Segment Disclosures

The following disclosure includes four homebuilding reportable segments that aggregate geographically the Company’s homebuilding operating segments, and the mortgage banking operations presented as one reportable segment. The homebuilding reportable segments are comprised of operating divisions in the following geographic areas:



Mid Atlantic:		Maryland, Virginia, West Virginia, Delaware and Washington, D.C.
North East:		New Jersey and Eastern Pennsylvania
Mid East:		New York, Ohio, Western Pennsylvania, Indiana and Illinois
South East:		North Carolina, South Carolina, Florida and Tennessee

Homebuilding profit before tax includes all revenues and income generated from the sale of homes, less the cost of homes sold, selling, general and administrative expenses and a corporate capital allocation charge. The corporate capital allocation charge is eliminated in consolidation and is based on the segment’s average net assets employed. The corporate capital allocation charged to the operating segment allows the Chief Operating Decision Maker (“CODM”) to determine whether the operating segment’s results are providing the desired rate of return after covering the Company’s cost of capital.

Certain assets are not allocated to the operating segments as those assets are neither included in the operating segment’s corporate capital allocation charge, nor in the CODM’s evaluation of the operating segment’s performance. The Company records charges on contract land deposits when it is determined that it is probable that recovery of the deposit is impaired. For segment reporting purposes, impairments on contract land deposits are generally charged to the operating segment upon the termination of a Lot Purchase Agreement with the developer, or the restructuring of a Lot Purchase Agreement resulting in the forfeiture of the deposit. Mortgage banking profit before tax consists of revenues generated from mortgage financing, title insurance and closing services, less the costs of such services and general and administrative costs. Mortgage banking operations are not charged a corporate capital allocation charge.

In addition to the corporate capital allocation and contract land deposit impairments discussed above, the other reconciling items between segment profit and consolidated profit before tax include unallocated corporate overhead (including all management incentive compensation), equity-based compensation expense, consolidation adjustments and external corporate interest expense. NVR’s overhead functions, such as accounting, treasury and human resources, are centrally performed and the costs are not allocated to the Company’s operating segments. Consolidation adjustments consist of such items necessary to convert the reportable segments’ results, which are predominantly maintained on a cash basis, to a full accrual basis for external financial statement presentation purposes, and are not allocated to the Company’s operating segments. External corporate interest expense primarily consists of interest charges on the Company’s 3.95% Senior Notes due 2022 (the “Senior Notes”) and is not charged to the operating segments because the charges are included in the corporate capital allocation discussed above.

The following tables present segment revenues, profit and assets with reconciliations to the amounts reported for the consolidated enterprise, where applicable:



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Revenues:
Homebuilding Mid Atlantic	$	973,677	$	872,148	$	1,816,173	$	1,594,416
Homebuilding North East	147,618		127,541		270,332		233,771
Homebuilding Mid East	363,288		313,237		653,525		556,268
Homebuilding South East	265,880		199,788		500,526		375,846
Mortgage Banking	36,842		31,778		76,163		61,283
Total consolidated revenues	$	1,787,305	$	1,544,492	$	3,316,719	$	2,821,584



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Income before taxes:
Homebuilding Mid Atlantic	$	112,221		$	100,621		$	203,268		$	165,109
Homebuilding North East	16,777			14,112			32,481			23,218
Homebuilding Mid East	42,174			35,986			69,385			58,145
Homebuilding South East	29,203			22,911			52,440			37,481
Mortgage Banking	19,685			18,004			42,235			33,957
Total segment profit before taxes	220,060			191,634			399,809			317,910
Reconciling items:
Contract land deposit reserve adjustment (1)	592			(2,064		)	2,720			(2,792		)
Equity-based compensation expense (2)	(18,595		)	(10,878		)	(28,104		)	(21,467		)
Corporate capital allocation (3)	53,954			49,646			104,653			95,833
Unallocated corporate overhead	(22,503		)	(23,360		)	(53,787		)	(50,594		)
Consolidation adjustments and other	14,109			9,614			19,311			13,427
Corporate interest expense	(6,031		)	(5,624		)	(12,018		)	(11,188		)
Reconciling items sub-total	21,526			17,334			32,775			23,219
Consolidated income before taxes	$	241,586		$	208,968		$	432,584		$	341,129


(1)	This item represents changes to the contract land deposit impairment reserve, which are not allocated to the reportable segments.


(2)	The increase in equity-based compensation expense in the three and six month periods ended June 30, 2018 was primarily attributable to the issuance of Options and RSUs in the second quarter of 2018. See Note 7 for additional discussion of equity-based compensation.


(3)	This item represents the elimination of the corporate capital allocation charge included in the respective homebuilding reportable segments. The corporate capital allocation charge is based on the segment’s monthly average asset balance, and was as follows for the periods presented:



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Corporate capital allocation charge:
Homebuilding Mid Atlantic	$	31,501	$	31,005	$	61,949	$	60,130
Homebuilding North East	4,580		4,133		8,760		7,947
Homebuilding Mid East	9,057		7,535		17,030		14,277
Homebuilding South East	8,816		6,973		16,914		13,479
Total	$	53,954	$	49,646	$	104,653	$	95,833



	June 30, 2018			December 31, 2017
Assets:
Homebuilding Mid Atlantic	$	1,139,958		$	1,079,225
Homebuilding North East	155,089			143,008
Homebuilding Mid East	322,718			263,019
Homebuilding South East	315,599			277,705
Mortgage Banking	448,779			397,052
Total segment assets	2,382,143			2,160,009
Reconciling items:
Cash and cash equivalents	417,341			645,087
Deferred taxes	116,295			111,953
Intangible assets and goodwill	50,066			50,144
Contract land deposit reserve	(27,279		)	(29,999		)
Consolidation adjustments and other	70,829			52,085
Reconciling items sub-total	627,252			829,270
Consolidated assets	$	3,009,395		$	2,989,279