M/I Homes, Inc.: Form 10-Q for the period ended Sep 30, 2024

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 158,200 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; Ft. Myers/Naples, 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, 2023 (the “2023 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 2023 Form 10-K for additional information about our accounting policies.

We believe that there have been no significant changes to our critical accounting policies during the quarter ended September 30, 2024 as compared to those disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2023 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:

23

Overview

We continued to generate strong results during the three and nine months ended September 30, 2024. For the quarter ended September 30, 2024, we achieved year-to-date and third quarter records for revenue, income before taxes, and net income. In addition, we achieved a third quarter record for gross margin of 27.1%. We also increased homes delivered by 8% for the third quarter (to a third quarter record of 2,271 homes) and 9% for the nine months ended September 30, 2024 compared to the respective periods in 2023. For the nine months ended September 30, 2024 new contracts benefited from a strong first half of the year, increasing 7% year-to-date despite our third quarter new contracts being even with last year’s third quarter. Although the Federal Reserve Board decreased interest rates in September 2024, which we believe should help improve the affordability of and accelerate demand for new housing, interest rates during the third quarter remained elevated and negatively impacted overall demand.

We achieved the following results during the three and nine months ended September 30, 2024 in comparison to the three and nine months ended September 30, 2023:

• Revenue increased 9% to $1.14 billion (a third quarter record) and 8% to $3.30 billion (a year-to-date record), respectively;
• Number of homes delivered increased 8% to 2,271 homes (a third quarter record) and 9% to 6,653 homes (a year-to-date record), respectively;
• Gross margins improved 20 basis points to 27.1% (a third quarter record) and 200 basis points to 27.3%, respectively;
• Income before income taxes increased 6% to $188.7 million (a third quarter record) and 20% to $563.1 million (a year-to-date record), respectively;
• Net income increased 5% to $145.4 million (a third quarter record) and 19% to $430.3 million (a year-to-date record), respectively;
• New contracts were even with last year at 2,023 and increased 7% to 6,825 from 6,389 (the third highest year-to-date level in Company history), respectively;
• Shareholders’ equity of $2.85 billion (a record high);
• Book value per common share increased to a record high $105 per share; and
• Homebuilding debt to capital ratio was 20%.

In addition to the results described above, our financial services operations also achieved third quarter record quarterly revenues and strong income before income taxes for the first nine months of 2024, benefiting from higher margins and an increase in loans originated.

Our company-wide absorption pace of sales per community for the third quarter of 2024 declined slightly to 3.2 per month compared to 3.4 per month for the prior year’s third quarter. We plan to open additional new communities during the fourth quarter of 2024 and increase our average community count by about 5% from 2023.

Summary of Company Financial Results

Income before income taxes for the third quarter of 2024 increased 6% from $178.0 million in the third quarter of 2023 to a third quarter record $188.7 million in 2024. We also achieved a third quarter record for net income of $145.4 million, or $5.10 per diluted share, in 2024's third quarter, compared to net income of $139.0 million, or $4.82 per diluted share, in 2023's third quarter. Our effective tax rate was 22.9% in 2024’s third quarter compared to 21.9% in 2023. Income before income taxes increased from $469.3 million in the nine months ended September 30, 2023 to $563.1 million in the first nine months of 2024, a year-to-date record. We achieved a year-to-date record for net income of $430.3 million, or $14.99 per diluted share, during 2024's first nine months compared to net income of $360.1 million, or $12.58 per diluted share, in the nine months ended September 30, 2023. Our effective tax rate was 23.6% in 2024's first nine months compared to 23.3% in the same period in 2023.

During the quarter ended September 30, 2024, we achieved record third quarter total revenue of $1.14 billion, of which $1.11 billion was from homes delivered, $1.6 million was from land sales and $30.0 million was from our financial services operations. Revenue from homes delivered increased 10% in 2024's third quarter compared to the same period in 2023 driven primarily by an 8% increase in the number of homes delivered (175 units) and a 2% increase in the average sales price of homes delivered ($8,000 per home delivered). Revenue from land sales decreased $12.9 million from the third quarter of 2023 due to fewer land sales in the current year compared to the prior year. Revenue from our financial services segment increased 27% to an all-time quarterly record $30.0 million in the third quarter of 2024 as a result of higher margins on and an increase in loans sold during the period compared to the third quarter of 2023. For the nine months ended September 30, 2024, we recorded year-to-date record total revenue of $3.30 billion, of which $3.20 billion was from homes delivered, $11.8 million was from land sales and $87.7 million was from our financial services operations. Revenue from homes delivered increased 8% in the nine months ended September 30, 2024 compared to the same period in 2023 driven primarily by a 9% increase in the number of homes delivered (560 units), partially offset by a 1% decrease in the average sales price of homes delivered ($5,000 per home delivered). Revenue from land sales decreased $11.5 million from the nine months ended September 30, 2023 due to decreased land sales in 2024's first nine months compared to the prior year. Revenue from our financial services segment increased 18% to $87.7 million in the first nine months of 2024 as a result of higher margins on loans sold and an increase in loans sold during the period compared to the nine months ended September 30, 2023, partially offset by a decrease in the average loan amount compared to the nine months ended September 30, 2023.

Total gross margin (total revenue less total land and housing costs) increased $27.7 million in the third quarter of 2024 compared to the third quarter of 2023 as a result of a $21.3 million improvement in the gross margin of our homebuilding operations (housing gross margin and land sales gross margin) and a $6.4 million increase in the gross margin of our financial services operations. With respect to our homebuilding gross margin, our gross margin on homes delivered (housing gross margin) improved $23.4 million and our housing gross margin percentage declined by 30 basis points to 25.1% from 25.4%. The improvement in gross margin dollars primarily resulted from the 8% increase in homes delivered. 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. Our gross margin on land sales (land sale gross margin) decreased $2.0 million in the third quarter of 2024 compared to the third quarter of 2023 as a result of the mix of lots sold in the current year compared to the prior year. The gross margin of our financial services operations increased $6.4 million in the third quarter of 2024 compared to the third quarter of 2023 as a result of higher margins on and an increased number of loans sold, and an increase in the number of loan originations. Total gross margin increased $127.5 million in the nine months ended September 30, 2024 compared to the same period in 2023 as a result of a $114.0 million improvement in the gross margin of our homebuilding operations in addition to approximately $13.6 million improvement in the gross margin of our financial services operations. With respect to our homebuilding gross margin, our gross margin on homes delivered improved $113.7 million and our housing gross margin percentage improved 180 basis points from 23.5% in prior year’s first nine months to 25.3% in 2024's first nine months. These increases are primarily due to the 9% increase in the number of homes delivered primarily due to the mix of homes delivered, offset partially by the 1% decrease in the average sales price of homes delivered. Our gross margin on land sales improved $0.3 million in 2024's first nine months compared to the same period in 2023. The gross margin of our financial services operations increased $13.6 million in the nine months ended September 30, 2024 compared to the same period in 2023 as a result of an increased number of loans sold, offset in part by lower average loan amount during the first nine months of 2024 compared to the first nine months of 2023, and increases in the number of loan originations and the average loan amount.

We opened 57 new communities during the nine months ended September 30, 2024 and closed 53 communities. We sell a variety of home types in various communities and markets, each of which yields a different gross margin. The timing of the openings of new replacement communities as well as underlying lot costs varies from year to year. The mix of communities delivering homes may cause fluctuations in our new contracts, absorption pace and housing gross margin from year to year.

For the three months ended September 30, 2024, selling, general and administrative expense increased $17.8 million, and increased as a percentage of revenue from 10.5% in the third quarter of 2023 to 11.2% in the third quarter of 2024. Selling expense increased $5.4 million from 2023's third quarter and increased as a percentage of revenue to 5.2% in 2024's third quarter from 5.1% for the same period in 2023. Variable selling expense for sales commissions contributed $2.5 million to the increase due to the higher number of homes delivered as well as higher co-op rates during the period compared to prior year. Non-variable selling expense increased $2.9 million primarily as a result of increased costs associated with our sales offices and models due to our increase in community count from prior year. General and administrative expense increased $12.4 million compared to the third quarter of 2023 and increased as a percentage of revenue from 5.3% in the third quarter of 2023 to 6.0% in the third quarter of 2024. The increase in general and administrative expense was primarily due to a $7.6 million increase in compensation-related expenses due to higher headcount and incentives, a $0.9 million increase in professional fees, a $0.7 million increase in computer costs, a $0.6 million increase in land-related expenses, and a $2.6 million increase in various other expenses. For the nine months ended September 30, 2024, selling, general and administrative expense increased $42.8 million, and increased as a percentage of revenue from 10.4% in the nine months ended September 30, 2023 to 10.9% in the nine months ended September 30, 2024. Selling expense increased $16.9 million from the nine months ended September 30, 2023 and increased as a percentage of revenue to 5.2% in 2024's first nine months from 5.1% for the same period in 2023. Variable selling expense for sales commissions contributed $10.2 million to the increase due to the higher number of homes delivered during the first nine months of 2024 and higher co-op rates during the period compared to prior year. Non-variable selling expense increased $6.7 million primarily as a result of increased costs associated with our sales offices and models due to our increase in community count from prior year. General and administrative expense increased $25.9 million compared to the nine months ended September 30, 2023 and increased as a percentage of revenue from 5.3% in the nine months ended September 30, 2023 to 5.7% in the nine months ended September 30, 2024. The increase in general and administrative expense was primarily due to a $16.9 million increase in compensation-related expenses due to higher average headcount and incentives, a $2.0 million increase in computer costs, a $1.8 million increase in land-related expenses, a $1.2 million increase in professional fees, and a $4.0 million increase in various other expenses.

Outlook

Housing market conditions remain relatively healthy. Although inflation and mortgage interest rates remain elevated, demographics supporting housing demand continue to be favorable as a result of the limited supply of both new and existing homes at affordable price points compared to the rate of household formations. While strong demand for housing (which has recently been supported by incentives and mortgage rate buydowns) has driven new home sales over the past two years, we anticipate that the Federal Reserve Board’s recent reduction to interest rates coupled with more controlled inflation could further encourage demand. However, the housing market remains subject to unpredictability as a result of uncertainty regarding various macroeconomic conditions, including interest rates, labor and material costs and availability, inflation, policies that may stem from the outcome of the U.S. elections and the economic concerns of our potential homebuyers. Although the extent to which these factors will impact our business is unpredictable, we believe that we are well positioned to continue to grow by focusing on our land position, new community openings, and affordable product offerings. We remain sensitive to potential changes in market conditions, and continue to focus on controlling overhead leverage, carefully managing our investment in land and land development spending and selectively offering homebuyer concessions, such as mortgage interest rate buydowns, to support homebuyers, drive order activity and minimize cancellations. We continue to have a healthy backlog with a record average sales price that is 7% higher than at the end of the third quarter of 2023. Our strong balance sheet and ample liquidity should also provide us with flexibility through changing economic conditions. We cannot, however, provide any assurances that our strategic business objectives listed below will remain successful, and we will need to remain agile to effectively address changes in market conditions.

We expect to emphasize the following strategic business objectives throughout the remainder of 2024:

• managing our land spend and inventory levels;
• continued focus on cycle times;
• opening new communities;
• managing overhead spend;
• maintaining a strong balance sheet and liquidity levels; and
• emphasizing customer service, product quality and design, and premier locations.

During the nine months ended September 30, 2024, we invested $365.6 million in land acquisitions and $444.7 million in land development compared to $247.6 million and $352.6 million, respectively, during the nine months ended September 30, 2023. We invested in more land acquisitions in the nine months ended September 30, 2024 compared to the third quarter of 2023 in line with the land supply needs of our divisions. We continue to closely review our land acquisition and land development spending and monitor our ongoing pace of home sales and deliveries, and we will adjust our land and investment spend accordingly.

We ended the third quarter of 2024 with approximately 52,200 lots under control, which represents an approximately 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 16% increase from our approximately 44,800 lots under control at the end of last year’s third quarter.

We opened 57 communities and closed 53 communities in the nine months ended September 30, 2024, ending the third quarter with 217 active communities, compared to 204 at the end of last year’s third quarter. Although the timing of opening new communities and closing existing communities is subject to substantial variation, we expect to grow our average community count by approximately 5% by the end of 2024.

The following table shows, by segment: revenue; gross margin; selling, general and administrative expense; operating income (loss); and interest (income) expense - net for the three and nine months ended September 30, 2024 and 2023:

(In thousands)

(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 September 30, 2024 and December 31, 2023:

(In thousands)

(In thousands)

(a) Inventory includes: single-family lots, land and land development costs; land held for sale; homes under construction; model homes and furnishings; community development district infrastructure; and consolidated inventory not owned.

(b) Includes development reimbursements from local municipalities.

Reportable Segments

The following table presents, by reportable segment, selected operating and financial information as of and for the three and nine months ended September 30, 2024 and 2023:

(Dollars in thousands)

(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)

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 of communities between periods.

Cancellation Rates

The following table sets forth the cancellation rates for each of our homebuilding segments for the three and nine months ended September 30, 2024 and 2023:

Seasonality

Typically, our homebuilding operations experience significant seasonality and quarter-to-quarter variability in homebuilding activity levels. In general, homes delivered increase 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 September 30, 2024 Compared to Three Months Ended September 30, 2023

Northern Region. During the three months ended September 30, 2024, homebuilding revenue in our Northern region increased $150.3 million, from $348.2 million in the third quarter of 2023 to $498.5 million in the third quarter of 2024. This 43% increase in homebuilding revenue was primarily the result of a 37% increase in the number of homes delivered (274 more units), a 5% increase in the average sales price of homes being delivered and the mix of homes being delivered. Operating income in our Northern region increased $31.7 million from $43.8 million in the third quarter of 2023 to $75.5 million during the quarter ended September 30, 2024. This increase in operating income was the result of a $37.8 million improvement in our gross margin partially offset by a $6.1 million increase in selling, general and administrative expense. With respect to our homebuilding gross margin, our housing gross margin improved $37.9 million and our housing gross margin percentage improved 120 basis points to 22.3% in the third quarter of 2024 from 21.1% in the prior year’s third quarter. These improvements were primarily due to the increase in the number of homes delivered in addition to the mix of homes delivered compared to prior year. Our land sale gross margin declined $0.1 million in the third quarter of 2024 compared to the same period in 2023 as a result of the mix of lots sold in the current year compared to the prior year.

Selling, general and administrative expense increased $6.1 million, from $29.2 million for the quarter ended September 30, 2023 to $35.3 million for the quarter ended September 30, 2024 but declined 130 basis points as a percentage of revenue to 7.1% in 2024's third quarter from 8.4% in 2023's third quarter. The increase in selling, general and administrative expense was attributable to a $4.9 million increase in selling expense primarily due to a $4.3 million increase in variable selling expenses resulting from increases in sales commissions produced by the higher number of homes delivered as well as a $0.6 million increase in non-variable selling expense primarily as a result of increased costs associated with our sales offices and models. This increase in selling, general and administrative expense was also attributable to a $1.2 million increase in general and administrative expense, which was primarily related to a $0.5 million increase in compensation-related expenses and $0.2 million increase in land related expenses.

During the three months ended September 30, 2024, we experienced less than 1% increase in new contracts in our Northern region, from 885 in the third quarter of 2023 to 890 in the third quarter of 2024. Homes in backlog increased 7% from 1,397 homes at September 30, 2023 to 1,493 homes at September 30, 2024. The increases in new contracts and backlog were primarily a result of improved demand compared to prior year. Average sales price in backlog increased approximately 3% to $538,000 at September 30, 2024 compared to $521,000 at September 30, 2023 primarily due to the mix of homes being sold. We opened seven new communities in our Northern region during the third quarter of 2024 and 2023. Our monthly absorption rate in our Northern region improved to 3.3 per community in the third quarter of 2024 compared to 2.9 per community in 2023's third quarter due to increased availability of and demand for inventory homes.

Southern Region. During the three month period ended September 30, 2024, homebuilding revenue in our Southern region decreased $60.1 million, from $674.5 million in the third quarter of 2023 to $614.4 million in the third quarter of 2024. This 9% decrease in homebuilding revenue was the result of a 7% decrease in the number of homes delivered (99 units) and an $11.8 million decrease in land sales. Operating income in our Southern region decreased $21.5 million from $135.6 million in the third quarter of 2023 to $114.1 million during the quarter ended September 30, 2024. This decrease in operating income was the result of a $16.5 million decline in our gross margin and a $5.0 million increase in selling, general, and administrative expense. With respect to our homebuilding gross margin, our housing gross margin declined $14.5 million, due primarily to the decrease in the number of homes delivered during the period and the mix of homes being delivered compared to prior year. Our housing gross margin percentage declined 10 basis points from 27.6% in prior year’s third quarter to 27.5% in the third quarter of 2024, primarily due to the mix of homes being delivered. Our land sale gross margin declined $2.0 million in the third quarter of 2024 compared to the third quarter of 2023 as a result of no land sales in the current quarter.

Selling, general and administrative expense increased $5.0 million from $49.5 million in the third quarter of 2023 to $54.5 million in the third quarter of 2024 and increased 160 basis points as a percentage of revenue to 8.9% from 7.3% in the third quarter of 2023. This increase in selling, general and administrative expense was primarily attributable to a $4.5 million increase in general and administrative expense, which was due to a $2.4 million increase in compensation-related expenses, a $0.4 million increase in land-related expenses, and a $1.7 million increase in miscellaneous expenses. The increase in selling, general and administrative expense was also attributable to a $0.5 million increase in selling expense primarily due to a $2.2 million increase in non-variable selling expense primarily as a result of increased costs associated with our sales offices and models due to our increased community count, offset partially by a $1.7 million decrease in variable selling expenses resulting from decreases in sales commissions produced by the lower number of homes delivered.

During the three months ended September 30, 2024, our new contracts decreased slightly in our Southern region, from 1,136 in the third quarter of 2023 to 1,133 in the third quarter of 2024, which was primarily due to slightly weakened demand. However, homes in backlog decreased by 17% from 2,036 homes at September 30, 2023 to 1,681 homes at September 30, 2024, primarily as a result of improved construction cycle times allowing us to deliver homes in backlog at a faster rate compared to last year and a slight decrease in new contracts. Average sales price in backlog increased to $549,000 at September 30, 2024 from $503,000 at September 30, 2023 primarily due to the mix of homes being sold. During the three months ended September 30, 2024, we opened twelve new communities in our Southern region compared to opening fifteen communities during 2023's third quarter. Our monthly absorption rate in our Southern region declined to 3.1 per community in the third quarter of 2024 compared to 3.8 per community in the third quarter of 2023 as a result of a slight decline in new contracts and a decline in new communities compared to prior year.

Financial Services. Revenue from our mortgage and title operations increased 27% to an all-time quarterly record $30.0 million in the third quarter of 2024 from $23.6 million in the third quarter of 2023 due to higher margins on loans sold during the period compared to prior year’s third quarter and a 15% increase in the number of loan originations from 1,469 in 2023's third quarter to 1,695 in the third quarter of 2024, and an increase in the average loan amount from $394,000 in the quarter ended September 30, 2023 to $403,000 in the quarter ended September 30, 2024.

Our financial services segment experienced a $4.1 million increase in operating income in the third quarter of 2024 compared to 2023's third quarter, which was primarily due to the increase in revenue discussed above offset, in part, by a $2.3 million increase in selling, general and administrative expense compared to the third quarter of 2023, which was primarily the result of an increase in compensation-related expenses.

At September 30, 2024, M/I Financial provided financing services in all of our markets. Approximately 89% of our homes delivered during the third quarter of 2024 were financed through M/I Financial, compared to 86% in the third quarter of 2023. 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 $4.5 million from $19.7 million for the third quarter of 2023 to $24.2 million for the third quarter of 2024. This increase primarily resulted from a $2.9 million increase in compensation-related expenses and a $1.6 million increase in miscellaneous expenses.

Interest Income, net of Interest Expense. The Company earned $6.7 million of interest income - net for the three months ended September 30, 2024 compared to $5.8 million for the three months ended September 30, 2023. This increase was primarily due to a higher average cash balance on hand compared to prior year.

Income Taxes. Our overall effective tax rate was 22.9% for the three months ended September 30, 2024 and 21.9% for the three months ended September 30, 2023. The increase in the effective tax rate from the three months ended September 30, 2023 was primarily attributable to a $0.8 million decrease in tax benefit from equity compensation in 2024.

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

Northern Region. Homebuilding revenue in our Northern region increased $256.9 million, from $1.11 billion in the nine months ended September 30, 2023 to $1.37 billion in the nine months ended September 30, 2024. This 23% increase in homebuilding revenue was primarily the result of a 21% increase in the number of homes delivered (488 more units) and the mix of homes delivered with an increase in the average sales price of homes delivered ($8,000 per home delivered), offset in part by a $0.4 million decrease in land sale revenue. Operating income in our Northern region increased $76.6 million, from $129.8 million during the nine months ended September 30, 2023 to $206.4 million during the nine months ended September 30, 2024. The increase in operating income was primarily the result of a $90.6 million increase in our gross margin offset partially by a $14.0 million increase in selling, general and administrative expense. With respect to our homebuilding gross margin, our housing gross margin improved $90.1 million, and our housing gross margin percentage improved 290 basis points from 19.4% in the nine months ended September 30, 2023 to 22.3% for the same period in 2024, primarily due to the mix of homes being delivered in addition to the increase in the number of homes delivered. Our land sale gross margin improved $0.4 million in the nine months ended September 30, 2024 compared to the same period in 2023 as a result of the mix of lots sold in the current year compared to the prior year.

Selling, general and administrative expense increased $14.0 million, from $86.2 million for the nine months ended September 30, 2023 to $100.2 million for the nine months ended September 30, 2024, but improved by as a percentage of revenue at 7.3% in 2024 compared to 7.7% in 2023. The increase in selling, general and administrative expense was attributable to a $11.0 million increase in selling expense, primarily attributable to a $9.8 million increase in variable selling expenses resulting from increases in sales commissions produced by the higher number of homes delivered and a $1.2 million increase in costs associated with our sales offices and models. The increase in selling, general and administrative expense was also attributable to a $3.0 million increase in general and administrative expense, which was primarily related to a $1.3 million increase in compensation-related expenses and $1.7 million increase in other miscellaneous expenses.

During the nine months ended September 30, 2024, we experienced a 15% increase in new contracts in our Northern region, from 2,662 in the nine months ended September 30, 2023 to 3,054 in the first nine months of 2024. Homes in backlog increased 7% from 1,397 at September 30, 2023 to 1,493 homes at September 30, 2024. The increase in new contracts and homes in backlog was primarily due to improved demand. Average sales price in backlog increased to $538,000 at September 30, 2024 compared to $521,000 at September 30, 2023 primarily due to the mix of homes being sold. During the nine months ended September 30, 2024, we opened 17 new communities in our Northern region compared to 27 new communities opened during the nine months ended September 30, 2023. The decrease was a result of delays in approvals for entitlements and permits, and longer development timelines, all of which delayed community openings during the period. Our monthly absorption rate in our Northern region improved to 3.5 per community in the nine months ended September 30, 2024 from 2.9 per community in the same period in 2023 as a result of increased availability of and demand for inventory homes.

Southern Region. During the nine months ended September 30, 2024, homebuilding revenue in our Southern region decreased $32.0 million from $1.87 billion in the nine months ended September 30, 2023 to $1.84 billion in the nine months ended September 30, 2024. This 2% decrease in homebuilding revenue was the result of an $11.1 million decrease in land sale revenue and a 3% decrease in the average sales price of homes delivered ($15,000 per home delivered) primarily due to the mix of homes delivered, offset in part by a 2% increase in the number of homes delivered (72 units). Operating income in our Southern region increased 3% from $343.2 million in the nine months ended September 30, 2023 to $351.7 million during the nine months ended September 30, 2024. This increase in operating income was the result of a $23.4 million improvement in our gross margin, offset partially by a $14.8 million increase in selling, general, and administrative expense. With respect to our homebuilding gross margin, our gross margin on homes delivered improved $23.5 million, due primarily to the increase in the number of homes delivered during the period and the mix of homes delivered, offset partially by the decrease in average sale price of homes delivered. Our housing gross margin percentage improved 160 basis points from 26.0% in the nine months ended September 30, 2023 to 27.6% in the same period in 2024 primarily due to the mix of homes delivered, offset partially by the decrease in average sales price of homes delivered compared to prior year. Our land sale gross margin declined $0.1 million in the nine months ended September 30, 2024 compared to the same period in 2023 as a result of the mix of lots sold in the current year compared to the prior year.

Selling, general and administrative expense increased $14.8 million from $141.3 million in the nine months ended September 30, 2023 to $156.1 million in the nine months ended September 30, 2024 and increased as a percentage of revenue to 8.5% compared to 7.5% in 2023’s same period. The increase in selling, general and administrative expense was attributable to a $5.4 million increase in selling expense primarily due to a $5.0 million increase in non-variable selling expenses primarily related to costs associated with our sales offices and models due to our increased community count and a $0.4 million increase in variable selling expenses resulting from increases in sales commissions produced by the higher number of homes delivered. The increase in selling, general and administrative expense was also attributable to a $9.4 million increase in general and administrative expense, which was primarily related to a $5.7 million increase in compensation-related expenses due to our increased headcount and our strong consolidated financial performance during the period, a $1.3 million increase in land-related expenses, and a $2.4 million increase in other miscellaneous expenses.

During the nine months ended September 30, 2024, we experienced a 1% increase in new contracts in our Southern region, from 3,727 in the nine months ended September 30, 2023 to 3,771 in the first nine months of 2024 primarily due to the increase in our average number of communities compared to prior year. Homes in backlog decreased 17% from 2,036 homes at September 30, 2023 to 1,681 homes at September 30, 2024 due primarily to improved construction cycle times allowing us to deliver homes in backlog at a faster rate compared to last year in addition to increased availability of inventory homes compared to prior year. Average sales price in backlog increased from $503,000 at September 30, 2023 to $549,000 at September 30, 2024 primarily due to the mix of homes delivered. During the nine months ended September 30, 2024, we opened 40 communities in our Southern region, compared to opening 29 during the nine months ended September 30, 2023. Our monthly absorption rate in our Southern region declined to 3.5 per community in the nine months ended September 30, 2024 from 4.2 per community in the nine months ended September 30, 2023 as a result of the limited lot supply in the increased number of our communities in closeout status.

Financial Services. Revenue from our mortgage and title operations increased 18% from $74.1 million in the nine months ended September 30, 2023 to $87.7 million in the nine months ended September 30, 2024 due to higher margins on loans sold during the period compared to 2023's first nine months, proceeds from the sale of mortgage servicing rights, and a 21% increase in the number of loan originations from 4,008 in the nine months ended September 30, 2023 to 4,869 in the nine months ended September 30, 2024, offset partially by a decrease in the average loan amount from $396,000 in the nine months ended September 30, 2023 to $395,000 in the nine months ended September 30, 2024.

Our financial services segment experienced a $8.5 million increase in operating income in the nine months ended September 30, 2024 compared to the same period in 2023, which was primarily due to the increase in revenue discussed above, partially offset by a $5.1 million increase in selling, general and administrative expense compared to the nine months ended September 30, 2023. The increase in selling, general and administrative expense was primarily attributable to a $4.6 million increase in compensation related expenses, a $0.6 million increase in indemnification reserves during the period, and a $0.1 million decrease in other miscellaneous expenses.

At September 30, 2024, M/I Financial provided financing services in all of our markets. Approximately 88% of our homes delivered during the nine months ended September 30, 2024 were financed through M/I Financial, compared to 82% during the nine months ended September 30, 2023. 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 $8.9 million from $56.7 million for the nine months ended September 30, 2023 to $65.6 million for the nine months ended September 30, 2024, primarily due to a $5.3 million increase in compensation-related expenses, a $1.0 million increase in computer-related costs, a $0.9 million increase in advertising expenses, and a $1.7 million increase in miscellaneous expenses incurred during the period.

Interest Income, net of Interest Expense. The Company earned $20.9 million of interest income - net for the nine months ended September 30, 2024 compared to $11.9 million for the nine months ended September 30, 2023. This was primarily due to a higher average cash balance on hand compared to prior year.

Income Taxes. Our overall effective tax rate was 23.6% for the nine months ended September 30, 2024 and 23.3% for the nine months ended September 30, 2023. The increase in the effective rate from the nine months ended September 30, 2023 was primarily attributable to a $0.2 million decrease in tax benefit from equity compensation in 2024.

LIQUIDITY AND CAPITAL RESOURCES

Overview of Capital Resources and Liquidity.

At September 30, 2024, we had $719.9 million of cash, cash equivalents and restricted cash (all of which was comprised of unrestricted cash and cash equivalents), which represents a $12.7 million decrease in unrestricted cash and cash equivalents from December 31, 2023. This decrease in cash is primarily due to house closings and the timing of land spend compared to prior year offset by a larger beginning of year balance on hand. Our principal uses of cash for the nine months ended September 30, 2024 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 $125.8 million of our outstanding common shares under both the 2021 and 2024 Share Repurchase Programs (as defined below). In order to fund these uses of cash, we used proceeds from home deliveries, the sale of mortgage loans, the sale of mortgage servicing rights, excess cash balances, borrowings under our MIF Mortgage Repurchase Facility (as defined below), and other sources of liquidity.

The Company is a party to two primary credit agreements: (1) a $650 million unsecured revolving credit facility, dated July 18, 2013, as amended (the “Credit Facility”), with M/I Homes, Inc. as borrower and guaranteed by the Company’s wholly owned homebuilding subsidiaries; and (2) a $300 million mortgage repurchase agreement, dated October 24, 2023, as amended on October 22, 2024 (the “MIF Mortgage Repurchase Facility”), with M/I Financial as borrower.

As of September 30, 2024, 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 $935.4 million, with $235.4 million payable within 12 months. Future interest payments associated with these notes payable totaled $134.7 million as of September 30, 2024, with $31.9 million payable within 12 months.

As of September 30, 2024, there were no borrowings outstanding and $85.2 million of letters of credit outstanding under our $650 million Credit Facility, leaving $564.8 million available. We expect to continue to manage our balance sheet and liquidity carefully during the remainder of 2024 by managing our spending on land acquisition and development and construction of inventory homes, as well as overhead expenditures, relative to our ongoing volume of home deliveries, and we expect to meet our current and anticipated cash requirements in 2024 from cash receipts, excess cash balances and availability under our credit facilities.

During the nine months ended September 30, 2024, we delivered 6,653 homes, started 7,162 homes, ended the quarter with 5,056 homes under construction compared to 4,580 at the end of last year’s third quarter, and spent $365.6 million on land purchases and $444.7 million on land development.

We are actively acquiring and developing lots in our markets to replenish our lot supply and will continue to monitor market conditions and our pace of home sales and deliveries and adjust our land spending accordingly. Pursuant to our land option agreements, as of September 30, 2024, we had a total of 28,563 lots under contract, with an aggregate purchase price of approximately $1.39 billion, to be acquired during the remainder of 2024 through 2031.

Our off-balance sheet arrangements relating to our homebuilding operations include joint venture arrangements, land option agreements, guarantees and indemnifications associated with acquiring and developing land, and the issuance of letters of credit and completion bonds. We use these arrangements to secure the most desirable lots on which to build homes for our homebuyers in a manner that we believe reduces the overall risk to the Company.

Operating Cash Flow Activities. During the nine-month period ended September 30, 2024, we generated $75.3 million of cash from operating activities, compared to generating $497.2 million of cash from operating activities during the nine months ended September 30, 2023. The cash provided by operating activities in the first nine months of 2024 was primarily a result of net income of $430.3 million, and an increase of $67.4 million in accounts payable, customer deposits and other liabilities, offset, in part, by a $335.1 million increase in inventory purchases and payments for mortgage loan originations which exceeded the proceeds from the sale of mortgage loans by $66.4 million, an increase in other assets of $33.4 million, and a decrease in accrued compensation totaling $4.3 million. The cash generated in operating activities during the nine months ended September 30, 2023 was primarily a result of net income of $360.1 million, $34.5 million of proceeds from the sale of mortgage loans net of mortgage loan originations, a $108.6 million decrease in inventory purchases due to delays and timing of land purchases and an increase of $22.3 million in accounts payable, offset, in part, by a decrease in accrued compensation and other liabilities totaling $42.6 million.

Investing Cash Flow Activities. During the nine months ended September 30, 2024, we used $45.0 million of cash in investing activities, compared to using $14.1 million of cash in investing activities during the nine months ended September 30, 2023.

The cash used in investing activities in the first nine months of 2024 was primarily a result of a $45.9 million increase in our investment in joint venture arrangements and a $6.4 million increase in property and equipment, offset, in part, by $7.2 million of proceeds from the sale of a portion of our mortgage servicing rights. The cash used in investing activities during the nine months ended September 30, 2023 was primarily a result of a $19.7 million increase in our investment in joint venture arrangements and a $4.6 million increase in property and equipment, offset, in part, by $10.2 million of proceeds from the sale of a portion of our mortgage servicing rights during the second quarter of 2023.

Financing Cash Flow Activities. During the nine months ended September 30, 2024, we used $43.2 million of cash in financing activities, compared to using $58.4 million of cash in financing activities during the nine months ended September 30, 2023. The cash used in financing activities in 2024 was primarily due to the repurchase of $125.8 million of our outstanding common shares during the nine months ended September 30, 2024, offset partially by proceeds from borrowings (net of repayments) under our MIF Mortgage Repurchase Facility of $69.6 million and $13.0 million in proceeds from the exercise of stock options during the nine months ended September 30, 2024. The cash used in financing activities in the first nine months of 2023 was primarily due to repayments of $45.1 million (net of proceeds from borrowings) under our two then-outstanding M/I Financial credit facilities and the repurchase of $40.3 million of our outstanding common shares during the first nine months of 2023, offset partially by the $27.2 million in proceeds from the exercise of stock options during the first nine months of 2023.

On May 14, 2024, the Company announced that its Board of Directors authorized a new share repurchase program pursuant to which the Company was permitted to purchase up to $250 million of its outstanding common shares (the “2024 Share Repurchase Program”), which replaced the 2021 Share Repurchase Program which had $95 million of remaining availability at the time. During the nine months ended September 30, 2024, the Company repurchased 0.9 million outstanding common shares for an aggregate purchase price of $125.8 million under both the 2021 and the 2024 Share Repurchase Programs which was funded with cash on hand. As of September 30, 2024, the Company is authorized to repurchase an additional $156.9 million of outstanding common shares under the 2024 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 2024. The timing and amount of any future purchases under the 2024 Share Repurchase Program will be based on a variety of factors, including the market price of the Company’s common shares, business considerations, general market and economic conditions and legal requirements.

At September 30, 2024 and December 31, 2023, our ratio of homebuilding debt to capital was 20% and 22%, respectively, calculated as the carrying value of our outstanding homebuilding debt (which consists of borrowings under our Credit Facility, our 2030 Senior Notes and our 2028 Senior Notes) 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 and home delivery volume in the current year as well as future years, inventory levels and related turnover, forecasted land and lot purchases, debt maturity dates, and other factors. If we seek such additional capital or engage in such other financial transactions, there can be no assurance that we would be able to obtain such additional capital or consummate such other financial transactions on terms acceptable to us, if at all, and such additional equity or debt financing or other financial transactions could dilute the interests of our existing shareholders, add operational limitations and/or increase our interest costs.

Included in the table below is a summary of our available sources of cash from the Credit Facility and the MIF Mortgage Repurchase Facility as of September 30, 2024:

(In thousands)

(a) The available amount under the Credit Facility is computed in accordance with the borrowing base calculation under the Credit Facility, which applies various advance rates for different categories of inventory and totaled $2.22 billion of availability for additional senior debt at September 30, 2024. As a result, the full $650 million commitment amount of the facility was available, less any borrowings and letters of credit outstanding. There were no borrowings outstanding and $85.2 million of letters of credit outstanding at September 30, 2024, leaving $564.8 million available. The Credit Facility has an expiration date of December 9, 2026.

(b) The available amount is computed in accordance with the borrowing base calculations under the MIF Mortgage Repurchase Facility, which may be increased by pledging additional mortgage collateral, not to exceed the maximum aggregate commitment amount of M/I Financial's repurchase agreement as of September 30, 2024, which was $270 million. On October 22, 2024, M/I Financial entered into an amendment to the MIF Mortgage Repurchase Facility which extended its term for an additional year to October 21, 2025 and increased the aggregate commitment amount to $300 million for the entire remaining term.

Notes Payable - Homebuilding.

Homebuilding Credit Facility. The Credit Facility provides for an aggregate commitment amount of $650 million and also includes an accordion feature pursuant to which the maximum borrowing availability may be increased to an aggregate of $800 million, subject to obtaining additional commitments from lenders. The Credit Facility matures on December 9, 2026. Interest on amounts borrowed under the Credit Facility is payable at multiple interest rate options, including one, three, or six month adjusted term secured overnight financing rate (“SOFR”) (subject to a 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).

Borrowings under the Credit Facility constitute senior, unsecured indebtedness and availability is subject to, among other things, a borrowing base calculated using various advance rates for different categories of inventory. The Credit Facility also provides for a $250 million sub-facility for letters of credit. The Credit Facility contains various representations, warranties and covenants which require, among other things, that the Company maintain (1) a minimum level of Consolidated Tangible Net Worth of $1.73 billion at September 30, 2024 (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).

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 September 30, 2024, the Company was in compliance with all covenants of the Credit Facility, including financial covenants. The following table summarizes the most significant restrictive covenant thresholds under the Credit Facility and our compliance with such covenants as of September 30, 2024:

(Dollars in millions)

Notes Payable - Financial Services.

MIF Mortgage Repurchase Facility. The MIF Mortgage Repurchase Facility is used to finance eligible residential mortgage loans originated by M/I Financial. The MIF Mortgage Repurchase Facility provides for a maximum borrowing availability of

$300 million (and was subject to increases and decreases during certain periods). The MIF Mortgage Repurchase Facility was scheduled to expire on October 22, 2024.

On October 22, 2024, M/I Financial entered into an amendment to the MIF Mortgage Repurchase Facility that extends the term of the MIF Mortgage Repurchase Facility for an additional year to October 21, 2025 and increases the aggregate commitment amount to $300 million for the entire remaining term. As is typical for similar credit facilities, the amended MIF Mortgage Repurchase Facility expires after one year and is under consideration for extension annually by the participating lenders.

M/I Financial pays interest on each advance under the MIF Mortgage Repurchase Facility at a per annum rate based on Daily Adjusting One-Month Term SOFR plus a margin as defined in the repurchase agreement. The MIF Mortgage Repurchase Facility provides for limits with respect to certain loan types that can secure outstanding borrowings. The MIF Mortgage Repurchase Facility also contains certain financial covenants each of which is defined in the repurchase agreement. There are no guarantors of the MIF Mortgage Repurchase Facility.

As of September 30, 2024, there was $235 million outstanding under the MIF Mortgage Repurchase Facility (which at the time had a maximum borrowing availability of $270 million), and M/I Financial was in compliance with all covenants thereunder. The financial covenants, as more fully described and defined in the MIF Mortgage Repurchase Facility, are summarized in the following table, which also sets forth M/I Financial’s compliance with such covenants as of September 30, 2024:

(Dollars in millions)

Senior Notes.

3.95% Senior Notes. On August 23, 2021, the Company issued $300 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 September 30, 2024, 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 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 September 30, 2024, 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 September 30, 2024, M/I Homes, Inc. had $300 million aggregate principal amount of its 2030 Senior Notes and $400 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)

Summarized Statement of Income Data

(In thousands)

Weighted Average Borrowings. For the three months ended September 30, 2024 and 2023, our weighted average borrowings outstanding were $722.5 million and $750.5 million, respectively, with a weighted average interest rate of 5.33% and 5.35%, respectively. The decrease in our weighted average borrowings related to decreased average borrowings under our M/I Financial credit facility during the third quarter of 2024 compared to the same period in 2023. The decrease in our weighted average borrowing rate was due to lower interest rates on the Credit Facility in 2024 compared to the prior year.

At both September 30, 2024 and December 31, 2023, we had no borrowings outstanding under the Credit Facility. Based on our currently anticipated spending on home construction, overhead expenses and land acquisition and development during 2024, offset by expected cash receipts from home deliveries and other sources, we do not expect to incur borrowings under the Credit Facility during 2024. To the extent we elect to borrow under the Credit Facility during the remainder of 2024, the actual amount borrowed and the related timing will be subject to numerous factors, which are subject to significant variation as a result of the timing and amount of land and house construction expenditures, payroll and other general and administrative expenses, and cash receipts from home deliveries. 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 2024 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 $85.2 million of letters of credit issued and outstanding under the Credit Facility at September 30, 2024. During the nine months ended September 30, 2024, the average daily amount of letters of credit outstanding under the Credit Facility was $74.3 million and the maximum amount of letters of credit outstanding under the Credit Facility was $86.5 million.

At September 30, 2024, M/I Financial had $235.4 million outstanding under the MIF Mortgage Repurchase Facility. During the nine months ended September 30, 2024, the average daily amount outstanding under the MIF Mortgage Repurchase Facility was $20.1 million and the maximum amount outstanding was $235.4 million, which occurred during September 2024.

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. These macroeconomic trends have pressured housing affordability, negatively impacted homebuyer sentiment and impacted the costs of financing land development activities and housing construction.

The annual rate of inflation in the United States was 2.4% in September 2024, as measured by the Consumer Price Index, down slightly from prior quarter, and from 3.4% in December 2023. As the rate of inflation has declined from 2022’s historic levels, our costs have stabilized. However, continued increases in inflation rates could impact our costs, potentially reduce our gross margins, reduce the purchasing power of potential homebuyers, and negatively impact their ability and desire to buy a home.

Interest rates began to rise in the second half of 2023 from 6.5% at the end of 2022 to over 8% by the end of October 2023 (the highest rates since 2001). Rates declined slightly by the end of 2023 to approximately 7%, and have hovered around 7% throughout most of the first nine months of 2024 and declined to roughly 6.1% as of September 30, 2024. In September 2024, the Federal Reserve Board announced a 50 basis point interest rate cut, which is the first cut since early 2020. The higher mortgage interest rates have made it more difficult for homebuyers to qualify for mortgages or to obtain mortgages at interest rates that are acceptable to them. With recent rate cuts, we believe that hesitant potential homebuyers could decide to enter the homebuying market due to the improved affordability of obtaining a mortgage, and we believe we are well prepared to address increased demand in our markets with our current land position and open communities.

Our primary market risk results from fluctuations in interest rates. We are exposed to interest rate risk through borrowings under our revolving credit facilities, consisting of the Credit Facility and the MIF Mortgage Repurchase Facility, which permitted borrowings of up to $920 million as of September 30, 2024, 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 September 30, 2024 and December 31, 2023:

The table below shows the measurement of assets and liabilities at September 30, 2024 and December 31, 2023:

The following table sets forth the amount of (loss) gain recognized on assets and liabilities for the three and nine months ended September 30, 2024 and 2023:

40

The following table provides the expected future cash flows and current fair values of borrowings under our credit facilities and mortgage loan origination services that are subject to market risk as interest rates fluctuate, as of September 30, 2024. Because the MIF Mortgage Repurchase Facility is effectively secured by certain mortgage loans held for sale which are typically sold within 30 to 45 days, their outstanding balances are included in the most current period presented. The interest rates for our variable rate debt represent the weighted average interest rates in effect at September 30, 2024. 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)

41

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.