3)	%	1		%	3		%		(67)	%	ARM	—		%	2		%	(2)	%	1		%	3		%		(2)	%
Credit Quality:	Credit Quality:																		Credit Quality:
Average FICO Score	Average FICO Score	737			742			(1)	%	736			740				(1)	%	Average FICO Score	736			738			—	%	736			739				—	%
Other Data:	Other Data:	`			`														Other Data:	`			`
Average Combined LTV ratio	Average Combined LTV ratio	84		%	82		%	(2)	%	84		%	81		%		4	%	Average Combined LTV ratio	85		%	84		%	1	%	85		%	82		%		3	%
Full documentation loans	Full documentation loans	100		%	100		%	—	%	100		%	100		%		—	%	Full documentation loans	100		%	100		%	—	%	100		%	100		%		—	%
Loans Sold to Third Parties:	Loans Sold to Third Parties:																		Loans Sold to Third Parties:
Loans	Loans	1,229			929			32	%	2,428			1,818				34	%	Loans	1,530			1,064			44	%	3,958			2,882				37	%
Principal	Principal	$	460,111		$	350,010		31	%	$	898,213		$	670,424			34	%	Principal	$	574,239		$	377,213		52	%	$	1,472,452		$	1,047,637			41	%

The preparation of financial statements in conformity with accounting ~~policies~~principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Management evaluates such estimates and judgments on an on-going basis and makes adjustments as deemed necessary. Actual results could differ from these estimates if conditions are significantly different in the future. See "Forward-Looking Statements" below.

We use our liquidity and capital resources to: (1) support our operations, including the purchase of land, land development and construction of homes; (2) provide working capital; and (3) provide mortgage loans for our homebuyers. Our liquidity includes our cash and cash equivalents, marketable securities, Revolving Credit Facility and Mortgage Repurchase Facility (both defined below). Additionally, we have an existing effective shelf registration statement that allows us to issue equity, debt or hybrid securities up to $2.0 billion. Following the issuance of $300 million of 3.850% senior notes on January 9, 2020, $1.70 billion remains on our effective shelf registration statement.

Our capital structure is primarily a combination of: (1) permanent financing, represented by stockholders’ equity; (2) long-term financing, represented by our 5.500% senior notes due 2024, 3.850% senior notes due 2030 and our 6.000% senior notes due 2043; (3) our Revolving Credit Facility (defined below); and (4) our Mortgage Repurchase Facility (defined below). Because of our current balance of cash, cash equivalents, ability to access the capital markets, and available capacity under both our Revolving Credit Facility and Mortgage Repurchase Facility, we believe that our capital resources are adequate to satisfy our short and long-term capital requirements, including meeting future payments on our senior notes as they become due. See "Forward-Looking Statements" below.

Senior Notes. Our senior notes are not secured and, while the senior note indentures contain some restrictions on secured debt and other transactions, they do not contain financial covenants. Our senior notes are fully and unconditionally guaranteed on an unsecured basis, jointly and severally, by most of our homebuilding segment subsidiaries. We believe that we are in compliance with the representations, warranties and covenants in the senior note indentures.

Mortgage Repurchase Facility.HomeAmerican has a Master Repurchase Agreement (the “Mortgage Repurchase Facility”) with U.S. Bank National Association (“USBNA”). ~~Effective May 21, 2020, the Mortgage Repurchase Facility was amended to extend its termination date to May 20, 2021.~~ The Mortgage Repurchase Facility provides liquidity to HomeAmerican by providing for the sale of up to an aggregate of $75 million (subject to increase by up to $75 million under certain conditions) of eligible mortgage loans to USBNA with an agreement by HomeAmerican to repurchase the mortgage loans at a future date. Until such mortgage loans are transferred back to HomeAmerican, the documents relating to such loans are held by USBNA, as custodian, pursuant to the Custody Agreement (“Custody Agreement”), dated as of November 12, 2008, by and between HomeAmerican and USBNA. In the event that an eligible mortgage loan becomes ineligible, as defined under the Mortgage Repurchase Facility, HomeAmerican may be required to repurchase the ineligible mortgage loan immediately. The Mortgage Repurchase Facility terminates on May 20, 2021. Effective September 24, 2020, the Mortgage Repurchase Facility was amended to adjust the commitments to purchase for specific time periods and increase the Adjusted Tangible Net Worth Ratio from 8.0 to 1.0 to 10.0 to 1.0. As part of the amendment, the commitments to purchase were increased to $100 million for the periods September 24, 2020 through October 23, 2020 and March 25, 2021 through April 23, 2021 and $200 million for the period December 22, 2020 through February 4, 2021.

The maximum aggregate commitment of the Mortgage Repurchase Facility was temporarily increased by $50 million on ~~June 25,~~September 28, 2020 ~~from $75 million to $150 million~~ effective through ~~July 23,~~October 27, 2020. The maximum aggregate commitment of the Mortgage Repurchase Facility ~~also had a temporary increase in~~was temporarily increased by $75 million on December 24, 2019 effective through January 22, 2020, which increased the maximum aggregate commitment from $75 million to $150 ~~million on December 24, 2019 effective through January 22, 2020.~~million. At ~~June~~September 30, 2020 and December 31, 2019, HomeAmerican had ~~$142.1~~$130.9 million and $149.6 million, respectively, of mortgage loans that HomeAmerican was obligated to repurchase under the Mortgage Repurchase Facility. Mortgage loans that HomeAmerican is obligated to repurchase under the Mortgage Repurchase Facility are accounted for as a debt financing arrangement and are reported as mortgage repurchase facility in the consolidated balance sheets. Advances under the Mortgage Repurchase Facility carry a price range that is based on a LIBOR rate or successor benchmark rate.

During ~~both~~ the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, we generated ~~$55.7~~$29.4 million and used $33.1 million of cash from operating ~~activities.~~activities, respectively. The most significant source of cash provided by operating activities in both periods was net income. ~~Cash~~During the nine months ended September 30, 2020, cash provided by the decrease in land and land under development ~~for the six months ended June 30, 2020 and 2019,~~ was ~~$94.9~~$108.7 million, ~~and $24.4 million, respectively,~~ as home starts ~~following the spring selling season~~ outnumbered lot acquisitions during the period. ~~The level of lot acquisitions during the six months ended June 30, 2020 was further impacted by the pandemic.~~ Cash provided from the sale of mortgage loans for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, was ~~$23.5~~$36.5 million and ~~$39.9~~$32.2 million, respectively, resulting from increased loan activity during the month of December. Cash used to increase housing completed or under construction for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019 was ~~$233.8~~$387.3 million and ~~$118.5~~$251.7 million, respectively, as homes in inventory increased ~~by nearly 750~~significantly during both periods. The amount of cash used to increase housing completed or under construction in both periods was also impacted by the construction status of those homes in inventory at both the beginning and end of the respective periods.

During the ~~six~~nine months ended ~~June~~September 30, 2020, net cash provided by investing activities was ~~$35.5~~$27.6 million compared with net cash used by investing activities of ~~$13.9~~$24.2 million in the prior year period. This primarily relates to $48.5 million in net cash provided by the sale of marketable securities during the ~~six~~nine months ended ~~June~~September 30, 2020. This was partially offset by cash used to purchase property and equipment, which remained consistent year-over-year.

Lot Option Purchase Contracts. In the ordinary course of business, we enter into lot option purchase contracts in order to procure lots for the construction of homes. Lot option contracts enable us to control lot positions with a minimal capital investment, which substantially reduces the risks associated with land ownership and development. At ~~June~~September 30, 2020, we had deposits of ~~$19.7~~$25.9 million in the form of cash and ~~$8.4~~$8.2 million in the form of letters of credit that secured option contracts to purchase ~~7,327~~7,757 lots for a total estimated purchase price of ~~$514.5~~$488.6 million.

Surety Bonds and Letters of Credit. At ~~June~~September 30, 2020, we had outstanding surety bonds and letters of credit totaling ~~$264.4~~$256.3 million and ~~$87.9~~$126.3 million, respectively, including ~~$62.0~~$100.9 million in letters of credit issued by HomeAmerican. The estimated cost to complete obligations related to these bonds and letters of credit was approximately ~~$89.7~~$96.0 million and ~~$47.4~~$82.5 million, respectively. We expect that the obligations secured by these performance bonds and letters of credit generally will be performed in the ordinary course of business and in accordance with the applicable contractual terms. To the extent that the obligations are performed, the related performance bonds and letters of credit should be released and we should not have any continuing obligations. However, in the event any such performance bonds or letters of credit are called, our indemnity obligations could require us to reimburse the issuer of the performance bond or letter of credit.

Certain statements in this Quarterly Report on Form 10-Q, as well as statements made by us in periodic press releases, oral statements made by our officials in the course of presentations about the Company and conference calls in connection with quarterly earnings releases, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding our business, financial condition, results of operations, cash flows, strategies and prospects. These forward-looking statements may be identified by terminology such as “likely,” “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained in this Report are reasonable, we cannot guarantee future results. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from those expressed or implied by the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in subsequent reports on Forms 10-K, 10-Q and 8-K should be considered. Additionally, information about issues that could lead to material changes in performance and risk factors that have the potential to affect us is contained under the caption “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019 and Item 1A of Part II of this Quarterly Report on Form 10-Q.

We have a cash and investment policy that enables us to achieve an appropriate investment return while preserving principal and managing risk. Under this policy, cash and cash equivalents may include U.S. government securities, commercial bank deposits, commercial paper, certificates of deposit, money market funds, and time deposits, with maturities of three months or less. Marketable securities under this policy may include holdings in U.S. government securities with a maturity of more than three months, equity securities and corporate debt securities.

The market value and/or income derived from equity securities may go up or down, sometimes rapidly or unpredictably. Equity securities may decline in value due to factors affecting equity securities markets generally, particular industries represented in those markets, or the issuer itself. The values of equity securities may decline due to general market conditions that are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. They may also decline due to factors that affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry. The value of equity securities may also decline for a number of other reasons that directly relate to the issuer, such as management performance, financial leverage, the issuer’s historical and prospective earnings, the value of its assets and reduced demand for its goods and services. Equity securities generally have greater price volatility than bonds and other debt securities.

We are exposed to market risks related to fluctuations in interest rates on mortgage loans held-for-sale, mortgage interest rate lock commitments and debt. Derivative instruments utilized in the normal course of business by HomeAmerican include interest rate lock commitments and forward sales of mortgage-backed securities, which are used to manage the price risk on fluctuations in interest rates on our mortgage loans in inventory and interest rate lock commitments to originate mortgage loans. Such contracts are the only significant financial derivative instruments utilized by MDC. HomeAmerican’s mortgage loans in process for which a rate and price commitment had been made to a borrower that had not closed at ~~June~~September 30, 2020 had an aggregate principal balance of ~~$233.0~~$254.7 million, all of which were under interest rate lock commitments at an average interest rate of ~~3.03%~~2.78%. In addition, HomeAmerican had mortgage loans held-for-sale with an aggregate principal balance of ~~$166.4~~$154.3 million at ~~June~~September 30, 2020, of which ~~$85.9~~$53.0 million had not yet been committed to a mortgage purchaser and had an average interest rate of ~~2.95%~~2.71%. In order to hedge the changes in fair value of interest rate lock commitments and mortgage loans held-for-sale which had not yet been committed to a mortgage purchaser, HomeAmerican had forward sales of securities totaling ~~$205.5~~$201.0 million and $108.5 million at ~~June~~September 30, 2020 and December 31, 2019, respectively.

HomeAmerican provides mortgage loans that generally are sold forward and subsequently delivered to a third-party purchaser between 10 and 35 days. Forward commitments are used for non-trading purposes to sell mortgage loans and hedge price risk due to fluctuations in interest rates on rate-locked mortgage loans in process that have not closed. Due to this economic hedging philosophy, the market risk associated with these mortgages is limited. For forward sales commitments, as well as commitments to originate mortgage loans that are still outstanding at the end of a reporting period, we record the fair value of the derivatives in the consolidated statements of operations and comprehensive income with an offset to either derivative assets or liabilities, depending on the nature of the change.

We utilize our Revolving Credit Facility, our Mortgage Repurchase Facility and senior notes in our financing strategy. For fixed rate debt, changes in interest rates generally affect the fair value of the debt instrument, but do not affect our earnings or cash flows. We do not have an obligation to prepay our senior notes prior to maturity and, as a result, interest rate risk and changes in fair value do not have an impact on our financial position, results of operations or cash flows. For variable rate debt such as our Revolving Credit Facility and Mortgage Repurchase Facility, changes in interest rates generally do not affect the fair value of the outstanding borrowing on the debt facilities, but do affect our earnings and cash flows. See “Forward-Looking Statements” above.

(a)Conclusion regarding the effectiveness of disclosure controls and procedures - An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures was performed under the supervision, and with the participation, of our management, including the Chief Executive Officer (principle executive officer) and the Chief Financial Officer (principal financial officer). Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Because of the nature of the homebuilding business, we and certain of our subsidiaries and affiliates have been named as defendants in various claims, complaints and other legal actions arising in the ordinary course of business, including product liability claims and claims associated with the sale and financing of our homes. In the opinion of management, the outcome of these ordinary course matters will not have a material adverse effect upon our financial condition, results of operations or cash flows.

Demand for our homes is dependent on a variety of macroeconomic factors, such as employment levels, availability of financing for homebuyers, interest rates, consumer confidence, wage growth, household formations, levels of new and existing homes for sale, cost of land, labor and construction materials, demographic trends and housing demand. These factors, in particular consumer confidence, can be significantly and adversely affected by a variety of factors beyond our control. In response to the pandemic, many state and local governments instituted restrictions that substantially limited the operations of non-essential businesses and the activities of individuals. While some of these restrictions have been eased, there is still significant uncertainty around the extent and duration of those still in place, the possibility for restrictions to be increased again in the future and the impact these restrictions will have on the U.S. economy and consumer confidence. The degree to which the pandemic will impact our financial results in the coming periods depends on future developments that are highly uncertain, including new information that may emerge concerning the severity of the pandemic, whether there are additional outbreaks of COVID-19 and the actions taken to contain or address the virus. If the pandemic continues to cause significant negative impacts to the U.S. economy and consumer confidence, our results of operations, financial condition and cash flows could be significantly and adversely impacted.

Period
Total Number of Shares Purchased ⁽¹⁾
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plan or Program ⁽²⁾
Maximum Number of Shares that may yet be Purchased under the Plan or Program ⁽²⁾
April 1 to April 30, 2020 — N/A — 4,000,000
May 1 to May 31, 2020 256,623 $ 27.66 — 4,000,000
June 1 to June 30, 2020 — N/A — 4,000,000


Period	Total Number of Shares Purchased (1)	Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Plan or Program (2)	Maximum Number of Shares that may yet be Purchased under the Plan or Program (2)
July 1 to July 31, 2020	—	N/A	—	4,000,000
August 1 to August 31, 2020	—	N/A	—	4,000,000
September 1 to September 30, 2020	—	N/A	—	4,000,000


Delaware			84-0622967
(State or other jurisdiction of incorporation or organization)			(I.R.S. employer identification no.)


	~~June~~September 30, 2020
Weighted-average remaining lease term (in years)	~~5.7~~5.6
Weighted-average discount rate	5.5	%


Name						MDC Title
Larry A. Mizel						Chairman and CEO
David D. Mandarich						President and COO


10.1			~~M.D.C. Holdings, Inc.~~Form of 2020 ~~Equity Plan for Non-Employee Directors (as amended and restated)~~Performance Share Unit Grant Agreement (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed ~~April 22,~~August 25, 2020). *
10.2			~~Form of Stock Option Agreement (2020 Equity~~M.D.C. Holdings, Inc. 2018 Executive Officer Performance-Based Compensation Plan ~~for Non-Employee Directors)~~(amended September 4, 2020).
10.3			~~Form of Restricted Stock Award Agreement (2020 Equity Plan for Non-Employee Directors).~~
~~10.4~~			~~Fourth~~Fifth Amendment to Amended and Restated Master Repurchase Agreement between HomeAmerican Mortgage Corporation, as Seller, and U.S. Bank National Association, as Agent and Buyer, dated as of ~~May 21,~~September 24, 2020 (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed ~~May 22,~~September 25, 2020). *
22			Subsidiary Guarantors (incorporated by reference to Exhibit 22 of the Company's Quarterly Report on Form 10-Q dated June 30, 2020). *
31.1			Certification of Chief Executive Officer required by 17 CFR 240.13a-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2			Certification of Chief Financial Officer required by 17 CFR 240.13a-14(a), pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1			Certification of Chief Executive Officer required by 17 CFR 240.13a-14(b), pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2			Certification of Chief Financial Officer required by 17 CFR 240.13a-14(b), pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101			The following financial statements, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets as of ~~June~~September 30, 2020 and December 31, 2019, (ii) Consolidated Statements of Operations for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, (iii) Consolidated Statements of Changes in Stockholders’ Equity for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, (iv) Consolidated Statements of Cash Flows for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019; and (v) Notes to the Unaudited Consolidated Financial Statements, tagged as blocks of text.
104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).


Date: ~~July 28,~~October 29, 2020			M.D.C. HOLDINGS, INC.
			(Registrant)

			By: /s/ Robert N. Martin
			Robert N. Martin Senior Vice President, Chief Financial Officer (principal financial officer and ~~Principal Accounting~~duly authorized officer)

			By: /s/ Staci M. Woolsey
			Staci M. Woolsey Vice President, Controller and Chief Accounting Officer~~(principal financial~~ (principal accounting officer and duly authorized officer)


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


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


Period	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan or Program ⁽²⁾	Maximum Number of Shares that may yet be Purchased under the Plan or Program ⁽²⁾
April 1 to April 30, 2020	—	N/A		—	4,000,000
May 1 to May 31, 2020	256,623	$	27.66	—	4,000,000
June 1 to June 30, 2020	—	N/A		—	4,000,000