# M/I Homes, Inc.: Form 10-Q for the period ended Jun 30, 2022

- Company: [M/I Homes, Inc.](/companies/mho.md) (CIK 799292)
- Form: 10-Q
- Filed: 2022-07-29
- Accepted by EDGAR: Jul 29, 2022, 09:58 ET
- Period: 2022-06-30
- Accession: 0000799292-22-000057
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/799292/000079929222000057/mho-20220630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/799292/000079929222000057/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-04-01 to 2022-06-30 | $1.04bn | us-gaap:Revenues |
| Revenue | 6 months, 2022-01-01 to 2022-06-30 | $1.90bn | us-gaap:Revenues |
| Cost of revenue | 3 months, 2022-04-01 to 2022-06-30 | $756.4m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2022-01-01 to 2022-06-30 | $1.40bn | us-gaap:CostOfGoodsAndServicesSold |
| Operating income | 3 months, 2022-04-01 to 2022-06-30 | $182.9m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2022-01-01 to 2022-06-30 | $305.8m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-04-01 to 2022-06-30 | $693.0k | us-gaap:InterestExpense |
| Interest expense | 6 months, 2022-01-01 to 2022-06-30 | $1.4m | us-gaap:InterestExpense |
| Income tax | 3 months, 2022-04-01 to 2022-06-30 | $45.3m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2022-01-01 to 2022-06-30 | $75.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-04-01 to 2022-06-30 | $136.8m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2022-01-01 to 2022-06-30 | $228.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-04-01 to 2022-06-30 | $4.79 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2022-01-01 to 2022-06-30 | $7.93 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-04-01 to 2022-06-30 | $4.88 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2022-01-01 to 2022-06-30 | $8.10 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-04-01 to 2022-06-30 | 28,590,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2022-01-01 to 2022-06-30 | 28,826,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2022-01-01 to 2022-06-30 | $78.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2022-01-01 to 2022-06-30 | $2.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 6 months, 2022-01-01 to 2022-06-30 | $40.2m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Total assets | at 2022-06-30 | $3.49bn | us-gaap:Assets |
| Total liabilities | at 2022-06-30 | $1.68bn | us-gaap:Liabilities |
| Shareholders' equity | at 2022-06-30 | $1.82bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 87,208 characters.

### 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 141,100 homes since commencing homebuilding activities in 1976. The Company’s homes are marketed and sold primarily under the M/I Homes brand. The Company has homebuilding operations in Columbus and Cincinnati, Ohio; Indianapolis, Indiana; Chicago, Illinois; Minneapolis/St. Paul, Minnesota; Detroit, Michigan; Tampa, Sarasota and Orlando, Florida; Austin, Dallas/Fort Worth, Houston and San Antonio, Texas; Charlotte and Raleigh, North Carolina; and 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
- 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. Forward-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, 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, 2021 (the “2021 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.

### 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 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 2021 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 June 30, 2022 as compared to those disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2021 Form 10-K.

### RESULTS OF OPERATIONS

Our reportable segments are: Northern homebuilding; Southern homebuilding; and financial services operations. The homebuilding operating segments that comprise each of our reportable segments are as follows:

|  |  |
| --- | --- |
| Northern | Southern |
| Chicago, Illinois | Orlando, Florida |
| Cincinnati, Ohio | Sarasota, Florida |
| Columbus, Ohio | Tampa, Florida |
| Indianapolis, Indiana | Austin, Texas |
| Minneapolis/St. Paul, Minnesota | Dallas/Fort Worth, Texas |
| Detroit, Michigan | Houston, Texas |
|  | San Antonio, Texas |
|  | Charlotte, North Carolina |
|  | Raleigh, North Carolina |
|  | Nashville, Tennessee |

### Overview

During the first half of 2022, many of the fundamental drivers of housing demand remained in place, despite increased inflationary pressures and rising mortgage interest rates, including favorable demographics and a limited supply of new and resale inventory driving record financial results for our business. Strong demand for our homes in 2021 and in the first half of 2022 enabled us to increase selling prices in many of our communities in concert with rising labor and building material costs. The increase in selling prices, in combination with our focus on balancing sales pace, price of labor and materials, and construction starts at many of our communities, helped us to achieve record second quarter revenue, income before income taxes and net income. We also achieved the second highest level of second quarter home deliveries in our history, despite the supply chain challenges and disruptions that we are experiencing in 2022. Our improved profitability is attributable primarily to improved margins and overhead leverage when compared to 2021’s second quarter.

Our number of new contracts for the second quarter of 2022 declined 20% from the second quarter of 2021 due to several factors, including (1) consumer uncertainty related to inflation and rising mortgage interest rates, (2) a reduction in the number of our average selling communities to 172 in 2022 from 181 in 2021, (3) limitations we imposed on sales in select communities to align sales with production timelines and lot availability in the first half of 2022, and (4) the record sales pace we achieved in the second quarter of 2021. In addition, we continued to experience construction delays and supply chain challenges which have impacted the homebuilding industry and many of our product manufacturers, including raw material availability, extension of product lead times, labor and transportation issues, and overall demand outpacing production or shipping capacities. These challenges have resulted in a significant increase in our build cycle times, which we expect to continue for the foreseeable future, and led, in part, to our home deliveries for the second quarter declining 6% compared to 2021's second quarter and a sales backlog value of $2.7 billion, a second quarter record and our second highest in Company history.

During the second quarter and first half of 2022, we achieved the following results in comparison to the second quarter and first half of 2021:

- Total sales value in backlog increased 9% to $2.7 billion, a second-quarter record
- Revenue increased 8% to $1.04 billion (a second-quarter record) and 6% to $1.90 billion, respectively (a year-to-date record)
- Income before income taxes increased 29% to $182.2 million (an all-time quarterly record) 21% to $304.4 million (a year-to-date record), respectively
- Net income increased 27% to $136.8 million (an all-time quarterly record) and 19% to $228.7 million (a year-to-date record), respectively

Our company-wide absorption pace of sales per community for the second quarter of 2022 declined to 3.5 per month compared to the record pace of 4.2 per month for the prior year’s second quarter as a result of the decline in our average communities and the decrease in the number of new contracts during the quarter compared to prior year. Partially as a result of the accelerated sales pace we experienced in 2020 and 2021, our number of average number of selling communities declined to 172 during the second quarter of 2022 from 181 for the second quarter of 2021. We believe we maintain a strong land position, and we continue to place additional land under contract for communities that will open in future periods. However, delays in our ability to replace existing communities that are selling out in the short-term could negatively impact our number of selling communities throughout the remainder of 2022 and into 2023 as a result of land development challenges, delays in approvals for entitlements and permits due to volume, or other delays. We continue to work to open new communities to grow our community count along with actively managing sales pace, in part by selectively increasing prices and limiting sales in select communities, to optimize our availability of lots and maximize returns, while also maintaining a manageable timeline for construction and delivery of our homes.

### Summary of Company Financial Results

Income before income taxes for the second quarter of 2022 increased 29% from $141.3 million in the second quarter of 2021 to an all-time quarterly record $182.2 million in 2022. We also achieved all-time quarterly record net income of $136.8 million, or $4.79 per diluted share, in 2022's second quarter, compared to net income of $107.6 million, or $3.58 per diluted share, in 2021's second quarter. Our effective tax rate was 24.9% in 2022’s second quarter compared to 23.8% in 2021. For the first half of 2022, income before income taxes increased 21.0% from $251.6 million in the first half of 2021 to a first half record $304.4 million in 2022. We achieved year-to-date record net income of $228.7 million, or $7.93 per diluted share, compared to net income of $192.5 million, or $6.43 per diluted share, in the six months ended June 30, 2021. Our effective tax rate was 24.9% in 2022's first half compared to 23.5% in the same period in 2021.

During the quarter ended June 30, 2022, we recorded second-quarter record total revenue of $1.04 billion, of which $1.02 billion was from homes delivered, $3.4 million was from land sales and $19.4 million was from our financial services operations. Revenue from homes delivered increased 10% in 2022's second quarter compared to the same period in 2021 driven primarily by a 16% increase in the average sales price of homes delivered ($66,000 per home delivered), which was primarily in response to robust consumer demand in 2021 and early 2022 when the majority of our homes delivered during the quarter were placed under contract, partially offset by a 6% decrease in the number of homes delivered (125 units), which was due to construction and supply chain issues that created delays in home closings as well as fewer communities delivering homes and increased cycle time compared to prior year. Revenue from land sales decreased $1.5 million from the second quarter of 2021 due to fewer land sales in 2022's second quarter compared to the prior year. Revenue from our financial services segment decreased 32% to $19.4 million in the second quarter of 2022 as a result of a decrease in loans closed and sold as well as lower margins on loans sold during the period compared to the second quarter of 2021, which was a record quarter for our financial services segment and provided difficult comparisons for the second quarter of 2022. For the first half of 2022, we recorded year-to-date record total revenue of $1.90 billion, of which $1.85 billion was from homes delivered, $6.9 million was from land sales and $43.5 million was from our financial services operations. Revenue from homes delivered increased 7% in the first half of 2022 compared to the same period in 2021 driven primarily by a 16% increase in the average sales price of homes delivered ($64,000 per home delivered), which was primarily in response to robust consumer demand in 2021 and early 2022 when the majority of our homes delivered during the quarter were placed under contract, partially offset by an 8% decrease in the number of homes delivered (321 units), which was due to construction and supply chain issues that created delays in home closings as well as fewer communities delivering homes and increased cycle time compared to prior year. Revenue from land sales increased $1.2 million from the six months ended June 30, 2021 due to increased land sales in 2022's first six months compared to the prior year. Revenue from our financial services segment decreased 25% to $43.5 million in the first half of 2022 as a result of a decrease in loans closed and sold in the first half of 2022, in addition to lower margins on loans sold during the period compared to the prior year.

Total gross margin (total revenue less total land and housing costs) increased $42.9 million in the second quarter of 2022 compared to the second quarter of 2021 as a result of a $52.2 million improvement in the gross margin of our homebuilding operations (housing gross margin and land sales gross margin), offset partially by a $9.3 million decrease 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) increased $52.5 million primarily as a result of the 16% increase in average sales price of homes delivered, partially offset by the 6% decrease in the number of homes delivered. Our housing gross margin percentage improved 320 basis points from 22.8% in prior year's second quarter to 26.0% in 2022's second quarter, primarily as a result of increased average sales prices. Our gross margin on land sales (land sale gross margin) declined $0.3 million in the second quarter of 2022 compared to the second quarter of 2021. The gross margin of our financial services operations decreased $9.3 million in the second quarter of 2022 compared to the second quarter of 2021 as a result of a decrease in the number of loan originations and lower margins on loans sold, partially offset by an increase in the average loan amount during the second quarter of 2022 compared to the second quarter of 2021. Total gross margin increased $53.8 million in the first half of 2022 compared to the same period in 2021 as a result of a $68.6 million improvement in the gross margin of our homebuilding operations, offset partially by a $14.8 million decline in the gross margin of our financial services operations. With respect to our homebuilding gross margin, our gross margin on homes delivered improved $68.3 million as a result of the 16% increase in the average sales price of homes delivered, partially offset by the 8% decrease in the number of homes delivered. Our housing gross margin percentage improved 210 basis points from 22.3% in prior year’s first half to 24.4% in 2022's first half, primarily as a result of increased average sales prices. Our gross margin on land sales improved $0.3 million in 2022's first six months compared to the same period in 2021. The gross margin of our financial services operations decreased $14.8 million in the first half of 2022 compared to the same period in 2021 as a result of decreases in the number of loan originations, in addition to lower margins on loans sold during the first half of 2022 compared to the first half of 2021. Our housing gross margin may fluctuate from quarter to quarter depending on the mix of communities delivering homes, due to the variation in margin between different communities.

As a result of our record number of sales in 2020 and 2021, we are selling through communities faster, which has reduced our number of active communities. We opened 51 new communities during the first half of 2022 and closed 58 communities.

For the three months ended June 30, 2022, selling, general and administrative expense increased $1.8 million, which partially offset the increase in our total gross margin discussed above, but improved as a percentage of revenue from 10.4% in the second quarter of 2021 to 9.7% in the second quarter of 2022 (a second quarter record). Selling expense decreased $4.4 million from 2021's second quarter and improved as a percentage of revenue to 4.4% in 2022's second quarter from 5.3% for the same period in 2021. The decrease was primarily due to a decrease in variable selling expense for sales commissions due to the lower number of homes delivered in the quarter. General and administrative expense increased $6.2 million compared to the second quarter of 2021 and also increased as a percentage of revenue from 5.1% in the second quarter of 2021 to 5.3% in the second quarter of 2022. The increase in general and administrative expense was primarily due to a $3.3 million increase in compensation-related expenses due to our increased headcount and our strong financial performance during the quarter, a $0.9 million increase in land-related costs, a $0.6 million increase in computer costs related to our investment in new information systems, a $0.5 million increase in professional fees, and a $0.9 million increase in miscellaneous expenses. For the six months ended June 30, 2022, selling, general and administrative expense increased $1.1 million, which partially offset the increase in our gross margin dollars discussed above, but declined as a percentage of revenue from 10.6% in the six months ended June 30, 2021 to 10.1% in the first six months of 2022. Selling expense decreased $8.6 million from the first half of 2021 and improved as a percentage of revenue to 4.6% in 2022's first half from 5.4% for the same period in 2021. Variable selling expense for sales commissions contributed $8.9 million to the decrease due to the lower number of homes delivered during the first half of 2022, which was partially offset by a $0.3 million increase in non-variable selling expense primarily related to increased costs associated with our sales offices and models. General and administrative expense increased $9.7 million compared to the first half of 2021 and also increased as a percentage of revenue from 5.3% in the six months ended June 30, 2021 to 5.5% in the first six months of 2022. The dollar increase in general and administrative expense was primarily due to a $5.5 million increase in compensation-related expenses due to our increased headcount and our strong financial performance during the period, a $1.5 million increase in computer costs related to our investment in new information systems, a $0.9 million increase in land-related costs, a $0.6 million increase in professional fees, and a $1.2 million increase in miscellaneous expenses,

### Outlook

Although housing market conditions have been strong over the past year, the unprecedented sales pace that we have experienced over the past two years slowed in the latter half of our second quarter primarily due to inflationary pressures, the historic increase in mortgage interest rates and accelerated price appreciation. We believe that these factors tempered demand for new homes, causing some potential homebuyers to pause and reconsider a home purchase at this time. Due to the Federal Reserve’s commitment to combat inflation through increased interest rates, the customary seasonality of our business during the second half of the year, and general macro-economic conditions, traffic and new contracts in many of our markets may decline in the second half of 2022 compared to prior year. In response to the deteriorating market conditions, we have offered mortgage buy down programs and interest rate locks to support sales momentum, and have reduced the number of communities in which we are limiting sales. With respect to our financial services business, margins on the sales of mortgages in the secondary market have declined due to significant competition in the mortgage market as a result of the collapsing refinancing market.

Despite these negative economic developments, we believe that the homebuilding industry will continue to benefit from a continued undersupply of available homes, low unemployment levels and resulting wage growth, positive consumer demographics, scarcity of rentals and increasing rent prices, and a growing number of younger homebuyers moving to single family homes, albeit at a slower pace than in the past few years. Although deliveries have been constrained by supply chain disruptions and an increase in labor costs, we and our suppliers have improved our management of these supply chain problems which has helped reduce our cycle time growth compared to the first quarter of 2022.

We believe that we are well positioned to manage through these changing 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 and carefully managing our investment in land and land development spending. Our strong balance 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 initiatives listed below will remain successful, and we may need to adjust elements of our strategy to effectively address evolving market conditions.

We expect to continue to emphasize the following strategic business objectives throughout the remainder of 2022:

- managing our land spend and inventory levels;
- opening new communities on schedule wherever possible;
- maintaining a strong balance sheet and liquidity levels;
- expanding the availability of our more affordable Smart Series homes; and
- emphasizing customer service, product quality and design, and premier locations.

During the first six months of 2022, we invested $214.6 million in land acquisitions and $207.2 million in land development. We continue to closely review all of our land acquisition and land development spending and monitor our ongoing pace of home sales and deliveries, and we will adjust our land and investment spend accordingly. As a result of the unprecedented current market conditions with municipality delays, extended cycle times, and rising mortgage interest rates impacting sales, we are not providing land spending estimates for 2022 at this time.

As a result of our accelerated pace of home sales, we sold through communities at a faster pace than anticipated in 2021 and into the first half of 2022. We ended the second quarter of 2022 with approximately 47,800 lots under control, which represents nearly a six-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 9% increase from our approximately 44,000 lots under control at the end of last year’s second quarter. We opened 51 communities and closed 58 communities in the first half of 2022, ending the second quarter with 168 active communities, compared to 175 at the end of last year’s second quarter. 80 of our active communities at the end of the second quarter of 2022 offered our more affordable Smart Series designs, which are primarily designed for first-time homebuyers.

Although the timing of opening new communities and closing existing communities is subject to substantial variation, we expect to open a record number of new communities in 2022, growing our community count by approximately 15% by the end of 2022 to approximately 200 communities.

We believe that our ability to design and develop attractive homes in desirable locations at an affordable cost, and to grow our business while also leveraging our fixed costs, has enabled us to maintain and improve our strong financial results. We further believe that we are well positioned with a strong balance sheet and backlog to manage through the current ever-changing economic environment and achieve another year of strong results in 2022.

The following table shows, by segment, revenue; gross margin; selling, general and administrative expense; operating income (loss); and interest expense (income) for the three and six months ended June 30, 2022 and 2021:

*(In thousands)*

| Revenue: | Three Months Ended June 30, 2022 | 2021 | Six Months Ended June 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Northern homebuilding | **$472,814** | $417,787 | **$826,600** | $750,785 |
| Southern homebuilding | **548,466** | 514,618 | **1,031,380** | 980,747 |
| Financial services (a) | **19,374** | 28,635 | **43,485** | 58,284 |
| Total revenue | **$1,040,654** | $961,040 | **$1,901,465** | $1,789,816 |
| Gross margin: |  |  |  |  |
| Northern homebuilding | **$104,292** | $91,902 | **$171,400** | $158,465 |
| Southern homebuilding | **160,621** | 120,831 | **282,511** | 226,810 |
| Financial services (a) | **19,374** | 28,635 | **43,485** | 58,284 |
| Total gross margin | **$284,287** | $241,368 | **$497,396** | $443,559 |
| Selling, general and administrative expense: |  |  |  |  |
| Northern homebuilding | **$30,214** | $29,920 | **$57,106** | $57,499 |
| Southern homebuilding | **40,597** | 41,767 | **78,194** | 81,531 |
| Financial services (a) | **9,766** | 9,710 | **19,944** | 18,723 |
| Corporate | **20,845** | 18,257 | **36,382** | 32,795 |
| Total selling, general and administrative expense | **$101,422** | $99,654 | **$191,626** | $190,548 |
| Operating income (loss): |  |  |  |  |
| Northern homebuilding | **$74,078** | $61,982 | **$114,294** | $100,966 |
| Southern homebuilding | **120,024** | 79,064 | **204,317** | 145,279 |
| Financial services (a) | **9,608** | 18,925 | **23,541** | 39,561 |
| Less: Corporate selling, general and administrative expense | **(20,845)** | (18,257) | **(36,382)** | (32,795) |
| Total operating income | **$182,865** | $141,714 | **$305,770** | $253,011 |
| Interest expense (income): |  |  |  |  |
| Northern homebuilding | **$—** | $— | **$—** | $76 |
| Southern homebuilding | **—** | — | **(2)** | 157 |
| Financial services (a) | **941** | 949 | **1,819** | 1,892 |
| Corporate | **(248)** | (497) | **(453)** | (497) |
| Total interest expense | **$693** | $452 | **$1,364** | $1,628 |
| Other income | **$(1)** | $(35) | $(17) | $(195) |
| Income before income taxes | **$182,173** | $141,297 | **$304,423** | $251,578 |

(a) Our financial services operational results should be viewed in connection with our homebuilding business as its operations originate loans and provide title services primarily for our homebuyers, with the exception of a small amount of mortgage refinancing.

The following tables show total assets by segment at June 30, 2022 and December 31, 2021:

*(In thousands)*

|  | At June 30, 2022 Northern | Southern |  | Corporate, Financial Services and Unallocated | Total |
| --- | ---: | ---: | --- | ---: | ---: |
| Deposits on real estate under option or contract | **$7,002** | **$49,173** |  | **$—** | **$56,175** |
| Inventory (a) | **1,086,685** | **1,673,405** |  | **—** | **2,760,090** |
| Investments in joint venture arrangements | **—** | **55,625** |  | **—** | **55,625** |
| Other assets | **43,562** | **85,585** | (b) | **492,287** | **621,434** |
| Total assets | **$1,137,249** | **$1,863,788** |  | **$492,287** | **$3,493,324** |

*(In thousands)*

|  | At December 31, 2021 Northern | Southern |  | Corporate, Financial Services and Unallocated | Total |
| --- | ---: | ---: | --- | ---: | ---: |
| Deposits on real estate under option or contract | $4,123 | $48,795 |  | $— | $52,918 |
| Inventory (a) | 987,258 | 1,412,258 |  | — | 2,399,516 |
| Investments in joint venture arrangements | — | 57,121 |  | — | 57,121 |
| Other assets | 37,527 | 63,844 | (b) | 628,927 | 730,298 |
| Total assets | $1,028,908 | $1,582,018 |  | $628,927 | $3,239,853 |

(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 six months ended June 30, 2022 and 2021:

*(Dollars in thousands)*

| Northern Region | Three Months Ended June 30, 2022 | 2021 | Six Months Ended June 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Homes delivered | **1,000** | 961 | **1,760** | 1,762 |
| New contracts, net | **722** | 884 | **1,912** | 2,190 |
| Backlog at end of period | **2,042** | 2,243 | **2,042** | 2,243 |
| Average sales price of homes delivered | **$471** | $433 | **$469** | $425 |
| Average sales price of homes in backlog | **$507** | $468 | **$507** | $468 |
| Aggregate sales value of homes in backlog | **$1,036,239** | $1,049,811 | **$1,036,239** | $1,049,811 |
| Housing revenue | **$470,880** | $416,247 | **$824,666** | $749,055 |
| Land sale revenue | **$1,934** | $1,540 | **$1,934** | $1,730 |
| Operating income homes (a) | **$73,921** | $61,706 | **$114,137** | $100,634 |
| Operating income land | **$157** | $276 | **$157** | $332 |
| Number of average active communities | **91** | 83 | **91** | 85 |
| Number of active communities, end of period | **89** | 79 | **89** | 79 |
| **Southern Region** |  |  |  |  |
| Homes delivered | **1,133** | 1,297 | **2,196** | 2,515 |
| New contracts, net | **1,098** | 1,383 | **2,422** | 3,186 |
| Backlog at end of period | **3,171** | 3,245 | **3,171** | 3,245 |
| Average sales price of homes delivered | **$483** | $394 | **$467** | $388 |
| Average sales price of homes in backlog | **$527** | $444 | **$527** | $444 |
| Aggregate sales value of homes in backlog | **$1,670,347** | $1,440,115 | **$1,670,347** | $1,440,115 |
| Housing revenue | **$547,026** | $511,259 | **$1,026,403** | $976,730 |
| Land sale revenue | **$1,440** | $3,359 | **$4,977** | $4,017 |
| Operating income homes (a) | **$119,590** | $78,414 | **$202,916** | $144,435 |
| Operating income land | **$434** | $650 | **$1,401** | $844 |
| Number of average active communities | **81** | 98 | **82** | 103 |
| Number of active communities, end of period | **79** | 96 | **79** | 96 |
| **Total Homebuilding Regions** |  |  |  |  |
| Homes delivered | **2,133** | 2,258 | **3,956** | 4,277 |
| New contracts, net | **1,820** | 2,267 | **4,334** | 5,376 |
| Backlog at end of period | **5,213** | 5,488 | **5,213** | 5,488 |
| Average sales price of homes delivered | **$477** | $411 | **$468** | $404 |
| Average sales price of homes in backlog | **$519** | $454 | **$519** | $454 |
| Aggregate sales value of homes in backlog | **$2,706,586** | $2,489,926 | **$2,706,586** | $2,489,926 |
| Housing revenue | **$1,017,906** | $927,506 | **$1,851,069** | $1,725,785 |
| Land sale revenue | **$3,374** | $4,899 | **$6,911** | $5,747 |
| Operating income homes (a) | **$193,511** | $140,120 | **$317,053** | $245,069 |
| Operating income land | **$591** | $926 | **$1,558** | $1,176 |
| Number of average active communities | **172** | 181 | **173** | 188 |
| Number of active communities, end of period | **168** | 175 | **168** | 175 |

(a) Includes the effect of total homebuilding selling, general and administrative expense for the region as disclosed in the first table set forth in this “Outlook” section.

*(Dollars in thousands)*

| Financial Services | Three Months Ended June 30, 2022 | 2021 | Six Months Ended June 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Number of loans originated | **1,343** | 1,704 | **2,614** | 3,279 |
| Value of loans originated | **$516,259** | $572,156 | **$996,040** | $1,088,033 |
| Revenue | **$19,374** | $28,635 | **$43,485** | $58,284 |
| Less: Selling, general and administrative expenses | **9,766** | 9,710 | **19,944** | 18,723 |
| Less: Interest expense | **941** | 949 | **1,819** | 1,892 |
| Income before income taxes | **$8,667** | $17,976 | **$21,722** | $37,669 |

29

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

The following table sets forth the cancellation rates for each of our homebuilding segments for the three and six months ended June 30, 2022 and 2021:

|  | Three Months Ended June 30, 2022 | 2021 | Six Months Ended June 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Northern | **11.6%** | 6.1% | **8.6%** | 6.2% |
| Southern | **10.9%** | 7.6% | **9.2%** | 7.7% |
| Total cancellation rate | **11.2%** | 7.0% | **8.9%** | 7.1% |

### 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.

### Year Over Year Comparison

### Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

***Northern Region.*** During the three months ended June 30, 2022, homebuilding revenue in our Northern region increased $55.0 million, from $417.8 million in the second quarter of 2021 to $472.8 million in the second quarter of 2022. This 13% increase in homebuilding revenue was primarily the result of a 9% increase in the average sales price of homes delivered ($38,000 per home delivered) and a 4% increase in the number of homes delivered (39 units). Operating income in our Northern region increased $12.1 million from $62.0 million in the second quarter of 2021 to $74.1 million during the quarter ended June 30, 2022. This increase in operating income was the result of a $12.4 million improvement in our gross margin partially offset by a $0.3 million increase in selling, general and administrative expense. With respect to our homebuilding gross margin, our housing gross margin improved $12.5 million primarily due to the increase in average sales price of homes delivered and the increase in the number of homes delivered noted above. Our housing gross margin percentage improved 10 basis points to 22.1% in the second quarter of 2022 from 22.0% in the prior year’s second quarter. The improvement in housing gross margin percentage was primarily due to the increase in average sales price of homes delivered compared to prior year. Our land sale gross margin declined $0.1 million in the second quarter of 2022 compared to the same period in 2021 due to fewer land sales during the period.

Selling, general and administrative expense increased $0.3 million, from $29.9 million for the quarter ended June 30, 2021 to $30.2 million for the quarter ended June 30, 2022, but improved as a percentage of revenue to 6.4% in 2022's second quarter from 7.2% in 2021's second quarter. The increase in selling, general and administrative expense was primarily attributable to a $1.0 million increase in general and administrative expense resulting from an increase in compensation-related expenses due to our increased headcount and our strong financial performance partially offset by a $0.7 million decrease in selling expense. The decrease in selling expense was due to a decrease in variable selling expenses resulting from decreases in sales commissions.

During the three months ended June 30, 2022, we experienced an 18% decrease in new contracts in our Northern region, from 884 in the second quarter of 2021 to 722 in the second quarter of 2022. Homes in backlog decreased 9% from 2,243 homes at June 30, 2021 to 2,042 homes at June 30, 2022. The decreases in new contracts and backlog were primarily due to the limitations we imposed on sales in certain communities during the majority of the quarter. Average sales price in backlog increased to $507,000 at June 30, 2022 compared to $468,000 at June 30, 2021. During both the second quarter of 2022 and the second quarter of 2021, we opened five new communities in our Northern region. Our monthly absorption rate in our Northern region declined to 2.6 per community in the second quarter of 2022 compared to 3.6 per community in 2021's second quarter due to the decline in new contracts during the quarter.

***Southern Region.*** During the three month period ended June 30, 2022, homebuilding revenue in our Southern region increased $33.9 million, from $514.6 million in the second quarter of 2021 to $548.5 million in the second quarter of 2022. This 7% increase in homebuilding revenue was the result of a 23% increase in the average sales price of homes delivered ($89,000 per home delivered), offset partially by a 13% decrease in the number of homes delivered (164 units) due to construction and supply chain issues that delayed closings. Operating income in our Southern region increased $40.9 million from $79.1 million in the second quarter of 2021 to $120.0 million during the quarter ended June 30, 2022. This increase in operating income was the result of a $39.8 million improvement in our gross margin and a $1.2 million decrease in selling, general, and administrative expense. With respect to our homebuilding gross margin, our housing gross margin improved $40.0 million, due primarily to the increase in average sales price of homes delivered, offset partially by the decrease in the number of homes delivered noted above. Our housing gross margin percentage improved from 23.5% in prior year’s second quarter to 29.3% in the second quarter of 2022, largely due to the increase in average sales price of homes delivered compared to prior year. Our land sale gross margin declined $0.2 million in the second quarter of 2022 compared to the second quarter of 2021.

Selling, general and administrative expense decreased $1.2 million from $41.8 million in the second quarter of 2021 to $40.6 million in the second quarter of 2022 and declined as a percentage of revenue to 7.4% from 8.1% in the second quarter of 2021. The decrease in selling, general and administrative expense was attributable to a $3.6 million decrease in selling expense due to a $3.1 million decrease in variable selling expenses resulting from decreases in sales commissions produced by the lower number of homes delivered and a $0.5 million decrease in non-variable selling expenses primarily related to a decrease in model and sales office costs associated with our decreased community count. This decrease in selling expense was partially offset by a $2.4 million increase in general and administrative expense, which was primarily related to a $1.0 million increase in land-related costs, a $0.8 million increase in compensation-related expenses due to our increased headcount and our strong financial performance during the period and a $0.6 million increase in professional fees.

During the three months ended June 30, 2022, we experienced a 21% decrease in new contracts in our Southern region, from 1,383 in the second quarter of 2021 to 1,098 in the second quarter of 2022. Homes in backlog decreased 2% from 3,245 homes at June 30, 2021 to 3,171 homes at June 30, 2022. The decreases in new contracts and backlog were primarily due to our decreased community count compared to prior year and limitations we imposed on sales in certain communities during the majority of the quarter. Average sales price in backlog increased to $527,000 at June 30, 2022 from $444,000 at June 30, 2021. During the three months ended June 30, 2022, we opened 15 new communities in our Southern region compared to opening 11 communities during 2021's second quarter. Our monthly absorption rate in our Southern region declined slightly to 4.6 per community in the second quarter of 2022 compared to 4.7 per community in the second quarter of 2021 as a result of the decline in our average communities and the decrease in the number of new contracts during the quarter compared to prior year.

***Financial Services.*** Revenue from our mortgage and title operations decreased 32% to $19.4 million in the second quarter of 2022 from $28.6 million in the second quarter of 2021 due to a 21% decrease in the number of loan originations from 1,704 in 2021's second quarter to 1,343 in the second quarter of 2022 and lower margins on loans sold during the period compared to prior year’s second quarter, which was a record second quarter and resulted in difficult comparisons for the second quarter of 2021, partially offset by an increase in the average loan amount from $336,000 in the quarter ended June 30, 2021 to $384,000 in the quarter ended June 30, 2022.

Our financial services segment experienced a $9.3 million decrease in operating income in the second quarter of 2022 compared to 2021's second quarter, which was primarily due to the decrease in revenue discussed above in addition to a $0.1 million increase in selling, general and administrative expense compared to the second quarter of 2021, which was primarily the result of an increase in compensation-related expenses due to our increase in employee headcount.

At June 30, 2022, M/I Financial provided financing services in all of our markets. Approximately 77% of our homes delivered during the second quarter of 2022 were financed through M/I Financial, compared to 84% in the second quarter of 2021. Capture rate is influenced by financing availability and competition in the mortgage market, and can fluctuate from quarter to quarter.

***Corporate Selling, General and Administrative Expense.*** Corporate selling, general and administrative expense increased $2.5 million from $18.3 million for the second quarter of 2021 to $20.8 million for the second quarter of 2022. This increase primarily resulted from a $1.2 million increase in compensation-related expenses due to increased headcount, a $0.4 million increase in computer costs related to our investment in new information systems, and a $0.9 million increase in miscellaneous expenses.

***Other income.*** The Company earned less than $0.1 million of equity in income from its LLCs during both the three months ended June 30, 2022 and 2021.

***Interest Expense - Net.*** Interest expense for the Company increased $0.2 million from $0.5 million for the three months ended June 30, 2021 to $0.7 million for the three months ended June 30, 2022. This increase in interest expense was primarily due to an increase in our weighted average borrowings from $702.5 million in 2021's second quarter to $781.9 million in 2022's second quarter.

***Income Taxes.*** Our overall effective tax rate was 24.9% for the three months ended June 30, 2022 and 23.8% for the three months ended June 30, 2021. The increase in the effective rate from the three months ended June 30, 2021 was due to the non-renewal of the energy efficient home credits for 2022 in addition to a decrease in tax benefit from equity compensation.

### Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

***Northern Region.*** During the first half of 2022, homebuilding revenue in our Northern region increased $75.8 million, from $750.8 million in the first six months of 2021 to $826.6 million in the first six months of 2022. This 10% increase in homebuilding revenue was primarily the result of a 10% increase in the average sales price of homes delivered ($44,000 per home delivered). Operating income in our Northern region increased $13.3 million, from $101.0 million during the first half of 2021 to $114.3 million during the six months ended June 30, 2022. The increase in operating income was primarily the result of a $12.9 million increase in our gross margin and a $0.4 million decrease in selling, general, and administrative expense. With respect to our homebuilding gross margin, our housing gross margin improved $13.1 million, primarily due to the increase in the average sale price of homes delivered. Our housing gross margin percentage declined 30 basis points from 21.1% in the first six months of 2021 to 20.8% for the same period in 2022, primarily due to increased construction and lot costs. Our land sale gross margin decreased by $0.2 million in the first half of 2022 compared to the same period in 2021.

Selling, general and administrative expense decreased $0.4 million, from $57.5 million for the six months ended June 30, 2021 to $57.1 million for the six months ended June 30, 2022, and declined as a percentage of revenue to 6.9% in the first half of 2022 compared to 7.7% in the same period in 2021. The decrease in selling, general and administrative expense was attributable to a $1.9 million decrease in selling expense due to a $3.0 million decrease in variable selling expenses resulting from decreases in sales commissions produced by the lower number of homes delivered, partially offset by the 10% increase in the average sales price of homes delivered. The decrease in variable selling expenses was partially offset by a $1.1 million increase in non-variable selling expenses primarily related to costs associated with our sales offices and models. The decrease in selling expense was partially offset by a $1.5 million increase in general and administrative expense, which was primarily related to an increase in compensation-related expenses due to our increased headcount and our strong financial performance during the period.

During the six months ended June 30, 2022, we experienced a 13% decrease in new contracts in our Northern region, from 2,190 in the six months ended June 30, 2021 to 1,912 in the first half of 2022. Homes in backlog also decreased 9% from 2,243 at June 30, 2021 to 2,042 homes at June 30, 2022. The decreases in new contracts and backlog were due to a reduction in the number of our average selling communities compared to the first half of 2021 and the limitations we imposed on sales in a majority of our communities during the period. Average sales price in backlog increased to $507,000 at June 30, 2022 compared to $468,000 at June 30, 2021. During the six months ended June 30, 2022, we opened 20 new communities in our Northern region compared to 18 during the same period in 2021. Our monthly absorption rate in our Northern region declined to 3.5 per community in the six months ended June 30, 2022 from 4.3 per community in the same period in 2021 as a result of the decrease in the number of new contracts during the quarter compared to prior year.

***Southern Region.*** During the six months ended June 30, 2022, homebuilding revenue in our Southern region increased $50.6 million from $980.7 million in the first half of 2021 to $1.03 billion in the first half of 2022. This 5% increase in homebuilding revenue was the result of a 20% increase in the average sales price of homes delivered ($79,000 per home delivered) and a $1.0 million increase in land sale revenue, offset partially by a 13% decrease in the number of homes delivered (319 units). Operating income in our Southern region increased $59.0 million from $145.3 million in the first half of 2021 to $204.3 million during the six months ended June 30, 2022. This increase in operating income was the result of a $55.7 million improvement in our gross margin in addition to a $3.3 million decrease in selling, general, and administrative expense. With respect to our homebuilding gross margin, our gross margin on homes delivered improved $55.1 million, due primarily to the increase in average sale price of homes delivered. Our housing gross margin percentage improved 430 basis points from 23.1% in the six months ended June 30, 2021 to 27.4% in the same period in 2022, largely due to the increase in average sales price of homes delivered compared to prior year. Our land sale gross margin improved $0.6 million in the first half of 2022 compared to the same period in 2021.

Selling, general and administrative expense decreased $3.3 million from $81.5 million in the first half of 2021 to $78.2 million in the first half of 2022 and declined as a percentage of revenue to 7.6% from 8.3% for the first half of 2021. The decrease in selling, general and administrative expense was attributable to a $6.7 million decrease in selling expense due to a $5.8 million decrease in variable selling expenses resulting from decreases in sales commissions produced by the lower number of homes delivered, and a $0.9 million decrease in non-variable selling expenses primarily related to the timing of sales office and model openings and a reduction in marketing costs. The decrease in selling, general and administrative expense was partially offset by a $3.4 million increase in general and administrative expense, which was primarily related to a $1.2 million increase in compensation-related expenses due to our increased headcount and our strong financial performance, a $1.5 million increase in land-related expenses and a $0.7 million increase in miscellaneous expenses.

During the six months ended June 30, 2022, we experienced a 24% decrease in new contracts in our Southern region, from 3,186 in the six months ended June 30, 2021 to 2,422 in the first half of 2022. Homes in backlog decreased 2% from 3,245 homes at June 30, 2021 to 3,171 homes at June 30, 2022. The decreases in new contracts and backlog were primarily due to the decrease in our average number of communities compared to prior year and the limitations we imposed on sales in certain communities during the period. Average sales price in backlog increased from $444,000 at June 30, 2021 to $527,000 at June 30, 2022. During the six months ended June 30, 2022, we opened 31 communities in our Southern region, compared to 19 during the first half of 2021. Our monthly absorption rate in our Southern region declined to 4.9 per community in the first half of 2022 from 5.2 per community in the first half of 2021 as a result of the decline in our average communities and the decrease in the number of new contracts during the quarter compared to prior year.

***Financial Services.*** Revenue from our mortgage and title operations decreased 25% from $58.3 million in the first half of 2021 to $43.5 million in the first half of 2022 due to a 20% decrease in the number of loan originations from 3,279 in the first half of 2021 to 2,614 in the first half of 2022 and lower margins on loans sold during the period compared to 2021's first half due to increased competition for sales of loans, offset partially by an increase in the average loan amount from $332,000 in the six months ended June 30, 2021 to $381,000 in the six months ended June 30, 2022.

Our financial services segment experienced a $16.0 million decrease in operating income in the first half of 2022 compared to the same period in 2021, which was primarily due to the decrease in revenue discussed above, and a $1.2 million increase in selling, general and administrative expense compared to the first half of 2021. The increase in selling, general and administrative expense was primarily attributable to an increase in compensation-related expenses due to an increase in employee headcount.

At June 30, 2022, M/I Financial provided financing services in all of our markets. Approximately 79% of our homes delivered during the first half of 2022 were financed through M/I Financial, compared to 84% in the first half of 2021. 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 $3.6 million from $32.8 million for the six months ended June 30, 2021 to $36.4 million for the six months ended June 30, 2022. The increase was primarily due to a $1.8 million increase in compensation-related expenses due to our increased headcount, a $1.2 million increase in computer costs and a $0.6 million increase in miscellaneous expenses.

***Other income.*** The Company earned less than $0.1 million and $0.2 million of equity in income from its LLCs during the six months ended June 30, 2022 and 2021, respectively.

***Interest Expense - Net.*** Interest expense for the Company decreased from $1.6 million in the six months ended June 30, 2021 to $1.4 million in the six months ended June 30, 2022. This decrease was primarily the result of higher interest capitalization due to the high level of inventory we have under development compared to the prior year and a decrease in our weighted average borrowing rate from 5.74% in 2021's first half to 4.79% in 2022's first half as a result of a change in the mix of borrowings in the current year compared to prior year.

***Income Taxes.*** Our overall effective tax rate was 24.9% for the six months ended June 30, 2022 and 23.5% for the six months ended June 30, 2021. The increase in the effective rate from the six months ended June 30, 2021 was due to the non-renewal of the energy efficient home credits for 2022 in addition to a decrease in tax benefit from equity compensation.

### LIQUIDITY AND CAPITAL RESOURCES

### Overview of Capital Resources and Liquidity.

At June 30, 2022, we had $188.8 million of cash, cash equivalents and restricted cash, with $187.5 million of this amount comprised of unrestricted cash and cash equivalents, which represents a $48.5 million decrease in unrestricted cash and cash equivalents from December 31, 2021. Our principal uses of cash for the six months ended June 30, 2022 were investment in land and land development, construction of homes, mortgage loan originations, investment in joint ventures, operating expenses, short-term working capital, and debt service requirements, including the repayment of amounts outstanding under our credit facilities, and the repurchase of $24.8 million of our outstanding common shares under our 2021 Share Repurchase Program (as defined below) during the first half of 2022. In order to fund these uses of cash, we used proceeds from home deliveries, as well as excess cash balances, borrowings under our credit facilities, and other sources of liquidity.

The Company is a party to three primary credit agreements: (1) a $550 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 on October 25, 2021, with M/I Financial as borrower (the “MIF Mortgage Repurchase Facility”).

As of June 30, 2022, we had outstanding notes payable (consisting primarily of notes payable for our financial services operations, the 2030 Senior Notes and the 2028 Senior Notes) with varying maturities in an aggregate principal amount of $894.6 million, with $194.6 million payable within 12 months. Future interest payments associated with these notes payable totaled $213.8 million as of June 30, 2022, with $31.9 million payable within 12 months.

As of June 30, 2022, there were no borrowings outstanding and $105.7 million of letters of credit outstanding under our $550 million Credit Facility, leaving $444.3 million available. We expect to continue managing our balance sheet and liquidity carefully in 2022 by managing our spending on land acquisition and development and construction of inventory homes, as well as overhead expenditures, relative to our ongoing volume of home deliveries, and we expect to meet our current and anticipated cash requirements in 2022 from cash receipts, excess cash balances and availability under our credit facilities.

During the first half of 2022, we delivered 3,956 homes, started 5,130 homes, and spent $214.6 million on land purchases and $207.2 million on land development.

We are selectively acquiring and developing lots in our markets to replenish our lot supply and will continue to monitor market conditions and our pace of home sales and deliveries and adjust our land spending accordingly. Pursuant to our land option agreements, as of June 30, 2022, we had a total of 23,049 lots under contract, with an aggregate purchase price of approximately $1.08 billion, to be acquired during the remainder of 2022 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 six-month period ended June 30, 2022, we generated $78.5 million of cash from operating activities, compared to generating $173.8 million of cash in operating activities during the first half of 2021. The cash generated from operating activities in the first half of 2022 was primarily a result of net income of $228.7 million, $78.3 million of proceeds from the sale of mortgage loans net of mortgage loan originations, and an increase in accounts payable, customer deposits and other liabilities totaling $122.7 million offset, in part, by a $336.5 million increase in inventory, a decrease in accrued compensation of $13.4 million. The cash generated from operating activities in the first half of 2021 was primarily a result of net income of $192.5 million, $61.3 million of proceeds from the sale of mortgage loans net of mortgage loan originations, and an increase in accounts payable and customer deposits totaling $73.3 million, offset, in part, by a $133.3 million increase in inventory and a decrease in accrued compensation and other liabilities of $19.7 million.

***Investing Cash Flow Activities.*** During the first half of 2022, we used $11.5 million of cash from investing activities, compared to used $12.8 million of cash in investing activities during the first half of 2021. The cash used was primarily a result of a $10.9 million increase in our investment in joint venture arrangements in the first half of 2022. Our cash generated during the first half of 2021 was primarily a result of a $17.1 million increase in our investment in joint venture arrangements, partially offset by $4.3 million of proceeds from the sale of a portion of our mortgage servicing rights in the first half of 2021.

***Financing Cash Flow Activities.*** During the six months ended June 30, 2022, we used $114.7 million of cash from financing activities, compared to using $50.0 million of cash during the first six months of 2021. The cash used from financing activities in 2022 was primarily due to repayments of $71.6 million (net of proceeds from borrowings) under our two M/I Financial credit facilities in addition to the repurchase of $40.2 million of our outstanding common shares during the first half of 2022. The cash used in financing activities in the first half of 2021 was primarily due to repayments of $58.5 million (net of proceeds from borrowings) under our two M/I Financial credit facilities during the first half of 2021.

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. During the first half of 2022, the Company repurchased 0.9 million outstanding common shares with an aggregate purchase price of $40.2 million under the 2021 Share Repurchase Program which was funded with cash on hand. As of June 30, 2022, the Company is authorized to repurchase an additional $108.2 million of outstanding common shares under the 2021 Share Repurchase Program (see Note 12 to our financial statements for more information).

Based on current market conditions, expected capital needs and availability, and the current market price of the Company’s common shares, we expect to continue repurchasing shares during the remainder of 2022. The timing and amount of any purchases 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.

At June 30, 2022 and December 31, 2021, our ratio of homebuilding debt to capital was 28% and 30%, 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. 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. The financing needs of our homebuilding and financial services operations depend on anticipated sales volume in the current year as well as future years, inventory levels and related turnover, forecasted land and lot purchases, debt maturity dates, and other factors. 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.

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 June 30, 2022:

*(In thousands)*

|  | Expiration Date | Outstanding Balance | Available Amount |
| --- | --- | ---: | ---: |
| Notes payable – homebuilding (a) | (a) | $— | $444,287 |
| Notes payable – financial services (b) | (b) | $194,602 | $2,001 |

(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 $1.51 billion of availability for additional senior debt at June 30, 2022. As a result, the full $550 million commitment amount of the facility was available, less any borrowings and letters of credit outstanding. There were no borrowings outstanding and $105.7 million of letters of credit outstanding at June 30, 2022, leaving $444.3 million available. The Credit Facility has an expiration date of July 18, 2025.

(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 June 30, 2022. The MIF Mortgage Warehousing Agreement has an expiration date of May 26, 2023 and the MIF Mortgage Repurchase Facility has an expiration date of October 24, 2022.

### Notes Payable - Homebuilding.

***Homebuilding Credit Facility.*** The Credit Facility provides for an aggregate commitment amount of $550 million and also includes an accordion feature pursuant to which the maximum borrowing availability may be increased to an aggregate of $700 million, subject to obtaining additional commitments from lenders. The Credit Facility matures on July 18, 2025. Interest on amounts borrowed under the Credit Facility is payable at a rate which is adjusted daily and is equal to the sum of one-month LIBOR (subject to a floor of 0.25%) plus a margin of 175 basis points (subject to adjustment in subsequent quarterly periods based on the Company’s leverage ratio). The Credit Facility includes a provision for the replacement of LIBOR under certain circumstances where one-month LIBOR is no longer available.

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 $150 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 $1.19 billion at June 30, 2022 (subject to increase over time based on earnings and proceeds from equity offerings), (2) a leverage ratio not in excess of 60%, and (3) either a minimum Interest Coverage Ratio of 1.5 to 1.0 or a minimum amount of available liquidity. In addition, the Credit Facility contains covenants that limit the Company’s number of unsold housing units and model homes, as well as the amount of Investments in Unrestricted Subsidiaries and Joint Ventures (each as defined in the Credit Facility). On February 16, 2022, the Company amended its Credit Facility to eliminate specified limits on the Company to make investments in its subordinated debt and capital stock. Such investments are subject to the Company’s compliance with the other covenants and provisions 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 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 2030 Senior Notes and our 2028 Senior Notes.

As of June 30, 2022, 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 June 30, 2022:

*(Dollars in millions)*

| Financial Covenant |  | Covenant Requirement | Actual |
| --- | --- | ---: | ---: |
| Consolidated Tangible Net Worth | ≥ | $1,193.4 | $1,727.0 |
| Leverage Ratio | ≤ | 0.60 | 0.25 |
| Interest Coverage Ratio | ≥ | 1.5 to 1.0 | 19.0 to 1.0 |
| Investments in Unrestricted Subsidiaries and Joint Ventures | ≤ | $518.1 | $5.9 |
| Unsold Housing Units and Model Homes | ≤ | 2,911 | 980 |

### 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. M/I Financial amended and restated the MIF Mortgage Warehousing Agreement on May 27, 2022, which, among other things, increased the maximum borrowing availability from $175 million to $200 million, extended the expiration date to May 26, 2023, replaced the LIBOR rate with the BSBY rate, and adjusted certain financial covenant limits as discussed below. The maximum borrowing availability increases during certain periods of expected increases in the volume of mortgage originations, specifically to $275 million from September 19, 2022 to November 13, 2022 and to $300 million from November 14, 2022 through February 6, 2023. Interest on amounts borrowed under the MIF Mortgage Warehousing Agreement is payable at a per annum rate equal to the one-month BSBY rate (subject to a floor of 0.25%) plus a spread of 190 basis points.

The minimum Liquidity covenant was increased from $7 million to $10 million. The minimum Tangible Net Worth covenant was increased from $15 million to $20 million. The maximum Leverage covenant was increased from 10.0x to 12.0x.

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.

As of June 30, 2022, there was $127.6 million outstanding under the MIF Mortgage Warehousing Agreement and M/I Financial was in compliance with all 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 June 30, 2022:

*(Dollars in millions)*

| Financial Covenant Leverage Ratio | ≤ | Covenant Requirement 12.0 to 1.0 | Actual 5.3 to 1.0 |
| --- | --- | ---: | ---: |
| Liquidity | ≥ | $10.0 | $47.3 |
| Adjusted Net Income | \> | $0.0 | $24.0 |
| Tangible Net Worth | ≥ | $20.0 | $41.5 |

***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 $90 million. The MIF Mortgage Repurchase Facility expires on October 24, 2022. As is typical for similar credit facilities in the mortgage origination industry, at closing, the expiration of the MIF Mortgage Repurchase Facility was set at approximately one year, and is under consideration for extension annually by the participating lender. We expect to extend the MIF Mortgage Repurchase Facility on or prior to the current expiration date of October 24, 2022, but we cannot provide any assurance that we will be able to obtain such an extension.

M/I Financial pays interest on each advance under the MIF Mortgage Repurchase Facility at a per annum rate equal to the one-month LIBOR rate (subject to a floor of 0.75% or 0.625% based on the type of loan) plus 175 or 200 basis points depending on the loan type. The MIF Mortgage Repurchase Facility includes a provision for the replacement of LIBOR under certain circumstances where one-month LIBOR is no longer available.

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 no guarantors of the MIF Mortgage Repurchase Facility. As of June 30, 2022, there was $67.0 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 June 30, 2022.

### Senior Notes.

***3.95% Senior Notes.*** On August 23, 2021, the Company issued $300.0 million aggregate principal amount of 3.95% Senior Notes due 2030. The 2030 Senior Notes contain certain covenants, as more fully described and defined in the indenture governing the 2030 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 June 30, 2022, 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 2028 Senior Notes. As of June 30, 2022, the Company was in compliance with all terms, conditions, and covenants under the indenture.

See Note 8 to our financial statements for more information regarding the 2030 Senior Notes and the 2028 Senior Notes.

### Supplemental Financial Information.

As of June 30, 2022, M/I Homes, Inc. had $300.0 million aggregate principal amount of its 2030 Senior Notes and $400.0 million aggregate principal amount of its 2028 Senior Notes outstanding.

The 2030 Senior Notes and the 2028 Senior Notes are fully and unconditionally guaranteed, on a joint and several basis, by all of M/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 the homebuilding and home sales business, certain subsidiaries that are not 100%-owned by M/I Homes, Inc. or another subsidiary, and other subsidiaries designated as Unrestricted Subsidiaries (as defined in the indentures governing the 2030 Senior Notes and the 2028 Senior Notes), subject to limitations on the aggregate amount invested in such Unrestricted Subsidiaries in accordance with the terms of the Credit Facility and the indentures 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 such 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 any person other than M/I Homes, Inc. or a Restricted Subsidiary in a transaction in compliance with the terms of the applicable indenture; (3) the Subsidiary Guarantor is designated an Unrestricted Subsidiary (or otherwise ceases to be a Restricted Subsidiary (including by way of liquidation or merger)) in compliance with the terms of the applicable indenture; (4) M/I Homes, Inc. exercises its legal defeasance option or covenant defeasance option under the applicable indenture; or (5) all obligations under the applicable indenture are discharged in accordance with the terms of the applicable indenture.

The 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 2030 Senior Notes and the 2028 Senior Notes.

The following tables present summarized financial information on a combined basis for M/I Homes, Inc. and the Subsidiary Guarantors. 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, and equity in earnings from, the Non-Guarantor Subsidiaries.

### Summarized Balance Sheet Data

*(In thousands)*

| Assets: | As of June 30, 2022 | As of December 31, 2021 |
| --- | ---: | ---: |
| Cash | **$134,436** | $203,381 |
| Investment in joint venture arrangements | **$50,121** | $50,648 |
| Amounts due from Non-Guarantor Subsidiaries | **$11,997** | $6,455 |
| Total assets | **$3,208,903** | $2,897,385 |
| Liabilities and Shareholders’ Equity |  |  |
| Total liabilities | **$1,447,599** | $1,320,337 |
| Shareholders’ equity | **$1,761,304** | $1,577,048 |

38

### Summarized Statement of Income Data

*(In thousands)*

|  | Six Months Ended June 30, 2022 |
| --- | ---: |
| Revenues | $1,857,980 |
| Land and housing costs | $1,404,069 |
| Selling, general and administrative expense | $171,066 |
| Income before income taxes | $283,300 |
| Net income | $211,875 |

***Weighted Average Borrowings.*** For the three months ended June 30, 2022 and 2021, our weighted average borrowings outstanding were $781.9 million and $702.5 million, respectively, with a weighted average interest rate of 4.86% and 5.76%, respectively. The increase in our weighted average borrowings related to increased borrowings under our two M/I Financial credit facilities during the second quarter of 2022 compared to the same period in 2021.

At both June 30, 2022 and December 31, 2021, we had no borrowings outstanding under the Credit Facility. During the six months ended June 30, 2022, the average daily amount outstanding under the Credit Facility was $0.9 million and the maximum amount outstanding under the Credit Facility was $25.0 million. Based on our currently anticipated spending on home construction, overhead expenses, share repurchases and land acquisition and development during the remainder of 2022, offset by expected cash receipts from home deliveries and other sources, the likelihood of borrowing under the Credit Facility during the remainder of 2022 is low and, to the extent that we do borrow under the Credit Facility during the remainder of the year, we do not expect the peak amount outstanding to exceed $150 million. The actual amount borrowed during the remainder of 2022 and the related timing will be subject to numerous factors, which are subject to significant variation as a result of the timing and amount of land and house construction expenditures, payroll and other general and administrative expenses, and cash receipts from home deliveries. The amount borrowed will also be impacted by other cash receipts and payments, any capital markets transactions or other additional financings by the Company, any repayments or redemptions of outstanding debt, any additional share repurchases under the 2021 Share Repurchase Program and any other extraordinary events or transactions. The 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 $105.7 million of letters of credit issued and outstanding under the Credit Facility at June 30, 2022. During the six months ended June 30, 2022, the average daily amount of letters of credit outstanding under the Credit Facility was $87.5 million and the maximum amount of letters of credit outstanding under the Credit Facility was $105.8 million.

At June 30, 2022, M/I Financial had $127.6 million outstanding under the MIF Mortgage Warehousing Agreement. During the six months ended June 30, 2022, the average daily amount outstanding under the MIF Mortgage Warehousing Agreement was $52.0 million and the maximum amount outstanding was $196.8 million, which occurred during January 2022 while the temporary increase provision was in effect and the maximum borrowing availability was $235.0 million.

At June 30, 2022, M/I Financial had $67.0 million outstanding under the MIF Mortgage Repurchase Facility. During the six months ended June 30, 2022, the average daily amount outstanding under the MIF Mortgage Repurchase Facility was $36.4 million and the maximum amount outstanding was $69.7 million, which occurred during January 2022.

***Universal Shelf Registration.*** In June 2022, the Company filed a universal shelf registration statement with the SEC, which registration statement became effective upon filing and will expire in June 2025. 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.

### 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. The annual rate of inflation in the United States hit 9.1% in June 2022, the highest in four decades, as measured by the Consumer Price Index (CPI). During the second quarter of 2022, the pace of sales across the homebuilding industry moderated from the unprecedented levels experienced over the previous 18 months, stemming from a sharp increase in mortgage interest rates in the quarter, significant inflation in the broader economy, the substantial rise in home prices, and stock market volatility. These macro-economic trends have pressured housing affordability and negatively impacted homebuyer sentiment.

Inflation can have a long-term impact on us because increasing costs of land, materials and labor can result in a need to increase the sales prices of homes. In addition, inflation is often accompanied by higher interest rates, which can have a negative impact on housing demand and the costs of financing land development activities and housing construction. Higher interest rates also may decrease our potential market by 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, may 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.

## Market risk

As filed, 5,854 characters.

Our primary market risk results from fluctuations in interest rates. We are exposed to interest rate risk through borrowings under our revolving credit facilities, consisting of the Credit Facility, the MIF Mortgage Warehousing Agreement, and the MIF Mortgage Repurchase Facility which permitted borrowings of up to $840 million as of June 30, 2022, 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 homebuying 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 nine months.

Some IRLCs are committed to a specific third party investor through the use of 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 whole 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 June 30, 2022 and December 31, 2021:

| Description of Financial Instrument (in thousands) | June 30, 2022 | December 31, 2021 |
| --- | ---: | ---: |
| Whole loan contracts and related committed IRLCs | **$7,082** | $782 |
| Uncommitted IRLCs | **562,101** | 228,831 |
| FMBSs related to uncommitted IRLCs | **570,000** | 223,000 |
| Whole loan contracts and related mortgage loans held for sale | **12,875** | 3,785 |
| FMBSs related to mortgage loans held for sale | **188,000** | 251,000 |
| Mortgage loans held for sale covered by FMBSs | **184,620** | 263,088 |

The table below shows the measurement of assets and liabilities at June 30, 2022 and December 31, 2021:

| Description of Financial Instrument (in thousands) | June 30, 2022 | December 31, 2021 |
| --- | ---: | ---: |
| Mortgage loans held for sale | **$194,450** | $275,655 |
| Forward sales of mortgage-backed securities | **1,725** | 4,477 |
| Interest rate lock commitments | **(3,061)** | (487) |
| Whole loan contracts | **(68)** | (62) |
| Total | **$193,046** | $279,583 |

The following table sets forth the amount of gain (loss) recognized on assets and liabilities for the three and six months ended June 30, 2022 and 2021:

| Description (in thousands) | Three Months Ended June 30, 2022 | 2021 | Six Months Ended June 30, 2022 | 2021 |
| --- | ---: | ---: | ---: | ---: |
| Mortgage loans held for sale | **$3,081** | $6,682 | **$(2,875)** | $(258) |
| Forward sales of mortgage-backed securities | **(16,312)** | (8,329) | **(2,753)** | 1,017 |
| Interest rate lock commitments | **4,536** | 3,128 | **(2,693)** | 510 |
| Whole loan contracts | **(13)** | (60) | **112** | 353 |
| Total (loss) gain recognized | **$(8,708)** | $1,421 | **$(8,209)** | $1,622 |

41

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 June 30, 2022. 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 June 30, 2022. For fixed-rate debt, changes in interest rates generally affect the fair market value of the debt instrument, but not our earnings or cash flow. 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.

*(Dollars in thousands)*

| ASSETS: Mortgage loans held for sale: | Expected Cash Flows by Period 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | Total | Fair Value 6/30/2022 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Fixed rate | $199,603 | — | — | — | — | — | $199,603 | $194,450 |
| Weighted average interest rate | 4.66% | — | — | — | — | — | 4.66% |  |
| LIABILITIES: |  |  |  |  |  |  |  |  |
| Long-term debt — fixed rate | — | — | — | — | — | $700,000 | $700,000 | $564,375 |
| Weighted average interest rate | — | — | — | — | — | 4.52% | 4.52% |  |
| Short-term debt — variable rate | $194,602 | — | — | — | — | — | $194,602 | $194,602 |
| Weighted average interest rate | 3.51% | — | — | — | — | — | 3.51% |  |

42

## Controls and procedures

As filed, 937 characters.

### 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 June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 273 characters.

There have been no material changes to the risk factors appearing in our 2021 Form 10-K, other than the impact of inflation and increased interest rates, which are discussed in the Management’s Discussion and Analysis of Financial Condition and Results of Operations above.

Filed Jul 29, 2022.
Source: SEC EDGAR, the filing index for accession 0000799292-22-000057. Last ingested by Listed: Oct 30, 2026, 16:11 ET. No prices; not investment advice.