UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q

x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2017
March 31, 2023
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _____________________
Commission File Number 1-12434


M/I HOMES, INC.
(Exact name of registrant as specified in it charter)
Ohio31-1210837
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)

4131 Worth Avenue, Suite 500, Columbus, Ohio 43219
(Address of principal executive offices) (Zip Code)

(614) 418-8000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
3 Easton Oval, Suite 500, Columbus, Ohio 43219Title of each classTrading Symbol(s)Name of each exchange on which registered
(Address of principal executive offices) (Zip Code)Common Shares, par value $.01MHONew York Stock Exchange
(614) 418-8000
(Registrant’s telephone number, including area code)


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


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


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Accelerated filerX☐
Non-accelerated filer☐Smaller reporting company☐
 (Do not check if a smaller reporting company)Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. q



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes☐NoX☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common shares, par value $.01 per share: 27,520,63227,829,416 shares outstanding as of October 25, 2017.


April 26, 2023.


M/I HOMES, INC.
FORM 10-Q
M/I HOMES, INC.
FORM 10-Q
TABLE OF CONTENTS
PART 1.FINANCIAL INFORMATION
Item 1.M/I Homes, Inc. and Subsidiaries Unaudited Condensed Consolidated Financial Statements
Unaudited Condensed Consolidated Balance Sheets at September 30, 2017March 31, 2023 and December 31, 20162022
3
Unaudited Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2023 and Nine Months ended September 30, 2017 and 20162022
4
Unaudited Condensed Consolidated Statement of Shareholders’ Equity for the NineThree Months Ended September 30, 2017March 31, 2023 and 2022
5
Unaudited Condensed Consolidated Statements of Cash Flows for the NineThree Months Ended September 30, 2017March 31, 2023 and 20162022
6
Notes to Unaudited Condensed Consolidated Financial Statements
7
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
3021
Item 3.Quantitative and Qualitative Disclosures About Market Risk
5439
Item 4.Controls and Procedures
5641
PART II.OTHER INFORMATION
Item 1.Legal Proceedings
5641
Item 1A.Risk Factors
5641
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
5641
Item 3.Defaults Upon Senior Securities
5641
Item 4.Mine Safety Disclosures
5641
Item 5.Other Information
5641
Item 6.Exhibits
5742
Signatures
5843
Exhibit Index
59






2





M/I HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS


(Dollars in thousands, except par values)March 31,
2023		December 31,
2022
(unaudited)
ASSETS:
Cash, cash equivalents and restricted cash$542,564 $311,542 
Mortgage loans held for sale226,629 242,539 
Inventory2,657,409 2,828,602 
Property and equipment - net37,419 37,446 
Investment in joint venture arrangements49,031 51,554 
Operating lease right-of-use assets59,787 60,416 
Deferred income tax asset18,019 18,019 
Goodwill16,400 16,400 
Other assets155,112 148,405 
TOTAL ASSETS$3,762,370 $3,714,923 
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Accounts payable$208,426 $228,597 
Customer deposits97,800 93,118 
Operating lease liabilities60,763 61,310 
Other liabilities249,055 276,217 
Community development district obligations27,060 29,701 
Obligation for consolidated inventory not owned19,648 17,048 
Notes payable bank - financial services operations223,618 245,741 
Senior notes due 2028 - net396,298 396,105 
Senior notes due 2030 - net296,487 296,361 
TOTAL LIABILITIES$1,579,155 $1,644,198 
Commitments and contingencies (Note 6)
— — 
SHAREHOLDERS’ EQUITY:
Common shares - $0.01 par value; authorized 58,000,000 shares at both March 31, 2023 and December 31, 2022;
   issued 30,137,141 shares at both March 31, 2023 and December 31, 2022
$301 $301 
Additional paid-in capital349,988 352,639 
Retained earnings1,939,049 1,835,983 
Treasury shares - at cost - 2,421,525 and 2,697,058 shares at March 31, 2023 and December 31, 2022, respectively(106,123)(118,198)
TOTAL SHAREHOLDERS’ EQUITY$2,183,215 $2,070,725 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY$3,762,370 $3,714,923 
(Dollars in thousands, except par values) September 30,
2017		 December 31,
2016
  (unaudited)  
     
ASSETS:    
Cash, cash equivalents and restricted cash $103,636
 $34,441
Mortgage loans held for sale 91,987
 154,020
Inventory 1,455,809
 1,215,934
Property and equipment - net 25,320
 22,299
Investment in unconsolidated joint ventures 22,981
 28,016
Deferred income taxes 29,569
 30,875
Other assets 55,393
 62,926
TOTAL ASSETS $1,784,695
 $1,548,511
     
LIABILITIES AND SHAREHOLDERS’ EQUITY    
     
LIABILITIES:    
Accounts payable $120,598
 $103,212
Customer deposits 30,583
 22,156
Other liabilities 108,870
 123,162
Preferred shares subject to redemption 50,420
 —
Community development district obligations 5,298
 476
Obligation for consolidated inventory not owned 22,203
 7,528
Notes payable bank - homebuilding operations —
 40,300
Notes payable bank - financial services operations 91,275
 152,895
Notes payable - other 4,057
 6,415
Convertible senior subordinated notes due 2017 - net —
 57,093
Convertible senior subordinated notes due 2018 - net 85,955
 85,423
Senior notes due 2021 - net 296,505
 295,677
Senior notes due 2025 - net 245,958
 —
TOTAL LIABILITIES $1,061,722
 $894,337
     
Commitments and contingencies (Note 6)
 —
 —
     
SHAREHOLDERS’ EQUITY:    
Preferred shares - $.01 par value; authorized 2,000,000 shares; 2,000 shares issued at both September 30, 2017 and December 31, 2016; 2,000 shares outstanding as of December 31, 2016 (excluding the 2,000 shares subject to redemption at September 30, 2017) $—
 $48,163
Common shares - $.01 par value; authorized 58,000,000 shares at both September 30, 2017 and December 31, 2016; issued 29,508,626 and 27,092,723 shares at September 30, 2017 and December 31, 2016, respectively 295
 271
Additional paid-in capital 304,715
 246,549
Retained earnings 457,447
 407,161
Treasury shares - at cost - 1,987,994 and 2,415,290 shares at September 30, 2017 and December 31, 2016, respectively (39,484) (47,970)
TOTAL SHAREHOLDERS’ EQUITY $722,973
 $654,174
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $1,784,695
 $1,548,511


See Notes to Unaudited Condensed Consolidated Financial Statements.

3


M/I HOMES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME


Three Months Ended March 31,
(In thousands, except per share amounts)20232022
Revenue$1,000,530 $860,811 
Costs and expenses:
Land and housing765,904 647,702 
General and administrative50,960 48,783 
Selling49,080 41,421 
Other income(7)(16)
Interest (income) expense(1,389)671 
Total costs and expenses$864,548 $738,561 
Income before income taxes135,982 122,250 
Provision for income taxes32,916 30,411 
Net income$103,066 $91,839 
Earnings per common share:
Basic$3.73 $3.23 
Diluted$3.64 $3.16 
Weighted average shares outstanding:
Basic27,602 28,424 
Diluted28,305 29,072 
 Three Months Ended September 30, Nine Months Ended September 30,
(In thousands, except per share amounts)2017 2016 2017 2016
        
Revenue$476,423
 $442,464
 $1,340,269
 $1,168,081
Costs and expenses:       
Land and housing374,673
 363,635
 1,062,552
 943,515
General and administrative31,337
 29,160
 89,209
 78,249
Selling31,136
 27,663
 88,666
 75,462
Equity in income of unconsolidated joint ventures(71) (24) (198) (413)
Interest4,675
 3,587
 13,847
 13,160
Total costs and expenses441,750
 424,021
 1,254,076
 1,109,973
        
Income before income taxes34,673
 18,443
 86,193
 58,108
        
Provision for income taxes12,346
 7,501
 29,994
 22,061
        
Net income22,327
 10,942
 56,199
 36,047
        
Preferred dividends1,218
 1,218
 3,656
 3,656
Excess of fair value over book value of preferred shares subject to redemption2,257
 —
 2,257
 —
        
Net income to common shareholders$18,852
 $9,724
 $50,286
 $32,391
        
Earnings per common share:       
Basic$0.74
 $0.39
 $2.00
 $1.31
Diluted$0.64
 $0.35
 $1.73
 $1.17
        
Weighted average shares outstanding:       
Basic25,581
 24,669
 25,106
 24,665
Diluted30,675
 30,139
 30,539
 30,093


See Notes to Unaudited Condensed Consolidated Financial Statements.

4


M/I HOMES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY


Three Months Ended March 31, 2023
 Nine Months Ended September 30, 2017
 Preferred Shares Common Shares        
 Shares Outstanding   Shares Outstanding   Additional Paid-in Capital Retained Earnings Treasury Shares Total Shareholders’ Equity
(Dollars in thousands) Amount  Amount    
Balance at December 31, 20162,000
 $48,163
 24,677,433
 $271
 $246,549
 $407,161
 $(47,970) $654,174
Net income—
 —
 —
 —
 —
 56,199
 —
 56,199
Fair value over carrying value of preferred shares subject to redemption—
 2,257
 —
 —
 —
 (2,257) —
 —
Dividends declared to preferred shareholders—
 —
 —
 —
 —
 (3,656) —
 (3,656)
Common share issuance for conversion of convertible notes—
 —
 2,415,903
 24
 57,476
 —
 —
 57,500
Reclassification of preferred shares subject to redemption(2,000) (50,420) —
 —
   —
 —
 (50,420)
Stock options exercised—
 —
 342,661
 —
 (2,014) —
 6,805
 4,791
Stock-based compensation expense—
 —
 —
 —
 4,034
 —
 —
 4,034
Deferral of executive and director compensation—
 —
 —
 —
 351
 —
 —
 351
Executive and director deferred compensation distributions—
 —
 84,635
 —
 (1,681) —
 1,681
 —
Balance at September 30, 2017—
 $—
 27,520,632
 $295
 $304,715
 $457,447
 $(39,484) $722,973


Common Shares
Shares OutstandingAdditional Paid-in CapitalRetained EarningsTreasury SharesTotal Shareholders’ Equity
(Dollars in thousands)Amount
Balance at December 31, 202227,440,083 $301 $352,639 $1,835,983 $(118,198)$2,070,725 
Net income— — — 103,066 — 103,066 
Stock options exercised218,066 — (3,118)— 9,557 6,439 
Stock-based compensation expense— — 2,023 — — 2,023 
Deferral of executive and director compensation— — 962 — — 962 
Executive and director deferred compensation distributions57,467 — (2,518)— 2,518 — 
Balance at March 31, 202327,715,616 $301 $349,988 $1,939,049 $(106,123)$2,183,215 


Three Months Ended March 31, 2022

Common Shares
Shares OutstandingAdditional Paid-in CapitalRetained EarningsTreasury SharesTotal Shareholders’ Equity
(Dollars in thousands)Amount
Balance at December 31, 202128,499,630 $301 $347,452 $1,345,321 $(68,890)$1,624,184 
Net income— — — 91,839 — 91,839 
Stock options exercised8,600 — (164)— 370 206 
Stock-based compensation expense— — 1,831 — — 1,831 
Repurchase of common shares(310,000)— — — (15,393)(15,393)
Deferral of executive and director compensation— — 1,022 — — 1,022 
Executive and director deferred compensation distributions90,553 — (3,850)— 3,850 — 
Balance at March 31, 202228,288,783 $301 $346,291 $1,437,160 $(80,063)$1,703,689 

See Notes to Unaudited Condensed Consolidated Financial Statements.

5


M/I HOMES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
(Dollars in thousands)20232022
OPERATING ACTIVITIES:
Net income$103,066 $91,839 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Equity in income from joint venture arrangements(7)(16)
Mortgage loan originations(494,461)(479,781)
Proceeds from the sale of mortgage loans514,346 549,025 
Fair value adjustment of mortgage loans held for sale(3,975)5,956 
Capitalization of originated mortgage servicing rights(1,390)(3,583)
Amortization of mortgage servicing rights523 300 
Depreciation3,214 3,244 
Amortization of debt issue costs660 644 
Loss on sale of mortgage servicing rights— 176 
Stock-based compensation expense2,023 1,831 
Change in assets and liabilities:
Inventory175,316 (129,295)
Other assets(4,564)(25,025)
Accounts payable(20,171)36,882 
Customer deposits4,682 23,818 
Accrued compensation(38,969)(31,746)
Other liabilities11,206 25,057 
Net cash provided by operating activities251,499 69,326 
INVESTING ACTIVITIES:
Purchase of property and equipment(2,079)(1,205)
Investment in joint venture arrangements(2,714)(5,429)
Net cash used in investing activities(4,793)(6,634)
FINANCING ACTIVITIES:
Net repayments of bank borrowings - financial services operations(22,123)(62,510)
Principal repayments of notes payable - other and community development district bond obligations— (2,677)
Repurchase of common shares— (15,393)
Debt issue costs— (80)
Proceeds from exercise of stock options6,439 206 
Net cash used in financing activities(15,684)(80,454)
Net increase (decrease) in cash, cash equivalents and restricted cash231,022 (17,762)
Cash, cash equivalents and restricted cash balance at beginning of period311,542 236,368 
Cash, cash equivalents and restricted cash balance at end of period$542,564 $218,606 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest — net of amount capitalized$6,176 $7,895 
Income taxes$838 $993 
NON-CASH TRANSACTIONS DURING THE PERIOD:
Community development district infrastructure$(2,641)$(3,323)
Consolidated inventory not owned$2,600 $60 
Distribution of single-family lots from joint venture arrangements$5,244 $5,257 
 Nine Months Ended September 30,
(Dollars in thousands)2017 2016
OPERATING ACTIVITIES:   
Net income$56,199
 $36,047
Adjustments to reconcile net income to net cash used in operating activities:   
Equity in income of joint venture arrangements(198) (413)
Mortgage loan originations(732,587) (654,905)
Proceeds from the sale of mortgage loans798,946
 687,420
Fair value adjustment of mortgage loans held for sale(4,326) (1,059)
Capitalization of originated mortgage servicing rights(3,873) (4,350)
Amortization of mortgage servicing rights789
 1,262
Depreciation7,078
 6,328
Amortization of debt discount and debt issue costs2,632
 2,552
Stock-based compensation expense4,034
 3,483
Deferred income tax expense1,306
 20,911
Change in assets and liabilities:   
Inventory(212,660) (96,510)
Other assets4,763
 (16,364)
Accounts payable17,386
 23,301
Customer deposits8,427
 6,872
Accrued compensation(9,341) (6,073)
Other liabilities(4,600) 18,000
Net cash (used in) provided by operating activities(66,025) 26,502
    
INVESTING ACTIVITIES:   
Purchase of property and equipment(6,017) (11,619)
Return of capital from unconsolidated joint ventures1,833
 —
Investment in unconsolidated joint ventures(8,439) (10,060)
Net proceeds from sale of mortgage servicing rights7,558
 —
Net cash used in investing activities(5,065) (21,679)
    
FINANCING ACTIVITIES:   
Net proceeds from issuance of senior notes250,000
 —
Proceeds from bank borrowings - homebuilding operations366,500
 276,800
Repayment of bank borrowings - homebuilding operations(406,800) (235,600)
Net repayment of bank borrowings - financial services operations(61,620) (32,165)
(Principal repayment of) proceeds from notes payable - other and community development district bond obligations(2,358) 125
Dividends paid on preferred shares(3,656) (3,656)
Debt issue costs(6,572) (193)
Proceeds from exercise of stock options4,791
 73
Net cash provided by financing activities140,285
 5,384
Net increase in cash, cash equivalents and restricted cash69,195
 10,207
Cash, cash equivalents and restricted cash balance at beginning of period34,441
 13,101
Cash, cash equivalents and restricted cash balance at end of period$103,636
 $23,308
    
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:   
Cash paid during the year for:   
Interest — net of amount capitalized$15,386
 $8,919
Income taxes$27,702
 $2,073
    
NON-CASH TRANSACTIONS DURING THE PERIOD:   
Community development district infrastructure$4,822
 $(467)
Consolidated inventory not owned$14,675
 $(145)
Distribution of single-family lots from joint venture arrangements$11,839
 $20,912
Common stock issued for conversion of convertible notes$57,500
 $—
Reclassification of preferred shares subject to redemption$50,420
 $—
    


See Notes to Unaudited Condensed Consolidated Financial Statements.

6


M/I HOMES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1. Basis of Presentation


The accompanying Unaudited Condensed Consolidated Financial Statements (the “financial statements”) of M/I Homes, Inc. and its subsidiaries (the “Company”) and notes thereto have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. The financial statements include the accounts of the Company. All intercompany transactions have been eliminated. Results for the interim period are not necessarily indicative of results for a full year. In the opinion of management, the accompanying financial statements reflect all adjustments (all of which are normal and recurring in nature) necessary for a fair presentation of financial results for the interim periods presented. These financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20162022 (the “2016“2022 Form 10-K”).


The preparation of financial statements in conformity with accounting 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 and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during that period. Actual results could differ from these estimates and have a significant impact on the financial condition and results of operations and cash flows. With regard to the Company, estimates and assumptions are inherent in calculations relating to valuation of inventory and investment in unconsolidated joint ventures, property and equipment depreciation, valuation of derivative financial instruments, accounts payable on inventory, accruals for costs to complete inventory, accruals for warranty claims, accruals for self-insured general liability claims, litigation, accruals for health care and workers’ compensation, accruals for guaranteed or indemnified loans, stock-based compensation expense, income taxes, and contingencies. Items that could have a significant impact on these estimates and assumptions include the risks and uncertainties listed in “Item 1A. Risk Factors” in Part I of our 20162022 Form 10-K, as the same may be updated from time to time in our subsequent filings with the SEC, including the Company’s Quarterly Report on Form 10-Q forSEC.

Significant Accounting Policies

There have been no significant changes to our significant accounting policies during the quarter ended March 31, 2017.2023 as compared to those disclosed in our 2022 Form 10-K.

Reclassifications

Certain financial statement line items reflected on the September 30, 2016 Statement of Cash Flows were affected by the Company’s early adoption of Accounting Standards Update (“ASU”) No. 2016-18, Statement of Cash Flows: Restricted Cash (“ASU 2016-18”) during the fourth quarter of 2016 as a result of the change in accounting principle.

Recently Adopted Accounting Standards

In March 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences and classification on the statement of cash flows. For public entities, ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. The Company adopted the new standard in the first quarter of 2017. Excess tax benefits or deficiencies for stock-based compensation are now reflected in the Condensed Consolidated Statements of Income as a component of income tax expense, whereas previously they were recognized in equity. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements and disclosures.
Impact of New Accounting Standards
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which provides guidance for revenue recognition. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets and supersedes the revenue recognition requirements in ASC 605, Revenue Recognition, and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, “Revenue Recognition-Construction-Type and Production-Type Contracts.” ASU 2014-09’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under today’s guidance, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, which delayed the effective date of ASU 2014-09 by one year. ASU 2014-09, as amended, is effective for public companies for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period.


Subsequent to the issuance of ASU 2014-09, the FASB has issued several ASUs, such as ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, and ASU 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients. These ASUs do not change the core principle of the guidance stated in ASU 2014-09. Instead, these amendments are intended to clarify and improve the operability of certain topics addressed by ASU 2014-09. These additional ASUs will have the same effective date and transition requirements as ASU 2014-09, as amended. See below for additional explanation of each of these additional ASUs. The Company does not believe the adoption of these additional ASUs will have a material impact on our consolidated financial statements.
The new standard is effective for our fiscal year beginning January 1, 2018, and, at that time, we currently anticipate adopting the standard using the cumulative catch-up transition method. We anticipate this standard will not have a material impact on our consolidated financial statements. While we are continuing to assess all potential impacts of the standard, we expect the amount and timing of our housing revenue to remain substantially unchanged. Due to the complexity of certain of our land contracts, however, the actual revenue recognition treatment required under the standard for land sales will depend on contract-specific terms. We do not expect significant changes to our business processes, systems, or internal controls as a result of adopting the standard. However, we continue to evaluate the impact of the revised disclosure requirements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 will require organizations that lease assets - referred to as “lessees” - to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Under ASU 2016-02, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Lessor accounting remains substantially similar to current GAAP. In addition, disclosures of leasing activities will expand to include qualitative and specific quantitative information. For public entities, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. ASU 2016-02 mandates a modified retrospective transition method. The Company is currently evaluating the potential impact the adoption of ASU 2016-02 will have on the Company’s consolidated financial statements and disclosures.

In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”). The amendments in this ASU are intended to improve the operability and understandability of the implementation guidance stated in ASU 2014-09 on principal versus agent considerations and whether an entity reports revenue on a gross or net basis.

In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing (“ASU 2016-10”).  ASU 2016-10 provides guidance on identifying performance obligations and licensing. This update clarifies the guidance in ASU 2014-09 relating to identifying performance obligations and licensing.

In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers: Narrow Scope Improvements and Practical Expedients (“ASU 2016-12”). ASU 2016-12 provides for amendments to ASU 2014-09 regarding transition, collectability, noncash consideration, and presentation of sales tax and other similar taxes.  Specifically, ASU 2016-12 clarifies that, for a contract to be considered completed at transition, all or substantially all of the revenue must have been recognized under legacy GAAP. In addition, ASU 2016-12 clarifies how an entity should evaluate the collectability threshold and when an entity can recognize nonrefundable consideration received as revenue if an arrangement does not meet the standard’s contract criteria.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 provides guidance on how certain cash receipts and cash payments are to be presented and classified in the statement of cash flows. For public entities, ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The adoption of ASU 2016-15 will modify the Company's current disclosures and reclassifications within the condensed consolidated statement of cash flows but is not expected to have a material effect on the Company’s consolidated financial statements and disclosures.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”), which provides a more robust framework for determining whether transactions should be accounted for as acquisitions (or dispositions) of assets or businesses. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the potential impact the adoption of ASU 2017-01 will have on the Company’s consolidated financial statements and disclosures.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment, which eliminates Step 2 from the goodwill impairment test in order to simplify the subsequent measurement of goodwill. The guidance is effective for fiscal years beginning after December 15, 2019. Early application is permitted for interim or annual goodwill impairment tests performed on


testing dates after January 1, 2017. The Company does not believe the adoption of ASU 2017-04 will have a material impact on the Company’s consolidated financial statements and disclosures.

In February 2017, the FASB issued ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (“ASU 2017-05”). ASU 2017-05 is intended to clarify the scope of the original guidance within Subtopic 610-20 that was issued in connection with ASU 2014-09, which provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. ASU 2017-05 additionally added guidance for partial sales of nonfinancial assets. ASU 2017-05 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. We are required to adopt ASU 2017-05 concurrent with the adoption of ASU 2014-09. The Company is currently evaluating the potential impact the adoption of ASU 2017-05 will have on the Company’s consolidated financial statements and disclosures.

In March 2017, the FASB issued ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities (“ASU 2017-08”), which shortens the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public entities, ASU 2017-08 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company does not believe the adoption of ASU 2017-08 will have a material impact on the Company’s consolidated financial statements and disclosures.

In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”), which provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This ASU does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions, or award classification and would not be required if the changes are considered non-substantive. For all entities, ASU 2017-09 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company does not believe the adoption of ASU 2017-09 will have a material impact on the Company’s consolidated financial statements and disclosures.

NOTE 2. Inventory and Capitalized Interest
Inventory
Inventory is recorded at cost, unless events and circumstances indicate that the carrying value of the landinventory is impaired, at which point the inventory is written down to fair value (see Note 4 to our financial statements for additional details relating to our procedures for evaluating our inventories for impairment). Inventory includes the costs of land acquisition, land development and home construction, capitalized interest, real estate taxes, direct overhead costs incurred during development and home construction, and common costs that benefit the entire community, less impairments, if any.
A summary of the Company’s inventory as of September 30, 2017March 31, 2023 and December 31, 20162022 is as follows:
(In thousands)March 31, 2023December 31, 2022
Single-family lots, land and land development costs$1,279,673 $1,294,779 
Land held for sale17,959 3,331 
Homes under construction1,190,519 1,366,804 
Model homes and furnishings - at cost (less accumulated depreciation: March 31, 2023 - $10,693;
   December 31, 2022 - $10,371)
63,640 61,200 
Community development district infrastructure27,060 29,701 
Land purchase deposits58,910 55,739 
Consolidated inventory not owned19,648 17,048 
Total inventory$2,657,409 $2,828,602 
(In thousands)September 30, 2017 December 31, 2016
Single-family lots, land and land development costs$663,170
 $602,528
Land held for sale12,330
 12,155
Homes under construction645,816
 494,664
Model homes and furnishings - at cost (less accumulated depreciation: September 30, 2017 - $12,929;
   December 31, 2016 - $11,835)
75,618
 68,727
Community development district infrastructure5,298
 476
Land purchase deposits31,374
 29,856
Consolidated inventory not owned22,203
 7,528
Total inventory$1,455,809
 $1,215,934


Single-family lots, land and land development costs include raw land that the Company has purchased to develop into lots, costs incurred to develop the raw land into lots, and lots for which development has been completed, but which have not yet been used to start construction of a home.
7

Homes under construction include homes that are in various stages of construction. As of September 30, 2017March 31, 2023 and December 31, 2016,2022, we had 1,1681,551 homes (with a carrying value of $238.9$316.2 million) and 9961,827 homes (with a carrying value of $199.4 million)$431.7 million), respectively, included in homes under construction that were not subject to a sales contract.


Model homes and furnishings include homes that are under construction or have been completed and are being used as sales models. The amount also includes the net book value of furnishings included in our model homes. Depreciation on model home furnishings is recorded using an accelerated method over the estimated useful life of the assets, which is typically three years.
We own lots in certain communities in Florida that have Community Development Districts (“CDDs”). The Company records a liability for the estimated developer obligations that are probable and estimable and user fees that are required to be paid or transferred at the time the parcel or unit is sold to an end user.  The Company reduces this liability at the time of closing and the transfer of the property.  The Company recorded a $5.3$27.1 million liability and $0.5a $29.7 million liability related to these CDD bond obligations as of September 30, 2017March 31, 2023 and December 31, 2016,2022, respectively, along with the related inventory infrastructure.


Land purchase deposits include both refundable and non-refundable amounts paid to third party sellers relating to the purchase of land. On an ongoing basis, the Company evaluates the land option agreements relating to the land purchase deposits. InThe Company expenses any deposits and accumulated pre-acquisition costs relating to such agreements in the period during whichwhen the Company makes the decision not to proceed with the purchase of land under an agreement, the Company expenses any deposits and accumulated pre-acquisition costs relating to such agreement.
Capitalized Interest
The Company capitalizes interest during land development and home construction.  Capitalized interest is charged to land and housing costs and expensed as the related inventory is delivered to a third party.  TheA summary of capitalized interest for the three and nine months ended September 30, 2017March 31, 2023 and 20162022 is as follows:
Three Months Ended March 31,
(In thousands)20232022
Capitalized interest, beginning of period$29,675 $24,343 
Interest capitalized to inventory9,024 8,791 
Capitalized interest charged to land and housing costs and expenses(8,090)(7,327)
Capitalized interest, end of period$30,609 $25,807 
Interest incurred$7,635 $9,462 
 Three Months Ended September 30, Nine Months Ended September 30,
(In thousands)2017 2016 2017 2016
Capitalized interest, beginning of period$16,465
 $16,818
 $16,012
 $16,740
Interest capitalized to inventory6,178
 5,139
 15,240
 13,392
Capitalized interest charged to land and housing costs and expenses(4,988) (4,963) (13,597) (13,138)
Capitalized interest, end of period$17,655
 $16,994
 $17,655
 $16,994
        
Interest incurred$10,853
 $8,726
 $29,087
 $26,552
NOTE 3. Investment in Joint Venture Arrangements
Investment in Joint Venture Arrangements
In order to minimize our investment and risk of land exposure in a single location, we have periodically partnered with other land developers or homebuilders to share in the land investment and development of a property through joint ownership and development agreements, joint ventures, and other similar arrangements. During the nine-month period ended September 30, 2017, we decreasedAs of March 31, 2023 and December 31, 2022, our total investment in such joint venture arrangements by $5.0totaled $49.0 million from $28.0and $51.6 million, at December 31, 2016 to $23.0 million at September 30, 2017, whichrespectively, and was driven primarily by our increased lot distributions from unconsolidated joint ventures of $11.8 million, offset, in part, by our cash contributions to our unconsolidated joint ventures during the first nine months of 2017 of $8.4 million.
We believe that the Company’s maximum exposure related to its investment in these joint venture arrangements as of September 30, 2017 is the amount invested of $23.0 million, which is reported as Investment in Joint Venture Arrangements on our Unaudited Condensed Consolidated Balance Sheets, although we expect to invest further amounts in theseSheets. The $2.6 million decrease during the three-month period ended March 31, 2023 was driven primarily by lot distributions from our joint venture arrangements as development of the properties progresses.
We use the equity method of accounting for investments$5.2 million, offset, in unconsolidated joint ventures over which we exercise significant influence but do not have a controlling interest. Under the equity method,part, by our share of the unconsolidated joint ventures’ earnings or loss, if any, is included in our consolidated statement of income. The Company assesses its investments in unconsolidated joint ventures for recoverability on a quarterly basis. Refer to Note 4 for additional details relatingcash contributions to our proceduresjoint venture arrangements during the first quarter of 2023 of $2.7 million.
The majority of our investment in joint venture arrangements for evaluatingboth March 31, 2023 and December 31, 2022 consisted of joint ownership and development agreements for which a special purpose entity was not established (“JODAs”). In these JODAs, we own the property jointly with partners which are typically other builders, and land development activities are funded jointly until the developed lots are subdivided for separate ownership by the partners in accordance with the JODA and the approved site plan. As of March 31, 2023 and December 31, 2022, the Company had $43.4 million and $45.9 million, respectively, invested in JODAs.
The remainder of our investments for impairment.
Forinvestment in joint venture arrangements was comprised of joint venture arrangements where a special purpose entity iswas established to own and develop the property,property. For these joint venture arrangements, we generally enter into limited liability company or similar arrangements (“LLCs”) with the other partners. The Company’s ownership in these LLCs as of September 30, 2017 ranged from 25% to 97% and at December 31, 2016 ranged from 25% to 74%. These entities typically engage in land development activities for the purpose of distributing or selling developed lots to the Company and its partners in the LLC. As of March 31, 2023 and December 31, 2022, the Company had $5.7 million and $5.6 million, respectively, of equity invested in

8


LLCs. The Company’s percentage of ownership in these LLCs as of both March 31, 2023 and December 31, 2022 ranged from 25% to 50%.
We use the equity method of accounting for investments in LLCs and other joint venture arrangements, including JODAs, over which we exercise significant influence but do not have a controlling interest. Under the equity method, our share of the LLCs’ earnings or loss, if any, is included in our Unaudited Condensed Consolidated Statements of Income. The Company’s equity in income relating to earnings from its LLCs was less than $0.1 million for both the three months ended March 31, 2023 and 2022. Our share of the profit relating to lots we purchase from our LLCs is deferred until homes are delivered by us and title passes to a homebuyer.
We believe that the Company’s maximum exposure related to its investment in these joint venture arrangements as of March 31, 2023 was the amount invested of $49.0 million, which is reported as Investment in Joint Venture Arrangements on our Unaudited Condensed Consolidated Balance Sheets. We expect to invest further amounts in these joint venture arrangements as development of the properties progresses.
The Company assesses its investments in unconsolidated LLCs for recoverability on a quarterly basis. See Note 4 to our financial statements for additional details relating to our procedures for evaluating our investments for impairment.
Variable Interest Entities
With respect to our investments in these LLCs, we are required, under ASC 810-10, Consolidation (“ASC 810”), to evaluate whether or not such entities should be consolidated into our consolidated financial statements. We initially perform these evaluations when each new entity is created and upon any events that require reconsideration of the entity. See Note 1, “Summary of Significant Accounting Policies - Variable Interest Entities” in the Company’s 20162022 Form 10-K for additional information regarding the Company’s methodology for evaluating entities for consolidation.
Land Option Agreements
In the ordinary course of business, the Company enters into land option or purchase agreements for which we generally pay non-refundable deposits. Pursuant to these land option agreements, the Company provides a deposit to the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices.  In accordance with ASC 810, we analyze our land option or purchase agreements to determine whether the corresponding land sellers are VIEsvariable interest entities (“VIEs”) and, if so, whether we are the primary beneficiary, as further described in Note 1, “Summary of Significant Accounting Policies - Land Option Agreements” in the Company’s 20162022 Form 10-K. If we are deemed to be the primary beneficiary of the VIE, we will consolidate the VIE in our consolidated financial statements and reflect such assets and liabilities in our Consolidated Inventory notNot Owned in our Unaudited Condensed Consolidated Balance Sheets. At both September 30, 2017March 31, 2023 and December 31, 2016,2022, we concluded that we were not the primary beneficiary of any VIEs from which we are purchasing land under option or purchase agreements.
NOTE 4. Fair Value Measurements
There are three measurement input levels for determining fair value: Level 1, Level 2, and Level 3. Fair values determined by Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
Assets Measured on a Recurring Basis
The Company measures both mortgage loans held for sale and interest rate lock commitments (“IRLCs”) at fair value. Fair value measurement results in a better presentation of the changes in fair values of the loans and the derivative instruments used to economically hedge them.
In the normal course of business, our financial services segment enters into contractual commitments to extend credit to buyers of single-family homes with fixed expiration dates.  The commitments become effective when the borrowers “lock-in” a specified interest rate within established time frames.  Market risk arises if interest rates move adversely between the time of the “lock-in” of rates by the borrower and the sale date of the loan to an investor.  To mitigate the effect of the interest rate risk inherent in providing rate lock commitments to borrowers, the Company enters into optional or mandatory delivery forward
9

sale contracts to sell whole loans and mortgage-backed securities to broker/dealers.  The forward sale contracts lock in an interest rate and price for the sale of loans similar to the specific rate lock commitments.  The Company does not engage in speculative trading or derivative activities.  Both the rate lock commitments to borrowers and the forward sale contracts to broker/dealers or investors are undesignated derivatives, and accordingly, are marked to fair value through earnings.  Changes in fair value measurements are included in earnings in the accompanying statements of income.
The fair value of mortgage loans held for sale is estimated based primarily on published prices for mortgage-backed securities with similar characteristics.  To calculate the effects of interest rate movements, the Company utilizes applicable published mortgage-backed security prices, and multiplies the price movement between the rate lock date and the balance sheet date by the notional loan commitment amount.  The Company sells loans on a servicing released or servicing retained basis, and receives servicing compensation.  Thus, the value of the servicing rights included in the fair value measurement is based upon contractual terms with investors and depends on the loan type. The Company applies a fallout rate to IRLCs when measuring the fair value of rate lock commitments.  Fallout is defined as locked loan commitments for which the Company does not close a mortgage loan and is based on management’s judgment and company experience.
The Company sells loans on a servicing released or servicing retained basis and receives servicing compensation.  Thus, the value of the servicing rights included in the fair value measurement is based upon contractual terms with investors and depends on the loan type. Mortgage servicing rights (Level 3 financial instruments as they are measured using significant unobservable inputs such as mortgage prepayment rates, discount rates and delinquency rates) are periodically evaluated for impairment. The amount of impairment is the amount by which the mortgage servicing rights, net of accumulated amortization, exceed their fair value, which is calculated using third-party valuations. Impairment, if any, is recognized through a valuation allowance and a reduction of revenue. Both the carrying value and fair value of our mortgage servicing rights were $16.7 million at March 31, 2023. At December 31, 2022, both the carrying value and fair value of our mortgage servicing rights were $15.8 million.
The fair value of the Company’s forward sales contracts to broker/dealers solely considers the market price movement of the same type of security between the trade date and the balance sheet date.  The market price changes are multiplied by the notional amount of the forward sales contracts to measure the fair value.


Interest Rate Lock Commitments. IRLCs are extended to certain home-buyinghomebuying customers who have applied for a mortgage loan and meet certain defined credit and underwriting criteria. Typically, the IRLCs will have a term of less than six months; however, in certain markets, the term could extend to nine months.
Some IRLCs are committed to a specific third partythird-party investor through the use of best-efforts whole loan delivery commitments matching the exact terms of the IRLC loan. Uncommitted IRLCs are considered derivative instruments and are fair value adjusted, with the resulting gain or loss recorded in current earnings.
Forward Sales of Mortgage-Backed Securities. Forward sales of mortgage-backed securities (“FMBSs”) are used to protect uncommitted IRLC loans against the risk of changes in interest rates between the lock date and the funding date. FMBSs related to uncommitted IRLCs and FMBSs related to mortgage loans held for sale are classified and accounted for as non-designated derivative instruments and are recorded at fair value, with gains and losses recorded in current earnings.

Mortgage Loans Held for Sale.Mortgage loans held for sale consists primarily of single-family residential loans collateralized by the underlying property.  Generally, all of the mortgage loans and related servicing rights are sold to third-party investors shortly after origination.  During the period between when a loan is closed and when it is sold to an investor, the interest rate risk is covered through the use of a best-effortswhole loan contract or by FMBSs.
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The table below shows the notional amounts of our financial instruments at September 30, 2017March 31, 2023 and December 31, 2016:2022:
Description of Financial Instrument (in thousands)March 31, 2023December 31, 2022
Whole loan contracts and related committed IRLCs$1,683 $— 
Uncommitted IRLCs250,065 262,529 
FMBSs related to uncommitted IRLCs259,000 341,088 
Whole loan contracts and related mortgage loans held for sale16,576 16,507 
FMBSs related to mortgage loans held for sale212,000 232,518 
Mortgage loans held for sale covered by FMBSs215,420 233,378 
Description of Financial Instrument (in thousands)September 30, 2017 December 31, 2016
Best efforts contracts and related committed IRLCs$2,571
 $6,607
Uncommitted IRLCs105,104
 66,875
FMBSs related to uncommitted IRLCs105,000
 66,000
Best efforts contracts and related mortgage loans held for sale10,423
 125,348
FMBSs related to mortgage loans held for sale81,000
 33,000
Mortgage loans held for sale covered by FMBSs81,244
 32,870

The table below shows the level and measurement of assets and liabilities measured on a recurring basis at September 30, 2017 and December 31, 2016:
Description of Financial Instrument (in thousands)
Fair Value Measurements
September 30, 2017
Quoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
Mortgage loans held for sale$91,987
 $—
 $91,987
 $—
 
Forward sales of mortgage-backed securities471
 —
 471
 —
 
Interest rate lock commitments366
 —
 366
 —
 
Best-efforts contracts(60) —
 (60) —
 
Total$92,764
 $—
 $92,764
 $—
 
Description of Financial Instrument (in thousands)
Fair Value Measurements
December 31, 2016
Quoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
Mortgage loans held for sale$154,020
 $—
 $154,020
 $—
 
Forward sales of mortgage-backed securities230
 —
 230
 —
 
Interest rate lock commitments250
 —
 250
 —
 
Best-efforts contracts(90) —
 (90) —
 
Total$154,410
 $—
 $154,410
 $—
 



The following table sets forth the amount of gain (loss) recognized, within our revenue in the Unaudited Condensed Consolidated Statements of Income, on assets and liabilities measured on a recurring basis for the three and nine months ended September 30, 2017March 31, 2023 and 2016:2022:
Three Months Ended March 31,
Description (in thousands)20232022
Mortgage loans held for sale$3,975 $(5,956)
Forward sales of mortgage-backed securities1,235 13,560 
Interest rate lock commitments3,498 (7,229)
Whole loan contracts(380)125 
Total gain recognized$8,328 $500 
 Three Months Ended September 30, Nine Months Ended September 30,
Description (in thousands)2017 2016 2017 2016
Mortgage loans held for sale$(64) $(1,127) $4,326
 $1,059
Forward sales of mortgage-backed securities(128) 1,443
 241
 (245)
Interest rate lock commitments22
 (531) 116
 388
Best-efforts contracts(41) 15
 30
 31
Total (loss) gain recognized$(211) $(200) $4,713
 $1,233


The following tables set forth the fair value of the Company’s derivative instruments and their location within the Unaudited Condensed Consolidated Balance Sheets for the periods indicated (except for mortgage loans held for sale which isare disclosed as a separate line item):
Asset DerivativesLiability Derivatives
March 31, 2023March 31, 2023
Description of DerivativesBalance Sheet
Location		Fair Value
(in thousands)		Balance Sheet LocationFair Value
(in thousands)
Forward sales of mortgage-backed securitiesOther assets$— Other liabilities$1,770 
Interest rate lock commitmentsOther assets4,284 Other liabilities— 
Whole loan contractsOther assets— Other liabilities757 
Total fair value measurements$4,284 $2,527 
  Asset Derivatives Liability Derivatives
  September 30, 2017 September 30, 2017
Description of Derivatives 
Balance Sheet
Location
 
Fair Value
(in thousands)
 Balance Sheet Location 
Fair Value
(in thousands)
Forward sales of mortgage-backed securities Other assets $471
 Other liabilities $—
Interest rate lock commitments Other assets 366
 Other liabilities —
Best-efforts contracts Other assets —
 Other liabilities 60
Total fair value measurements   $837
   $60

 Asset Derivatives Liability DerivativesAsset DerivativesLiability Derivatives
 December 31, 2016 December 31, 2016December 31, 2022December 31, 2022
Description of Derivatives 
Balance Sheet
Location
 
Fair Value
(in thousands)
 Balance Sheet Location 
Fair Value
(in thousands)
Description of DerivativesBalance Sheet
Location		Fair Value
(in thousands)		Balance Sheet LocationFair Value
(in thousands)
Forward sales of mortgage-backed securities Other assets $230
 Other liabilities $—
Forward sales of mortgage-backed securitiesOther assets$— Other liabilities$3,005 
Interest rate lock commitments Other assets 250
 Other liabilities —
Interest rate lock commitmentsOther assets787 Other liabilities— 
Best-efforts contracts Other assets —
 Other liabilities 90
Whole loan contractsWhole loan contractsOther assets— Other liabilities377 
Total fair value measurements $480
 $90
Total fair value measurements$787 $3,382 
Assets Measured on a Non-Recurring Basis
Inventory. The Company assesses inventory for recoverability on a quarterly basis based on the difference in the carrying value of the inventory and its fair value at the time of the evaluation. Determining the fair value of a community’s inventory involves a number of variables, estimates and projections, which are Level 3 measurement inputs. See Note 1, “Summary of Significant Accounting Policies - Inventory” in the Company’s 20162022 Form 10-K for additional information regarding the Company’s methodology for determining fair value.
The Company uses significant assumptions to evaluate the recoverability of its inventory, such as estimated average selling price, construction and development costs, absorption pacerate (reflecting any product mix change strategies implemented or to be implemented), selling strategies, alternative land uses (including disposition of all or a portion of the land owned), or discount rates. Changes in these assumptions could materially impact future cash flow and fair value estimates and may lead the Company to incur additional impairment charges in the future. Our analysis is conducted only if indicators of a decline in value of our inventory exist, which include, among other things, declines in gross margin on sales contracts in backlog or homes that have been delivered, slower than anticipated absorption pace, declines in average sales price or high incentive offers by management to improve absorptions, declines in margins regarding future land sales, or declines in the value of the land itself
11

as a result of third party appraisals. If communities are not recoverable based on the estimated future undiscounted cash flows, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. During the three and nine months ended September 30, 2017March 31, 2023 and 2016,2022, the Company did not record any impairment charges on its inventory.
Investment in Unconsolidated Joint Ventures. We evaluate our investments in unconsolidated joint ventures for impairment on a quarterly basis based on the difference in the investment’s carrying value and its fair value at the time of the evaluation. If the Company has determined that the decline in value is other than temporary, the Company would write down the value of the investment to its estimated fair value. Determining the fair value of investments in unconsolidated joint ventures involves a number


of variables, estimates and assumptions, which are Level 3 measurement inputs. See Note 1, “Summary of Significant Accounting Policies - Investment in Unconsolidated Joint Ventures,” in the Company’s 20162022 Form 10-K for additional information regarding the Company’s methodology for determining fair value. Because of the high degree of judgment involved in developing these assumptions, it is possible that changes in these assumptions could materially impact future cash flow and fair value estimates of the investments which may lead the Company to incur additional impairment charges in the future. During the ninethree months ended September 30, 2017March 31, 2023 and 2016,2022, the Company did not record any impairment charges on its investments in unconsolidated joint ventures.
Financial Instruments
Counterparty Credit Risk. To reduce the risk associated with losses that would be recognized if counterparties failed to perform as contracted, the Company limits the entities with whom management can enter into commitments. This risk of accounting loss is the difference between the market rate at the time of non-performance by the counterparty and the rate to which the Company committed.
The following table presents the carrying amounts and fair values of the Company’s financial instruments at September 30, 2017March 31, 2023 and December 31, 2016.2022. The objective of the fair value measurement is to estimate the price at which an orderly transaction to sell the asset or transfer the liability would take place between market participants at the measurement date under current market conditions.
March 31, 2023December 31, 2022
(In thousands)Fair Value HierarchyCarrying AmountFair ValueCarrying AmountFair Value
Assets:
Cash, cash equivalents and restricted cashLevel 1$542,564 $542,564 $311,542 $311,542 
Mortgage loans held for saleLevel 2226,629 226,629 242,539 242,539 
Interest rate lock commitmentsLevel 24,284 4,284 787 787 
Liabilities:
Notes payable - homebuilding operationsLevel 2— — — — 
Notes payable - financial services operationsLevel 2223,618 223,618 245,741 245,741 
Senior notes due 2028 (a)
Level 2400,000 370,000 400,000 353,500 
Senior notes due 2030 (a)
Level 2300,000 255,000 300,000 240,750 
Whole loan contracts for committed IRLCs and mortgage loans held for saleLevel 2757 757 377 377 
Forward sales of mortgage-backed securitiesLevel 21,770 1,770 3,005 3,005 
  September 30, 2017 December 31, 2016
(In thousands) Carrying Amount Fair Value Carrying Amount Fair Value
Assets:        
Cash, cash equivalents and restricted cash $103,636
 $103,636
 $34,441
 $34,441
Mortgage loans held for sale 91,987
 91,987
 154,020
 154,020
Split dollar life insurance policies 212
 212
 214
 214
Notes receivable —
 —
 763
 687
Commitments to extend real estate loans 366
 366
 250
 250
Forward sales of mortgage-backed securities 471
 471
 230
 230
Liabilities:        
Notes payable - homebuilding operations —
 —
 40,300
 40,300
Notes payable - financial services operations 91,275
 91,275
 152,895
 152,895
Notes payable - other 4,057
 3,867
 6,415
 5,999
Convertible senior subordinated notes due 2017 (a)
 —
 —
 57,500
 65,957
Convertible senior subordinated notes due 2018 (a)
 86,250
 86,897
 86,250
 88,105
Senior notes due 2021 (a)
 300,000
 313,125
 300,000
 314,250
Senior notes due 2025 (a)
 250,000
 255,000
 —
 —
Best-efforts contracts for committed IRLCs and mortgage loans held for sale 60
 60
 90
 90
Off-Balance Sheet Financial Instruments:        
Letters of credit —
 757
 —
 702
(a)Our senior notes are stated at the principal amount outstanding which does not include the impact of premiums, discounts, and debt issuance costs that are amortized to interest cost over the respective terms of the notes.
(a)Our senior notes and convertible senior subordinated notes are stated at the principal amount outstanding which does not include the impact of premiums, discounts, and debt issuance costs that are amortized to interest cost over the respective terms of the notes.
The following methods and assumptions were used by the Company in estimating its fair value disclosures of financial instruments at September 30, 2017March 31, 2023 and December 31, 2016:2022:
Cash, Cash Equivalents and Restricted Cash. The carrying amounts of these items approximate fair value because they are short-term by nature.
Mortgage Loans Held for Sale, Forward Sales of Mortgage-Backed Securities, Interest Rate Lock Commitments, to Extend Real Estate Loans, Best-EffortsWhole Loan Contracts for Committed IRLCs and Mortgage Loans Held for Sale, Convertible Senior Subordinated Notes due 2017, Convertible Senior Subordinated Notes due 2018, Senior Notes due 20212028 and Senior Notes due 2025. 2030. The fair value of these financial instruments was determined based upon market quotes at September 30, 2017March 31, 2023 and December 31, 2016.2022. The market quotes used were quoted prices for similar assets or liabilities along with inputs taken from observable market data by correlation. The inputs were adjusted to account for the condition of the asset or liability.
Split Dollar Life Insurance Policy and Notes Receivable. The estimated fair value was determined by calculating the present value of the amounts based on the estimated timing of receipts using discount rates that incorporate management’s estimate of risk associated with the corresponding note receivable.
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Notes Payable - Homebuilding Operations. The interest rate available to the Company at September 30, 2017during the quarter ended March 31, 2023 under the Company’s $475$650 million unsecured revolving credit facility, dated July 18, 2013, as most recently amended on July 18, 2017 (the “Credit Facility”), fluctuated daily with the one-month LIBORsecured overnight financing rate (“SOFR”) plus a margin of 250175 basis points, and thus the carrying value is a reasonable estimate of fair value. ReferSee Note 8 to Note 7our financial statements for additional information regarding the Credit Facility.
Notes Payable - Financial Services Operations. M/I Financial, LLC, a 100%-owned subsidiary of M/I Homes, Inc. (“M/I Financial”), is a party to two credit agreements: (1) a $125$200 million secured mortgage warehousing agreement, (which increases to $150 million during certain periods), dated June 24, 2016, as amended on June 23, 2017May 27, 2022 (the “MIF Mortgage Warehousing Agreement”); and (2) a $35$90 million mortgage repurchase agreement, dated November 3, 2015,October 30, 2017, as amended most recently amended on May 16, 2017October 24, 2022 (the “MIF Mortgage Repurchase Facility”). For each of these credit facilities, the interest rate is based on a variable rate index, and thus their carrying value is a reasonable estimate of fair value. The interest rate available to M/I Financial during the thirdfirst quarter of 20172023 fluctuated with LIBOR. ReferSOFR or BSBY, as applicable. See Note 8 to Note 7our financial statements for additional information regarding the MIF Mortgage Warehousing Agreement and the MIF Mortgage Repurchase Facility.
Notes Payable - Other. The estimated fair value was determined by calculating the present value of the future cash flows using the Company’s current incremental borrowing rate.
Letters of Credit. Letters of credit of $41.4 million and $37.7 million represent potential commitments at September 30, 2017 and December 31, 2016, respectively. The letters of credit generally expire within one or two years. The estimated fair value of letters of credit was determined using fees currently charged for similar agreements.
NOTE 5. Guarantees and Indemnifications
In the ordinary course of business, M/I Financial a 100%-owned subsidiary of M/I Homes, Inc., enters into agreements that provide a limited-life guarantee on loans sold to certain third-party purchasers of its mortgage loans that M/I Financial will repurchase a loan if certain conditions occur, primarily if the mortgagor does not meet the terms of the loan within the first six months after the sale of the loan. Loans totaling approximately $36.7$493.5 million and $27.6$360.4 million were covered under these guarantees as of September 30, 2017March 31, 2023 and December 31, 2016,2022, respectively.  The increase in loans covered by these guarantees from December 31, 2016 is a result of a change in the mix of investors and their related purchase terms.  A portion of the revenue paid to M/I Financial for providing the guarantees on these loans was deferred at September 30, 2017,March 31, 2023, and will be recognized in income as M/I Financial is released from its obligation under the guarantees. The risk associated with the guarantees above is offset by the value of the underlying assets.
M/I Financial has received inquiries concerning underwriting matters from purchasers of its loans regarding certain loans totaling approximately $0.6$1.9 million and $0.9$2.4 million at September 30, 2017March 31, 2023 and December 31, 2016,2022, respectively.
M/I Financial has also guaranteed the collectability of certain loans to third party insurers (U.S. Department of Housing and Urban Development and U.S. Veterans Administration) of those loans for periods ranging from five to thirty years. As of September 30, 2017 and December 31, 2016, the total of all loans indemnified to third party insurers relating to the above agreements was $1.3 million and $1.6 million, respectively. The maximum potential amount of future payments is equal to the outstanding loan value less the value of the underlying asset plus administrative costs incurred related to foreclosure on the loans, should this event occur.
The Company recorded a liability relating to the guarantees described above totaling $0.6 million and $0.7 million and $0.9 million at September 30, 2017March 31, 2023 and December 31, 2016,2022, respectively, which is management’s best estimate of the Company’s liability.liability with respect to such guarantees.
NOTE 6. Commitments and Contingencies
Warranty
We use subcontractors for nearly all aspects of home construction. Although our subcontractors are generally required to repair and replace any product or labor defects, we are, during applicable warranty periods, ultimately responsible to the homeowner for making such repairs. As such, we record warranty reserves to cover our exposure to the costs for materials and labor not expected to be covered by our subcontractors to the extent they relate to warranty-type claims. Warranty reserves are established by charging cost of sales and crediting a warranty reserve for each home delivered.  The amounts charged are estimated by management to be adequate to cover expected warranty-related costs under the Company’s warranty programs. Warranty reserves are recorded for warranties under our Home Builder’s Limited Warranty (“HBLW”), and our 30-year (offered on all homes sold after April 25, 1998 and on or before December 1, 2015 in all of our markets except our Texas markets), 15-year (offered on all homes sold after December 1, 2015 in all of our markets except our Texas markets) or 10-year (offered on all homes sold in our Texas markets) transferable structural warranty in Other Liabilities on the Company’s Unaudited Condensed Consolidated Balance Sheets.
The warranty reserves for the HBLW are established as a percentage of average sales price and adjusted based on historical payment patterns determined, generally, by geographic area and recent trends. Factors that are given consideration in determining the


HBLW reserves include: (1) the historical range of amounts paid per average sales price on a home; (2) type and mix of amenity packages added to the home; (3) any warranty expenditures not considered to be normal and recurring; (4) timing of payments; (5) improvements in quality of construction expected to impact future warranty expenditures; and (6) conditions that may affect certain projects and require a different percentage of average sales price for those specific projects. Changes in estimates for warranties occur due to changes in the historical payment experience and differences between the actual payment pattern experienced during the period and the historical payment pattern used in our evaluation of the warranty reserve balance at the end of each quarter. Actual future warranty costs could differ from our current estimated amount.
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Our warranty reserves for our transferable structural warranty programs are established on a per-unit basis. While the structural warranty reserve is recorded as each house is delivered, the sufficiency of the structural warranty per unit charge and total reserve is re-evaluatedreevaluated on an annual basis, with the assistance of an actuary, using our own historical data and trends, industry-wide historical data and trends, and other project specific factors. The reserves are also evaluated quarterly and adjusted if we encounter activity that is inconsistent with the historical experience used in the annual analysis. These reserves are subject to variability due to uncertainties regarding structural defect claims for products we build, the markets in which we build, claim settlement history, insurance and legal interpretations, among other factors.
Our warranty reserve amounts are based upon historical experience and geographic location. While we believe that our warranty reserves are sufficient to cover our projected costs, there can be no assurances that historical data and trends will accurately predict our actual warranty costs.
A summary of warranty activity for the three and nine months ended September 30, 2017March 31, 2023 and 20162022 is as follows:
Three Months Ended March 31,
(In thousands)20232022
Warranty reserves, beginning of period$32,902 $29,728 
Warranty expense on homes delivered during the period5,373 4,559 
Changes in estimates for pre-existing warranties643 272 
Settlements made during the period(5,725)(5,087)
Warranty reserves, end of period$33,193 $29,472 
 Three Months Ended September 30, Nine Months Ended September 30,
(In thousands)2017 2016 2017 2016
Warranty reserves, beginning of period$30,303
 $15,815
 $27,732
 $14,281
Warranty expense on homes delivered during the period2,882
 2,755
 8,094
 7,276
Changes in estimates for pre-existing warranties92
 526
 1,154
 563
Charges related to stucco-related claims (a)
—
 14,500
 8,500
 19,409
Settlements made during the period(6,209) (5,658) (18,412) (13,591)
Warranty reserves, end of period$27,068
 $27,938
 $27,068
 $27,938
(a)Estimated stucco-related claim costs, as described below, have been included in warranty accruals.
We have received claims related to stucco installation from homeowners in certain of our communities in our Tampa and Orlando, Florida markets and have been named as a defendant in legal proceedings initiated by certain of such homeowners. These claims primarily relate to homes built prior to 2014 which have second story elevations with frame construction.
During 2015, we repaired certain of the identified homes and accrued for the estimated future cost of repairs for the other identified homes on which repairs had yet to be completed. The aggregate amounts of such repair costs and accruals were not material, and the reserve for identified homes in need of more than minor repair at December 31, 2015 was $0.5 million.
During 2016, based on our review of the stucco issues in our Florida communities, we recorded a $19.4 million warranty charge for stucco-related repair costs for (1) homes in our Florida communities that we had identified as needing repair but had not yet completed the repair and (2) estimated repair costs for homes in our Florida communities that we had not yet identified as needing repair but that may require repair in the future.
During 2017, we have continued our review of the stucco issues in our Florida communities. Based on an analysis of the relevant data, including additional data that we had gathered during the period since the 2016 review, in the second quarter of 2017, we determined to increase our previous estimate of the future stucco-related repair costs in our Florida communities. As a result, during the second quarter of 2017, we recorded an additional $8.5 million warranty charge for stucco-related repairs in our Florida communities, which was included as a change in estimate within our warranty reserve. The remaining reserve for both known repair costs and an estimate of future costs of stucco-related repairs at September 30, 2017 included within our warranty reserve was $11.3 million. We believe that this amount is sufficient to cover both known and estimated future repair costs as of September 30, 2017.
Our review of the stucco-related issues in our Florida communities is ongoing. Our estimate of future costs of stucco-related repairs is based on our judgment, various assumptions and internal data. Due to the degree of judgment and the potential for variability in our underlying assumptions and data, as we obtain additional information, we may revise our estimate, including to reflect additional estimated future stucco repairs costs, which revision could be material.
We also are continuing to investigate the extent to which we may be able to recover a portion of our stucco repair and claims handling costs from other sources, including our direct insurers, the subcontractors involved with the construction of the homes


and their insurers. As of September 30, 2017, we are unable to estimate an amount, if any, that we believe is probable that we will recover from these sources and, accordingly, we have not recorded a receivable for estimated recoveries nor included an estimated amount of recoveries in determining our warranty reserves.


Performance Bonds and Letters of Credit


At September 30, 2017,March 31, 2023, the Company had outstanding approximately $167.7$388.8 million of completion bonds and standby letters of credit, some of which were issued to various local governmental entities that expire at various times through September 2024.November 2027. Included in this total are: (1) $118.8$307.1 million of performance and maintenance bonds and $32.9$69.6 million of performance letters of credit that serve as completion bonds for land development work in progress; (2) $8.5$4.0 million of financial letters of credit, of which $7.8$3.5 million represent deposits on land and lot purchase agreements; and (3) $7.5$4.8 million of financial bonds.bonds; and (4) $3.3 million of corporate notes.


Land Option Contracts and Other Similar Contracts


At September 30, 2017,March 31, 2023, the Company also had options and contingent purchase agreements to acquire land and developed lots with an aggregate purchase price of approximately $672.9$824.6 million. Purchase of properties under these agreements is contingent upon satisfaction of certain requirements by the Company and the sellers.
Legal Matters


In addition to the legal proceedings related to stucco, theThe Company and certain of its subsidiaries have been named as defendants in certain other legal proceedings which are incidental to our business. While management currently believes that the ultimate resolution of these other legal proceedings, individually and in the aggregate, will not have a material effect on the Company’s financial position, results of operations and cash flows, such legal proceedings are subject to inherent uncertainties. The Company has recorded a liability to provide for the anticipated costs, including legal defense costs, associated with the resolution of these other legal proceedings. However, the possibility exists that the costs to resolve these legal proceedings could differ from the recorded estimates and, therefore, have a material effect on the Company’s net income for the periods in which they are resolved. At September 30, 2017both March 31, 2023 and December 31, 2016,2022, we had $0.4 million and $0.3$1.2 million reserved for legal expenses, respectively.expenses.

Self-insurance Reserves.NOTE 7. Goodwill
Our general liability claims are insured by a third party, subject to a deductible. Effective for home closings occurring on or after July 1, 2017,Goodwill represents the excess of the purchase price paid over the fair value of the net assets acquired and liabilities assumed in business combinations. In connection with the Company’s acquisition of the homebuilding assets and operations of Pinnacle Homes in Detroit, Michigan in March of 2018, the Company renewed its general liability insurance coveragerecorded goodwill of $16.4 million, which among other things, changedis included as Goodwill in our Consolidated Balance Sheets. This amount was based on the structureestimated fair values of our completed operations/construction defect deductible to $10.0 millionthe acquired assets and liabilities at the date of the acquisition in accordance with ASC 350.

In accordance with ASC 350, the Company analyzes goodwill for the entire company (for closings prior to July 1, 2017, our completed operations/construction defect deductible was $7.5 million for eachimpairment on an annual basis (or more often if indicators of our regions), and decreased our third party claims deductible to $250,000 (a decrease from $500,000 for closings prior to July 1, 2017)impairment exist). The Company recordsperforms a reservequalitative assessment to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its
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carrying amount. If the qualitative assessment indicates that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, then a quantitative assessment is performed to determine the reporting unit’s fair value. If the reporting unit’s carrying value exceeds its fair value, then an impairment loss is recognized for general liability claims falling below the Company’s deductible.amount of the excess of the carrying amount over the reporting unit’s fair value. The reserve estimate is based on an actuarial evaluationCompany performed its annual goodwill impairment analysis via a quantitative test during the fourth quarter of our past history2022, and there was no impairment recorded at December 31, 2022. At March 31, 2023, no indicators for impairment existed and therefore no impairment was recorded. However, we will continue to monitor the fair value of general liability claims,the reporting unit in future periods if conditions worsen or other industry specific factors and specific event analysis.events occur that could impact the fair value of the reporting unit.
NOTE 7.8. Debt
Notes Payable - Homebuilding
The Credit Facility provides for an aggregate commitment amount of $475$650 million including a $125 million sub-facility for letters of credit. In addition, the Credit Facility hasand also includes an accordion feature underpursuant to which the Companymaximum borrowing availability may increase thebe increased to an aggregate commitment amount up to $500of $800 million, subject to certain conditions, including obtaining additional commitments from existing or new lenders. The Credit Facility expiresmatures on July 18, 2021.December 9, 2026. Interest on amounts borrowed under the Credit Facility is payable at multiple interest rate options including one, three or six month adjusted term SOFR (subject to a rate which is adjusted daily and is equal to the sumfloor of the one-month LIBOR rate0.25%) plus a margin of 250175 basis points. The margin is subjectpoints (subject to adjustment in subsequent quarterly periods based on the Company’s leverage ratio.ratio). The Credit Facility also contains certain financial covenants. At September 30, 2017,March 31, 2023, the Company was in compliance with all financial covenants of the Credit Facility.
The available amount under the Credit Facility is computed in accordance with a borrowing base, which is calculated by applying various advance rates for different categories of inventory, and totaled $512.1 million$1.69 billion of availability for additional senior debt at September 30, 2017.March 31, 2023. As a result, the full $475$650 million commitment amount of the Credit Facility was available, less any borrowings and letters of credit outstanding. At September 30, 2017,March 31, 2023, there were no borrowings outstanding and $40.8$73.6 million of letters of credit outstanding, leaving a net remaining borrowing availability of $434.2$576.4 million. The Credit Facility includes a $250 million sub-facility for letters of credit.
The Company’s obligations under the Credit Facility are guaranteed by all of the Company’s subsidiaries, with the exception of subsidiaries that are primarily engaged in the business of mortgage financing, title insurance or similar financial businesses relating


to the homebuilding and home sales business, certain subsidiaries that are not 100%-owned by the Company or another subsidiary, and other subsidiaries designated by the Company as Unrestricted Subsidiaries (as defined in Note 11)the Credit Facility), subject to limitations on the aggregate amount invested in such Unrestricted Subsidiaries in accordance with the terms of the Credit Facility the indenture governing the Company’s $250.0 million aggregate principal amount of 5.625% Senior Notes due 2025 (the “2025 Senior Notes”) and the indentureindentures governing the Company’s $300.0 million aggregate principal amount of 6.75%3.95% Senior Notes due 20212030 (the “2021“2030 Senior Notes”) and the Company’s $400.0 million aggregate principal amount of 4.95% Senior Notes due 2028 (the “2028 Senior Notes”). The guarantors for the Credit Facility (the “Guarantor Subsidiaries”“Subsidiary Guarantors”) are the same subsidiaries that guarantee the 2025 Senior Notes, 20212030 Senior Notes and the Company’s $86.3 million aggregate principal amount of 3.0% Convertible2028 Senior Subordinated Notes due 2018 (the “2018 Convertible Senior Subordinated Notes”).Notes.
The Company’s obligations under the Credit Facility are general, unsecured senior obligations of the Company and the Guarantor SubsidiariesSubsidiary Guarantors and rank equally in right of payment with all our and the Guarantor Subsidiaries’Subsidiary Guarantors’ existing and future unsecured senior indebtedness. Our obligations under the Credit Facility are effectively subordinated to our and the Guarantor Subsidiaries’Subsidiary Guarantors’ existing and future secured indebtedness with respect to any assets comprising security or collateral for such indebtedness.
As of September 30, 2017, the Company was party to a secured credit facility agreement for the issuance of letters of credit (the “Letter of Credit Facility”). During the third quarter of 2017, the Company extended the maturity date of the Letter of Credit Facility for an additional year to September 30, 2018 and also reduced the maximum available amount under the facility from $2.0 million to $1.0 million. At both September 30, 2017 and December 31, 2016, there was $0.6 million of outstanding letters of credit in aggregate under the Letter of Credit Facility, which were collateralized with $0.6 million of the Company’s cash.
Notes Payable —- Financial Services
The MIF Mortgage Warehousing Agreement is used to finance eligible residential mortgage loans originated by M/I Financial. The MIF Mortgage Warehousing Agreement provides for a maximum borrowing availability of $125$200 million, which may be increased to $150$275 million during certainfrom September 19, 2022 to November 13, 2022 and increased to $300 million from November 14, 2022 to February 6, 2023, which are periods of expected increases in the volume of mortgage originations, specifically from September 25, 2017 to October 16, 2017 and from December 15, 2017 to February 2, 2018.originations. The MIF Mortgage Warehousing Agreement expires on June 22, 2018.May 26, 2023. Interest on amounts borrowed under the MIF Mortgage Warehousing Agreement is payable at a per annum rate equal to the greaterone-month BSBY rate (adjusting daily subject to a floor of (1) the floating LIBOR rate0.25%) plus a
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spread of 237.5190 basis points and (2) 2.75%.points. The MIF Mortgage Warehousing Agreement also contains certain financial covenants. At September 30, 2017,March 31, 2023, M/I Financial was in compliance with all financial covenants of the MIF Mortgage Warehousing Agreement.
The MIF Mortgage Repurchase Facility is used to finance eligible residential mortgage loans originated by M/I Financial. The MIF Mortgage Repurchase Facility provides for a mortgage repurchase facility with a maximum borrowing availability of $35$90 million. The MIF Mortgage Repurchase Facility expires on October 30, 2017. M/I Financial expects to enter into an amendment to the MIF Mortgage Repurchase Facility prior to its expiration that would extend its term for an additional year, but M/I Financial can provide no assurance that it will be able to obtain such an extension.23, 2023. M/I Financial pays interest on each advance under the MIF Mortgage Repurchase Facility at a per annum rate equal to One-Month Term SOFR (subject to an all-in floor of 2.375% or 2.75% based on the floating LIBOR ratetype of loan) and adjusts certain financial covenant limits, plus 250150 or 275200 basis points depending on the loan type. The MIF Mortgage Repurchase Facility also contains certain financial covenants. At September 30, 2017,March 31, 2023, M/I Financial was in compliance with all financial covenants of the MIF Mortgage Repurchase Facility.
At both September 30, 2017March 31, 2023 and December 31, 2016,2022, M/I Financial’s total combined maximum borrowing availability under the two credit facilities was $185.0$290.0 million due to the seasonal increase to the MIF Mortgage Warehousing Agreement in effect from September 25, 2017 through October 15, 2017 and December 15, 2016 through February 1, 2017.$390.0 million, respectively. At September 30, 2017March 31, 2023 and December 31, 2016,2022, M/I Financial had $91.3$223.6 million and $152.9$245.7 million, respectively, in borrowings outstanding on a combined basis under its credit facilities, respectively.facilities.
Senior Notes
In August 2017,As of both March 31, 2023 and December 31, 2022, we issued $250.0had $300.0 million of 2025our 2030 Senior Notes.Notes outstanding. The 20252030 Senior Notes bear interest at a rate of 5.625%3.95% per year, payable semiannually in arrears on February 15 and August 15 of each year, and mature on February 15, 2030. The Company may redeem some or all of the 2030 Senior Notes at any time prior to August 15, 2029 (the date that is six months prior to the maturity of the 2030 Senior Notes), at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the redemption date, plus a “make-whole” amount set forth in the indenture governing the 2030 Senior Notes. In addition, on or after August 15, 2029 (the date that is six months prior to the maturity of the 2030 Senior Notes), the Company may redeem some or all of the 2030 Senior Notes at a redemption price equal to 100.000% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the redemption date.
As of both March 31, 2023 and December 31, 2022, we had $400.0 million of our 2028 Senior Notes outstanding. The 2028 Senior Notes bear interest at a rate of 4.95% per year, payable semiannually in arrears on February 1 and August 1 of each year (commencingand mature on February 1, 2018), and mature on August 1, 2025.2028. We may redeem all or any portion of the 20252028 Senior Notes on or after August 1, 2020 at a stated redemption price, together with accrued and unpaid interest thereon. The redemption price will initially be 104.219%is currently 103.713% of the principal amount outstanding, but will decline to 102.813%102.475% of the principal amount outstanding if redeemed during the 12-month period beginning on AugustFebruary 1, 2021,2024, will further decline to 101.406%101.238% of the principal amount outstanding if redeemed during the 12-month period beginning on AugustFebruary 1, 20222025 and will further decline to 100.000% of the principal amount outstanding if redeemed on or after AugustFebruary 1, 2023, but prior to maturity.
As of both September 30, 2017 and December 31, 2016, we had $300.0 million of our 2021 Senior Notes outstanding. The 2021 Senior Notes bear interest at a rate of 6.75% per year, payable semiannually in arrears on January 15 and July 15 of each year, and mature on January 15, 2021. We may redeem all or any portion of the 2021 Senior Notes on or after January 15, 2018 at a stated


redemption price, together with accrued and unpaid interest thereon. The redemption price will initially be 103.375% of the principal amount outstanding, but will decline to 101.688% of the principal amount outstanding if redeemed during the 12-month period beginning on January 15, 2019, and will further decline to 100.000% of the principal amount outstanding if redeemed on or after January 15, 2020,2026, but prior to maturity.
The 2025 Senior Notes and the 20212030 Senior Notes contain certain covenants, as more fully described and defined in the indenturesindenture governing the 20252030 Senior Notes, which limit the ability of the Company and the restricted subsidiaries to, among other things: incur certain liens securing indebtedness without equally and ratably securing the 2030 Senior Notes and the 2021guarantees thereof; enter into certain sale and leaseback transactions; and consolidate or merge with or into other companies, liquidate or sell or otherwise dispose of all or substantially all of the Company’s assets. These covenants are subject to a number of exceptions and qualifications as described in the indenture governing the 2030 Senior Notes. As of March 31, 2023, the Company was in compliance with all terms, conditions, and covenants under the indenture.
The 2028 Senior Notes contain certain covenants, as more fully described and defined in the indenture governing the 2028 Senior Notes, which limit the ability of the Company and the restricted subsidiaries to, among other things: incur additional indebtedness; make certain payments, including dividends, or repurchase any shares, in an aggregate amount exceeding our “restricted payments basket”; make certain investments; and create or incur certain liens, consolidate or merge with or into other companies, or liquidate or sell or transfer all or substantially all of our assets. These covenants are subject to a number of exceptions and qualifications as described in the indenture governing the 2025 Senior Notes and the indenture governing the 20212028 Senior Notes. As of September 30, 2017,March 31, 2023, the Company was in compliance with all terms, conditions, and covenants under the indentures.indenture.
The 20252030 Senior Notes and the 20212028 Senior Notes are fully and unconditionally guaranteed jointly and severally on a senior unsecured basis by the Guarantor Subsidiaries.Subsidiary Guarantors. The 20252030 Senior Notes and the 20212028 Senior Notes are general, unsecured senior obligations of the Company and the Guarantor SubsidiariesSubsidiary Guarantors and rank equally in right of payment with all our and the Guarantor Subsidiaries’Subsidiary Guarantors’ existing and future unsecured senior indebtedness.  The 20252030 Senior Notes and the 20212028 Senior Notes are effectively subordinated to our and the Guarantor Subsidiaries’Subsidiary Guarantors’ existing and future secured indebtedness with respect to any assets comprising security or collateral for such indebtedness.
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The indenture governing the 20252028 Senior Notes and the indenture governing the 2021 Senior Notes limitlimits our ability to pay dividends on, and repurchase, our common shares and any of our preferred shares then outstanding to the amount of the positive balance in our “restricted payments basket,” as defined in the indentures. In each case, theindenture. The “restricted payments basket” is equal to $125.0 million plus (1) 50% of our aggregate consolidated net income (or minus 100% of our aggregate consolidated net loss) from October 1, 2015, excluding income or loss from Unrestricted Subsidiaries (as defined in the indenture), plus (2) 100% of the net cash proceeds from either contributions to the common equity of the Company after December 1, 2015 or the sale of qualified equity interests after December 1, 2015, plus other items and subject to other exceptions. The positive balance in our restricted payments basket was $220.4 million and $144.9$708.2 million at September 30, 2017March 31, 2023 and $661.7 million at December 31, 2016, respectively.2022. The determination to pay future dividends on, or make future repurchases of, our common shares will be at the discretion of our board of directors and will depend upon our results of operations, financial condition, capital requirements and compliance with debt covenants, and other factors deemed relevant by our board of directors. Please see directors (see Note 1312 for additional information related to our Series A Preferred Shares.financial statements for more information).
Convertible Senior Subordinated Notes
As of both September 30, 2017 and December 31, 2016, we had $86.3 million of our 2018 Convertible Senior Subordinated Notes outstanding. The 2018 Convertible Senior Subordinated Notes bear interest at a rate of 3.0% per year, payable semiannually in arrears on March 1 and September 1 of each year. The 2018 Convertible Senior Subordinated Notes mature on March 1, 2018. At any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their 2018 Convertible Senior Subordinated Notes into the Company’s common shares. The conversion rate initially equals 30.9478 shares per $1,000 of principal amount. This corresponds to an initial conversion price of approximately $32.31 per common share, which equates to approximately 2.7 million common shares. The conversion rate is subject to adjustment upon the occurrence of certain events. The 2018 Convertible Senior Subordinated Notes are fully and unconditionally guaranteed jointly and severally on a senior subordinated unsecured basis by the Guarantor Subsidiaries. The 2018 Convertible Senior Subordinated Notes are senior subordinated unsecured obligations of the Company and the Guarantor Subsidiaries, are subordinated in right of payment to our and the Guarantor Subsidiaries’ existing and future senior indebtedness and are also effectively subordinated to our and the Guarantor Subsidiaries’ existing and future secured indebtedness with respect to any assets comprising security or collateral for such indebtedness. The indenture governing the 2018 Convertible Senior Subordinated Notes requires the Company to repurchase the notes (subject to certain exceptions), at a holder’s option, upon the occurrence of a fundamental change (as defined in the indenture).
The Company may redeem for cash any or all of the 2018 Convertible Senior Subordinated Notes (except for any 2018 Convertible Senior Subordinated Notes that the Company is required to repurchase in connection with a fundamental change), but only if the last reported sale price of the Company’s common shares exceeds 130% of the applicable conversion price for the notes on each of at least 20 applicable trading days. The 20 trading days do not need to be consecutive, but must occur during a period of 30 consecutive trading days that ends within 10 trading days immediately prior to the date the Company provides the notice of redemption. The redemption price for the 2018 Convertible Senior Subordinated Notes to be redeemed will equal 100% of the principal amount, plus accrued and unpaid interest, if any.


On September 11, 2012, the Company issued $57.5 million in aggregate principal amount of 3.25% Convertible Senior Subordinated Notes due 2017 (the “2017 Convertible Senior Subordinated Notes”). The 2017 Convertible Senior Subordinated Notes were scheduled to mature on September 15, 2017 and the deadline for holders to convert the 2017 Convertible Senior Subordinated Notes was September 13, 2017. As a result of conversion elections made by holders of the 2017 Convertible Senior Subordinated Notes, all $57.5 million in aggregate principal amount of the 2017 Convertible Senior Subordinated Notes were converted and settled through the issuance of our common shares. In total, we issued approximately 2.4 million common shares (at a conversion price per common share of $23.80). In accordance with the indenture governing the 2017 Convertible Senior Subordinated Notes, the Company paid interest on such Notes to but excluding September 15, 2017. On December 31, 2016, we had $57.5 million of our 2017 Convertible Senior Subordinated Notes outstanding.
Notes Payable - Other
The Company had other borrowings, which are reported in Notes Payable - Other in our Unaudited Condensed Consolidated Balance Sheets, totaling $4.1 million and $6.4 million as of September 30, 2017 and December 31, 2016, respectively.  The balance at December 31, 2016 included a mortgage note payable on our principal executive office building with a principal balance outstanding of $3.4 million, which was subsequently paid off in April of 2017. The remaining balance is made up of other notes payable incurred through the normal course of business.
NOTE 8. Preferred Shares
The Company’s Articles of Incorporation authorize the issuance of up to 2,000,000 preferred shares, par value $.01 per share.  On March 15, 2007, the Company issued 4,000,000 depositary shares, each representing 1/1000th of a 9.75% Series A Preferred Share of the Company (the “Series A Preferred Shares”), or 4,000 Series A Preferred Shares in the aggregate.  On April 10, 2013, the Company redeemed 2,000 of its Series A Preferred Shares (and the 2,000,000 related depositary shares) for an aggregate redemption price of approximately $50.4 million in cash. On September 14, 2017, the Company announced that it will redeem the remaining 2,000 outstanding Series A Preferred Shares (and the 2,000,000 related depositary shares) on October 16, 2017 for an aggregate redemption price of approximately $50.4 million in cash. The redemption was consummated on October 16, 2017.
The Company declared and paid a quarterly dividend of $609.375 per share on its Series A Preferred Shares in both the third quarter of 2017 and 2016 for $1.2 million and has paid aggregate dividend payments of $3.7 million for the nine months ended September 30, 2017 and 2016. Please see Note 13 for additional information related to our Series A Preferred Shares.


NOTE 9. Earnings Per Share
The table below presents a reconciliation between basic and diluted weighted average shares outstanding, net income, available to common shareholders and basic and diluted income per share for the three and nine months ended September 30, 2017March 31, 2023 and 2016:2022:
Three Months Ended
March 31,
(In thousands, except per share amounts)20232022
NUMERATOR
Net income$103,066 $91,839 
DENOMINATOR
Basic weighted average shares outstanding27,602 28,424 
Effect of dilutive securities:
Stock option awards378 336 
Deferred compensation awards325 312 
Diluted weighted average shares outstanding28,305 29,072 
Earnings per common share:
Basic$3.73 $3.23 
Diluted$3.64 $3.16 
Anti-dilutive equity awards not included in the calculation of diluted earnings per common share266 434 
  Three Months Ended Nine Months Ended
  September 30, September 30,
(In thousands, except per share amounts) 2017 2016 2017 2016
NUMERATOR        
Net income $22,327
 $10,942
 $56,199
 $36,047
Preferred stock dividends (1,218) (1,218) (3,656) (3,656)
Excess of fair value over book value of preferred shares subject to redemption (2,257) —
 (2,257) —
Net income to common shareholders 18,852
 9,724
 50,286
 32,391
Interest on 3.25% convertible senior subordinated notes due 2017 324
 378
 1,106
 1,152
Interest on 3.00% convertible senior subordinated notes due 2018 530
 510
 1,586
 1,554
Diluted income available to common shareholders $19,706
 $10,612
 $52,978
 $35,097
DENOMINATOR        
Basic weighted average shares outstanding 25,581
 24,669
 25,106
 24,665
Effect of dilutive securities:        
Stock option awards 248
 231
 302
 200
Deferred compensation awards 237
 154
 207
 143
3.25% convertible senior subordinated notes due 2017 1,940
 2,416
 2,255
 2,416
3.00% convertible senior subordinated notes due 2018 2,669
 2,669
 2,669
 2,669
Diluted weighted average shares outstanding - adjusted for assumed conversions 30,675
 30,139
 30,539
 30,093
Earnings per common share:        
Basic $0.74
 $0.39
 $2.00
 $1.31
Diluted $0.64
 $0.35
 $1.73
 $1.17
Anti-dilutive equity awards not included in the calculation of diluted earnings per common share —
 896
 31
 1,288
On September 14, 2017, the Company announced that it will redeem all 2,000 of its outstanding Series A Preferred Shares on October 16, 2017 and recognized a $2.3 million non-cash equity charge related to the excess of fair value over carrying value relating primarily to the original issuance costs that were paid in 2007, which reduced net income to common shareholders in the earnings per share calculation above for the three months and nine months ended September 30, 2017. On October 16, 2017, the redemption was completed. Refer to Note 8 and Note 13 of our Unaudited Condensed Consolidated Financial Statements for additional details.

For the three and nine months ended September 30, 2017 and 2016, the effect of our convertible debt outstanding was included in the diluted earnings per share calculations.
NOTE 10. Income Taxes
The Inflation Reduction Act (IRA) was enacted on August 16, 2022 to address the high cost of prescription drugs, healthcare availability, climate change and inflation. The IRA extended the energy efficient homes credit through 2032 and, as a result, the Company recognized an $0.9 million tax benefit during the first quarter of 2023.

During the three and nine months ended September 30, 2017,March 31, 2023 and 2022, the Company recorded a tax provision of $12.3$32.9 million and $30.0$30.4 million, respectively, which reflects income tax expense related to the period’s income before income taxes.taxes for the periods. The effective tax rate for the three and nine months ended September 30, 2017March 31, 2023 and 2022 was 35.6%24.2% and 34.8%24.9%, respectively, which includedrespectively. The decrease in the effective rate from the three months ended March 31, 2023 was primarily attributable to an increase in tax expense related to the expected tax benefits for the domestic production activities deduction and excess tax benefitsbenefit from employee share-based payment transactions exercisedenergy efficient home credits during the first nine monthsquarter of 2017 per ASU 2016-09. During the three and nine months ended September 30, 2016, the Company recorded a tax provision of $7.5 million and $22.1 million, respectively, which reflects income tax expense related to the period’s income before income taxes. The effective tax rate for the three and nine months ended September 30, 2016 was 40.7% and 38.0%, respectively, which included tax expense related to the expected tax benefits for the domestic production activities deduction and tax expense related to state tax rate changes.2023.
During 2016, the Company fully utilized its federal NOL carryforwards and federal credit carryforwards. The Company had $4.2 million of state NOL carryforwards, net of the federal benefit, at September 30, 2017. Our state NOLs may be carried forward from one to 16 years, depending on the tax jurisdiction, with $1.2 million expiring between 2022 and 2027 and $3.0 million expiring between 2028 and 2032, absent sufficient state taxable income.



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NOTE 11. Business Segments
The Company’s chief operating decision makers evaluate the Company’s performance in various ways, including: (1) the results of our 15 individual homebuilding operating segments and the results of our financial services operations; (2) the results of our three homebuilding reportable segments; and (3) our consolidated financial results.
In accordance with ASC 280, Segment Reporting (“ASC 280”), we have identified each homebuilding division as an operating segment as each homebuilding division engages in business activities from which it earns revenue, primarily from the sale and construction of single-family attached and detached homes, acquisition and development of land, and the occasional sale of lotshave elected to third parties. Our financial services operations generate revenue primarily from the origination, sale and servicing of mortgage loans and title services primarily for purchasers of the Company’s homes and are included inaggregate our financial services reportable segment. In accordance with the aggregation criteria defined in ASC 280, we have determined ouroperating segments into separate reportable segments are as follows: Midwest homebuilding; Southern homebuilding; Mid-Atlantic homebuilding; and financial services operations.  The homebuilding operating segments that are included within each reportable segment have been aggregated because they share similar aggregation characteristics as prescribed in ASC 280 in the following regards: (1) long-term economic characteristics; (2) historical and expected future long-term gross margin percentages; (3) housing products, production processes and methods of distribution; and (4) geographical proximity.
The homebuilding operating segments that comprise each of our reportable segments are as follows:
MidwestNorthernSouthernMid-Atlantic
Chicago, IllinoisOrlando,Ft. Myers/Naples, FloridaCharlotte, North Carolina
Cincinnati, OhioSarasota,Orlando, FloridaRaleigh, North Carolina
Columbus, OhioTampa,Sarasota, FloridaWashington, D.C.
Indianapolis, IndianaAustin, TexasTampa, Florida
Minneapolis/St. Paul, MinnesotaAustin, Texas
Detroit, MichiganDallas/Fort Worth, Texas
Houston, Texas
San Antonio, Texas
Charlotte, North Carolina
Raleigh, North Carolina
Nashville, Tennessee




The following table shows, by segment:segment, revenue, operating income (loss) and interest (income) expense for the three and nine months ended September 30, 2017March 31, 2023 and 2016:2022, as well as the Company’s income before income taxes for such periods:
Three Months Ended March 31,
(In thousands)20232022
Revenue:
Northern homebuilding$382,730 $353,786 
Southern homebuilding592,519 482,914 
Financial services (a)
25,281 24,111 
Total revenue$1,000,530 $860,811 
Operating income (loss):
Northern homebuilding$39,160 $40,216 
Southern homebuilding97,612 84,293 
Financial services (a)
14,968 13,933 
Less: Corporate selling, general and administrative expense(17,154)(15,537)
Total operating income$134,586 $122,905 
Interest (income) expense:
Northern homebuilding$(46)$— 
Southern homebuilding(2)(2)
Financial services (a)
2,327 878 
Corporate(3,668)(205)
Total interest (income) expense$(1,389)$671 
Other income$(7)$(16)
Income before income taxes$135,982 $122,250 
(a)Our financial services operational results should be viewed in connection with our homebuilding business as its operations originate loans and provide title services primarily for our homebuying customers, with the exception of an immaterial amount of mortgage refinancing.
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 Three Months Ended September 30, Nine Months Ended September 30,
(In thousands)2017 2016 2017 2016
Revenue:       
Midwest homebuilding$180,488
 $166,928
 $495,379
 $438,016
Southern homebuilding176,502
 143,315
 504,647
 414,974
Mid-Atlantic homebuilding107,670
 121,659
 302,305
 284,527
Financial services (a)
11,763
 10,562
 37,938
 30,564
Total revenue$476,423
 $442,464
 $1,340,269
 $1,168,081
        
Operating income:       
Midwest homebuilding$20,887
 $20,628
 $53,730
 $48,943
Southern homebuilding (b)
13,082
 (5,249) 26,503
 8,380
Mid-Atlantic homebuilding9,969
 11,359
 26,810
 22,827
Financial services (a)
5,887
 5,944
 21,977
 17,581
Less: Corporate selling, general and administrative expense(10,548) (10,676) (29,178) (26,876)
Total operating income (b)
$39,277
 $22,006
 $99,842
 $70,855
        
Interest expense:       
Midwest homebuilding$1,319
 $647
 $3,559
 $2,539
Southern homebuilding2,143
 1,788
 6,311
 6,118
Mid-Atlantic homebuilding557
 601
 1,988
 3,058
Financial services (a)
656
 551
 1,989
 1,445
Total interest expense$4,675
 $3,587
 $13,847
 $13,160
        
Equity in income of joint venture arrangements(71) (24) (198) (413)
        
Income before income taxes$34,673
 $18,443
 $86,193
 $58,108
(a)Our financial services operational results should be viewed in connection with our homebuilding business as its operations originate loans and provide title services primarily for our homebuying customers, with the exception of an immaterial amount of mortgage refinancing.
(b)
Includes a $14.5 million charge for stucco-related repair costs in certain of our Florida communities taken during the three months ended September 30, 2016, and an $8.5 million and a $19.4 million charge for stucco-related repair costs in certain of our Florida communities taken during the nine months ended September 30, 2017 and 2016, respectively (as more fully discussed in Note 6).
The following tables show total assets by segment at September 30, 2017March 31, 2023 and December 31, 2016:2022:
March 31, 2023
(In thousands)NorthernSouthernCorporate, Financial Services and UnallocatedTotal
Deposits on real estate under option or contract$8,057 $50,853 $— $58,910 
Inventory (a)
996,537 1,601,962 — 2,598,499 
Investments in joint venture arrangements— 49,031 — 49,031 
Other assets43,358 112,146 (b)900,426 1,055,930 
Total assets$1,047,952 $1,813,992 $900,426 $3,762,370 
 September 30, 2017
(In thousands)Midwest Southern Mid-Atlantic Corporate, Financial Services and Unallocated Total
Deposits on real estate under option or contract$5,078
 $20,094
 $6,202
 $—
 $31,374
Inventory (a)
514,949
 623,815
 285,671
 —
 1,424,435
Investments in joint venture arrangements3,798
 10,493
 8,690
 —
 22,981
Other assets13,106
 24,624
(b) 
11,600
 256,575
 305,905
Total assets$536,931
 $679,026
 $312,163
 $256,575
 $1,784,695


December 31, 2022
(In thousands)NorthernSouthernCorporate, Financial Services and UnallocatedTotal
Deposits on real estate under option or contract$8,138 $47,601 $— $55,739 
Inventory (a)
1,100,472 1,672,391 — 2,772,863 
Investments in joint venture arrangements— 51,554 — 51,554 
Other assets38,265 103,182 (b)693,320 834,767 
Total assets$1,146,875 $1,874,728 $693,320 $3,714,923 
(a)Inventory includes single-family lots, land and land development costs; land held for sale; homes under construction; model homes and furnishings; community development district infrastructure; and consolidated inventory not owned.
 December 31, 2016
(In thousands)Midwest Southern Mid-Atlantic Corporate, Financial Services and Unallocated Total
Deposits on real estate under option or contract$3,989
 $22,607
 $3,260
 $—
 $29,856
Inventory (a)
399,814
 484,038
 302,226
 —
 1,186,078
Investments in joint venture arrangements10,155
 10,630
 7,231
 —
 28,016
Other assets25,747
 35,622
(b) 
13,912
 229,280
 304,561
Total assets$439,705
 $552,897
 $326,629
 $229,280
 $1,548,511
(a)Inventory includes single-family lots, land and land development costs; land held for sale; homes under construction; model homes and furnishings; community development district infrastructure; and consolidated inventory not owned.
(b)Includes development reimbursements from local municipalities.

(b)Includes development reimbursements from local municipalities.

NOTE 12. Supplemental Guarantor InformationShare Repurchase Program
On July 28, 2021, the Company announced that its Board of Directors approved a new share repurchase program pursuant to which the Company may purchase up to $100 million of its outstanding common shares (the “2021 Share Repurchase Program”). On February 17, 2022, the Company announced that its Board of Directors approved an increase to its 2021 Share Repurchase Program by an additional $100 million.

Pursuant to the 2021 Share Repurchase Program, the Company may purchase up to $200 million of its outstanding common shares through open market transactions, privately negotiated transactions or otherwise in accordance with all applicable laws. The Company’s obligationstiming, amount and other terms and conditions of any additional repurchases under the 2025 Senior Notes,2021 Share Repurchase Program will be based on a variety of factors, including the 2021 Senior Notes and the 2018 Convertible Senior Subordinated Notes are not guaranteed by allmarket price of the Company’s subsidiariescommon shares, business considerations, general market and economic conditions and legal requirements. The 2021 Share Repurchase Program does not have an expiration date and the Board may modify, discontinue or suspend it at any time.

The Company did not repurchase any outstanding common shares during the first quarter of 2023. As of March 31, 2023, $93.1 million remained available for repurchases under the 2021 Share Repurchase Program.
NOTE 13. Revenue Recognition
Revenue and the related profit from the sale of a home and revenue and the related profit from the sale of land to third parties are recognized in the financial statements on the date of closing if delivery has occurred, title has passed to the buyer, all performance obligations (as defined below) have been met, and control of the home or land is transferred to the buyer in an amount that reflects the consideration we expect to be entitled to receive in exchange for the home or land. If not received immediately upon closing, cash proceeds from home closings are held in escrow for the Company’s benefit, typically for up to three days, and are included in Cash, cash equivalents and restricted cash on the Condensed Consolidated Balance Sheets.

Sales incentives vary by type of incentive and by amount on a community-by-community and home-by-home basis. The costs of any sales incentives in the form of free or discounted products and services provided to homebuyers are reflected in Land and housing costs in the Condensed Consolidated Statements of Income because such incentives are identified in our home purchase contracts with homebuyers as an intrinsic part of our single performance obligation to deliver and transfer title to their home for the transaction price stated in the contracts. Sales incentives that we may provide in the form of closing cost allowances are recorded as a reduction of housing revenue at the time the home is delivered.

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We record sales commissions within Selling expenses in the Condensed Consolidated Statements of Income when incurred (i.e., when the home is delivered) as the amortization period is generally one year or less and therefore capitalization is not required as part of the practical expedient for incremental costs of obtaining a contract.

Contract liabilities include customer deposits related to sold but undelivered homes. Substantially all of our home sales are scheduled to close and be recorded to revenue within one year from the date of receiving a customer deposit. Contract liabilities expected to be recognized as revenue, excluding revenue pertaining to contracts that have an original expected duration of one year or less, is not material.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. All of our home purchase contracts have a single performance obligation as the promise to transfer the home is not separately identifiable from other promises in the contract and, therefore, not distinct. Our performance obligation, to deliver the agreed-upon home, is generally satisfied in less than one year from the original contract date. Deferred revenue resulting from uncompleted performance obligations existing at the time we deliver new homes to our homebuyers is not material.

Although our third party land sale contracts may include multiple performance obligations, the revenue we expect to recognize in any future year related to remaining performance obligations, excluding revenue pertaining to contracts that have an original expected duration of one year or less, is not material. We do not disclose the value of unsatisfied performance obligations for land sale contracts with an original expected duration of one year or less.
We recognize the majority of the revenue associated with our mortgage loan operations when the mortgage loans are sold and/or related servicing rights are sold to third party investors or retained and managed under a third party sub-service arrangement. The revenue recognized is reduced by the fair value of the related guarantee provided to the investor. The fair value of the guarantee is recognized in revenue when the Company has disclosed condensed consolidatingis released from its obligation under the guarantee (note that guarantees are excluded from the scope of ASC 606, Revenue from Contracts with Customers). We recognize financial information in accordanceservices revenue associated with SEC Regulation S-X Rule 3-10, Financial Statementsour title operations as homes are delivered, closing services are rendered, and title policies are issued, all of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered. The Guarantor Subsidiarieswhich generally occur simultaneously as each home is delivered. All of the 2025 Senior Notes, the 2021 Senior Notes and the 2018 Convertible Senior Subordinated Notes are the same.underwriting risk associated with title insurance policies is transferred to third-party insurers.
The following condensed consolidating financial informationtable presents our revenues disaggregated by revenue source:
Three Months Ended March 31,
(Dollars in thousands)20232022
Housing$974,946 $833,163 
Land sales303 3,537 
Financial services (a)
25,281 24,111 
Total revenue$1,000,530 $860,811 
(a)Revenue includes balance sheets, statementshedging gains of income$4.2 million and $8.2 million for the three months ended March 31, 2023 and 2022, respectively. Hedging gains/losses do not represent revenue recognized from contracts with customers.

Refer to Note 11 for presentation of our revenues disaggregated by geography. As our homebuilding operations accounted for over 97% of our total revenues for the three months ended March 31, 2023 and 2022, with most of those revenues generated from home purchase contracts with customers, we believe the disaggregation of revenues as disclosed above and in Note 11 fairly depict how the nature, amount, timing and uncertainty of cash flow information forflows are affected by economic factors.
NOTE 14. Stock-Based Compensation
The Company maintains the M/I Homes, Inc. 2018 Long-Term Incentive Plan (the parent company“2018 LTIP”), an equity compensation plan administered by the Compensation Committee of our Board of Directors. Under the 2018 LTIP, the Company is permitted to grant (1) nonqualified stock options to purchase common shares, (2) incentive stock options to purchase common shares, (3) stock appreciation rights, (4) restricted common shares, (5) other stock-based awards (awards that are valued in whole or in part by reference to, or otherwise based on, the fair market value of our common shares), and (6) cash-based awards to its officers, employees, non-employee directors and other eligible participants. Subject to certain adjustments, the issuer2018 LTIP authorizes awards to officers, employees, non-employee directors and other eligible participants for up to 4,217,436 common shares, of which 1,338,412 remain available for grant at March 31, 2023.
20

The 2018 LTIP replaced the aforementioned guaranteed notes)M/I Homes, Inc. 2009 Long-Term Incentive Plan (the “2009 LTIP”), which was terminated immediately following our 2018 Annual Meeting of Shareholders. Awards outstanding under the Guarantor Subsidiaries, collectively,2009 LTIP Plan remain in effect in accordance with their respective terms.
Stock Options
On February 15, 2023, the Company awarded certain of its employees 487,500 (in the aggregate) nonqualified stock options at an exercise price of $58.73 (the closing price of our common shares on the New York Stock Exchange on such date) and a fair value of $24.67 that vest ratably over a five-year period. Total stock-based compensation expense related to stock option awards that has been charged against income relating to the 2018 LTIP was $2.0 million and $1.8 million for all other subsidiariesthe three months ended March 31, 2023 and joint ventures2022, respectively.  As of March 31, 2023, there was a total of $23.3 million of unrecognized compensation expense related to unvested stock option awards that will be recognized as stock-based compensation expense as the awards vest over a weighted average period of 2.5 years.
Performance Share Unit Awards
On February 15, 2023, February 17, 2022 and February 16, 2021, the Company awarded its executive officers (in the aggregate) a target number of performance share units (“PSU’s”) equal to 27,243, 33,619 and 30,875 PSU’s, respectively. Each PSU represents a contingent right to receive one common share of the Company if vesting is satisfied at the end of a three-year performance period (the “Unrestricted Subsidiaries”“Performance Period”). The ultimate number of PSU’s that will vest and be earned, if any, after the completion of the Performance Period, is based on (1) (a) the Company’s cumulative annual pre-tax income from operations, excluding extraordinary items, as defined in the underlying award agreements with the executive officers, over the Performance Period (weighted 80%) (the “Performance Condition”), collectively. Each Guarantor Subsidiaryand (b) the Company’s relative total shareholder return over the Performance Period compared to the total shareholder return of a peer group of other publicly-traded homebuilders (weighted 20%) (the “Market Condition”) and (2) the participant’s continued employment through the end of the Performance Period, except in the case of termination due to death, disability or retirement or involuntary termination without cause by the Company. The number of PSU’s that vest may increase by up to 50% from the target number based on levels of achievement of the above criteria as set forth in the applicable award agreements and decrease to zero if the Company fails to meet the minimum performance levels for both of the above criteria. If the Company achieves the minimum performance levels for both of the above criteria, 50% of the target number of PSU’s will vest and be earned. Any portion of PSU’s that does not vest at the end of the Performance Period will be forfeited. Additionally, the PSU’s have no dividend or voting rights during the Performance Period.
The grant date fair value of the portion of the PSU’s subject to the Performance Condition and the Market Condition component was $58.73 and $64.45 for the 2023 PSU’s, respectively, $47.59 and $50.51 for the 2022 PSU’s, respectively, and $51.82 and $56.44 for the 2021 PSU’s, respectively. In accordance with ASC 718, for the portion of the PSU’s subject to a Market Condition, stock-based compensation expense is derived using the Monte Carlo simulation methodology and is recognized ratably over the service period regardless of whether or not the attainment of the Market Condition is probable. Therefore, the Company recognized less than $0.1 million in stock-based compensation expense during the first quarter of 2023 related to the Market Condition portion of the 2023, 2022 and 2021 PSU awards. There was a direct or indirect 100%-owned subsidiarytotal of M/I Homes, Inc.$0.3 million of unrecognized stock-based compensation expense related to the Market Condition portion of the 2023, 2022 and has fully and unconditionally guaranteed2021 PSU awards as of March 31, 2023.
For the (a) 2025 Senior Notesportion of the PSU’s subject to the Performance Condition, we recognize stock-based compensation expense on a jointstraight-line basis over the Performance Period based on the probable outcome of the related Performance Condition. Otherwise, stock-based compensation expense recognition is deferred until probability is attained and several senior unsecured basis, (b) 2021 Senior Notesa cumulative stock-based compensation expense adjustment is recorded and recognized ratably over the remaining service period. The Company reassesses the probability of the satisfaction of the Performance Condition on a joint and several senior unsecuredquarterly basis, and (c) 2018 Convertible Senior Subordinated Notes on a joint and several senior subordinated unsecured basis.
There are no significant restrictionsstock-based compensation expense is adjusted based on the parent company’s ability to obtain funds from its Guarantor Subsidiaries inportion of the form of a dividend, loan, or other means.
requisite service period that has passed. As of September 30, 2017, eachMarch 31, 2023, the Company had not recognized any stock-based compensation expense related to the Performance Condition portion of the Company’s subsidiaries is2023 and 2022 PSU awards. If the Company achieves the minimum performance levels for the Performance Conditions to be met for the 2023 and 2022 PSU awards, the Company would record unrecognized stock-based compensation expense of $1.0 million as of March 31, 2023, for which $0.3 million would be immediately recognized had attainment been probable at March 31, 2023. The Company recognized a Guarantor Subsidiary, with the exceptiontotal of subsidiaries that are primarily engaged in the business$0.2 million of mortgage financing, title insurance or similar financial businesses relatingstock-based compensation expense related to the homebuilding and home sales business, certain subsidiaries that are not 100%-owned byPerformance Condition portion of the Company or another subsidiary, and other subsidiaries designated by2021 PSU awards during the Company as Unrestricted Subsidiaries, subject to limitationsfirst quarter of 2023 based on the aggregate amount invested in such Unrestricted Subsidiaries in accordance withprobability of attaining the termsrespective performance conditions. The Company has a total of the Credit Facility, the indenture governing the 2025 Senior Notes and the indenture governing$0.5 million of unrecognized stock-based compensation expense for the 2021 Senior Notes.PSU awards as of March 31, 2023.
In the condensed financial tables presented below, the parent company presents all of its 100%-owned subsidiaries as if they were accounted for under the equity method. All applicable corporate expenses have been allocated appropriately among the Guarantor Subsidiaries and Unrestricted Subsidiaries.



21
UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF INCOME
       
  Three Months Ended September 30, 2017
(In thousands) M/I Homes, Inc.Guarantor SubsidiariesUnrestricted SubsidiariesEliminationsConsolidated
       
Revenue $—
$464,660
$11,763
$—
$476,423
Costs and expenses:      
Land and housing —
374,673
—
—
374,673
General and administrative —
25,263
6,074
—
31,337
Selling —
31,136
—
—
31,136
Equity in income of joint venture arrangements —
—
(71)—
(71)
Interest —
4,019
656
—
4,675
Total costs and expenses —
435,091
6,659
—
441,750
       
Income before income taxes —
29,569
5,104
—
34,673
       
Provision for income taxes —
10,672
1,674
—
12,346
       
Equity in subsidiaries 22,327
—
—
(22,327)—
       
Net income 22,327
18,897
3,430
(22,327)22,327
       
Preferred dividends 1,218
—
—
—
1,218
Excess of fair value over book value of preferred shares subject to redemption 2,257
—
—
—
2,257
       
Net income to common shareholders $18,852
$18,897
$3,430
$(22,327)$18,852


  Three Months Ended September 30, 2016
(In thousands) M/I Homes, Inc.Guarantor SubsidiariesUnrestricted SubsidiariesEliminationsConsolidated
       
Revenue $—
$431,903
$10,561
$—
$442,464
Costs and expenses:      
Land and housing —
363,635
—
—
363,635
General and administrative —
24,340
4,820
—
29,160
Selling —
27,663
—
—
27,663
Equity in income of joint venture arrangements —
—
(24)—
(24)
Interest —
3,036
551
—
3,587
Total costs and expenses —
418,674
5,347
—
424,021
       
Income before income taxes —
13,229
5,214
—
18,443
       
Provision for income taxes —
5,601
1,900
—
7,501
       
Equity in subsidiaries 10,942
—
—
(10,942)—
       
Net income 10,942
7,628
3,314
(10,942)10,942
       
Preferred dividends 1,218
—
—
—
1,218
       
Net income to common shareholders $9,724
$7,628
$3,314
$(10,942)$9,724


UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF INCOME
       
  Nine Months Ended September 30, 2017
(In thousands) M/I Homes, Inc.Guarantor SubsidiariesUnrestricted SubsidiariesEliminationsConsolidated
       
Revenue $—
$1,302,331
$37,938
$—
$1,340,269
Costs and expenses:      
Land and housing —
1,062,552
—
—
1,062,552
General and administrative —
72,638
16,571
—
89,209
Selling —
88,666
—
—
88,666
Equity in income of joint venture arrangements —
—
(198)—
(198)
Interest —
11,858
1,989
—
13,847
Total costs and expenses —
1,235,714
18,362
—
1,254,076
       
Income before income taxes —
66,617
19,576
—
86,193
       
Provision for income taxes —
23,407
6,587
—
29,994
       
Equity in subsidiaries 56,199
—
—
(56,199)—
       
Net income 56,199
43,210
12,989
(56,199)56,199
       
Preferred dividends 3,656
—
—
—
3,656
Excess of fair value over book value of preferred shares subject to redemption 2,257
—
—
—
2,257
       
Net income to common shareholders $50,286
$43,210
$12,989
$(56,199)$50,286

  Nine Months Ended September 30, 2016
(In thousands) M/I Homes, Inc.Guarantor SubsidiariesUnrestricted SubsidiariesEliminationsConsolidated
       
Revenue $—
$1,137,517
$30,564
$—
$1,168,081
Costs and expenses:      
Land and housing —
943,515
—
—
943,515
General and administrative —
64,727
13,522
—
78,249
Selling —
75,462
—
—
75,462
Equity in income of joint venture arrangements —
—
(413)—
(413)
Interest —
11,715
1,445
—
13,160
Total costs and expenses —
1,095,419
14,554
—
1,109,973
       
Income before income taxes —
42,098
16,010
—
58,108
       
Provision for income taxes —
16,487
5,574
—
22,061
       
Equity in subsidiaries 36,047
—
—
(36,047)—
       
Net income 36,047
25,611
10,436
(36,047)36,047
       
Preferred dividends 3,656
—
—
—
3,656
       
Net income to common shareholders $32,391
$25,611
$10,436
$(36,047)$32,391



UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
       
  September 30, 2017
(In thousands) M/I Homes, Inc.Guarantor SubsidiariesUnrestricted SubsidiariesEliminationsConsolidated
       
ASSETS:      
Cash, cash equivalents and restricted cash $—
$82,504
$21,132
$—
$103,636
Mortgage loans held for sale —
—
91,987
—
91,987
Inventory —
1,455,809
—
—
1,455,809
Property and equipment - net —
24,325
995
—
25,320
Investment in joint venture arrangements —
15,764
7,217
—
22,981
Deferred income taxes, net of valuation allowances —
29,461
108
—
29,569
Investment in subsidiaries 710,176
—
—
(710,176)—
Intercompany assets 688,260
—
—
(688,260)—
Other assets 3,375
42,473
9,545
—
55,393
TOTAL ASSETS $1,401,811
$1,650,336
$130,984
$(1,398,436)$1,784,695
      
LIABILITIES AND SHAREHOLDERS’ EQUITY  
      
LIABILITIES:     
Accounts payable $—
$120,049
$549
$—
$120,598
Customer deposits —
30,583
—
—
30,583
Intercompany liabilities —
683,308
4,952
(688,260)—
Other liabilities —
104,279
4,591
—
108,870
Preferred shares subject to redemption 50,420
—
—
—
50,420
Community development district obligations —
5,298
—
—
5,298
Obligation for consolidated inventory not owned —
22,203
—
—
22,203
Notes payable bank - financial services operations —
—
91,275
—
91,275
Notes payable - other —
4,057
—
—
4,057
Convertible senior subordinated notes due 2018 - net 85,955
—
—
—
85,955
Senior notes due 2021 - net 296,505
—
—
—
296,505
Senior notes due 2025 - net 245,958
—
—
—
245,958
TOTAL LIABILITIES 678,838
969,777
101,367
(688,260)1,061,722
       
SHAREHOLDERS’ EQUITY 722,973
680,559
29,617
(710,176)722,973
       
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $1,401,811
$1,650,336
$130,984
$(1,398,436)$1,784,695




CONDENSED CONSOLIDATING BALANCE SHEET
       
  December 31, 2016
(In thousands) M/I Homes, Inc.Guarantor SubsidiariesUnrestricted SubsidiariesEliminationsConsolidated
       
ASSETS:      
Cash, cash equivalents and restricted cash $—
$20,927
$13,514
$—
$34,441
Mortgage loans held for sale —
—
154,020
—
154,020
Inventory —
1,215,934
—
—
1,215,934
Property and equipment - net —
21,242
1,057
—
22,299
Investment in joint venture arrangements —
12,537
15,479
—
28,016
Deferred income taxes, net of valuation allowances —
30,767
108
—
30,875
Investment in subsidiaries 666,008
—
—
(666,008)—
Intercompany assets 424,669
—
—
(424,669)—
Other assets 1,690
43,809
17,427
—
62,926
TOTAL ASSETS $1,092,367
$1,345,216
$201,605
$(1,090,677)$1,548,511
      
LIABILITIES AND SHAREHOLDERS’ EQUITY  
      
LIABILITIES:     
Accounts payable $—
$102,663
$549
$—
$103,212
Customer deposits —
22,156
—
—
22,156
Intercompany liabilities —
411,196
13,473
(424,669)—
Other liabilities —
117,133
6,029
—
123,162
Community development district obligations —
476
—
—
476
Obligation for consolidated inventory not owned —
7,528
—
—
7,528
Notes payable bank - homebuilding operations —
40,300
—
—
40,300
Notes payable bank - financial services operations —
—
152,895
—
152,895
Notes payable - other —
6,415
—
—
6,415
Convertible senior subordinated notes due 2017 - net 57,093
—
—
—
57,093
Convertible senior subordinated notes due 2018 - net 85,423
—
—
—
85,423
Senior notes due 2021 - net 295,677
—
—
—
295,677
TOTAL LIABILITIES 438,193
707,867
172,946
(424,669)894,337
       
SHAREHOLDERS’ EQUITY 654,174
637,349
28,659
(666,008)654,174
       
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $1,092,367
$1,345,216
$201,605
$(1,090,677)$1,548,511




UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
      
 Nine Months Ended September 30, 2017
(In thousands)M/I Homes, Inc.Guarantor SubsidiariesUnrestricted SubsidiariesEliminationsConsolidated
      
OPERATING ACTIVITIES:     
Net cash provided by (used in) operating activities$12,031
$(152,148)$86,123
$(12,031)$(66,025)
      
INVESTING ACTIVITIES:     
Purchase of property and equipment—
(5,848)(169)—
(6,017)
Intercompany investing(13,166)—
—
13,166
—
Investments in and advances to joint venture arrangements—
(3,401)(5,038)—
(8,439)
Return of capital from unconsolidated joint ventures—
—
1,833
—
1,833
Net proceeds from the sale of mortgage servicing rights—
—
7,558
—
7,558
Net cash (used in) provided by investing activities(13,166)(9,249)4,184
13,166
(5,065)
      
FINANCING ACTIVITIES:     
Proceeds from issuance of senior notes—
250,000
—
—
250,000
Proceeds from bank borrowings - homebuilding operations—
366,500
—
—
366,500
Principal repayments of bank borrowings - homebuilding operations—
(406,800)—
—
(406,800)
Net repayments of bank borrowings - financial services operations—
—
(61,620)—
(61,620)
(Principal repayment of) proceeds from notes payable - other and CDD bond obligations—
(2,358)—
—
(2,358)
Proceeds from exercise of stock options4,791
—
—
—
4,791
Intercompany financing—
22,141
(8,975)(13,166)—
Dividends paid(3,656)—
(12,031)12,031
(3,656)
Debt issue costs—
(6,509)(63)—
(6,572)
Net cash provided by (used in) financing activities1,135
222,974
(82,689)(1,135)140,285
      
Net increase in cash, cash equivalents and restricted cash—
61,577
7,618
—
69,195
Cash, cash equivalents and restricted cash balance at beginning of period—
20,927
13,514
—
34,441
Cash, cash equivalents and restricted cash balance at end of period$—
$82,504
$21,132
$—
$103,636

 Nine Months Ended September 30, 2016
(In thousands)M/I Homes, Inc.Guarantor SubsidiariesUnrestricted SubsidiariesEliminationsConsolidated
      
OPERATING ACTIVITIES:     
Net cash provided by (used in) operating activities (1)
$7,138
$(18,210)$44,712
$(7,138)$26,502
      
INVESTING ACTIVITIES:     
Purchase of property and equipment—
(11,565)(54)—
(11,619)
Intercompany Investing(3,555)—
—
3,555
—
Investments in and advances to joint venture arrangements—
(5,504)(4,556)—
(10,060)
Net cash (used in) provided by investing activities (1)
(3,555)(17,069)(4,610)3,555
(21,679)
      
FINANCING ACTIVITIES:     
Proceeds from bank borrowings - homebuilding operations—
276,800
—
—
276,800
Principal repayments of bank borrowings - homebuilding operations—
(235,600)—
—
(235,600)
Net repayments of bank borrowings - financial services operations—
—
(32,165)—
(32,165)
Principal proceeds from notes payable - other and CDD bond obligations—
125
—
—
125
Intercompany financing—
(630)(3,766)4,396
—
Dividends paid(3,656)—
(7,138)7,138
(3,656)
Debt issue costs—
(153)(40)—
(193)
Proceeds from exercise of stock options73
—
—
—
73
Net cash (used in) provided by financing activities(3,583)40,542
(43,109)11,534
5,384
      
Net increase (decrease) in cash, cash equivalents and restricted cash—
5,263
(3,007)7,951
10,207
Cash, cash equivalents and restricted cash balance at beginning of period—
2,896
18,156
(7,951)13,101
Cash, cash equivalents and restricted cash balance at end of period$—
$8,159
$15,149
$—
$23,308
(1)
During the fourth quarter of 2016, we elected to early-adopt Accounting Standards Update 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. Certain amounts above have been adjusted to apply the new method retrospectively.



NOTE 13. Subsequent Event
On October 16, 2017, the Company redeemed all 2,000 of its outstanding Series A Preferred Shares for $50.4 million in cash, which reduced the restricted payments basket with respect to our 2025 Senior Notes and our 2021 Senior Notes by an equal amount. Refer to Note 8 of our Unaudited Condensed Consolidated Financial Statements for additional details.

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS


OVERVIEW
M/I Homes, Inc. and subsidiaries (the “Company” or “we”) is one of the nation’s leading builders of single-family homes having sold over 104,400145,600 homes since we commencedcommencing homebuilding activities in 1976.  The Company’s homes are marketed and sold primarily under the M/I Homes brand (M/I Homes and Showcase Collection (exclusively by M/I)) and, following our acquisition of a privately-held homebuilder in the Minneapolis/St. Paul market in December 2015, we also use the Hans Hagen brand in that market.brand. The Company has homebuilding operations in Columbus and Cincinnati, Ohio; Indianapolis, Indiana; Chicago, Illinois; Minneapolis/St. Paul, Minnesota; Detroit, Michigan; Ft. Myers/Naples, Tampa, Sarasota and Orlando, Florida; Austin, Dallas/Fort Worth, Houston and San Antonio, Texas; Charlotte and Raleigh, North Carolina; and the Virginia and Maryland suburbs of Washington, D.C.Nashville, Tennessee.
Included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are the following topics relevant to the Company’s performance and financial condition:
•Information Relating to Forward-Looking Statements;
•Application of Critical Accounting Estimates and Policies;
•Results of Operations;
•Discussion of Our Liquidity and Capital Resources; and
Summary of Our Contractual Obligations;
Discussion of Our Utilization of Off-Balance Sheet Arrangements; and
•Impact of Interest Rates and Inflation.
FORWARD-LOOKING STATEMENTS
Certain information included in this report or in other materials we have filed or will file with the Securities and Exchange Commission (the “SEC”) (as well as information included in oral statements or other written statements made or to be made by us) contains or may contain forward-looking statements, including, but not limited to, statements regarding our future financial performance and financial condition.  Words such as “expects,” “anticipates,” “envisions,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words and similar expressions are intended to identify such forward-looking statements. TheseForward-looking statements involve a number of risks and uncertainties.  Any forward-looking statements that we make herein and in future reports and statements are not guarantees of future performance, and actual results may differ materially from those in such forward-looking statements as a result of various risk factors.  Please seefactors, including, without limitation, factors relating to the economic environment, interest rates, availability of resources, competition, market concentration, land development activities, construction defects, product liability and warranty claims and various governmental rules and regulations.  See“Item 1A. Risk Factors” in Part I of our Annual Report on Form 10-K for the year ended December 31, 20162022 (the “2016“2022 Form 10-K”), as the same may be updated from time to time in our subsequent filings with the SEC, for more information regarding those risk factors.
Any forward-looking statement speaks only as of the date made. Except as required by applicable law, 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 our subsequent reports on Forms 10-K, 10-Q and 8-K should be consulted.  This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995, and all of our forward-looking statements are expressly qualified in their entirety by the cautionary statements contained or referenced in this section.

22


APPLICATION OF CRITICAL ACCOUNTING ESTIMATES AND POLICIES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent 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 assumptions on historical experience and on various other factors that it believes are 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.  On an ongoing basis, management evaluates such estimates and assumptions and makes adjustments as deemed necessary.  Actual results could differ from these estimates using different estimates and assumptions, or if conditions are significantly different in the future.  See Note 1 (Summary of Significant Accounting Policies) to our consolidated financial statements included in our 20162022 Form 10-K for additional information about our accounting policies.
We believe that there have been no significant changes to our critical accounting policies during the quarter ended September 30, 2017March 31, 2023 as compared to those disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 20162022 Form 10-K, other than the change described below.10-K.
Self-insurance Reserves. Our general liability claims are insured by a third party, subject to a deductible. Effective for home closings occurring on or after July 1, 2017, the Company renewed its general liability insurance coverage which, among other things, changed the structure of our completed operations/construction defect deductible to $10.0 million for the entire company (for closings prior to July 1, 2017, our completed operations/construction defect deductible was $7.5 million for each of our regions) and decreased our third party claims deductible to $250,000 (a decrease from $500,000 for closings prior to July 1, 2017). The Company records a reserve for general liability claims falling below the Company’s deductible. The reserve estimate is based on an actuarial evaluation of our past history of general liability claims, other industry specific factors and specific event analysis.


RESULTS OF OPERATIONS
The Company’s chief operating decision makers evaluate the Company’s performance in various ways, including: (1) the results of our 15 individual homebuilding operating segments and the results of our financial services operations; (2) the results of our three homebuilding reportable segments; and (3) our consolidated financial results.
In accordance with ASC 280, Segment Reporting (“ASC 280”), we have identified each homebuilding division as an operating segment as each homebuilding division engages in business activities from which it earns revenue, primarily from the sale and construction of single-family attached and detached homes, acquisition and development of land, and the occasional sale of lots to third parties. Our financial services operations generate revenue primarily from the origination, sale and servicing of mortgage loans and title services primarily for purchasers of the Company’s homes and are included in our financial services reportable segment. In accordance with the aggregation criteria defined in ASC 280, we have determined our reportable segments are as follows: Midwestare: Northern homebuilding; Southern homebuilding; Mid-Atlantic homebuilding; and financial services operations. The homebuilding operating segments included in each reportable segment have been aggregated because they share similar aggregation characteristics as prescribed in ASC 280 in the following regards: (1) long-term economic characteristics; (2) historical and expected future long-term gross margin percentages; (3) housing products, production processes and methods of distribution; and (4) geographical proximity.
The homebuilding operating segments that comprise each of our reportable segments are as follows:
MidwestNorthernSouthernMid-Atlantic
Chicago, IllinoisOrlando,Ft. Myers/Naples, FloridaCharlotte, North Carolina
Cincinnati, OhioSarasota,Orlando, FloridaRaleigh, North Carolina
Columbus, OhioTampa,Sarasota, FloridaWashington, D.C.
Indianapolis, IndianaAustin, TexasTampa, Florida
Minneapolis/St. Paul, MinnesotaAustin, Texas
Detroit, MichiganDallas/Fort Worth, Texas
Houston, Texas
San Antonio, Texas
Charlotte, North Carolina
Raleigh, North Carolina
Nashville, Tennessee
Overview
During both the thirdfirst quarter and nine months ended September 30, 2017,of 2023, we achieved record levels of new contracts, homes delivered, and revenue. Conditions in most of our markets remained steady with modest improvement incontinued to experience weaker homebuyer demand for new homes compared withto the same period last year as a result of the uncertain macroeconomic conditions that began to significantly impact the broader U.S. economy during the second half of 2022, particularly the historic rise in 2016, supported by favorable fundamentals, including improved levels of household formation, continued increases in employment, lowmortgage interest rates improved consumer confidence and continuedthe high rate of inflation not experienced since the 1970s. We believe that these conditions caused many potential homebuyers to postpone their homebuying decisions. Although mortgage availability, along withinterest rates continue to fluctuate, the average 30-year fixed mortgage interest rate has hovered around 7% during the first quarter of 2023. These conditions negatively impacted our overall new contracts during the first quarter of 2023 due to a constrainedsofter demand environment compared to prior year, resulting in a 14% decline in new contracts.

We believe that potential homebuyers are adjusting to higher interest rates and cautiously reentering the housing market despite continuing affordability and economic recession concerns. We also believe that the incentives and price reductions we have offered in certain locations as well as seasonal trends have further encouraged demand. We continue to believe long-term housing market fundamentals remain strong, including favorable demographics and a limited supply of both existingnew and new homes. These conditions,resale inventory.


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Despite the continued execution of our strategic business initiatives and strong performance in our financial services business enabled us to achievechallenges impacting the homebuilding industry, we achieved the following improved Company results during the first quarter of 2023 in comparison to the thirdfirst quarter and nine months ended September 30, 2016:of 2022:
New contracts•Revenue increased 13%16% to 1,225 and 9% to 4,079, respectively$1.00 billion (a first quarter record)
Homes•Average sales price of homes delivered increased 9%6% to 1,256 homes and 14% to 3,505 homes, respectively$486,000 (a first quarter record)
•Number of homes delivered increased 10% to 2,007 homes (second highest first quarter in backlog at September 30, 2017 increased 7% to 2,378Company history)
Total sales value in backlog increased 11% to $911.7 million
Revenue increased 8% to $476.4 million and 15% to $1,340.3 million, respectively

•Income before income taxes increased 11% to $136.0 million (a first quarter record)
•Net income increased 12% to $103.1 million (a first quarter record)
•Shareholders’ equity of $2.18 billion (a record high for the thirdCompany)

These increases reflect the strong demand for our homes that existed through the first half of 2022, as many of the homes delivered in the first quarter of 2017 increased 88% from $18.4 million2023 were placed under contract prior to the softening of demand in the thirdlatter half of 2022.

Our company-wide absorption pace of sales per community for the first quarter of 20162023 declined to $34.7 million3.7 per month compared to 4.8 per month for the prior year’s first quarter as a result of increased average community count to 198 for the first quarter of 2023 from 176 for the first quarter of 2022 and the decrease in the third quarternumber of 2017. Income before income taxes for the third quarter of 2016 was unfavorably impacted by a $14.5 million charge for stucco-related repair costs in certain of our Florida communities (as more fully discussed in Note 6). Excluding the stucco-related charge fornew contracts during the quarter ended September 30, 2016, adjusted income before income taxes increased 5%compared to prior year. We plan to open a number of new communities in 2023, increasing our community count by approximately 15% from $32.9 millionthe end of 2022. However, given the uncertainty in the third quarterhousing market as a result of 2016current economic conditions, we may choose to $34.7 milliondelay the development and opening of some new communities to match homebuyer demand in the third quarterremainder of 2017. For the nine months ended September 30, 2017, income before income taxes increased 48% from $58.1 million for the nine months ended September 30, 2016 to $86.2 million for the nine months ended September 30, 2017. Income before income taxes for both the nine months ended September 30, 2017 and 2016 was unfavorably impacted by an $8.5 million and a $19.4 million charge for stucco-related repair costs in certain of our Florida communities (as more fully discussed in Note 6), respectively. Excluding these stucco-related charges in both periods, adjusted income before income taxes increased 22% from $77.5 million in 2016's first nine months to $94.7 million in 2017's first nine months.2023.
We believe that our results for both the three months and nine months ended September 30, 2017 were negatively impacted by separate hurricanes that occurred in Florida and Texas during the third quarter of 2017 which delayed approximately 20 home


deliveries in the quarter, slowed down new contracts, and resulted in approximately $0.7 million of community and model home repair costs in the quarter.
In addition, during the third quarter of 2017, we:

issued $250 million in aggregate principal amount of 5.625% Senior Notes due 2025 (the “2025 Senior Notes”) for net proceeds of approximately $246 million;
issued approximately 2.4 million common shares upon the conversion of all $57.5 million aggregate principal amount of our outstanding 3.25% Convertible Senior Subordinated Notes due 2017 (the “2017 Convertible Senior Subordinated Notes”) into common shares; and
announced that we will redeem all 2,000 of our outstanding 9.75% Series A Preferred Shares (the “Series A Preferred Shares”) (and the 2,000,000 related depositary shares) on October 16, 2017, and recorded a $2.3 million non-cash charge in connection therewith. We consummated this redemption on October 16, 2017.

Each of the above actions is more fully described in the footnotes to our Unaudited Condensed Consolidated Financial Statements as well as below in the “Liquidity and Capital Resources” section.

The calculations of adjusted income before income taxes and adjusted housing gross margin (referred to below), which we believe provide a clearer measure of the ongoing performance of our business, are described and reconciled to income before income taxes and housing gross margin, the financial measures that are calculated using our GAAP results, below under “Non-GAAP Financial Measures.”


Summary of Company Financial Results
In
Income before income taxes for the thirdfirst quarter of 2017, we2023 increased 11% from $122.3 million in the first quarter of 2022 to a first quarter record $136.0 million in 2023. We also achieved first quarter record net income to common shareholders of $18.9$103.1 million, or $0.64 per diluted share, which is net of a $2.3 million non-cash charge resulting from the excess of fair value over carrying value of our Series A Preferred Shares that were called for redemption in the quarter. This compares to net income to common shareholders of $9.7 million, or $0.35$3.64 per diluted share, in 2016's third quarter. Net income in each period included $1.2 million in dividend payments made to holders of our Series A Preferred Shares. In the nine months ended September 30, 2017, we achieved net income to common shareholders of $50.3 million, or $1.73 per diluted share, which is net of a $2.3 million non-cash charge resulting from the excess of fair value over carrying value of our Series A Preferred Shares that were called for redemption in the third2023's first quarter, of 2017. This comparescompared to net income to common shareholders of $32.4$91.8 million, or $1.17$3.16 per diluted share, in the nine months ended September 30, 2016. Net income2022's first quarter. Our effective tax rate was 24.2% in each period included $3.7 million2023’s first quarter compared to 24.9% in dividend payments made to holders of our Series A Preferred Shares.2022.
During the quarter ended September 30, 2017,March 31, 2023, we recorded thirdfirst quarter record total revenue of $476.4 million,$1.00 billion, of which $459.3$974.9 million was from homes delivered, $5.3$0.3 million was from land sales and $11.8 million was from our financial services operations. Revenue from homes delivered increased 10% in 2017's third quarter compared to the same period in 2016 driven primarily by a 9% increase in the number of homes delivered (108 units) and a slight increase in the average sales price of homes delivered ($1,000 per home delivered). While our homes delivered improved when compared to 2016, we believe the separate hurricanes in our Florida and Texas markets delayed approximately 20 deliveries home deliveries in the third quarter of 2017, slowed down new contracts, and resulted in approximately $0.7 million of repair costs in the quarter. Revenue from land sales decreased $7.4 million from the third quarter of 2016 primarily due to fewer land sales in our Mid-Atlantic region in 2017’s third quarter compared to the prior year. During the nine months ended September 30, 2017, we recorded record total revenue of $1,340.3 million, of which $1,289.9 million was from homes delivered, $12.5 million was from land sales and $37.9$25.3 million was from our financial services operations. Revenue from homes delivered increased 17% during the nine months ended September 30, 2017in 2023's first quarter compared to the same period in 20162022 driven primarily by a 14% increase in the number of homes delivered (439 units) and a 2%6% increase in the average sales price of homes delivered ($7,00029,000 per home delivered) and a 10% increase in the number of homes delivered (184 units). The increases were due primarily to the robust consumer demand in early 2022 when the majority of our homes delivered during the quarter were placed under contract. Revenue from land sales decreased $19.4$3.2 million during 2017'sfrom the first nine months primarilyquarter of 2022 due to fewer land sales in our Southern and Mid-Atlantic regions in the current year period compared to the prior year. Revenue infrom our financial services segment increased 11%5% to $11.8 million and 24% to $37.9$25.3 million in the three and nine months ended September 30, 2017, respectively, compared to the same periods in 2016first quarter of 2023 as a result of increasesan increase in the numberaverage loan amount and slightly higher margins on loans sold during the period compared to the first quarter of loan originations and2022, offset partially by a decrease in loans closed compared to the volumefirst quarter of loans sold.2023.
Total gross margin (total revenue less total land and housing costs) increased $22.9$21.5 million in the thirdfirst quarter of 20172023 compared to the thirdfirst quarter of 20162022 as a result of a $21.7$20.3 million improvement in the gross margin of our homebuilding operations (housing gross margin and land sales gross margin) and a $1.2 million improvementincrease in the gross margin of our financial services operations. With respect to our homebuilding gross margin, our gross margin on homes delivered (housing gross margin) improved $22.4increased $21.3 million primarily as a result of the 9%6% increase in average sales price of homes delivered and the 10% increase in the number of homes delivered and the absence of a $14.5 million charge for additional estimated future stucco-related repair costs in certain of our Florida communities taken during 2016's third quarter.delivered. Our housing gross margin percentage improved 350declined 110 basis points from 16.0%22.6% in prior year's thirdfirst quarter to 19.5%21.5% in 2017's third quarter. Exclusive2023's first quarter, primarily as a result of increased construction and lot costs, offset partially by the stucco-related charges takenincrease in the third


quarteraverage sales price of 2016, our adjustedhomes delivered compared to prior year. Our housing gross margin percentage remained flat at 19.5%may fluctuate from quarter to quarter depending on the mix of communities delivering homes due to the variation in both quarters ended September 30, 2017 and 2016.margin between different communities. Our gross margin on land sales (land sale gross margin) declined $0.7$1.0 million in the first quarter of 2023 compared to the first quarter of 2022 as a result of fewer third party land sales in the thirdcurrent year first quarter of 2017 compared to the third quarter of 2016. Total gross margin increased $53.2 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 as a result of a $45.8 million improvement in the gross margin of our homebuilding operations and a $7.4 million improvement in theprior year. The gross margin of our financial services operations. With respectoperations increased $1.2 million in the first quarter of 2023 compared to our homebuilding gross margin for the nine months ended September 30, 2017, our housing gross margin improved $48.0 millionfirst quarter of 2022 as a result of slightly higher margins on loans sold and an increase in the 14% increaseaverage loan amount during the first quarter of 2023 compared to the first quarter of 2022, partially offset by a decrease in the number of homes deliveredloan originations.
Headwinds from supply chain issues and the 2% increase in the average sales price of homes delivered.regulatory delays have impacted development completions and model openings which have delayed planned community openings. We recorded $8.5 million of charges in stucco-related repair costs for the nine months ended September 30, 2017 compared to $19.4 million of such charges in the prior year period. This reduction in charges also contributed to the improvement in our housing gross margin. Our housing gross margin percentage improved 120 basis points from 17.3% in the nine months ended September 30, 2016 to 18.5% in the nine months ended September 30, 2017. Exclusive of the stucco-related charges taken during the first nine months ended September 30, 2017 and 2016, our adjusted housing gross margin percentage improved 20 basis points to 19.2% in the nine months ended September 30, 2017 from 19.0%, largely as a result of product mix and the mix of communities delivering homes, partially offset by higher construction and lot costs in 2017's first nine months compared to 2016's first nine months. Our gross margin on land sales declined $2.2 million as a result of fewer third party land sales in the nine months ended September 30, 2017 compared to 2016's first nine months.

We believe the increased new contract volume during the three and nine months ended September 30, 2017 compared to the three and nine months ended September 30, 2016 was driven primarily by better pricing leverage in select locations and submarkets and shifts in both product and community mix. In addition, our new contracts benefited from the opening of 6opened 19 new communities during the thirdfirst quarter of 20172023 and 48 new communities during the nine months ended September 30, 2017, although some of these new communities opened later than expected, and did not contribute a significant number of sales contracts in the quarter. While we cannot quantify the number, we believe that our new contracts in our Florida and Texas markets were negatively impacted by the separate hurricanes that occurred during the third quarter of 2017. We sell a variety of home types in various communities and markets, each of which yields a different gross margin. The timing of the openings of new replacement communities varies from year to year. As a result, our new contracts and housing gross margin may fluctuate up or down from quarter to quarter depending on the mix of communities delivering homes. The pricing improvements described above were partially offset by higher average lot and construction costs related to homebuilding industry conditions and normal supply and demand dynamics. During the three and nine months ended September 30, 2017 and 2016, we were able to pass a portion of the higher construction and lot costs to our homebuyers in the form of higher sales prices. However, we cannot provide any assurance that we will be able to continue to raise prices.closed 15 communities.
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For the three months ended September 30, 2017,March 31, 2023, selling, general and administrative expense increased $5.7$9.8 million, which partially offset the increase in our total gross margin discussed above, and increasedbut improved as a percentage of revenue from 12.8%10.5% in the thirdfirst quarter of 20162022 to 13.1%10.0% in the thirdfirst quarter of 2017.2023 (a first quarter record). Selling expense increased $3.5$7.6 million from 2016's third2022's first quarter and increased as a percentage of revenue to 6.5%4.9% in 2017's third2023's first quarter compared to 6.3%from 4.8% for the same period in 2016.2022. Variable selling expense for sales commissions contributed $2.2$6.5 million to the increase due to the higher average sales pricenumber of homes delivered and higher numberduring the first quarter of homes delivered. The increase in2023. Non-variable selling expense was also attributable toincreased $1.1 million primarily as a $1.3 million increase in non-variable selling expense primarily related toresult of increased costs associated with our sales offices and models as a result of our increased community count.models. General and administrative expense increased $2.2 million compared to the thirdfirst quarter of 2016 but remained flat as a percentage of revenue at 6.6% in both the third quarter of 20172022 and 2016. This dollar increase was primarily due to a $0.7 million increase in compensation expense as a result of an increase in employee count, a $1.3 million increase in land related expenses primarily due to our increased community count, and a $0.2 million increase related to start-up costs associated with our new Sarasota division. For the nine months ended September 30, 2017, selling, general and administrative expense increased $24.2 million, which partially offset the increase in our gross margin discussed above, and increased slightlyimproved as a percentage of revenue from 13.2%5.7% in the first nine monthsquarter of 20162022 to 13.3%5.1% in the nine months ended September 30, 2017. Selling expense increased $13.2 million from the nine months ended September 30, 2016 and increased slightly as a percentagefirst quarter of revenue to 6.6% in 2017's first nine months compared to 6.5% for the same period in 2016. Variable selling expense for sales commissions contributed $8.2 million to the increase due to the higher average sales price of homes delivered and higher number of homes delivered.2023. The increase in selling expense was also attributable to a $5.0 million increase in non-variable selling expense primarily related to costs associated with our sales offices and models as a result of our increased community count. Generalgeneral and administrative expense increased $11.0 million compared to the nine months ended September 30, 2016 and remained flat as a percentage of revenue at 6.7% in both the nine months ended September 30, 2017 and 2016. This dollar increase was primarily due to a $5.1 million increase in compensation expense as a result of an increase in employee count as well as higher incentive compensation due to improved operating results, a $3.2 million increase in land relatedcompensation-related expenses primarily due to our increased community count, a $1.1 million increase relatedstrong financial performance during the quarter.
Outlook
Housing market conditions remained uncertain during the first quarter of 2023, resulting in weaker overall demand for new homes compared to start-up costs associated with our new Sarasota division, a $0.9 million increasethe same period last year. We attribute this decline in costs associated with new information systems in our financial services operation, anddemand to various macroeconomic conditions, including steep increases in other miscellaneous expenses.mortgage rates since January 2022, substantial increases in home prices over the past two years, the high rate of inflation, and economic recession concerns of our potential homebuyers. The extent to which these factors will continue to impact our business is highly uncertain and unpredictable, and our past performance should not be considered indicative of our future results on any metric or set of metrics given the uncertainty in the U.S. economy.



Despite these negative economic developments, we believe that the homebuilding industry will continue to benefit over the long term from a continued undersupply of available homes, positive consumer demographics, scarcity of rentals and increasing rent prices.
Outlook
We believe that housing industry fundamentalswe are well positioned to manage through these challenging economic conditions with our affordable product offerings, lot supply and planned new community openings. We remain sensitive to the changes in market conditions, and continue to focus on controlling overhead leverage, carefully managing our investment in land and land development spending and offering incentives, including mortgage interest rate buy-downs, to retain our backlog and improve our sales pace. Our strong butbalance sheet and liquidity position should also provide us with the flexibility to operate effectively through changing economic conditions. However, we cannot provide any assurances that the strategic business objectives listed below will remain successful, and we may face some near term challenges in certainneed to adjust elements of our markets relatedstrategy to hurricanes that occurred in the third quarter of 2017. We have operations in Houston, Texas and in Tampa, Orlando, and Sarasota, Florida, areas that were severely impacted by the hurricanes. While these events did not significantly affect our results for the three-month or nine-month periods ended September 30, 2017, and our communities in the affected areas only experienced minimal damage, we believe our Houston and Florida operations, and our 2017 financial results, may be adversely affected in the fourth quarter and possibly future quarters by, among other things, a decline in 2017 fourth quarter new orders; land development and home construction delays and/or elevated costs stemming from general hurricane-related recovery efforts that heighten the demand for, and constrain the supply of, building materials and available trade labor; warranty repair claims from our affected homeowners; and tempered homebuyer traffic and home sales activity. We remain focused on increasing our profitability by generating additional revenue and improving overhead operating leverage, continuing to expand oureffectively address evolving market share, and investing in attractive land opportunities.conditions.

We expect to continue to emphasize the following strategic business objectives throughout the remainder of 2017:2023 and into 2024:
profitably growing•managing our presence inland spend and inventory levels;
•improving our existing markets, including build cycle time;
•opening new communities;
reviewing new markets for investment opportunities;•managing overhead spend;
•maintaining a strong balance sheet;sheet and liquidity levels; and
•emphasizing customer service, product quality and design, and premier locations.
Consistent with these objectives,During the first three months of 2023, we took a number of steps during the nine months ended September 30, 2017 for continued improvement in 2017 and beyond, including investing $250.2invested $45.6 million in land acquisitions and $137.0$92.4 million in land development. We invested in fewer land acquisitions in the first quarter of 2023 compared to prior year’s first quarter due to declining demand for new homes and invested more in land development to help growfinish lots needed to start homes and allow us to open new communities in an effort to increase demand and sales. We continue to closely review all of our presence in our existing markets. We currently estimate that we will spend approximately $525 million to $550 million on land purchasesacquisition and land development in 2017, including the $387.2 million spent during the nine months ended September 30, 2017. However, land transactions are subject to a number of factors, including our financial conditionspending and market conditions, as well as satisfaction of various conditions related to specific properties. We will continue to monitor market conditions and our ongoing pace of home sales and deliveries, and we will adjust our land and investment spend accordingly. However, as a result of the impacts of current market conditions and municipality delays, we are not providing land spending accordingly. estimates for 2023 at this time.
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We ended the first quarter of 2023 with approximately 40,700 lots under control, which represents approximately a 5-year supply of lots based on the past twelve months of homes delivered, including certain lots that we anticipate selling to third parties. This represents a 11% decrease from our approximately 45,800 lots under control at the end of last year’s first quarter.
We opened 4819 communities and closed 4715 communities in the nine months ended September 30, 2017,first quarter of 2023, ending 2017'sthe first nine monthsquarter with a total of 179200 active communities, compared to 174176 at the end of last year’s first quarter. Although the timing of opening new communities at September 30, 2016.and closing existing communities is subject to substantial variation, we expect to grow our community count by approximately 15% by the end of 2023.
Going forward,While we believe the remainder of 2023 will be very challenging compared to the strong market conditions during the first half of 2022 and the previous few years, we also believe that we are well positioned with a strong balance sheet and backlog to manage through the current economic environment. However, the challenging macroeconomic conditions described above could materially and negatively affect our abilitiesperformance in 2023, particularly when compared to leverage our fixed costs, obtain land at desiredperformance over the past few years.
Future economic and homebuilding industry conditions and the demand for homes are subject to continued uncertainty due to many factors, including the impacts of increased mortgage interest rates, inflation, materials and labor cost increases, supply chain disruptions and labor shortages, and the further impact of return,these actions on the economy, employment levels, consumer confidence, and openfinancial markets, among other things. These factors are highly uncertain and growoutside our active communities providecontrol. As a result, our best opportunities for continuing to improve our financialpast performance may not be indicative of future results. However, we can provide no assurance that the positive trends reflected in our financial and operating metrics will continue in the future.

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The following table shows, by segment: revenue; gross margin; selling, general and administrative expense; operating income;income (loss); and interest expense (income) for the three and nine months ended September 30, 2017March 31, 2023 and 2016:2022:
Three Months Ended March 31,
(In thousands)20232022
Revenue:
Northern homebuilding$382,730 $353,786 
Southern homebuilding592,519 482,914 
Financial services (a)
25,281 24,111 
Total revenue$1,000,530 $860,811 
Gross margin:
Northern homebuilding$66,500 $67,108 
Southern homebuilding142,845 121,890 
Financial services (a)
25,281 24,111 
Total gross margin$234,626 $213,109 
Selling, general and administrative expense:
Northern homebuilding$27,340 $26,892 
Southern homebuilding45,233 37,597 
Financial services (a)
10,313 10,178 
Corporate17,154 15,537 
Total selling, general and administrative expense$100,040 $90,204 
Operating income (loss):
Northern homebuilding$39,160 $40,216 
Southern homebuilding97,612 84,293 
Financial services (a)
14,968 13,933 
Less: Corporate selling, general and administrative expense(17,154)(15,537)
Total operating income$134,586 $122,905 
Interest (income) expense:
Northern homebuilding$(46)$— 
Southern homebuilding(2)(2)
Financial services (a)
2,327 878 
Corporate(3,668)(205)
Total interest (income) expense$(1,389)$671 
Other income(7)(16)
Income before income taxes$135,982 $122,250 
(a)Our financial services operational results should be viewed in connection with our homebuilding business as its operations originate loans and provide title services primarily for our homebuyers, with the exception of a small amount of mortgage refinancing.
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 Three Months Ended September 30, Nine Months Ended September 30,
(In thousands)2017 2016 2017 2016
Revenue:       
Midwest homebuilding$180,488
 $166,928
 $495,379
 $438,016
Southern homebuilding176,502
 143,315
 504,647
 414,974
Mid-Atlantic homebuilding107,670
 121,659
 302,305
 284,527
Financial services (a)
11,763
 10,562
 37,938
 30,564
Total revenue$476,423
 $442,464
 $1,340,269
 $1,168,081
        
Gross margin:       
Midwest homebuilding$37,264
 $35,437
 $100,284
 $88,104
Southern homebuilding (b)
33,159
 11,525
 84,638
 55,489
Mid-Atlantic homebuilding19,564
 21,305
 54,857
 50,409
Financial services (a)
11,763
 10,562
 37,938
 30,564
Total gross margin (b)
$101,750
 $78,829
 $277,717
 $224,566
        
Selling, general and administrative expense:       
Midwest homebuilding$16,377
 $14,809
 $46,554
 $39,161
Southern homebuilding20,077
 16,774
 58,135
 47,109
Mid-Atlantic homebuilding9,595
 9,946
 28,047
 27,582
Financial services (a)
5,876
 4,618
 15,961
 12,983
Corporate10,548
 10,676
 29,178
 26,876
Total selling, general and administrative expense$62,473
 $56,823
 $177,875
 $153,711
        
Operating income:       
Midwest homebuilding$20,887
 $20,628
 $53,730
 $48,943
Southern homebuilding (b)
13,082
 (5,249) 26,503
 8,380
Mid-Atlantic homebuilding9,969
 11,359
 26,810
 22,827
Financial services (a)
5,887
 5,944
 21,977
 17,581
Less: Corporate selling, general and administrative expense(10,548) (10,676) (29,178) (26,876)
Total operating income (b)
$39,277
 $22,006
 $99,842
 $70,855
        
Interest expense:       
Midwest homebuilding$1,319
 $647
 $3,559
 $2,539
Southern homebuilding2,143
 1,788
 6,311
 6,118
Mid-Atlantic homebuilding557
 601
 1,988
 3,058
Financial services (a)
656
 551
 1,989
 1,445
Total interest expense$4,675
 $3,587
 $13,847
 $13,160
        
Equity in income of joint venture arrangements(71) (24) (198) (413)
        
Income before income taxes$34,673
 $18,443
 $86,193
 $58,108
(a)Our financial services operational results should be viewed in connection with our homebuilding business as its operations originate loans and provide title services primarily for our homebuying customers, with the exception of a small amount of mortgage refinancing.
(b)
Includes a $14.5 million charge for stucco-related repair costs in certain of our Florida communities taken during the three months ended September 30, 2016 and an $8.5 million and a $19.4 million charge for stucco-related repair costs in certain of our Florida communities taken during the nine months ended September 30, 2017 and 2016, respectively (as more fully discussed in Note 6).



The following tables show total assets by segment at September 30, 2017March 31, 2023 and December 31, 2016:2022:
At March 31, 2023
(In thousands)NorthernSouthernCorporate, Financial Services and UnallocatedTotal
Deposits on real estate under option or contract$8,057 $50,853 $— $58,910 
Inventory (a)
996,537 1,601,962 — 2,598,499 
Investments in joint venture arrangements— 49,031 — 49,031 
Other assets43,358 112,146 (b)900,426 1,055,930 
Total assets$1,047,952 $1,813,992 $900,426 $3,762,370 
At December 31, 2022
(In thousands)NorthernSouthernCorporate, Financial Services and UnallocatedTotal
Deposits on real estate under option or contract$8,138 $47,601 $— $55,739 
Inventory (a)
1,100,472 1,672,391 — 2,772,863 
Investments in joint venture arrangements— 51,554 — 51,554 
Other assets38,265 103,182 (b)693,320 834,767 
Total assets$1,146,875 $1,874,728 $693,320 $3,714,923 
(a)Inventory includes: single-family lots, land and land development costs; land held for sale; homes under construction; model homes and furnishings; community development district infrastructure; and consolidated inventory not owned.
(b)Includes development reimbursements from local municipalities.
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 At September 30, 2017
(In thousands)Midwest Southern Mid-Atlantic Corporate, Financial Services and Unallocated Total
Deposits on real estate under option or contract$5,078
 $20,094
 $6,202
 $—
 $31,374
Inventory (a)
514,949
 623,815
 285,671
 —
 1,424,435
Investments in joint venture arrangements3,798
 10,493
 8,690
 —
 22,981
Other assets13,106
 24,624
(b) 
11,600
 256,575
 305,905
Total assets$536,931
 $679,026
 $312,163
 $256,575
 $1,784,695

 At December 31, 2016
(In thousands)Midwest Southern Mid-Atlantic Corporate, Financial Services and Unallocated Total
Deposits on real estate under option or contract$3,989
 $22,607
 $3,260
 $—
 $29,856
Inventory (a)
399,814
 484,038
 302,226
 —
 1,186,078
Investments in joint venture arrangements10,155
 10,630
 7,231
 —
 28,016
Other assets25,747
 35,622
(b) 
13,912
 229,280
 304,561
Total assets$439,705
 $552,897
 $326,629
 $229,280
 $1,548,511
(a)Inventory includes single-family lots; land and land development costs; land held for sale; homes under construction; model homes and furnishings; community development district infrastructure; and consolidated inventory not owned.
(b)Includes development reimbursements from local municipalities.


Reportable Segments
The following table presents, by reportable segment, selected operating and financial information as of and for the three and nine months ended September 30, 2017March 31, 2023 and 2016:2022:
Three Months Ended March 31,
(Dollars in thousands)20232022
Northern Region
Homes delivered797 760 
New contracts, net828 1,190 
Backlog at end of period1,087 2,320 
Average sales price of homes delivered$480 $466 
Average sales price of homes in backlog$515 $494 
Aggregate sales value of homes in backlog$559,536 $1,144,989 
Housing revenue$382,630 $353,786 
Land sale revenue$100 $— 
Operating income homes (a)
$39,156 $40,216 
Operating income land$4 $— 
Number of average active communities101 92 
Number of active communities, end of period104 94 
Southern Region
Homes delivered1,210 1,063 
New contracts, net1,343 1,324 
Backlog at end of period2,214 3,206 
Average sales price of homes delivered$490 $451 
Average sales price of homes in backlog$526 $513 
Aggregate sales value of homes in backlog$1,165,014 $1,643,245 
Housing revenue$592,316 $479,377 
Land sale revenue$203 $3,537 
Operating income homes (a)
$97,619 $83,326 
Operating (loss) income land$(7)$967 
Number of average active communities97 84 
Number of active communities, end of period96 82 
Total Homebuilding Regions
Homes delivered2,007 1,823 
New contracts, net2,171 2,514 
Backlog at end of period3,301 5,526 
Average sales price of homes delivered$486 $457 
Average sales price of homes in backlog$522 $505 
Aggregate sales value of homes in backlog$1,724,550 $2,788,234 
Housing revenue$974,946 $833,163 
Land sale revenue$303 $3,537 
Operating income homes (a)
$136,775 $123,542 
Operating (loss) income land$(3)$967 
Number of average active communities198 176 
Number of active communities, end of period200 176 
(a)Includes the effect of total homebuilding selling, general and administrative expense for the region as disclosed in the first table set forth in this “Outlook” section.
Three Months Ended March 31,
(Dollars in thousands)20232022
Financial Services
Number of loans originated1,258 1,271 
Value of loans originated$494,461 $479,780 
Revenue$25,281 $24,111 
Less: Selling, general and administrative expenses10,313 10,178 
Less: Interest expense2,327 878 
Income before income taxes$12,641 $13,055 

29
 Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in thousands)2017 2016 2017 2016
Midwest Region       
Homes delivered461
 443
 1,277
 1,163
New contracts, net458
 407
 1,545
 1,409
Backlog at end of period1,025
 918
 1,025
 918
Average sales price of homes delivered$389
 $374
 $386
 $375
Average sales price of homes in backlog$406
 $388
 $406
 $388
Aggregate sales value of homes in backlog$416,029
 $355,797
 $416,029
 $355,797
Housing revenue$179,363
 $165,894
 $493,464
 $435,717
Land sale revenue$1,125
 $1,034
 $1,915
 $2,299
Operating income homes (a)
$20,771
 $19,936
 $53,327
 $47,938
Operating income land$116
 $692
 $403
 $1,005
Number of average active communities64
 62
 63
 67
Number of active communities, end of period62
 60
 62
 60
Southern Region       
Homes delivered520
 410
 1,459
 1,158
New contracts, net583
 437
 1,798
 1,444
Backlog at end of period1,013
 846
 1,013
 846
Average sales price of homes delivered$338
 $345
 $343
 $344
Average sales price of homes in backlog$355
 $350
 $355
 $350
Aggregate sales value of homes in backlog$359,833
 $296,145
 $359,833
 $296,145
Housing revenue$175,644
 $141,382
 $500,504
 $398,249
Land sale revenue$858
 $1,933
 $4,143
 $16,725
Operating income homes (a) (b)
$12,924
 $(5,650) $26,234
 $6,458
Operating income land$158
 $401
 $269
 $1,922
Number of average active communities86
 72
 84
 70
Number of active communities, end of period85
 74
 85
 74
Mid-Atlantic Region       
Homes delivered275
 295
 769
 745
New contracts, net184
 244
 736
 903
Backlog at end of period340
 457
 340
 457
Average sales price of homes delivered$379
 $380
 $385
 $365
Average sales price of homes in backlog$399
 $371
 $399
 $371
Aggregate sales value of homes in backlog$135,795
 $169,552
 $135,795
 $169,552
Housing revenue$104,335
 $111,952
 $295,925
 $271,735
Land sale revenue$3,335
 $9,707
 $6,380
 $12,792
Operating income homes (a)
$9,877
 $11,388
 $26,598
 $22,658
Operating income land$92
 $(29) $212
 $169
Number of average active communities33
 40
 35
 39
Number of active communities, end of period32
 40
 32
 40
Total Homebuilding Regions       
Homes delivered1,256
 1,148
 3,505
 3,066
New contracts, net1,225
 1,088
 4,079
 3,756
Backlog at end of period2,378
 2,221
 2,378
 2,221
Average sales price of homes delivered$366
 $365
 $368
 $361
Average sales price of homes in backlog$383
 $370
 $383
 $370
Aggregate sales value of homes in backlog$911,657
 $821,494
 $911,657
 $821,494
Housing revenue$459,342
 $419,228
 $1,289,893
 $1,105,701
Land sale revenue$5,318
 $12,674
 $12,438
 $31,816
Operating income homes (a) (b)
$43,572
 $25,674
 $106,159
 $77,054
Operating income land$366
 $1,064
 $884
 $3,096
Number of average active communities183
 174
 182
 176
Number of active communities, end of period179
 174
 179
 174
(a)Includes the effect of total homebuilding selling, general and administrative expense for the region as disclosed in the first table set forth in this “Outlook” section.
(b)
Includes a $14.5 million charge for stucco-related repair costs in certain of our Florida communities taken during the three months ended September 30, 2016, and an $8.5 million and a $19.4 million charge for stucco-related repair costs in certain of our Florida communities taken during the nine months ended September 30, 2017 and 2016, respectively (as more fully discussed in Note 6).



 Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in thousands)2017 2016 2017 2016
Financial Services       
Number of loans originated902
 848
 2,467
 2,213
Value of loans originated$263,755
 $250,306
 $732,587
 $654,905
        
Revenue$11,763
 $10,562
 $37,938
 $30,564
Less: Selling, general and administrative expense5,876
 4,618
 15,961
 12,983
Interest expense656
 551
 1,989
 1,445
        
Income before income taxes$5,231
 $5,393
 $19,988
 $16,136

A home is included in “new contracts” when our standard sales contract is executed. “Homes delivered” represents homes for which the closing of the sale has occurred. “Backlog” represents homes for which the standard sales contract has been executed, but which are not included in homes delivered because closings for these homes have not yet occurred as of the end of the period specified.
The composition of our homes delivered, new contracts, net and backlog is constantly changing and may be based on a dissimilar mix of communities between periods as new communities open and existing communities wind down. Further, home types and individual homes within a community can range significantly in price due to differing square footage, option selections, lot sizes and quality and location of lots. These variations may result in a lack of meaningful comparability between homes delivered, new contracts, net and backlog due to the changing mix between periods.
Cancellation Rates
Our cancellation rates have increased from the prior year due to the softening in the housing market and economic uncertainty. The following table sets forth the cancellation rates for each of our homebuilding segments for the three and nine months ended September 30, 2017March 31, 2023 and 2016:2022:
Three Months Ended March 31,
20232022
Northern10.8 %6.7 %
Southern14.0 %7.7 %
Total cancellation rate12.8 %7.2 %
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Midwest14.1% 14.5% 12.3% 12.3%
Southern16.7% 16.9% 16.7% 16.1%
Mid-Atlantic12.4% 13.2% 11.1% 10.1%
        
Total cancellation rate15.1% 15.2% 14.1% 13.3%


Seasonality
Typically, our homebuilding operations experience significant seasonality and quarter-to-quarter variability in homebuilding activity levels. In general, homes delivered increase substantially in the second half of the year compared to the first half of the year. We believe that this seasonality reflects the tendency of homebuyers to shop for a new home in the spring with the goal of closing in the fall or winter, as well as the scheduling of construction to accommodate seasonal weather conditions. Our financial services operations also experience seasonality because loan originations correspond with the delivery of homes in our homebuilding operations.


Non-GAAP Financial Measures
This report contains information about our adjusted housing gross margin and adjusted income before income taxes, each of which constitutes a non-GAAP financial measure. Because adjusted housing gross margin and adjusted income before income taxes are not calculated in accordance with GAAP, these financial measures may not be completely comparable to similarly-titled measures used by other companies in the homebuilding industry and, therefore, should not be considered in isolation or as an alternative to operating performance and/or financial measures prescribed by GAAP. Rather, these non-GAAP financial measures should be used to supplement our GAAP results in order to provide a greater understanding of the factors and trends affecting our operations.
Adjusted housing gross margin and adjusted income before income taxes are calculated as follows:
 Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in thousands)2017 2016 2017 2016
Housing revenue$459,342
 $419,228
 $1,289,893
 $1,105,701
Housing cost of sales369,721
 352,025
 1,050,998
 914,795
        
Housing gross margin89,621
 67,203
 238,895
 190,906
Add: Stucco-related charges (a)
—
 14,500
 8,500
 19,409
        
Adjusted housing gross margin$89,621
 $81,703
 $247,395
 $210,315
        
Housing gross margin percentage19.5% 16.0% 18.5% 17.3%
Adjusted housing gross margin percentage19.5% 19.5% 19.2% 19.0%
        
Income before income taxes$34,673
 $18,443
 $86,193
 $58,108
Add: Stucco-related charges (a)
—
 14,500
 8,500
 19,409
        
Adjusted income before income taxes$34,673
 $32,943
 $94,693
 $77,517
        
(a)
Represents warranty charges for stucco-related repair costs in certain of our Florida communities (as more fully discussed in Note 6).
We believe adjusted housing gross margin and adjusted income before income taxes are both relevant and useful financial measures to investors in evaluating our operating performance as they measure the gross profit and income before income taxes we generated specifically on our operations during a given period. These non-GAAP financial measures isolate the impact that the stucco-related charges have on housing gross margins and income before income taxes, and allow investors to make comparisons with our competitors that adjust housing gross margins and income before income taxes in a similar manner. We also believe investors will find adjusted housing gross margin and adjusted income before income taxes relevant and useful because they represent a profitability measure that may be compared to a prior period without regard to variability of stucco-related charges. These financial measures assist us in making strategic decisions regarding community location and product mix, product pricing and construction pace.
Year Over Year Comparison
Three Months Ended September 30, 2017March 31, 2023 Compared to Three Months Ended September 30, 2016March 31, 2022
The calculation of adjusted housing gross margin (referred to below), which we believe provides a clearer measure of the ongoing performance of our business, is described and reconciled to housing gross margin, the financial measure that is calculated using our GAAP results, below under “Segment Non-GAAP Financial Measures.”

MidwestNorthern Region. During the three months ended September 30, 2017,first quarter of 2023, homebuilding revenue in our MidwestNorthern region increased $13.6$28.9 million, from $166.9$353.8 million in the third quarterfirst three months of 20162022 to $180.5$382.7 million in the third quarterfirst three months of 2017.2023. This 8% increase in homebuilding revenue was the result of a 4% increase in the number of homes delivered (18 units) and a 4% increase in the average sales price of homes delivered ($15,000 per home delivered). Operating income in our Midwest region increased $0.3 million from $20.6 million in the third quarter of 2016 to $20.9 million during the quarter ended September 30, 2017. This increase in operating income was the result of a $1.8 million improvement in our gross margin, offset, in part, by a $1.6 million increase in selling, general, and administrative expense. With respect to our homebuilding gross margin, our housing gross margin improved $2.4 million, due to the 4% increase in the number of homes delivered and the 4% increase in the average sales price of homes delivered noted above. Our housing gross margin percentage declined 20 basis points to 20.7% in the third quarter of 2017 compared to 20.9% in the prior year’s third quarter primarily due to a change in product type and market mix. Our land sale gross margin declined $0.6 million as a result of fewer land sales in the third quarter of 2017 compared to the same period in 2016.


Selling, general and administrative expense increased $1.6 million, from $14.8 million for the quarter ended September 30, 2016 to $16.4 million for the quarter ended September 30, 2017, and increased as a percentage of revenue to 9.1% from 8.9% in 2016's third quarter. The increase in selling, general and administrative expense was attributable to an increase in selling expense due to (1) a $0.9 million increase in variable selling expenses resulting from increases in sales commissions produced by the higher average sales price of homes delivered and higher number of homes delivered and (2) a $0.7 million increase in non-variable selling expenses primarily related to costs associated with our additional sales offices and models.
During the three months ended September 30, 2017, we experienced a 13% increase in new contracts in our Midwest region, from 407 in the third quarter of 2016 to 458 in the third quarter of 2017, and a 12% increase in backlog from 918 homes at September 30, 2016 to 1,025 homes at September 30, 2017. The increases in new contracts and backlog were primarily due to improving demand in our newer communities compared to prior year. Average sales price in backlog increased to $406,000 at September 30, 2017 compared to $388,000 at September 30, 2016 which was primarily due to a change in product type and market mix. During the three months ended September 30, 2017, we opened one new community in our Midwest region compared to two during 2016's third quarter. Our monthly absorption rate in our Midwest region increased to 2.4 per community in the third quarter of 2017 from 2.2 per community in the third quarter of 2016.
Southern Region.During the three months ended September 30, 2017, homebuilding revenue in our Southern region increased $33.2 million, from $143.3 million in the third quarter of 2016 to $176.5 million in the third quarter of 2017. This 23% increase in homebuilding revenue was the result of a 27% increase in the number of homes delivered (110 units), offset partially by a 2% decrease in the average sales price of homes delivered ($7,000 per home delivered), primarily due to mix, and a $1.1 million decrease in land sale revenue. Operating income in our Southern region increased $18.3 million from an operating loss of $5.2 million in the third quarter of 2016 to $13.1 million in operating income during the quarter ended September 30, 2017. This increase in operating income was the result of a $21.6 million improvement in our gross margin partially offset by a $3.3 million increase in selling, general, and administrative expense. With respect to our homebuilding gross margin, our housing gross margin improved $21.9 million, due primarily to the 27% increase in the number of homes delivered noted above and the absence of a $14.5 million charge for stucco-related repair costs in certain of our Florida communities taken during the three months ended September 30, 2016 (as more fully discussed in Note 6). Our housing gross margin percentage improved from 7.9% in prior year’s third quarter to 18.8% in the third quarter of 2017. Exclusive of the stucco-related charges in the third quarter of 2016, our adjusted housing gross margin percentage improved 70 basis points from 18.1% to 18.8%, largely due to the mix of communities delivering homes and a more favorable product mix. Our land sale gross margin declined $0.2 million as a result of fewer land sales in the third quarter of 2017 compared to the same period in 2016.
Selling, general and administrative expense increased $3.3 million from $16.8 million in the third quarter of 2016 to $20.1 million in the third quarter of 2017 and declined as a percentage of revenue to 11.4% from 11.7% in the third quarter of 2016. The increase in selling, general and administrative expense was attributable, in part, to a $2.3 million increase in selling expense due to (1) a $1.6 million increase in variable selling expenses resulting from increases in sales commissions produced by the higher number of homes delivered and (2) a $0.7 million increase in non-variable selling expenses primarily related to costs associated with our sales offices and models as a result of our increased community count. The increase in selling, general and administrative expense was also attributable to a $1.0 million increase in general and administrative expense, which was primarily related to an increase in land related expenses.
During the three months ended September 30, 2017, we experienced a 33% increase in new contracts in our Southern region, from 437 in the third quarter of 2016 to 583 for the third quarter of 2017, and a 20% increase in backlog from 846 homes at September 30, 2016 to 1,013 homes at September 30, 2017. The increases in new contracts and backlog were primarily due to an increase in our average number of communities during the period, along with a modest improvement in demand in our Florida markets. Despite these improvements, however, our new contract volume was negatively impacted by the separate hurricanes that occurred in Florida and Texas during the quarter which we believe caused delays of approximately 20 home deliveries for the quarter and resulted in approximately $0.7 million of community and model home repair costs in the quarter. Average sales price in backlog increased to $355,000 at September 30, 2017 from $350,000 at September 30, 2016 due to a change in product type and market mix. During the three months ended September 30, 2017, we opened three communities in our Southern region compared to six during 2016's third quarter. Our monthly absorption rate in our Southern region increased to 2.3 per community in the third quarter of 2017 from 2.0 per community in the third quarter of 2016.
Mid-Atlantic Region. During the three month period ended September 30, 2017, homebuilding revenue in our Mid-Atlantic region decreased $14.0 million from $121.7 million in the third quarter of 2016 to $107.7 million in the third quarter of 2017. This 12% decrease in homebuilding revenue was the result of a 7% decrease in the number of homes delivered (20 units) primarily due to a decrease in the average number of communities during the period compared to prior year. Operating income in our Mid-Atlantic region decreased $1.4 million, from $11.4 million in the third quarter of 2016 to $10.0 million during the quarter ended September 30, 2017. This decline in operating income was primarily the result of a $1.7 million decrease in our gross margin, offset, in part,


by a $0.3 million decrease in selling, general and administrative expense. With respect to our homebuilding gross margin, our housing gross margin declined $1.8 million, due to the 7% decrease in the number of homes delivered noted above and a decline in housing gross margin percentage, partially attributable to increased competition in the region. Our housing gross margin percentage declined 40 basis points from 19.1% in last year’s third quarter to 18.7% in the third quarter of 2017 due primarily to the mix of homes delivered. Our land sale gross margin improved slightly by $0.1 million during the third quarter of 2017 compared to prior year.
Selling, general and administrative expense decreased $0.3 million from $9.9 million in the third quarter of 2016 to $9.6 million in the third quarter of 2017 but increased as a percentage of revenue to 8.9% compared to 8.2% for the third quarter of 2016. The decrease in selling, general and administrative expense was primarily due to a decrease in variable selling expenses primarily as a result of decreased sales commissions produced by the lower average sales price of homes delivered and lower number of homes delivered.
During the three months ended September 30, 2017, we experienced a 25% decrease in new contracts in our Mid-Atlantic region, from 244 in the third quarter of 2016 to 184 for the third quarter of 2017, and a 26% decrease in the number of homes in backlog from 457 homes at September 30, 2016 to 340 homes at September 30, 2017. The decreases in new contracts and backlog were primarily due to a decrease in the average number of active communities during the period compared to the prior year, as a result of delays in planned new community openings. Average sales price of homes in backlog increased from $371,000 at September 30, 2016 to $399,000 at September 30, 2017 primarily due to the mix of homes delivered. During the three months ended September 30, 2017, we opened two communities in our Mid-Atlantic region compared to three during the third quarter of 2016. Our monthly absorption rate in our Mid-Atlantic region declined to 1.9 per community in the third quarter of 2017 from 2.1 per community in the third quarter of 2016.
Financial Services. Revenue from our mortgage and title operations increased $1.2 million (11%) from $10.6 million in the third quarter of 2016 to $11.8 million in the third quarter of 2017 as a result of a 6% increase in the number of loan originations, from 848 in the third quarter of 2016 to 902 in the third quarter of 2017, and an increase in the volume of loans sold. Our average loan amount decreased slightly from $295,000 in the quarter ended September 30, 2016 to $292,000 in the quarter ended September 30, 2017.
We ended our third quarter of 2017 with a $0.1 million decrease in operating income compared to 2016's third quarter, which was primarily due to a $1.3 million increase in selling, general and administrative expense compared to the third quarter of 2016 which was attributable primarily to a $0.8 million increase in compensation expense, $0.2 million increase in computer costs related to our investment in new information systems and a $0.3 million increase in other miscellaneous expenses, offset partially by the increase in our revenue discussed above.
At September 30, 2017, M/I Financial provided financing services in all of our markets. Approximately 80% of our homes delivered during the third quarter of 2017 were financed through M/I Financial, compared to 85% in the same period in 2016. Capture rate is influenced by financing availability and can fluctuate from quarter to quarter.
Corporate Selling, General and Administrative Expense. Corporate selling, general and administrative expense decreased $0.2 million, from $10.7 million for the third quarter of 2016 to $10.5 million for the third quarter of 2017.
Interest Expense - Net. Interest expense for the Company increased $1.1 million from $3.6 million for the three months ended September 30, 2016 to $4.7 million for the three months ended September 30, 2017. This increase was primarily the result of an increase in our weighted average borrowings from $607.4 million in 2016's third quarter to $714.0 million in 2017's third quarter, in addition to an increase in our weighted average borrowing rate from 5.80% in the third quarter of 2016 to 6.12% for third quarter of 2017. The increase in our weighted average borrowings and our weighted average borrowing rate primarily related to the issuance of our $250.0 million in aggregate principal amount of 2025 Senior Notes during the third quarter of 2017, partially offset by decreased borrowings under our Credit Facility (as defined below) at September 30, 2017 compared to September 30, 2016 and the conversion of all of our outstanding $57.5 million in aggregate principal amount of 2017 Convertible Senior Subordinated Notes into common shares in September 2017.
Earnings from Unconsolidated Joint Ventures. Earnings from unconsolidated joint ventures represent our portion of pre-tax earnings from our joint ownership and development agreements, joint ventures and other similar arrangements. During both the three months ended September 30, 2017 and 2016, the Company earned less than $0.1 million in equity in income from unconsolidated joint ventures.
Income Taxes. Our overall effective tax rate was 35.6% for the three months ended September 30, 2017 and 40.7% for the same period in 2016. The decline in the effective rate from the three months ended September 30, 2016 was primarily attributable to


an increase in the estimated impact of annual tax benefits expected for the domestic production activities deduction which was limited in 2016 due to our then NOL federal carryforward position and a decrease in tax expense related to state tax rate changes.
Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016

Midwest Region. During the nine months ended September 30, 2017, homebuilding revenue in our Midwest region increased $57.4 million, from $438.0 million in the nine months ended September 30, 2016 to $495.4 million in the nine months ended September 30, 2017. This 13% increase in homebuilding revenue was the result of a 10% increase in the number of homes delivered (114 units) and a 3% increase in the average sales price of homes delivered ($11,00014,000 per home delivered), offset partially byin addition to a $0.45% increase in the number of homes delivered (37 units) and a $0.1 million decreaseincrease in land sale revenue. Operating income in our MidwestNorthern region increased $4.8decreased $1.0 million, from $48.9$40.2 million during the nine months ended September 30, 2016first quarter of 2022 to $53.7$39.2 million during the ninethree months ended September 30, 2017.March 31, 2023. The increasedecrease in operating income was primarily the result of a $12.2$0.6 million increasedecrease in our gross margin offset, in part, by a $7.4 million increase in selling, general, and administrative expense. With respect to our homebuilding gross margin, our housing gross margin improved $12.8 million, due to the 10% increase in the number of homes delivered and the 3% increase in the average sales price of homes delivered noted above. Our housing gross margin percentage improved 20 basis points from 20.0% in prior year's first nine months to 20.2% for the same period in 2017 primarily due to a change in market mix compared to prior year. Our housing gross margin for 2016’s first nine months was unfavorably impacted by a $1.1 million charge for purchase accounting adjustments from our 2015 Minneapolis/St. Paul acquisition. Exclusive of this charge, our adjusted housing gross margin percentage remained flat at 20.2% in both periods. Our land sale gross margin declined $0.6 million as a result of fewer strategic land sales in the nine months ended September 30, 2017 compared to the same period in 2016.

Selling, general and administrative expense increased $7.4 million, from $39.2 million for the nine months ended September 30, 2016 to $46.6 million for the nine months ended September 30, 2017, and increased as a percentage of revenue to 9.4% compared to 8.9% for the same period in 2016. The increase in selling, general and administrative expense was attributable, in part, to a $5.5 million increase in selling expense due to (1) a $3.2 million increase in variable selling expenses resulting from increases in sales commissions produced by the higher average sales price of homes delivered and higher number of homes delivered, and (2) a $2.3 million increase in non-variable selling expenses primarily related to costs associated with our additional sales offices and models. The increase in selling, general and administrative expense was also attributable to a $1.9 million increase in general and administrative expense, which was primarily related to a $0.6 million increase in compensation expense, a $0.5 million increase in land-related expenses and $0.8 million increase in other miscellaneous expenses.
During the nine months ended September 30, 2017, we experienced a 10% increase in new contracts in our Midwest region, from 1,409 in the nine months ended September 30, 2016 to 1,545 in the first nine months of 2017, and a 12% increase in backlog from 918 homes at September 30, 2016 to 1,025 homes at September 30, 2017. The increases in new contracts and backlog were primarily due to improving demand in our newer communities. Average sales price in backlog increased to $406,000 at September 30, 2017 compared to $388,000 at September 30, 2016 which was primarily due to product type and market mix, in 2017’s first half compared to the same period last year. During the nine months ended September 30, 2017, we opened 18 new communities in our Midwest region compared to six during 2016's first nine months. Our monthly absorption rate in our Midwest region increased to 2.7 per community in the first nine months of 2017 from 2.3 per community in the nine months ended September 30, 2016.
Southern Region.During the nine months ended September 30, 2017, homebuilding revenue in our Southern region increased $89.6 million, from $415.0 million in the nine months ended September 30, 2016 to $504.6 million in the nine months ended September 30, 2017. This 22% increase in homebuilding revenue was the result of a 26% increase in the number of homes delivered (301 units), partially offset by a $12.6 million decrease in land sale revenue and a slight decrease in the average sales price of homes delivered ($1,000 per home delivered). Operating income in our Southern region increased $18.1 million from $8.4 million in the nine months ended September 30, 2016 to $26.5 million during the nine months ended September 30, 2017. This increase in operating income was the result of a $29.1 million improvement in our gross margin offset by an $11.0 million increase in selling, general, and administrative expense. With respect to our homebuilding gross margin, our gross margin on homes delivered improved $30.8 million, due primarily to the 26% increase in the number of homes delivered and the $10.9 million reduction in charges for stucco-related repair costs in certain of our Florida communities in 2017 compared to 2016. During the first nine months of 2017, we incurred an $8.5 million charge for stucco-related repair costs in certain of our Florida communities (as more fully discussed in Note 6). 2016's first nine months included charges of $19.4 million for such repairs. Our housing gross margin percentage improved from 13.5% in prior year's first nine months to 16.9% for the same period in 2017. Exclusive of the stucco-related charges in both the nine months ended September 30, 2017 and 2016, our adjusted housing gross margin percentage improved 30 basis points from 18.3% for the nine months ended September 30, 2016 to 18.6% for the nine months ended September 30, 2017, largely due to the mix of communities delivering homes and a more favorable product mix. Our land sale gross margin declined $1.7 million as a result of fewer strategic land sales in the nine months ended September 30, 2017 compared to the same period in 2016.


Selling, general and administrative expense increased $11.0 million from $47.1 million in the nine months ended September 30, 2016 to $58.1 million in the nine months ended September 30, 2017 and increased slightly as a percentage of revenue to 11.5% compared to 11.4% for the nine months ended September 30, 2016. The increase in selling, general and administrative expense was attributable, in part, to a $7.2 million increase in selling expense due to (1) a $4.4 million increase in variable selling expenses resulting from increases in sales commissions produced by the higher number of homes delivered, and (2) a $2.8 million increase in non-variable selling expenses primarily related to costs associated with our sales offices and models as a result of our increased community count. The increase in selling, general and administrative expense was also attributable to a $3.8 million increase in general and administrative expense, which was primarily related to a $2.5 million increase in land related expenses, a $1.3 million increase in compensation related expense, $0.5 million of which related to our new Sarasota division, and a $0.6 million increase related to other costs associated with our new Sarasota division, offset partially by a $0.4 million decrease in professional fees and $0.2 million decrease in other miscellaneous expenses.
During the nine months ended September 30, 2017, we experienced a 25% increase in new contracts in our Southern region, from 1,444 in the nine months ended September 30, 2016 to 1,798 in the first nine months of 2017, and a 20% increase in backlog from 846 homes at September 30, 2016 to 1,013 homes at September 30, 2017. The increases in new contracts and backlog were primarily due to an increase in our average number of communities during the period, along with a modest improvement in demand in our Florida markets as well as continued growth in our Texas operations in the first nine months of 2017 compared to the nine months ended September 30, 2016. Despite these improvements, we believe our new contract volume was negatively impacted by the separate hurricanes that occurred in Florida and Texas during the third quarter of 2017, which we believe caused delays of approximately 20 home deliveries for the third quarter of 2017 and resulted in approximately $0.7 million of community and model home repair costs. Average sales price in backlog increased from $350,000 at September 30, 2016 to $355,000 at September 30, 2017 due to a change in product type and market mix. During the nine months ended September 30, 2017, we opened 23 communities in our Southern region compared to 19 during 2016's first nine months. Our monthly absorption rate in our Southern region increased to 2.4 per community in the nine months ended September 30, 2017 from 2.3 per community in the nine months ended September 30, 2016.
Mid-Atlantic Region. During the nine months ended September 30, 2017, homebuilding revenue in our Mid-Atlantic region increased $17.8 million from $284.5 million in the nine months ended September 30, 2016 to $302.3 million in 2017's first nine months. This 6% increase in homebuilding revenue was the result of a 5% increase in the average sales price of homes delivered ($20,000 per home delivered) and a 3% increase in the number of homes delivered (24 units). Operating income in our Mid-Atlantic region increased $4.0 million, from $22.8 million in 2016's first nine months to $26.8 million during the nine months ended September 30, 2017. This increase in operating income was primarily the result of a $4.4 million increase in our gross margin, partially offset by a $0.4 million increase in selling, general and administrative expense. With respect to our homebuilding gross margin, our housing gross margin improved $4.4declined $0.6 million, and our housing gross margin percentage declined 160 basis points from 19.0% in the first three months of 2022 to 17.4% for the same period in 2023, primarily due to increased construction and lot costs, offset partially by the 5% increase in the average sales price of homes delivered and the 3% increase in the number of homes delivered noted above. Our housing gross margin percentage remained flat at18.5% in bothcompared to prior year’s and current year’s first nine months.year. Our land sale gross margin also remained flat in the nine months ended September 30, 2017first quarter of 2023 compared to the same period in 2016.first quarter of 2022.

Selling, general and administrative expense increased $0.4 million, from $27.6$26.9 million infor the ninethree months ended September 30, 2016March 31, 2022 to $28.0$27.3 million in 2017's first ninefor the three months ended March 31, 2023, but declined as a percentage of revenue to 9.3%7.1% in the first quarter of 2023 compared to 9.7% for 2016's first nine months.7.6% in the same period in 2022. The increase in selling, general and administrative expense was primarily attributable to ana $1.0 million increase in selling expense primarily due to an increase in variable selling expenses resulting from increases in sales commissions produced by the higher average sales pricenumber of homes delivered, partially offset by a $0.6 million decrease in general and higher number of homes delivered.administrative expense, which was primarily related to a decrease in compensation-related expenses due to our decreased headcount.
During the nine-month periodthree months ended September 30, 2017,March 31, 2023, we experienced an 18%a 30% decrease in new contracts in our Mid-AtlanticNorthern region, from 9031,190 in the ninethree months ended September 30, 2016March 31, 2022 to 736828 in the nine months ended September 30, 2017, and a 26% decrease in the numberfirst quarter of homes2023. Homes in backlog also decreased 53% from 4572,320 at March 31, 2022 to 1,087 homes at September 30, 2016 to 340 homes at September 30, 2017.March 31, 2023. The decreases in new contracts and backlog were primarilypartially due to a decrease in the average number of active communities during the period compared to the prior year, and partlydecreased demand as a result of delaysthe macroeconomic conditions described above in planned new community openings in the period compared to the priorour Overview section and difficult comps versus last year. Average sales price of homes in backlog increased however, from $371,000to $515,000 at September 30, 2016March 31, 2023 compared to $399,000$494,000 at September 
30 2017.

March 31, 2022. During the ninethree months ended September 30, 2017,March 31, 2023, we opened seven11 new communities in our Mid-AtlanticNorthern region compared to nineopening 15 during 2016's first nine months.the same period in 2022. Our monthly absorption rate in our Mid-AtlanticNorthern region declined to 2.42.7 per community in the ninethree months ended September 30, 2017March 31, 2023 from 2.64.3 per community in the ninesame period in 2022 as a result of the decrease in the number of new contracts during the period compared to prior year and the increase in the number of average active communities.
Southern Region.During the three months ended September 30, 2016.March 31, 2023, homebuilding revenue in our Southern region increased $109.6 million from $482.9 million in the first quarter of 2022 to $592.5 million in the first quarter of 2023. This 23% increase in homebuilding revenue was the result of a 9% increase in the average sales price of homes delivered ($39,000 per home delivered) and a 14% increase in the number of homes delivered (147 units), offset partially by a $3.3 million decrease in land sale revenue. Operating income in our Southern region increased 16% from $84.3 million in the first quarter of 2022 to $97.6 million during the three months ended March 31, 2023. This increase in operating income was the result of a $21.0 million improvement in our gross margin, offset partially by a $7.6 million increase in selling, general, and administrative expense. With respect to our homebuilding gross margin, our gross margin on homes delivered improved $21.9 million, due primarily to the increase in average sale price of homes delivered and the increase in the number of homes delivered during the period. Our housing gross margin percentage declined 110 basis points from 25.2% in the three months ended March 31, 2022 to 24.1% in the same period in 2023, primarily due to increased construction and lot costs, offset partially by the increase in average sales price of homes delivered compared to prior year. Our land sale gross margin declined $1.0 million in the first quarter of 2023 compared to the same period in 2022 as a result of the mix of lots sold in the current year compared to the prior year.
Selling, general and administrative expense increased $7.6 million from $37.6 million in the first quarter of 2022 to $45.2 million in the first quarter of 2023 but declined as a percentage of revenue to 7.6% from 7.8% for the first quarter of 2022. The increase in selling, general and administrative expense was attributable to a $6.6 million increase in selling expense primarily due to an increase in variable selling expenses resulting from increases in sales commissions produced by the higher number of homes delivered and a $1.0 million increase in general and administrative expense, which was primarily related to a $0.6 million increase in compensation-related expenses due to our strong financial performance and a $0.4 million increase in miscellaneous expenses.

During the three months ended March 31, 2023, we experienced a 1% increase in new contracts in our Southern region, from 1,324 in the three months ended March 31, 2022 to 1,343 in the first quarter of 2023 primarily due to the increase in our average number of communities compared to prior year. Homes in backlog decreased 31% from 3,206 homes at March 31, 2022 to 2,214 homes at March 31, 2023 due primarily to decreased demand as a result of the macroeconomic conditions described above in our Overview section and difficult comps compared to prior year. Average sales price in backlog increased from $513,000 at March 31, 2022 to $526,000 at March 31, 2023. During the three months ended March 31, 2023, we opened eight  communities in our Southern region, compared to opening 16 during the first quarter of 2022. Our monthly absorption rate in our Southern region declined to 4.6 per community in the first quarter of 2023 from 5.3 per community in the first quarter of 2022 as a result of the increase in our average communities and the increase in the number of new contracts during the period compared to prior year.
Financial Services. Revenue from our mortgage and title operations increased $7.3 million (24%)5% from $30.6$24.1 million in the nine months ended September 30, 2016first quarter of 2022 to $37.9$25.3 million in the ninefirst quarter of 2023 due to slightly higher margins on loans sold during the period compared to 2022's first quarter and an increase in the average loan amount from $377,000 in the three months ended September 30, 2017 asMarch 31, 2022 to $393,000 in the three months ended March 31, 2023, offset partially by a result of an 11% increase1% decrease in the number of loan originations from 2,2131,271 in the nine months ended September 30, 2016 to 2,467 in the nine months ended September 30, 2017, and a slight increase in the average loan amount from $296,000 in the nine months ended September 30,


2016 to $297,000 in the nine months ended September 30, 2017. We also experienced an increase in the volume of loans sold, a gain from the sale of a portion of our servicing portfolio during the first quarter of 2017, and higher margins on loans sold2022 to 1,258 in the period than we experienced in prior year.first quarter of 2023.

Our financial service operations ended the first nine months of 2017 withservices segment experienced a $4.4$1.0 million increase in operating income in the first quarter of 2023 compared to the nine months ended September 30, 2016,same period in 2022, which was primarily due to the increase in our revenue discussed above, partially offset in part, by a $3.0$0.1 million increase in selling, general and administrative expense compared to 2016'sthe first nine months, whichquarter of 2022. The increase in selling, general and administrative expense was primarily attributable to a $1.8 millionan increase in compensation expense, a $0.6 million increase in computer costs related to our investment in new information systems, and a $0.6 million increase in other miscellaneouscompensation-related expenses.
At September 30, 2017,March 31, 2023, M/I Financial provided financing services in all of our markets. Approximately 80%78% of our homes delivered during the nine months ended September 30, 2017first quarter of 2023 were financed through M/I Financial, compared to 84%82% in the same period in 2016.first quarter of 2022. Capture rate is influenced by financing availability and can fluctuate from quarter to quarter.
Corporate Selling, General and Administrative Expense. Corporate selling, general and administrative expense increased $2.3$1.7 million from $26.9$15.5 million for the ninethree months ended September 30, 2016March 31, 2022 to $29.2$17.2 million for the ninethree months ended September 30, 2017. TheMarch 31, 2023, primarily due to an increase in compensation-related expenses due to our increased headcount and our strong financial performance.
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Interest Expense - Net. Interest income for the Company increased from interest expense of $0.7 million in the three months ended March 31, 2022 to interest income of $1.4 million in the three months ended March 31, 2023. This increase in interest income was primarily due to a $1.9 million increase in compensation expense, a $0.2 million increase related to costs associated with new information systems, and a $0.2 million increase in other miscellaneous expenses.
Interest Expense - Net. Interest expense for the Company increased $0.6 million, from $13.2 million in the nine months ended September 30, 2016 to $13.8 million in the nine months ended September 30, 2017. This increase was primarily the result of an increasedecrease in our weighted average borrowings from $610.8$802.2 million in the nine months ended September 30, 20162022's first quarter to $665.5$750.5 million in the nine months ended September 30, 2017. The increase in our weighted average borrowings primarily related to the issuance of our $250.0 million in aggregate principal amount of 2025 Senior Notes during the third quarter of 2017 in addition to increased borrowings under our Credit Facility (as defined below) during 2017's2023's first nine months compared to 2016's first nine months. Our weighted average borrowing rate also increased from 5.79% in the nine months ended September 30, 2016 to 5.87% for 2017's first nine months which was primarily due to the interest rate payable on our newly issued 2025 Senior Notes noted above.quarter.
Earnings from Unconsolidated Joint Ventures. Earnings from unconsolidated joint ventures represent our portion of pre-tax earnings from our joint ownership and development agreements, joint ventures and other similar arrangements. During the nine months ended September 30, 2017 and 2016, the Company earned $0.2 million and $0.4 million in equity in income from unconsolidated joint ventures, respectively.
Income Taxes. Our overall effective tax rate was 34.8%24.2% for the ninethree months ended September 30, 2017March 31, 2023 and 38.0%24.9% for the same periodthree months ended March 31, 2022. The decrease in 2016. Thethe effective rate decline forfrom the ninethree months ended September 30, 2017March 31, 2022 was primarily attributabledue to an increase in the estimated impact of annual tax benefits expected for the domestic production activities deduction which was limited in 2016 due to our then NOL federal carryforward position and the recognition of excess tax benefits from employee share-based payment transactionsenergy efficient home credits during the first nine monthsquarter of 2017 per ASU 2016-09.2023.


Segment Non-GAAP Financial Measures.This report contains information about our adjusted housing gross margin, which constitutes a non-GAAP financial measure. Because adjusted housing gross margin is not calculated in accordance with GAAP, this financial measure may not be completely comparable to similarly-titled measures used by other companies in the homebuilding industry and, therefore, should not be considered in isolation or as an alternative to operating performance and/or financial measures prescribed by GAAP. Rather, this non-GAAP financial measure should be used to supplement our GAAP results in order to provide a greater understanding of the factors and trends affecting our operations.
Adjusted housing gross margin for our Midwest and Southern regions is calculated as follows:
 Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in thousands)2017 2016 2017 2016
        
Midwest region:       
Housing revenue$179,363
 $165,894
 $493,464
 $435,717
Housing cost of sales142,215
 131,149
 393,583
 348,618
        
Housing gross margin37,148
 34,745
 99,881
 87,099
Add: Purchase accounting adjustments (a)
—
 —
 —
 1,081
        
Adjusted housing gross margin$37,148
 $34,745
 $99,881
 $88,180
        
Housing gross margin percentage20.7% 20.9% 20.2% 20.0%
Adjusted housing gross margin percentage20.7% 20.9% 20.2% 20.2%
        
Southern region:       
Housing revenue$175,644
 $141,382
 $500,504
 $398,249
Housing cost of sales142,643
 130,258
 416,135
 344,682
        
Housing gross margin33,001
 11,124
 84,369
 53,567
Add: Stucco-related charges (b)
—
 14,500
 8,500
 19,409
        
Adjusted housing gross margin$33,001
 $25,624
 $92,869
 $72,976
        
Housing gross margin percentage18.8% 7.9% 16.9% 13.5%
Adjusted housing gross margin percentage18.8% 18.1% 18.6% 18.3%
(a)Represents purchase accounting adjustments from our 2015 Minneapolis/St. Paul acquisition.
(b)
Represents warranty charges for stucco-related repair costs in certain of our Florida communities taken during the three and nine months ended September 30, 2017 and 2016. With respect to this matter, during the quarter ended September 30, 2017, we identified 60 additional homes in need of repair and completed repairs on 167 homes, and, at September 30, 2017, we have 252 homes in various stages of repair.  See Note 6 for further information.
LIQUIDITY AND CAPITAL RESOURCES
Overview of Capital Resources and Liquidity.
At September 30, 2017,March 31, 2023, we had $103.6$542.6 million of cash, cash equivalents and restricted cash, with $103.0$541.2 million of this amount comprised of unrestricted cash and cash equivalents, which represents a $69.6$230.6 million increase in unrestricted cash and cash equivalents from December 31, 2016.2022. Our principal uses of cash for the ninethree months ended September 30, 2017March 31, 2023 were investment in land and land development, construction of homes, mortgage loan originations, investment in joint ventures, operating expenses, and short-term working capital, and debt service requirements, including the repayment of amounts outstanding under our credit facilities.facilities during the first quarter of 2023. In order to fund these uses of cash, we used proceeds from home deliveries, the sale of mortgage loans and the sale of mortgage servicing rights, as well as excess cash balances, borrowings under our credit facilities, and other sources of liquidity.
In addition,The Company is a party to three primary credit agreements: (1) a $650 million unsecured revolving credit facility, dated July 18, 2013, as amended (the “Credit Facility”), with M/I Homes, Inc. as borrower and guaranteed by the Company’s wholly owned homebuilding subsidiaries; (2) a $200 million secured mortgage warehousing agreement, dated May 27, 2022, with M/I Financial as borrower (the “MIF Mortgage Warehousing Agreement”); and (3) a $90 million mortgage repurchase agreement, dated October 30, 2017, as amended most recently on October 24, 2022, with M/I Financial as borrower (the “MIF Mortgage Repurchase Facility”).

As of March 31, 2023, we had outstanding notes payable (consisting primarily of notes payable for our financial services operations, the 2030 Senior Notes and the 2028 Senior Notes) with varying maturities in August 2017, we issued $250 million inan aggregate principal amount of 2025 Senior Notes, resulting in $245.9$923.6 million, with $223.6 million payable within 12 months. Future interest payments associated with these notes payable totaled $182.1 million as of March 31, 2023, with $31.8 million payable within 12 months.
As of March 31, 2023, there were no borrowings outstanding and $73.6 million of cash proceeds, netletters of issuance costs.credit outstanding under our $650 million Credit Facility, leaving $576.4 million available. We used $138.0 millionexpect to continue managing our balance sheet and liquidity carefully in 2023 by managing our spending on land acquisition and development and construction of the net proceeds from the issuanceinventory homes, as well as overhead expenditures, relative to our ongoing volume of the 2025 Senior Notes to repay all outstanding borrowings under the Credit Facility.

In September 2017, the holders of all of our outstanding 2017 Convertible Senior Subordinated Notes elected to convert their Notes into our common shareshome deliveries, and we issued approximately 2.4expect to meet our current and anticipated cash requirements in 2023 from cash receipts, excess cash balances and availability under our credit facilities.
During the first quarter of 2023, we delivered 2,007 homes, started 1,558 homes, ended the quarter with 4,100 homes under construction versus 5,700 at the end of last year’s first quarter, and spent $45.6 million common shares in connection therewith. We also announced in September 2017 that we will redeem all 2,000 of our outstanding Series A Preferred Shares. On October 16, 2017, we redeemed such shares for $50.4on land purchases and $92.4 million in cash.on land development.


We are activelyselectively acquiring and developing lots in our markets to replenish and grow our lot supply and active community count. We expect to continue to expand our business based on the anticipated level of demand for new homes in our markets. During


the nine months ended September 30, 2017, we delivered 3,505 homes, started 4,205 homes, and spent $250.2 million on land purchases and $137.0 million on land development. Based upon our business activity levels, market conditions, and opportunities for land in our markets, we currently estimate that we will spend approximately $525 million to $550 million on land purchases and land development during 2017, including the $387.2 million spent during the nine months ended September 30, 2017.
We also continue to enter into land option agreements, taking into consideration current and projected market conditions, to secure land for the construction of homes in the future. Pursuant to these land option agreements, as of September 30, 2017, we had purchase agreements to acquire $672.9 million of land and lots during the remainder of 2017 through 2028.
Land transactions are subject to a number of factors, including our financial condition and market conditions, as well as satisfaction of various conditions related to specific properties. We will continue to monitor market conditions and our ongoing pace of home sales and deliveries and adjust our land spending accordingly. Pursuant to our land option agreements, as of March 31, 2023, we had a total of 16,975 lots under contract, with an aggregate purchase price of approximately $824.6 million, to be acquired during the remainder of 2023 through 2029.
Our off-balance sheet arrangements relating to our homebuilding operations include joint venture arrangements, land option agreements, guarantees and indemnifications associated with acquiring and developing land, and the issuance of letters of credit and completion bonds. We use these arrangements to secure the most desirable lots on which to build homes for our homebuyers in a manner that we believe reduces the overall risk to the Company.
Operating Cash Flow Activities. During the nine-monththree-month period ended September 30, 2017,March 31, 2023, we used $66.0generated $251.5 million of cash infrom operating activities, compared to $26.5generating $69.3 million of cash provided byfrom operating activities during the nine months ended September 30, 2016.first quarter of 2022. The cash usedgenerated in operating activities in the first nine monthsquarter of 20172023 was primarily a result of a $212.7 million increase in inventory and a decrease in accrued compensation of $9.3 million, offset partially by net income of $56.2$103.1 million, along with $66.4$19.9 million of proceeds from the sale of mortgage loans net of mortgage loan originations, a $175.3 million decrease in inventory due to decline in demand and an increase of $15.9 million in customer deposits and other liabilities, offset, in part, by an increase in accounts payable and accrued compensation totaling $59.1 million and an increase in other assets of $4.6 million. The cash generated from operating activities in 2022’s first quarter was primarily a result of net income
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of $91.8 million, $69.2 million of proceeds from the sale of mortgage loans net of mortgage loan originations, and an increase in accounts payable, other assets and customer deposits totaling $30.6 million. The $26.5 million of cash provided by operating activities in the first nine months of 2016 was primarily a result of net income and deferred tax expense totaling $57.0 million, along with $32.5 million of proceeds from the sale of mortgage loans net of mortgage loan originations and an increase in accounts payable and other liabilities of $41.3totaling $85.8 million offset, partiallyin part, by a $96.5$129.3 million increase in inventory, and a decrease in accrued compensation of $6.1$31.7 million and an increase in other assets of $25.1 million.

Investing Cash Flow Activities. During the nine months ended September 30, 2017,first quarter of 2023, we used $5.1$4.8 million of cash from investing activities, compared to $21.7using $6.6 million of cash from investing activities during the first quarter of 2022. The cash used in investing activities in the first quarter of 2023 was primarily a result of a $2.7 million increase in our investment in joint venture arrangements and a $2.1 million increase in property and equipment. The cash used in investing activities during the nine months ended September 30, 2016. This decrease in cash used was primarily due to our purchase of an airplane during the first quarter of 2016,2022 was primarily a result of a $5.4 million increase in addition to proceeds received related to the sale of mortgage servicing rights of $7.6 million that occurred during the nine months ended September 30, 2017.our investment in joint venture arrangements.


Financing Cash Flow Activities. During the ninethree months ended September 30, 2017,March 31, 2023, we generated $140.3used $15.7 million of cash from financing activities, compared to generating $5.4using $80.5 million of cash during the ninefirst three months ended September 30, 2016.of 2022. The $134.9 million increasecash used in cash generated by financing activities in 2023 was primarily due to the issuance of our $250.0 million in aggregate principal amount of 2025 Senior Notes offset, in part, by increased repayments of borrowings$22.1 million (net of proceeds from borrowings) under our Credit Facility (as defined below) and ourtwo M/I Financial credit facilities, offset partially by $6.4 million in proceeds from the exercise of stock options during the period.first quarter of 2023. The cash used in financing activities in first quarter of 2022 was primarily due to repayments of $62.5 million (net of proceeds from borrowings) under our two M/I Financial credit facilities in addition to the repurchase of $15.4 million of our outstanding common shares during the first quarter of 2022.

On July 28, 2021, the Company announced that its Board of Directors authorized a new share repurchase program pursuant to which the Company may purchase up to $100 million of its outstanding common shares (the “2021 Share Repurchase Program”). On February 17, 2022, the Company announced that its Board of Directors approved an increase to its 2021 Share Repurchase Program, for a total of $200 million authorized for repurchases. As of March 31, 2023, the Company is authorized to repurchase an additional $93.1 million of outstanding common shares under the 2021 Share Repurchase Program (see Note 12 to our financial statements for more information).

The timing and amount of any future purchases under the 2021 Share Repurchase Program will be based on a variety of factors, including the market price of the Company’s common shares, business considerations, general market and economic conditions and legal requirements.

At September 30, 2017March 31, 2023 and December 31, 2016,2022, our ratio of homebuilding debt to capital was 47%24% and 43%25%, respectively, calculated as the carrying value of our outstanding homebuilding debt (which consists of borrowings under our Credit Facility, our 2030 Senior Notes, our 2028 Senior Notes, and Notes Payable-Other) divided by the sum of the carrying value of our outstanding homebuilding debt plus shareholders’ equity. The increase compared to December 31, 2016 was due to a higher amount of homebuilding debt outstanding partially offset by an increase in shareholders’ equity at September 30, 2017. We believe that this ratio provides useful information for understanding our financial position and the leverage employed in our operations, and for comparing us with other homebuilders.
We fund our operations with cash flows from operating activities, including proceeds from home deliveries, land sales and the sale of mortgage loans. We believe that these sources of cash, along with our balance of unrestricted cash and borrowings available under our credit facilities, will be sufficient to fund our currently anticipated working capital needs, investment in land and land development, construction of homes, operating expenses, planned capital spending, and debt service requirements for at least the next twelve months. In addition, we routinely monitor current and anticipated operational and debt service requirements, financial market conditions, and credit relationships, and we may choose to seek additional capital by issuing new debt and/or equity securities or engaging in other financial transactions to strengthen our liquidity or our long-term capital structure. For example, in August 2017, we issued $250.0 million in aggregate principal amount of 2025 Senior Notes, as discussed above. The financing needs of our homebuilding and financial services operations depend on anticipated sales and home delivery volume in the current year as well as future years, inventory levels and related turnover, forecasted land and lot purchases, debt maturity dates, and other factors. If we seek such additional capital or engage in such other financial transactions, there can be no assurance that we would be able to obtain such additional capital or consummate such other financial transactions on terms acceptable to us, if at all, and such additional equity or debt financing or other financial transactions could dilute the interests of our existing shareholders, add operational limitations and/or increase our interest costs.
The Company is a party to three primary credit agreements: (1) a $475 million unsecured revolving credit facility, dated July 18, 2013, as most recently amended on July 18, 2017, with M/I Homes, Inc. as borrower and guaranteed by the Company’s wholly owned homebuilding subsidiaries (the (“Credit Facility”); (2) a $125 million secured mortgage warehousing agreement (which
33



increases to $150 million during certain periods), dated June 24, 2016, as amended on June 23, 2017, with M/I Financial as borrower (the “MIF Mortgage Warehousing Agreement”); and (3) a $35 million mortgage repurchase agreement, dated November 3, 2015, as most recently amended on May 16, 2017, with M/I Financial as borrower (the “MIF Mortgage Repurchase Facility”).
Included in the table below is a summary of our available sources of cash from the Credit Facility, the MIF Mortgage Warehousing Agreement and the MIF Mortgage Repurchase Facility as of September 30, 2017:March 31, 2023:
(In thousands)Expiration
Date		Outstanding
Balance		Available
Amount
Notes payable – homebuilding (a)
(a)$— $576,421 
Notes payable – financial services (b)
(b)$223,618 $2,520 
(In thousands)
Expiration
Date
Outstanding
Balance
Available
Amount
Notes payable – homebuilding (a)
7/18/2021$—
$434,188
Notes payable – financial services (b)
(b)$91,275
$769
(a)The available amount under the Credit Facility is computed in accordance with the borrowing base calculation under the Credit Facility, which applies various advance rates for different categories of inventory and totaled $1.69 billion of availability for additional senior debt at March 31, 2023. As a result, the full $650 million commitment amount of the facility was available, less any borrowings and letters of credit outstanding. There were no borrowings outstanding and $73.6 million of letters of credit outstanding at March 31, 2023, leaving $576.4 million available. The Credit Facility has an expiration date of December 9, 2026.
(a)The available amount under the Credit Facility was computed in accordance with a borrowing base, which was calculated by applying various advance rates for different categories of inventory and totaled $512.1 million of availability for additional senior debt at September 30, 2017. As a result, the full $475 million commitment amount of the facility was available, less any borrowings and letters of credit outstanding. There were no borrowings and $40.8 million of letters of credit outstanding at September 30, 2017, leaving $434.2 million available. The Credit Facility has an expiration date of July 18, 2021.
(b)The available amount is computed in accordance with the borrowing base calculations under the MIF Mortgage Warehousing Agreement and the MIF Mortgage Repurchase Facility, each of which may be increased by pledging additional mortgage collateral.  The maximum aggregate commitment amount of M/I Financial's warehousing agreements as of September 30, 2017 was $185 million. The MIF Mortgage Warehousing Agreement has an expiration date of June 22, 2018 and the MIF Mortgage Repurchase Facility has an expiration date of October 30, 2017. M/I Financial expects to enter into an amendment to the MIF Mortgage Repurchase Facility prior to its expiration that would extend its term for an additional year, but M/I Financial can provide no assurance that it will be able to obtain such an extension.
(b)The available amount is computed in accordance with the borrowing base calculations under the MIF Mortgage Warehousing Agreement and the MIF Mortgage Repurchase Facility, each of which may be increased by pledging additional mortgage collateral, not to exceed the maximum aggregate commitment amount of M/I Financial’s warehousing agreements, which was $290 million as of March 31, 2023. The MIF Mortgage Warehousing Agreement has an expiration date of May 26, 2023.
Notes Payable - Homebuilding.


Homebuilding Credit Facility. The Credit Facility provides for an aggregate commitment amount of $475$650 million including a $125 million sub-facility for letters of credit. In addition, the Credit Facility hasand also includes an accordion feature underpursuant to which the Companymaximum borrowing availability may increase thebe increased to an aggregate commitment amount up to $500of $800 million, subject to certain conditions, including obtaining additional commitments from existing or new lenders. The Credit Facility matures on July 18, 2021.December 9, 2026. Interest on amounts borrowed under the Credit Facility is payable at multiple interest rate options, including one, three, or six month adjusted term secured overnight financing rate (“SOFR”) (subject to a rate which is adjusted daily and is equal to the sumfloor of the one month LIBOR rate0.25%) plus a margin of 250175 basis points. The margin is subjectpoints (subject to adjustment in subsequent quarterly periods based on the Company’s leverage ratio.ratio).


Borrowings under the Credit Facility constitute senior, unsecured indebtedness and availability is subject to, among other things, a borrowing base calculated using various advance rates for different categories of inventory. The Credit Facility also provides for a $250 million sub-facility for letters of credit. The Credit Facility contains various representations, warranties and covenants which require, among other things, that the Company maintain (1) a minimum level of Consolidated Tangible Net Worth of $481.1 million$1.36 billion at March 31, 2023 (subject to increase over time based on earnings and proceeds from equity offerings), (2) a leverage ratio not in excess of 60%, and (3) either a minimum Interest Coverage Ratio of 1.5 to 1.0 or a minimum amount of available liquidity. In addition, the Credit Facility contains covenants that limit the Company’s number of unsold housing units and model homes, as well as the amount of Investments in Unrestricted Subsidiaries and Joint Ventures.Ventures (each as defined in the Credit Facility).

The Company’s obligations under the Credit Facility are guaranteed by all of the Company’s subsidiaries, with the exception of subsidiaries that are primarily engaged in the business of mortgage financing, title insurance or similar financial businesses relating to the homebuilding and home sales business, certain subsidiaries that are not 100%-owned by the Company or another subsidiary, and other subsidiaries designated by the Company as Unrestricted Subsidiaries (as defined in Note 11)the Credit Facility), subject to limitations on the aggregate amount invested in such Unrestricted Subsidiaries. The guarantors for the Credit Facility are the same subsidiaries that guarantee our 20252030 Senior Notes our $300.0 million aggregate principal amount of 6.75% Senior Notes due 2021 (the “2021 Senior Notes”), and our $86.3 million aggregate principal amount of 3.0% Convertible2028 Senior Subordinated Notes due 2018 (the “2018 Convertible Senior Subordinated Notes”).Notes.
As of September 30, 2017,March 31, 2023, the Company was in compliance with all covenants of the Credit Facility, including financial covenants. The following table summarizes the most significant restrictive covenant thresholds under the Credit Facility and our compliance with such covenants as of September 30, 2017:March 31, 2023:
Financial CovenantCovenant RequirementActual
 (Dollars in millions)
Consolidated Tangible Net Worth≥$1,363.5 $2,098.9 
Leverage Ratio≤0.600.09
Interest Coverage Ratio≥1.5 to 1.026.2 to 1.0
Investments in Unrestricted Subsidiaries and Joint Ventures≤$629.7 $6.0 
Unsold Housing Units and Model Homes≤3,074 1,038 
Financial Covenant Covenant Requirement Actual
   (Dollars in millions)
Consolidated Tangible Net Worth≥$481.1
 $677.2
Leverage Ratio≤0.60
 0.46
Interest Coverage Ratio≥1.5 to 1.0
 5.3 to 1.0
Investments in Unrestricted Subsidiaries and Joint Ventures≤$203.2
 $7.6
Unsold Housing Units and Model Homes≤1,727
 1,071



Homebuilding Letter of Credit Facility. As of September 30, 2017, the Company was a party to one secured credit agreement for the issuance of letters of credit outside of the Credit Facility (the “Letter of Credit Facility”). During the third quarter of 2017, the Company extended the maturity date on the Letter of Credit Facility for an additional year to September 30, 2018 and reduced the amount of the remaining facility from $2.0 million to $1.0 million. Under the terms of the Letter of Credit Facility, letters of credit can be issued for maximum terms ranging from one year up to three years. The Letter of Credit Facility contains a cash collateral requirement of 101%. Upon maturity or the earlier termination of the Letter of Credit Facility, letters of credit that have been issued under the Letter of Credit Facility remain outstanding with cash collateral in place through the expiration date.

As of September 30, 2017, there was a total of $0.6 million of letters of credit issued under the Letter of Credit Facility, which was collateralized with $0.6 million of restricted cash.


Notes Payable - Financial Services.


MIF Mortgage Warehousing Agreement.The MIF Mortgage Warehousing Agreement is used to finance eligible residential mortgage loans originated by M/I Financial. The MIF Mortgage Warehousing Agreement provides for a maximum borrowing availability of $125$200 million, which may be increased to $150$275 million during certainfrom September 19, 2022 to November 13, 2022 and increased to
34

$300 million from November 14, 2022 to February 6, 2023, which are periods of expected increases in the volume of mortgage originations, specifically from September 25, 2017 to October 16, 2017 and from December 15, 2017 to February 2, 2018.originations. The MIF Mortgage Warehousing Agreement expires on June 22, 2018.May 26, 2023. Interest on amounts borrowed under the MIF Mortgage Warehousing Agreement is payable at a per annum rate equal to the greaterone-month BSBY rate (adjusting daily) (subject to a floor of (1) the floating LIBOR rate0.25%) plus a spread of 237.5190 basis pointspoints.
As is typical for similar credit facilities in the mortgage origination industry, at closing, the expiration of the MIF Mortgage Warehousing Agreement was set at approximately one year and (2) 2.75%.is under consideration for extension annually by the participating lenders. We expect to extend the MIF Mortgage Warehousing Agreement on or prior to the current expiration date of May 26, 2023, but we cannot provide any assurance that we will be able to obtain such an extension.
The MIF Mortgage Warehousing Agreement is secured by certain mortgage loans originated by M/I Financial that are being “warehoused” prior to their sale to investors. The MIF Mortgage Warehousing Agreement provides for limits with respect to certain loan types that can secure outstanding borrowings. There are currently no guarantors of the MIF Mortgage Warehousing Agreement, although M/I Financial may, at its election, designate from time to time any one or more of M/I Financial’s subsidiaries as guarantors.Agreement.
As of September 30, 2017,March 31, 2023, there was $63.3$179.5 million outstanding under the MIF Mortgage Warehousing Agreement and M/I Financial was in compliance with all covenants.covenants thereunder. The financial covenants, as more fully described and defined in the MIF Mortgage Warehousing Agreement, are summarized in the following table, which also sets forth M/I Financial’s compliance with such covenants as of September 30, 2017:March 31, 2023:
Financial CovenantCovenant RequirementActual
(Dollars in millions)
Leverage Ratio≤12.0 to 1.07.3 to 1.0
Liquidity≥$10.0 $28.4 
Adjusted Net Income>$0.0 $21.1 
Tangible Net Worth≥$20.0 $34.3 
Financial Covenant Covenant Requirement Actual
  (Dollars in millions)
Leverage Ratio≤10.0 to 1.0
 4.6 to 1.0
Liquidity≥$6.25
 $19.0
Adjusted Net Income>$0.0
 $12.4
Tangible Net Worth≥$12.5
 $21.8
MIF Mortgage Repurchase Facility. The MIF Mortgage Repurchase Facility is used to finance eligible residential mortgage loans originated by M/I Financial and is structured as a mortgage repurchase facility. The MIF Mortgage Repurchase Facility provides for a maximum borrowing availability of $35$90 million. The MIF Mortgage Repurchase Facility expires on October 30, 2017. M/I Financial expects to enter into an amendment to23, 2023. As is typical for similar credit facilities in the mortgage origination industry, at closing, the expiration of the MIF Mortgage Repurchase Facility prior to its expiration that would extend its term for an additionalwas set at approximately one year, but M/I Financial can provide no assurance that it will be able to obtain such an extension. and is under consideration annually by the participating lender.

M/I Financial pays interest on each advance under the MIF Mortgage Repurchase Facility at a per annum rate equal to One-Month Term SOFR (subject to an all-in floor of 2.375% or 2.75% based on the floating LIBOR ratetype of loan) plus 250150 or 275200 basis points depending on the loan type. The covenants in the MIF Mortgage Repurchase Facility are substantially similar to the covenants in the MIF Mortgage Warehousing Agreement. The MIF Mortgage Repurchase Facility provides for limits with respect to certain loan types that can secure outstanding borrowings, which are substantially similar to the restrictions in the MIF Mortgage Warehousing Agreement. There are currently no guarantors of the MIF Mortgage Repurchase Facility. As of September 30, 2017,March 31, 2023, there was $28.0$44.1 million outstanding under the MIF Mortgage Repurchase Facility. M/I Financial was in compliance with all financial covenants under the MIF Mortgage Repurchase Facility as of September 30, 2017.March 31, 2023.

35


Senior Notes and ConvertibleNotes.

3.95% Senior Subordinated Notes.

5.625% Senior Notes. In On August 2017,23, 2021, the Company issued $250$300.0 million aggregate principal amount of 5.625%3.95% Senior Notes due 2025.2030. The 20252030 Senior Notes contain certain covenants, as more fully described and defined in the indenture governing the 20252030 Senior Notes, which limit the ability of the Company and the restricted subsidiaries to, among other things: incur certain liens securing indebtedness without equally and ratably securing the 2030 Senior Notes and the guarantees thereof; enter into certain sale and leaseback transactions; and consolidate or merge with or into other companies, liquidate or sell or otherwise dispose of all or substantially all of the Company’s assets. These covenants are subject to a number of exceptions and qualifications as described in the indenture governing the 2030 Senior Notes. As of March 31, 2023, the Company was in compliance with all terms, conditions, and covenants under the indenture.

4.95% Senior Notes. On January 22, 2020, the Company issued $400.0 million aggregate principal amount of 4.95% Senior Notes due 2028. The 2028 Senior Notes contain certain covenants, as more fully described and defined in the indenture governing the 2028 Senior Notes, which limit the ability of the Company and the restricted subsidiaries to, among other things: incur additional indebtedness; make certain payments, including dividends, or repurchase any shares, in an aggregate amount exceeding our “restricted payments basket”; make certain investments; and create or incur certain liens, consolidate or merge with or into other companies, or liquidate or sell or transfer all or substantially all of our assets. These covenants are subject to a number of exceptions and qualifications as described in the indenture governing the 20252028 Senior Notes. As of September 30, 2017,March 31, 2023, the Company was in compliance with all terms, conditions, and covenants under the indenture.
See Note 78 to our financial statements for more information regarding the 20252030 Senior Notes.

6.75%Notes and the 2028 Senior Notes.In December 2015, the Company issued $300
Supplemental Financial Information.
As of March 31, 2023, M/I Homes, Inc. had $300.0 million aggregate principal amount of 6.75%its 2030 Senior Notes due 2021. The 2021 Senior Notes contain certain covenants, as more fully described and defined in the indenture governing the 2021 Senior Notes, which limit the ability of the Company and the restricted subsidiaries to, among other things: incur additional indebtedness; make certain payments, including dividends, or repurchase any shares, in an aggregate amount exceeding our “restricted payments basket”; make certain investments; and create or incur certain liens, consolidate or merge with or into other companies, or liquidate or sell or transfer all or substantially all of our assets. These covenants are subject to a number of exceptions and qualifications as described in the indenture governing the 2021 Senior Notes. As of September 30, 2017, the Company was in compliance with all terms, conditions, and covenants under the indenture. See Note 7 for more information regarding the 2021 Senior Notes.

3.0% Convertible Senior Subordinated Notes. In March 2013, the Company issued $86.3$400.0 million aggregate principal amount of 3.0% Convertibleits 2028 Senior Subordinated Notes due 2018. outstanding.
The conversion rate initially equals 30.9478 shares per $1,0002030 Senior Notes and the 2028 Senior Notes are fully and unconditionally guaranteed, on a joint and several basis, by all of their principal amount. This correspondsM/I Homes, Inc.’s subsidiaries (the “Subsidiary Guarantors”) with the exception of subsidiaries that are primarily engaged in the business of mortgage financing, title insurance or similar financial businesses relating to an initial conversion price of approximately $32.31 per common share, which equates to approximately 2.7 million common shares. The 2018 Convertible Senior Subordinated Notes mature on March 1, 2018.  We may consider various alternatives for refinancing the 2018 Convertible Senior Subordinated Notes onhomebuilding and home sales business, certain subsidiaries that are not 100%-owned by M/I Homes, Inc. or prior to their maturity date, including the issuance of debt and/or equity securitiesanother subsidiary, and other transactionssubsidiaries designated as Unrestricted Subsidiaries (as defined in the indentures governing the 2030 Senior Notes and sources of capital. The timing and nature of such transactions, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors.  To the extent that any of the 2018 Convertible2028 Senior Subordinated Notes remain outstanding at maturity and are not converted into our common shares, we expectNotes), subject to pay the principal amount of such outstanding notes (plus any accrued and unpaid interest that is due and payable)limitations on the maturity dateaggregate amount invested in such Unrestricted Subsidiaries in accordance with the terms of the indenture from cash on hand, amounts available under our Credit Facility the proceeds of any issuance of our debt and/or equity securities and/or other sources of capital. See Note 7 for more information regarding the 2018 Convertible Senior Subordinated Notes.

3.25% Convertible Senior Subordinated Notes. On September 11, 2012, the Company issued $57.5 million in aggregate principal amount of 3.25% Convertible Senior Subordinated Notes due 2017. The 2017 Convertible Senior Subordinated Notes were scheduled to mature on September 15, 2017 and the deadlineindentures governing the 2030 Senior Notes and the 2028 Senior Notes (the “Non-Guarantor Subsidiaries”). The Subsidiary Guarantors of the 2030 Senior Notes, the 2028 Senior Notes and the Credit Facility are the same.

Each Subsidiary Guarantor is a direct or indirect 100%-owned subsidiary of M/I Homes, Inc. The guarantees are senior unsecured obligations of each Subsidiary Guarantor and rank equally in right of payment with all existing and future unsecured senior indebtedness of such Subsidiary Guarantor. The guarantees are effectively subordinated to any existing and future secured indebtedness of such Subsidiary Guarantor with respect to any assets comprising security or collateral for holderssuch indebtedness.

The guarantees are “full and unconditional,” as those terms are used in Regulation S-X, Rule 3-10(b)(3), except that the indentures governing the 2030 Senior Notes and the 2028 Senior Notes provide that a Subsidiary Guarantor’s guarantee will be released if: (1) all of the assets of such Subsidiary Guarantor have been sold or otherwise disposed of in a transaction in compliance with the terms of the applicable indenture; (2) all of the Equity Interests (as defined in the applicable indenture) held by M/I Homes, Inc. and the Restricted Subsidiaries (as defined in the applicable Indenture) of such Subsidiary Guarantor have been sold or otherwise disposed of to convertany person other than M/I Homes, Inc. or a Restricted Subsidiary in a transaction in compliance with the 2017 Convertible Senior Subordinated Notes was September 13, 2017. Asterms of the applicable indenture; (3) the Subsidiary Guarantor is designated an Unrestricted Subsidiary (or otherwise ceases to be a resultRestricted Subsidiary (including by way of conversion elections made byliquidation or merger)) in compliance with the terms of the applicable indenture; (4) M/I Homes, Inc. exercises its legal defeasance option or covenant defeasance option under the applicable indenture; or (5) all obligations under the applicable indenture are discharged in accordance with the terms of the applicable indenture.
The enforceability of the obligations of the Subsidiary Guarantors under their guarantees may be subject to review under applicable federal or state laws relating to fraudulent conveyance or transfer, voidable preference and similar laws affecting the rights of creditors generally. In certain circumstances, a court could void the guarantees, subordinate amounts owing under the guarantees or order other relief detrimental to the holders of the 2017 Convertible2030 Senior Subordinated Notes all $57.5 millionand the 2028 Senior Notes.

36

The following tables present summarized financial information on a combined basis for M/I Homes, Inc. and the Subsidiary Guarantors. Transactions between M/I Homes, Inc. and the Subsidiary Guarantors have been eliminated and the summarized financial information does not reflect M/I Homes, Inc.’s or the Subsidiary Guarantors’ investment in, aggregate principal amountand equity in earnings from, the Non-Guarantor Subsidiaries.

Summarized Balance Sheet Data
(In thousands)As of March 31, 2023As of December 31, 2022
Assets:
Cash$511,598 $269,071 
Investment in joint venture arrangements$43,378 $45,907 
Amounts due from Non-Guarantor Subsidiaries$7,718 $15,772 
Total assets$3,457,031 $3,379,932 
Liabilities and Shareholders’ Equity
Total liabilities$1,327,614 $1,359,951 
Shareholders’ equity$2,129,417 $2,019,981 

Summarized Statement of the 2017 Convertible Senior Subordinated Notes were converted and settled through the issuance of our common shares. In total we issued approximately 2.4 million common shares (at a conversion price per common share of $23.80). In accordance with the indenture governing the 2017 Convertible Senior Subordinated Notes, the Company paid interest on such Notes to but excluding September 15, 2017. On December 31, 2016, we had $57.5 million of our 2017 Convertible Senior Subordinated Notes outstanding.Income Data

Three Months Ended
(In thousands)March 31, 2023
Revenues$975,250 
Land and housing costs$765,904 
Selling, general and administrative expense$89,426 
Income before income taxes$123,636 
Net income$93,012 

Weighted Average Borrowings. For the three months ended September 30, 2017March 31, 2023 and 2016,2022, our weighted average borrowings outstanding were $714.0$750.5 million and $607.4$802.2 million, respectively, with a weighted average interest rate of 6.12%5.26% and 5.80%4.72%, respectively. The increasedecrease in our weighted average borrowings related to the issuance of our $250.0 million in aggregate principal amount of 2025 Senior Notes in the third quarter of 2017, partially offset by a decrease indecreased borrowings under our Credit Facilitytwo M/I Financial credit facilities during the thirdfirst quarter of 20172023 compared to the third quarter of 2016 andsame period in 2022. The increase in our weighted average borrowing rate was due to higher interest rates on our credit facilities in 2023 compared to the conversion of all of our outstanding $57.5 million in aggregate principal amount of 2017 Convertible Senior Subordinated Notes into common shares in September 2017.prior year.


At September 30, 2017, there wereboth March 31, 2023 and December 31, 2022, we had no outstanding borrowings under the Credit Facility as we used a portion of the net proceeds from the offering of the 2025 Senior Notes to pay the outstanding balance under the Credit Facility. During the nine months ended September 30, 2017, the average daily amount outstanding under the Credit Facility was $100.6 million and the maximum amount outstanding under the Credit Facility was $187.7 million. Based on our currentcurrently anticipated spending on home construction, overhead expenses and land acquisition and development induring the fourth quarterremainder of 2017, as well as the redemption of all of the outstanding Series A Preferred Shares on October 16, 2017,2023, offset by expected cash receipts from home deliveries and other sources, we do not expect to incur borrowings under the Credit Facility during the remainder of 2023. To the extent we elect to borrow under the Credit Facility


during the fourth quarterremainder of 2017, with an estimated peak amount outstanding not expected to exceed $50 million. The2023, the actual amount borrowed duringand the fourth quarter of 2017 (and the peak amount outstanding) and related timing arewill be subject to numerous factors, includingwhich are subject to significant variation as a result of the timing and amount of land and house construction expenditures, payroll and other general and administrative expenses, and cash receipts from home deliveries,deliveries. The amount borrowed will also be impacted by other cash receipts and payments, any capital markets transactions or other additional financings by the Company, and any repayments or redemptions of outstanding debt.debt, any share repurchases under the 2021 Share Repurchase Program and any other extraordinary events or transactions.  The Company may also experience significant variation in cash and Credit Facility balances from week to week due to the timing of such receipts and payments.
There were $40.8$73.6 million of letters of credit issued and outstanding under the Credit Facility at September 30, 2017.March 31, 2023. During the ninethree months ended September 30, 2017,March 31, 2023, the average daily amount of letters of credit outstanding under the Credit Facility was $38.6$83.3 million and the maximum amount of letters of credit outstanding under the Credit Facility was $43.3$94.9 million.


At September 30, 2017,March 31, 2023, M/I Financial had $63.3$179.5 million outstanding under the MIF Mortgage Warehousing Agreement.  During the ninethree months ended September 30, 2017,March 31, 2023, the average daily amount outstanding under the MIF Mortgage Warehousing Agreement was $50.9$20.0 million and the maximum amount outstanding was $120.1$200.9 million, which occurred during January 2023 while the “seasonal increase”temporary increase provision was in effect and the maximum borrowing availability was $150.0$300.0 million.

At September 30, 2017,March 31, 2023, M/I Financial had $28.0$44.1 million outstanding under the MIF Mortgage Repurchase Facility.  During the ninethree months ended September 30, 2017,March 31, 2023, the average daily amount outstanding under the MIF Mortgage Repurchase Facility was $15.0$30.5 million and the maximum amount outstanding was $33.2$47.1 million, which occurred during January while the “seasonal increase” provision was in effect and the maximum borrowing availability was $35.0 million.2023.
Preferred Shares. At September 30, 2017, we had 2,000,000 depositary shares, each representing 1/1000th of a Series A Preferred Share, or 2,000 Series A Preferred Shares in the aggregate, outstanding. On September 14, 2017, we announced that we will redeem all 2,000 outstanding Series A Preferred Shares (and the 2,000,000 related depositary shares) on October 16, 2017 for an aggregate redemption price of approximately $50.4 million. We consummated the redemption on October 16, 2017, which reduced the restricted payments basket with respect to our 2025 Senior Notes and our 2021 Senior Notes by an equal amount. Prior to redemption, dividends on the Series A Preferred Shares were non-cumulative, if declared by us, were paid at an annual rate of 9.75% and were payable quarterly in arrears on March 15, June 15, September 15 and December 15. Pursuant to the terms of the Series A Preferred Shares, we had the right to redeem the Series A Preferred Shares in whole or in part (provided, that any redemption that would reduce the aggregate liquidation preference of the Series A Preferred Shares below $25 million in the aggregate was restricted to a redemption in whole only) at any time or from time to time at a cash redemption price equal to $25 per depositary share (plus an amount equal to all accrued and unpaid dividends (whether or not earned or declared) for the then current quarterly dividend period accrued to but excluding the redemption date). Pursuant to the terms of the Series A Preferred Shares, Series A Preferred Shares that have been redeemed have the status of authorized and unissued preferred shares of the Company undesignated as to series and may be redesignated and reissued as part of any series of preferred shares.
37

We declared and paid a quarterly dividend of $609.375 per share on our Series A Preferred Shares in both the third quarter of 2017 and 2016 for $1.2 million and have paid aggregate dividend payments of $3.7 million for the nine months ended September 30, 2017 and 2016.
Universal Shelf Registration. In October 2016,June 2022, the Company filed a $400 million universal shelf registration statement with the SEC, which registration statement became effective on November 9, 2016upon filing and will expire in November 2019.June 2025. Pursuant to the registration statement, the Company may, from time to time, offer debt securities, common shares, preferred shares, depositary shares, warrants to purchase debt securities, common shares, preferred shares, depositary shares or units of two or more of those securities, rights to purchase debt securities, common shares, preferred shares or depositary shares, stock purchase contracts and units. The timing and amount of offerings, if any, will depend on market and general business conditions.

CONTRACTUAL OBLIGATIONS

Our contractual obligations as of September 30, 2017 have not changed materially from those reported in the Contractual Obligations section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2016, except that:

In July 2017, we entered into the Second Amendment to the Credit Facility;
In August 2017, we issued $250 million in aggregate principal amount of 5.625% Senior Notes, and used a portion of the proceeds to repay all outstanding borrowings under the Credit Facility;
In September 2017, all $57.5 million in aggregate principal amount of 2017 Convertible Senior Subordinated Notes converted into approximately 2.4 million common shares; and


As of September 30, 2017, borrowings under the MIF Mortgage Warehousing Agreement and the MIF Mortgage Repurchase Facility were $63.3 million and $28.0 million, respectively.

All of the items above are further described in Note 7 of our Unaudited Condensed Consolidated Financial Statements and the “Liquidity and Capital Resources” section above.

Included in the table below is a summary of future cash requirements under the Company’s contractual obligations with regard to our long-term debt and interest commitments as of September 30, 2017:
 Payments due by period
  October 1, 2017 throughJanuary 1, 2020 through 
 TotalDecember 31, 2019December 31, 2021Thereafter
Notes payable bank – homebuilding operations (a)
$—
$—
$—
$—
Notes payable bank – financial services (b)
91,399
91,399
—
—
Senior notes (including interest)730,766
68,547
355,969
306,250
Convertible senior subordinated notes (including interest)87,544
87,544
—
—
Total$909,709
$247,490
$355,969
$306,250
(a)At September 30, 2017, there were no borrowings outstanding under the Credit Facility.
(b)Borrowings under the MIF Mortgage Warehousing Agreement are at the greater of (1) the floating LIBOR rate plus a spread of 237.5 basis points and (2) 2.75%.  Borrowings under the MIF Mortgage Repurchase Facility are at the floating LIBOR rate plus 250 or 275 basis points, depending on the loan type. Total borrowings outstanding under both agreements at September 30, 2017 had a weighted average interest rate of 3.6%.  Interest payments by period will be based upon the outstanding borrowings and the applicable interest rate(s) in effect.

OFF-BALANCE SHEET ARRANGEMENTS
Notes 3, 5 and 6 discuss our off-balance sheet arrangements with respect to land acquisition contracts and option agreements, and land development joint ventures, including the nature and amounts of financial obligations relating to these items. In addition, these Notes discuss the nature and amounts of certain types of commitments that arise in the ordinary course of our land development and homebuilding operations, including commitments of land development joint ventures for which we might be obligated.
Our off-balance sheet arrangements relating to our homebuilding operations include joint venture arrangements, land option agreements, guarantees and indemnifications associated with acquiring and developing land, and the issuance of letters of credit and completion bonds. Our use of these arrangements is for the purpose of securing the most desirable lots on which to build homes for our homebuyers in a manner that we believe reduces the overall risk to the Company.  Additionally, in the ordinary course of its business, our financial services operations issue guarantees and indemnities relating to the sale of loans to third parties.
Land Option Agreements.  In the ordinary course of business, the Company enters into land option or purchase agreements for which we generally pay non-refundable deposits. Pursuant to these land option agreements, the Company provides a deposit to the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices. In accordance with ASC 810, we analyze our land option or purchase agreements to determine whether the corresponding land sellers are VIEs and, if so, whether we are the primary beneficiary. Although we do not have legal title to the optioned land, ASC 810 requires a company to consolidate a VIE if the company is determined to be the primary beneficiary. In cases where we are the primary beneficiary, even though we do not have title to such land, we are required to consolidate these purchase/option agreements and reflect such assets and liabilities as Consolidated Inventory not Owned in our Unaudited Condensed Consolidated Balance Sheets. At both September 30, 2017 and December 31, 2016, we have concluded that we were not the primary beneficiary of any VIEs from which we are purchasing under land option or purchase agreements.
At September 30, 2017, “Consolidated Inventory Not Owned” was $22.2 million. At September 30, 2017, the corresponding liability of $22.2 million has been classified as Obligation for Consolidated Inventory Not Owned on our Unaudited Condensed Consolidated Balance Sheets.

Other than the Consolidated Inventory Not Owned balance, the Company currently believes that its maximum exposure as of September 30, 2017 related to our land option agreements is equal to the amount of the Company’s outstanding deposits and prepaid acquisition costs, which totaled $49.6 million, including cash deposits of $31.4 million, prepaid acquisition costs of $5.4 million, letters of credit of $7.8 million and $5.0 million of other non-cash deposits.

Letters of Credit and Completion Bonds.  The Company provides standby letters of credit and completion bonds for development work in progress, deposits on land and lot purchase agreements and miscellaneous deposits.  As of September 30, 2017, the Company had outstanding $167.7 million of completion bonds and standby letters of credit, some of which were issued to various


local governmental entities, that expire at various times through September 2024.  Included in this total are: (1) $118.8 million of performance and maintenance bonds and $32.9 million of performance letters of credit that serve as completion bonds for land development work in progress; (2) $8.5 million of financial letters of credit; and (3) $7.5 million of financial bonds.  The development agreements under which we are required to provide completion bonds or letters of credit are generally not subject to a required completion date and only require that the improvements are in place in phases as houses are built and sold.  In locations where development has progressed, the amount of development work remaining to be completed is typically less than the remaining amount of bonds or letters of credit due to timing delays in obtaining release of the bonds or letters of credit.
Guarantees and Indemnities.In the ordinary course of business, M/I Financial enters into agreements that guarantee purchasers of its mortgage loans that M/I Financial will repurchase a loan if certain conditions occur.  The risks associated with these guarantees are offset by the value of the underlying assets, and the Company accrues its best estimate of the probable loss on these loans.  Additionally, the Company has provided certain other guarantees and indemnities in connection with the acquisition and development of land by our homebuilding operations.  Refer to Note 5 for additional details relating to our guarantees and indemnities.

INTEREST RATES AND INFLATION


Our business is significantly affected by general economic conditions within the United States and, particularly, by the impact of interest rates and inflation.  Inflation can haveThe annual rate of inflation in the United States was approximately 5% in March 2023, as measured by the Consumer Price Index (CPI), down from 6.5% in December 2022 and down from 9.1% in June 2022 (which was the highest inflation rate experienced in 40 years). As a long-term impact on us because increasingresult of the high inflation rates during 2022, we experienced an increase in the costs of land, materials and labor canthat we have been able to pass along to the consumer. However, inflation has also reduced the purchasing power of potential homebuyers and has negatively impacted their ability and desire to buy a home and our ability to pass along our increased costs to our homebuyers.
Beginning in the second half of 2022, the pace of sales across the homebuilding industry declined significantly from the unprecedented levels experienced in the two years prior as a result of the sharp increase in a need to increase the sales prices of homes. In addition, inflation is often accompanied by highermortgage interest rates which canfrom approximately 3% in December 2021 to around 6.5% at the end of 2022, the highest rates in over a decade, as well as significant inflation in the broader economy, and the substantial rise in home prices. Interest rates have a negative impact onincreased even further in 2023 to approximately 7% in March 2023. These macroeconomic trends have pressured housing demandaffordability, negatively impacted homebuyer sentiment and impacted the costs of financing land development activities and housing construction. HigherThe higher mortgage interest rates also may decrease our potential market byand the high rate of inflation are making it more difficult for homebuyers to qualify for mortgages or to obtain mortgages at interest rates that are acceptable to them.  The impact of increased rates can be offset, in part, by offering variable rate loans with lower interest rates.  In conjunction with our mortgage financing services, hedging methods are used to reduce our exposure to interest rate fluctuations between the commitment date of the loan and the time the loan closes. Rising interest rates, as well as increased materials and labor costs, maycan also reduce gross margins. An increase in material and labor costs is particularly a problem during a period of declining home prices. Conversely, deflation can impact the value of real estate and make it difficult for us to recover our land costs. Therefore, either inflation or deflation could adversely impact our future results of operations.


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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Our primary market risk results from fluctuations in interest rates. We are exposed to interest rate risk through borrowings under our revolving credit and mortgage repurchase facilities, consisting of the Credit Facility, the MIF Mortgage Warehousing Agreement, and the MIF Mortgage Repurchase Facility, which permitpermitted borrowings of up to $660$940 million, as of March 31, 2023, subject to availability constraints. Additionally, M/I Financial is exposed to interest rate risk associated with its mortgage loan origination services.


Interest Rate Lock Commitments: Interest rate lock commitments (“IRLCs”) are extended to certain home-buyinghomebuying customers who have applied for a mortgage loan and meet certain defined credit and underwriting criteria. Typically, the IRLCs will have a duration of less than six months; however, in certain markets, the duration could extend to twelvenine months.


Some IRLCs are committed to a specific third party investor through the use of best-efforts whole loan delivery commitments matching the exact terms of the IRLC loan. Uncommitted IRLCs are considered derivative instruments and are fair value adjusted, with the resulting gain or loss recorded in current earnings.


Forward Sales of Mortgage-Backed Securities: Forward sales of mortgage-backed securities (“FMBSs”) are used to protect uncommitted IRLC loans against the risk of changes in interest rates between the lock date and the funding date. FMBSs related to uncommitted IRLCs are classified and accounted for as non-designated derivative instruments and are recorded at fair value, with gains and losses recorded in current earnings.


Mortgage Loans Held for Sale: Mortgage loans held for sale consist primarily of single-family residential loans collateralized by the underlying property. During the period between when a loan is closed and when it is sold to an investor, the interest rate risk is covered through the use of a best-effortswhole loan contract or by FMBSs. The FMBSs are classified and accounted for as non-designated derivative instruments, with gains and losses recorded in current earnings.


The table below shows the notional amounts of our financial instruments at September 30, 2017March 31, 2023 and December 31, 2016:2022:
March 31,December 31,
Description of Financial Instrument (in thousands)20232022
Whole loan contracts and related committed IRLCs$1,683 $— 
Uncommitted IRLCs250,065 262,529 
FMBSs related to uncommitted IRLCs259,000 341,088 
Whole loan contracts and related mortgage loans held for sale16,576 16,507 
FMBSs related to mortgage loans held for sale212,000 232,518 
Mortgage loans held for sale covered by FMBSs215,420 233,378 
 September 30, December 31,
Description of Financial Instrument (in thousands)2017 2016
Best-effort contracts and related committed IRLCs$2,571
 $6,607
Uncommitted IRLCs105,104
 66,875
FMBSs related to uncommitted IRLCs105,000
 66,000
Best-effort contracts and related mortgage loans held for sale10,423
 125,348
FMBSs related to mortgage loans held for sale81,000
 33,000
Mortgage loans held for sale covered by FMBSs81,244
 32,870


The table below shows the measurement of assets and liabilities at September 30, 2017March 31, 2023 and December 31, 2016:2022:
March 31,December 31,
Description of Financial Instrument (in thousands)20232022
Mortgage loans held for sale$226,629 $242,539 
Forward sales of mortgage-backed securities(1,770)(3,005)
Interest rate lock commitments4,284 787 
Whole loan contracts(757)(377)
Total$228,386 $239,944 
 September 30, December 31,
Description of Financial Instrument (in thousands)2017 2016
Mortgage loans held for sale$91,987
 $154,020
Forward sales of mortgage-backed securities471
 230
Interest rate lock commitments366
 250
Best-efforts contracts(60) (90)
Total$92,764
 $154,410


The following table sets forth the amount of gain (loss) recognized on assets and liabilities for the three and nine months ended September 30, 2017March 31, 2023 and 2016:2022:
Three Months Ended March 31,
Description (in thousands)20232022
Mortgage loans held for sale$3,975 $(5,956)
Forward sales of mortgage-backed securities1,235 13,560 
Interest rate lock commitments3,498 (7,229)
Whole loan contracts(380)125 
Total gain recognized$8,328 $500 

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 Three Months Ended September 30, Nine Months Ended September 30,
Description (in thousands)2017 2016 2017 2016
Mortgage loans held for sale$(64) $(1,127) $4,326
 $1,059
Forward sales of mortgage-backed securities(128) 1,443
 241
 (245)
Interest rate lock commitments22
 (531) 116
 388
Best-efforts contracts(41) 15
 30
 31
Total (loss) gain recognized$(211) $(200) $4,713
 $1,233



The following table provides the expected future cash flows and current fair values of borrowings under our credit facilities and mortgage loan origination services that are subject to market risk as interest rates fluctuate, as of September 30, 2017.March 31, 2023. Because the MIF Mortgage Warehousing Agreement and MIF Mortgage Repurchase Facility are effectively secured by certain mortgage loans held for sale which are typically sold within 30 to 45 days, their outstanding balances are included in the most current period presented. The interest rates for our variable rate debt represent the weighted average interest rates in effect at September 30, 2017.March 31, 2023. For fixed-rate debt, changes in interest rates generally affect the fair market value of the debt instrument, but not our earnings or cash flow. Conversely, for variable-rate debt, changes in interest rates generally do not affect the fair market value of the debt instrument, but do affect our earnings and cash flow. We do not have the obligation to prepay fixed-rate debt prior to maturity, and, as a result, interest rate risk and changes in fair market value should not have a significant impact on our fixed-rate debt until we are required or elect to refinance it.
Expected Cash Flows by PeriodFair Value
(Dollars in thousands)20232024202520262027ThereafterTotal3/31/2023
ASSETS:
Mortgage loans held for sale:
Fixed rate$233,446 — — — — — $233,446 $226,629 
Weighted average interest rate5.69 %— — — — — 5.69 %
LIABILITIES:
Long-term debt — fixed rate— — — — — $700,000 $700,000 $625,000 
Weighted average interest rate— — — — — 4.52 %4.52 %
Short-term debt — variable rate$223,618 — — — — — $223,618 $223,618 
Weighted average interest rate6.73 %— — — — — 6.73 %

40
 Expected Cash Flows by Period Fair Value
(Dollars in thousands)2017 2018 2019 2020 2021 Thereafter Total 9/30/2017
ASSETS:               
Mortgage loans held for sale:               
Fixed rate$91,615
 —
 —
 —
 —
 —
 $91,615
 $89,827
Weighted average interest rate3.92% —
 —
 —
 —
 —
 3.92%  
Variable rate$2,187
 —
 —
 —
 —
 —
 $2,187
 $2,160
Weighted average interest rate3.26% —
 —
 —
 —
 —
 3.26%  
                
LIABILITIES:               
Long-term debt — fixed rate$162
 $86,778
 $292
 $292
 $300,188
 $250,000
 $637,712
 $656,324
Weighted average interest rate3.83% 3.01% 3.37% 3.37% 6.74% 5.63% 5.80%  
Short-term debt — variable rate$91,275
 —
 —
 —
 —
 —
 $91,275
 $91,275
Weighted average interest rate3.61% —
 —
 —
 —
 —
 3.61%  




ITEM 4:  CONTROLS AND PROCEDURES


Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

An evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended) was performed by the Company’s management, with the participation of the Company’s principal executive officer and principal financial officer.  Based on that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.


Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2017March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


Part II - OTHER INFORMATION


Item 1. Legal Proceedings


The Company and certain of its subsidiaries have received claims from homeowners in certain of our Florida communities (and been named as a defendant in legal proceedings initiated by certain of such homeowners) related to stucco on their homes. Please refer to Note 6 of the Company’s consolidated financial statements for further information regarding these stucco claims.

The Company and certain of its subsidiaries have been named as defendants in certain other legal proceedings which are incidental to our business. While management currently believes that the ultimate resolution of these other legal proceedings, individually and in the aggregate, will not have a material effect on the Company’s financial position, results of operations and cash flows, such legal proceedings are subjectdiscussed in Note 6 to inherent uncertainties. The Company has recorded a liability to provide for the anticipated costs, including legal defense costs, associated with the resolution of these other legal proceedings. However, the possibility exists that the costs to resolve these legal proceedings could differ from the recorded estimates and, therefore, have a material effect on the Company’s net income for the periods in which they are resolved.Consolidated Financial Statements.


Item 1A. Risk Factors


There have been no material changes to the risk factors appearing in our Annual Report on2022 Form 10-K for the fiscal year ended December 31, 2016, as updated by our Quarterly Report on Form 10-Q for the three months ended March 31, 2017.10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds


(a) Recent Sales of Unregistered Securities —- None.

(b) Use of Proceeds —- Not Applicable.

(c) Purchases of Equity Securities


There were no purchases made by, or on behalf of, the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3)
under the Securities Exchange Act of 1934, as amended) of the Company’s common shares or Series A Preferred Shares during the three months ended September 30, 2017.March 31, 2023.


See Note 78 to our Condensed Consolidated Financial Statements above for more information regarding the limit imposed by the indenture governing our 2025 Senior Notes and the indenture governing our 20212028 Senior Notes on our ability to pay dividends on, and repurchase, our common shares and any preferred shares of the Company then outstanding to the amount of the positive balance in our “restricted payments basket,” as defined in the indentures.indenture.


The timing, amount and other terms and conditions of any future repurchases under the 2021 Share Repurchase Program will be determined by the Company’s management at its discretion based on a variety of factors, including the market price of the Company’s common shares, business considerations, general market and economic conditions and legal requirements. See Note 12 to the Condensed Consolidated Financial Statements and the “Liquidity and Capital Resources” section above for more information regarding the 2021 Share Repurchase Program.
Item 3. Defaults Upon Senior Securities - None.


Item 4. Mine Safety Disclosures - None.


Item 5. Other Information - None.



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Item 6. Exhibits


The exhibits required to be filed herewith are set forth below.


Exhibit NumberDescription
Exhibit NumberDescription
22
10.1
Eighth Amended and Restated Master LetterList of Credit Facility Agreement by and between M/I Homes, Inc. and U.S. Bank National Association, dated as of September 30, 2017.Subsidiary Guarantors. (Filed herewith.)
10.2
Second Amendment to Credit Agreement, dated July 18, 2017, by and among M/I Homes, Inc., as borrower, the lenders party thereto and PNC Bank, National Association, as administrative agent, incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 20, 2017.
10.3
Indenture, dated as of August 3, 2017, by and among M/I Homes, Inc., the guarantors named therein and U.S. Bank National Association, as trustee of M/I Homes, Inc.’s 5.625% Senior Notes due 2025, incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on August 3, 2017.
10.431.1
Form of 5.625% Senior Notes due 2025 incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on August 3, 2017.
10.5
Registration Rights Agreement, dated as of August 3, 2017, by and among M/I Homes, Inc., the guarantors named therein and the initial purchasers named therein, dated as of August 3, 2017, incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on August 3, 2017.
31.1
Certification by Robert H. Schottenstein, Chief Executive Officer, pursuant to Item 601 of Regulation S-K as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
31.2
Certification by Phillip G. Creek, Chief Financial Officer, pursuant to Item 601 of Regulation S-K as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
32.1
Certification by Robert H. Schottenstein, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
32.2
Certification by Phillip G. Creek, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
101.INSXBRL Instance Document. (Furnished herewith.)
101.SCHXBRL Taxonomy Extension Schema Document. (Furnished herewith.)
101.CALXBRL Taxonomy Extension Calculation Linkbase Document. (Furnished herewith.)
101.LABXBRL Taxonomy Extension Label Linkbase Document. (Furnished herewith.)
101.PREXBRL Taxonomy Extension Presentation Linkbase Document. (Furnished herewith.)
101.DEFXBRL Taxonomy Extension Definition Linkbase Document. (Furnished herewith.)
104Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101).






42

SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


M/I Homes, Inc.
(Registrant)
Date:April 28, 2023M/I Homes, Inc.
By:(Registrant)
Date:October 27, 2017By:/s/ Robert H. Schottenstein
Robert H. Schottenstein
Chairman, Chief Executive Officer and President
President
(Principal Executive Officer)
Date:October 27, 2017April 28, 2023By:/s/ Ann Marie W. Hunker
Ann Marie W. Hunker
Vice President, Corporate Controller
(Principal Accounting Officer)



EXHIBIT INDEXAnn Marie W. Hunker
Vice President, Chief Accounting Officer and Controller
Exhibit NumberDescription
10.1
Eighth Amended and Restated Master Letter of Credit Facility Agreement by and between M/I Homes, Inc. and U.S. Bank National Association, dated as of September 30, 2017. (Filed herewith.)
10.2
Second Amendment to Credit Agreement, dated July 18, 2017, by and among M/I Homes, Inc., as borrower, the lenders party thereto and PNC Bank, National Association, as administrative agent, incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed July 20, 2017.

10.3
Indenture, dated as of August 3, 2017, by and among M/I Homes, Inc., the guarantors named therein and U.S. Bank National Association, as trustee of M/I Homes, Inc.’s 5.625% Senior Notes due 2025, incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on August 3, 2017.

10.4
Form of 5.625% Senior Notes due 2025 incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on August 3, 2017.

10.5
Registration Rights Agreement, dated as of August 3, 2017, by and among M/I Homes, Inc., the guarantors named therein and the initial purchasers named therein, dated as of August 3, 2017, incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on August 3, 2017.

31.1
Certification by Robert H. Schottenstein, Chief Executive Officer, pursuant to Item 601 of Regulation S-K as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
31.2
Certification by Phillip G. Creek, Chief Financial Officer, pursuant to Item 601 of Regulation S-K as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
32.1
Certification by Robert H. Schottenstein, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
32.2
Certification by Phillip G. Creek, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
101.INSXBRL Instance Document. (Furnished herewith.)
101.SCHXBRL Taxonomy Extension Schema Document. (Furnished herewith.)
101.CALXBRL Taxonomy Extension Calculation Linkbase Document. (Furnished herewith.)
101.LABXBRL Taxonomy Extension Label Linkbase Document. (Furnished herewith.)
101.PREXBRL Taxonomy Extension Presentation Linkbase Document. (Furnished herewith.)
101.DEFXBRL Taxonomy Extension Definition Linkbase Document. (Furnished herewith.)(Principal Accounting Officer)





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