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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

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

For the Quarterly Period Ended June 30, 2021

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _____________________

Commission File Number 1-12434
M/I HOMES, INC.
(Exact name of registrant as specified in it charter)

| Ohio |  | 31-1210837 |
| (State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.) |

4131 Worth Avenue, Suite 500, Columbus, Ohio 43219
(Address of principal executive offices) (Zip Code)
(614) 418-8000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class | Trading Symbol(s) | Name of each exchange on which registered
Common Shares, par value $.01 | MHO | New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes | ☒ |  | No | ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes | ☒ |  | No | ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

| Large accelerated filer | ☒ |  | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ |  | Smaller reporting company | ☐ |
|  |  |  | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. q

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes | ☐ |  | No | ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common shares, par value $.01 per share: 29,318,130 shares outstanding as of July 26, 2021.

M/I HOMES, INC.
FORM 10-Q
TABLE OF CONTENTS
PART 1. | FINANCIAL INFORMATION |
| Item 1. | M/I Homes, Inc. and Subsidiaries Unaudited Condensed Consolidated Financial Statements |
|  | Unaudited Condensed Consolidated Balance Sheets at June 30, 2021 and December 31, 2020 | 3
|  | Unaudited Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2021 and 2020 | 4
|  | Unaudited Condensed Consolidated Statement of Shareholders’ Equity for the Three and Six Months Ended June 30, 2021 and 2020 | 5
|  | Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020 | 6
|  | Notes to Unaudited Condensed Consolidated Financial Statements | 7
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 21
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 42
| Item 4. | Controls and Procedures | 44
PART II. | OTHER INFORMATION |
| Item 1. | Legal Proceedings | 44
| Item 1A. | Risk Factors | 44
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 44
| Item 3. | Defaults Upon Senior Securities | 44
| Item 4. | Mine Safety Disclosures | 44
| Item 5. | Other Information | 44
| Item 6. | Exhibits | 45
Signatures |  |  | 46

2

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

(Dollars in thousands, except par values) |  | June 30, 2021 |  | December 31, 2020
|  | (unaudited) |  |
ASSETS: |  |  |  |
Cash, cash equivalents and restricted cash |  | $ | 371,806 |  |  | $ | 260,810 |
Mortgage loans held for sale |  | 172,760 |  |  | 234,293 |
Inventory |  | 2,076,469 |  |  | 1,916,608 |
Property and equipment - net |  | 23,997 |  |  | 26,612 |
Investment in joint venture arrangements |  | 32,833 |  |  | 34,673 |
Operating lease right-of-use assets |  | 52,085 |  |  | 52,291 |
Deferred income tax asset |  | 6,183 |  |  | 6,183 |
Goodwill |  | 16,400 |  |  | 16,400 |
Other assets |  | 108,879 |  |  | 95,175 |
TOTAL ASSETS |  | $ | 2,861,412 |  |  | $ | 2,643,045 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |  |  |  |
LIABILITIES: |  |  |  |
Accounts payable |  | $ | 221,909 |  |  | $ | 185,669 |
Customer deposits |  | 109,739 |  |  | 72,635 |
Operating lease liabilities |  | 52,450 |  |  | 52,474 |
Other liabilities |  | 167,420 |  |  | 183,583 |
Community development district obligations |  | 16,807 |  |  | 8,196 |
Obligation for consolidated inventory not owned |  | 12,481 |  |  | 9,914 |
Notes payable bank - financial services operations |  | 167,119 |  |  | 225,634 |
Notes payable - other |  | 4,126 |  |  | 4,072 |
Senior notes due 2025 - net |  | 247,873 |  |  | 247,613 |
Senior notes due 2028 - net |  | 394,944 |  |  | 394,557 |
TOTAL LIABILITIES |  | $ | 1,394,868 |  |  | $ | 1,384,347 |
Commitments and contingencies (Note 6) |  | — |  |  | — |
SHAREHOLDERS’ EQUITY: |  |  |  |
Common shares - $0.01 par value; authorized 58,000,000 shares at both June 30, 2021 and December 31, 2020; issued 30,137,141 shares at both June 30, 2021 and December 31, 2020 |  | 301 |  |  | 301 |
Additional paid-in capital |  | 343,301 |  |  | 339,001 |
Retained earnings |  | 1,140,926 |  |  | 948,453 |
Treasury shares - at cost - 819,011 and 1,323,292 shares at June 30, 2021 and December 31, 2020, respectively |  | (17,984) |  |  | (29,057) |
TOTAL SHAREHOLDERS’ EQUITY |  | $ | 1,466,544 |  |  | $ | 1,258,698 |
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |  | $ | 2,861,412 |  |  | $ | 2,643,045 |

See Notes to Unaudited Condensed Consolidated Financial Statements.
3

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

| Three Months Ended June 30, |  | Six Months Ended June 30,
(In thousands, except per share amounts) | 2021 |  | 2020 |  | 2021 |  | 2020
Revenue | $ | 961,040 |  |  | $ | 714,194 |  |  | $ | 1,789,816 |  |  | $ | 1,291,797 |
Costs and expenses: |  |  |  |  |  |  |
Land and housing | 719,672 |  |  | 557,791 |  |  | 1,346,257 |  |  | 1,018,715 |
General and administrative | 49,078 |  |  | 41,037 |  |  | 94,283 |  |  | 74,884 |
Selling | 50,576 |  |  | 41,127 |  |  | 96,265 |  |  | 77,955 |
Equity in income from joint venture arrangements | (35) |  |  | (3) |  |  | (195) |  |  | (55) |
Interest | 452 |  |  | 2,515 |  |  | 1,628 |  |  | 7,215 |
Total costs and expenses | $ | 819,743 |  |  | $ | 642,467 |  |  | $ | 1,538,238 |  |  | $ | 1,178,714 |
Income before income taxes | 141,297 |  |  | 71,727 |  |  | 251,578 |  |  | 113,083 |
Provision for income taxes | 33,690 |  |  | 17,219 |  |  | 59,105 |  |  | 26,829 |
Net income | $ | 107,607 |  |  | $ | 54,508 |  |  | $ | 192,473 |  |  | $ | 86,254 |
Earnings per common share: |  |  |  |  |  |  |
Basic | $ | 3.68 |  |  | $ | 1.91 |  |  | $ | 6.60 |  |  | $ | 3.03 |
Diluted | $ | 3.58 |  |  | $ | 1.89 |  |  | $ | 6.43 |  |  | $ | 2.98 |
Weighted average shares outstanding: |  |  |  |  |  |  |
Basic | 29,271 |  |  | 28,531 |  |  | 29,144 |  |  | 28,504 |
Diluted | 30,093 |  |  | 28,836 |  |  | 29,935 |  |  | 28,920 |

See Notes to Unaudited Condensed Consolidated Financial Statements.
4

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

| Three Months Ended June 30, 2021
| Common Shares |  |  |  |  |  |  |  |
| Shares Outstanding |  |  |  | Additional Paid-in Capital |  | Retained Earnings |  | Treasury Shares |  | Total Shareholders’ Equity
(Dollars in thousands) |  | Amount |  |  |  |
Balance at March 31, 2021 | 29,185,630 |  |  | $ | 301 |  |  | $ | 340,696 |  |  | $ | 1,033,319 |  |  | $ | (20,894) |  |  | $ | 1,353,422 |
Net income | — |  |  | — |  |  | — |  |  | 107,607 |  |  | — |  |  | 107,607 |
Stock options exercised | 132,500 |  |  | — |  |  | 464 |  |  | — |  |  | 2,910 |  |  | 3,374 |
Stock-based compensation expense | — |  |  | — |  |  | 2,141 |  |  | — |  |  | — |  |  | 2,141 |
Balance at June 30, 2021 | 29,318,130 |  |  | $ | 301 |  |  | $ | 343,301 |  |  | $ | 1,140,926 |  |  | $ | (17,984) |  |  | $ | 1,466,544 |

| Six Months Ended June 30, 2021
| Common Shares |  |  |  |  |  |  |  |
| Shares Outstanding |  |  |  | Additional Paid-in Capital |  | Retained Earnings |  | Treasury Shares |  | Total Shareholders’ Equity
(Dollars in thousands) |  | Amount |  |  |  |
Balance at December 31, 2020 | 28,813,849 |  |  | $ | 301 |  |  | $ | 339,001 |  |  | $ | 948,453 |  |  | $ | (29,057) |  |  | $ | 1,258,698 |
Net income | — |  |  | — |  |  | — |  |  | 192,473 |  |  | — |  |  | 192,473 |
Stock options exercised | 428,100 |  |  | — |  |  | 1,230 |  |  | — |  |  | 9,400 |  |  | 10,630 |
Stock-based compensation expense | — |  |  | — |  |  | 4,405 |  |  | — |  |  | — |  |  | 4,405 |
Deferral of executive and director compensation | — |  |  | — |  |  | 338 |  |  | — |  |  | — |  |  | 338 |
Executive and director deferred compensation distributions | 76,181 |  |  | — |  |  | (1,673) |  |  | — |  |  | 1,673 |  |  | — |
Balance at June 30, 2021 | 29,318,130 |  |  | $ | 301 |  |  | $ | 343,301 |  |  | $ | 1,140,926 |  |  | $ | (17,984) |  |  | $ | 1,466,544 |

| Three Months Ended June 30, 2020
| Common Shares |  |  |  |  |  |  |  |
| Shares Outstanding |  |  |  | Additional Paid-in Capital |  | Retained Earnings |  | Treasury Shares |  | Total Shareholders’ Equity
(Dollars in thousands) |  | Amount |  |  |  |
Balance at March 31, 2020 | 28,523,329 |  |  | $ | 301 |  |  | $ | 332,490 |  |  | $ | 740,325 |  |  | $ | (35,435) |  |  | $ | 1,037,681 |
Net income | — |  |  | — |  |  | — |  |  | 54,508 |  |  | — |  |  | 54,508 |
Stock options exercised | 20,300 |  |  | — |  |  | 18 |  |  | — |  |  | 445 |  |  | 463 |
Stock-based compensation expense | — |  |  | — |  |  | 1,753 |  |  | — |  |  | — |  |  | 1,753 |
Balance at June 30, 2020 | 28,543,629 |  |  | $ | 301 |  |  | $ | 334,261 |  |  | $ | 794,833 |  |  | $ | (34,990) |  |  | $ | 1,094,405 |

| Six Months Ended June 30, 2020
| Common Shares |  |  |  |  |  |  |  |
| Shares Outstanding |  |  |  | Additional Paid-in Capital |  | Retained Earnings |  | Treasury Shares |  | Total Shareholders’ Equity
(Dollars in thousands) |  | Amount |  |  |  |
Balance at December 31, 2019 | 28,386,456 |  |  | $ | 301 |  |  | $ | 332,861 |  |  | $ | 708,579 |  |  | $ | (38,264) |  |  | $ | 1,003,477 |
Net income | — |  |  | — |  |  | — |  |  | 86,254 |  |  | — |  |  | 86,254 |
Stock options exercised | 152,600 |  |  | — |  |  | 308 |  |  | — |  |  | 3,337 |  |  | 3,645 |
Stock-based compensation expense | — |  |  | — |  |  | 2,726 |  |  | — |  |  | — |  |  | 2,726 |
Repurchase of common shares | (80,000) |  |  | — |  |  | — |  |  | — |  |  | (1,912) |  |  | (1,912) |
Deferral of executive and director compensation | — |  |  | — |  |  | 215 |  |  | — |  |  | — |  |  | 215 |
Executive and director deferred compensation distributions | 84,573 |  |  | — |  |  | (1,849) |  |  | — |  |  | 1,849 |  |  | — |
Balance at June 30, 2020 | 28,543,629 |  |  | $ | 301 |  |  | $ | 334,261 |  |  | $ | 794,833 |  |  | $ | (34,990) |  |  | $ | 1,094,405 |

See Notes to Unaudited Condensed Consolidated Financial Statements.
5

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

| Six Months Ended June 30,
(Dollars in thousands) | 2021 |  | 2020
OPERATING ACTIVITIES: |  |  |
Net income | $ | 192,473 |  |  | $ | 86,254 |
Adjustments to reconcile net income to net cash (used in) provided by operating activities: |  |  |
Equity in income from joint venture arrangements | (195) |  |  | (55) |
Mortgage loan originations | (1,088,033) |  |  | (773,970) |
Proceeds from the sale of mortgage loans | 1,149,308 |  |  | 766,105 |
Fair value adjustment of mortgage loans held for sale | 258 |  |  | (427) |
Fair value adjustment of mortgage servicing rights | (162) |  |  | 422 |
Capitalization of originated mortgage servicing rights | (9,784) |  |  | (2,233) |
Amortization of mortgage servicing rights | 583 |  |  | 1,159 |
Depreciation | 6,357 |  |  | 6,037 |
Amortization of debt issue costs | 1,294 |  |  | 1,228 |
Loss on sale of mortgage servicing rights | 177 |  |  | — |
Loss on early extinguishment of debt | — |  |  | 950 |
Stock-based compensation expense | 4,405 |  |  | 2,726 |
Deferred income tax expense | — |  |  | 253 |
Change in assets and liabilities: |  |  |
Inventory | (133,286) |  |  | (51,603) |
Other assets | (3,277) |  |  | (20,753) |
Accounts payable | 36,241 |  |  | 44,062 |
Customer deposits | 37,104 |  |  | 15,067 |
Accrued compensation | (11,882) |  |  | (16,699) |
Other liabilities | (7,780) |  |  | 24,303 |
Net cash provided by operating activities | 173,801 |  |  | 82,826 |
INVESTING ACTIVITIES: |  |  |
Purchase of property and equipment | (1,036) |  |  | (1,976) |
Return of capital from joint venture arrangements | 1,050 |  |  | 363 |
Investment in joint venture arrangements | (17,101) |  |  | (19,089) |
Proceeds from sale of mortgage servicing rights | 4,324 |  |  | — |
Net cash used in investing activities | (12,763) |  |  | (20,702) |
FINANCING ACTIVITIES: |  |  |
Repayment of senior notes due 2021 | — |  |  | (300,000) |
Net proceeds from issuance of senior notes due 2028 | — |  |  | 400,000 |
Proceeds from bank borrowings - homebuilding operations | — |  |  | 306,800 |
Repayment of bank borrowings - homebuilding operations | — |  |  | (372,800) |
Net repayments of bank borrowings - financial services operations | (58,515) |  |  | (2,720) |
Principal repayments of notes payable - other and community development district bond obligations | 54 |  |  | 1,213 |
Repurchase of common shares | — |  |  | (1,912) |
Debt issue costs | (2,211) |  |  | (8,410) |
Proceeds from exercise of stock options | 10,630 |  |  | 3,645 |
Net cash (used in) provided by financing activities | (50,042) |  |  | 25,816 |
Net increase in cash, cash equivalents and restricted cash | 110,996 |  |  | 87,940 |
Cash, cash equivalents and restricted cash balance at beginning of period | 260,810 |  |  | 6,083 |
Cash, cash equivalents and restricted cash balance at end of period | $ | 371,806 |  |  | $ | 94,023 |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |  |  |
Cash paid during the year for: |  |  |
Interest — net of amount capitalized | $ | 420 |  |  | $ | 6,114 |
Income taxes | $ | 60,523 |  |  | $ | 1,862 |
NON-CASH TRANSACTIONS DURING THE PERIOD: |  |  |
Community development district infrastructure | $ | 8,611 |  |  | $ | (1,971) |
Consolidated inventory not owned | $ | 2,567 |  |  | $ | 3,101 |
Distribution of single-family lots from joint venture arrangements | $ | 18,086 |  |  | $ | 11,522 |

See Notes to Unaudited Condensed Consolidated Financial Statements.
6

M/I HOMES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Basis of Presentation
The accompanying Unaudited Condensed Consolidated Financial Statements (the “financial statements”) of M/I Homes, Inc. and its subsidiaries (the “Company”) and notes thereto have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. The financial statements include the accounts of the Company. All intercompany transactions have been eliminated. Results for the interim period are not necessarily indicative of results for a full year. In the opinion of management, the accompanying financial statements reflect all adjustments (all of which are normal and recurring in nature) necessary for a fair presentation of financial results for the interim periods presented. These financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”).
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during that period. Actual results could differ from these estimates and have a significant impact on the financial condition and results of operations and cash flows. With regard to the Company, estimates and assumptions are inherent in calculations relating to valuation of inventory and investment in unconsolidated joint ventures, property and equipment depreciation, valuation of derivative financial instruments, accounts payable on inventory, accruals for costs to complete inventory, accruals for warranty claims, accruals for self-insured general liability claims, litigation, accruals for health care and workers’ compensation, accruals for guaranteed or indemnified loans, stock-based compensation expense, income taxes, and contingencies. Items that could have a significant impact on these estimates and assumptions include the risks and uncertainties listed in “Item 1A. Risk Factors” in Part I of our 2020 Form 10-K, as the same may be updated from time to time in our subsequent filings with the SEC.
Recently Adopted Accounting Standards
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for the Company beginning January 1, 2021. The adoption of this ASU did not have a material impact on our Consolidated Financial Statements and disclosures.
Significant Accounting Policies
There have been no significant changes to our significant accounting policies during the quarter ended June 30, 2021 as compared to those disclosed in our 2020 Form 10-K.
NOTE 2. Inventory and Capitalized Interest
Inventory
Inventory is recorded at cost, unless events and circumstances indicate that the carrying value of the inventory is impaired, at which point the inventory is written down to fair value (see Note 4 to our financial statements for additional details relating to our procedures for evaluating our inventories for impairment). Inventory includes the costs of land acquisition, land development and home construction, capitalized interest, real estate taxes, direct overhead costs incurred during development and home construction, and common costs that benefit the entire community, less impairments, if any.
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A summary of the Company’s inventory as of June 30, 2021 and December 31, 2020 is as follows:

(In thousands) | June 30, 2021 |  | December 31, 2020
Single-family lots, land and land development costs | $ | 833,665 |  |  | $ | 868,288 |
Land held for sale | 3,840 |  |  | 4,623 |
Homes under construction | 1,095,585 |  |  | 898,966 |
Model homes and furnishings - at cost (less accumulated depreciation: June 30, 2021 - $13,376; December 31, 2020 - $12,909) | 70,054 |  |  | 81,264 |
Community development district infrastructure | 16,807 |  |  | 8,196 |
Land purchase deposits | 44,037 |  |  | 45,357 |
Consolidated inventory not owned | 12,481 |  |  | 9,914 |
Total inventory | $ | 2,076,469 |  |  | $ | 1,916,608 |

Single-family lots, land and land development costs include raw land that the Company has purchased to develop into lots, costs incurred to develop the raw land into lots, and lots for which development has been completed, but which have not yet been used to start construction of a home.
Homes under construction include homes that are in various stages of construction. As of June 30, 2021 and December 31, 2020, we had 869 homes (with a carrying value of $115.4 million) and 1,131 homes (with a carrying value of $186.9 million), respectively, included in homes under construction that were not subject to a sales contract.
Model homes and furnishings include homes that are under construction or have been completed and are being used as sales models. The amount also includes the net book value of furnishings included in our model homes. Depreciation on model home furnishings is recorded using an accelerated method over the estimated useful life of the assets, which is typically three years.
We own lots in certain communities in Florida that have Community Development Districts (“CDDs”). The Company records a liability for the estimated developer obligations that are probable and estimable and user fees that are required to be paid or transferred at the time the parcel or unit is sold to an end user. The Company reduces this liability at the time of closing and the transfer of the property. The Company recorded a $16.8 million liability and a $8.2 million liability related to these CDD bond obligations as of June 30, 2021 and December 31, 2020, respectively, along with the related inventory infrastructure.
Land purchase deposits include both refundable and non-refundable amounts paid to third party sellers relating to the purchase of land. On an ongoing basis, the Company evaluates the land option agreements relating to the land purchase deposits. The Company expenses any deposits and accumulated pre-acquisition costs relating to such agreements in the period when the Company makes the decision not to proceed with the purchase of land under an agreement.
Capitalized Interest
The Company capitalizes interest during land development and home construction. Capitalized interest is charged to land and housing costs and expensed as the related inventory is delivered to a third party. The summary of capitalized interest for the three and six months ended June 30, 2021 and 2020 is as follows:

| Three Months Ended June 30, |  | Six Months Ended June 30,
(In thousands) | 2021 |  | 2020 |  | 2021 |  | 2020
Capitalized interest, beginning of period | $ | 22,119 |  |  | $ | 22,199 |  |  | $ | 21,329 |  |  | $ | 21,607 |
Interest capitalized to inventory | 9,623 |  |  | 7,758 |  |  | 18,618 |  |  | 14,920 |
Capitalized interest charged to land and housing costs and expenses | (9,438) |  |  | (7,754) |  |  | (17,643) |  |  | (14,324) |
Capitalized interest, end of period | $ | 22,304 |  |  | $ | 22,203 |  |  | $ | 22,304 |  |  | $ | 22,203 |
Interest incurred | $ | 10,075 |  |  | $ | 10,273 |  |  | $ | 20,246 |  |  | $ | 22,135 |

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NOTE 3. Investment in Joint Venture Arrangements
Investment in Joint Venture Arrangements
In order to minimize our investment and risk of land exposure in a single location, we have periodically partnered with other land developers or homebuilders to share in the land investment and development of a property through joint ownership and development agreements, joint ventures, and other similar arrangements. As of June 30, 2021 and December 31, 2020, our investment in such joint venture arrangements totaled $32.8 million and $34.7 million, respectively, and was reported as Investment in Joint Venture Arrangements on our Unaudited Condensed Consolidated Balance Sheets. The $1.9 million decrease during the six-month period ended June 30, 2021 was driven primarily by lot distributions from our joint venture arrangements of $18.1 million and return of capital from joint venture arrangements of $1.1 million, offset, in part, by our cash contributions to our joint venture arrangements during the first half of 2021 of $17.1 million.
The majority of our investment in joint venture arrangements for both June 30, 2021 and December 31, 2020 consisted of joint ownership and development agreements for which a special purpose entity was not established (“JODAs”). In these JODAs, we own the property jointly with partners which are typically other builders, and land development activities are funded jointly until the developed lots are subdivided for separate ownership by the partners in accordance with the JODA and the approved site plan. As of June 30, 2021 and December 31, 2020, the Company had $32.6 million and $33.9 million, respectively, invested in JODAs.
The remainder of our investment in joint venture arrangements was comprised of joint venture arrangements where a special purpose entity was established to own and develop the property. For these joint venture arrangements, we generally enter into limited liability company or similar arrangements (“LLCs”) with the other partners. These entities typically engage in land development activities for the purpose of distributing or selling developed lots to the Company and its partners in the LLC. As of June 30, 2021 and December 31, 2020, the Company had $0.2 million and $0.8 million, respectively, of equity invested in LLCs. The Company’s percentage of ownership in these LLCs as of June 30, 2021 ranged from 25% to 50% and as of December 31, 2020 ranged from 25% to 74%.
We use the equity method of accounting for investments in LLCs and other joint venture arrangements, including JODAs, over which we exercise significant influence but do not have a controlling interest. Under the equity method, our share of the LLCs’ earnings or loss, if any, is included in our Unaudited Condensed Consolidated Statements of Income. The Company’s equity in income relating to earnings from its LLCs was less than $0.1 million for both the three months ended June 30, 2021 and 2020, respectively, and $0.2 million and less than $0.1 million for the six months ended June 30, 2021 and 2020. Our share of the profit relating to lots we purchase from our LLCs is deferred until homes are delivered by us and title passes to a homebuyer.
We believe that the Company’s maximum exposure related to its investment in these joint venture arrangements as of June 30, 2021 was the amount invested of $32.8 million, which is reported as Investment in Joint Venture Arrangements on our Unaudited Condensed Consolidated Balance Sheets. We expect to invest further amounts in these joint venture arrangements as development of the properties progresses.
The Company assesses its investments in unconsolidated LLCs for recoverability on a quarterly basis. See Note 4 to our financial statements for additional details relating to our procedures for evaluating our investments for impairment.
Variable Interest Entities
With respect to our investments in these LLCs, we are required, under ASC 810-10, Consolidation (“ASC 810”), to evaluate whether or not such entities should be consolidated into our consolidated financial statements. We initially perform these evaluations when each new entity is created and upon any events that require reconsideration of the entity. See Note 1, “Summary of Significant Accounting Policies - Variable Interest Entities” in the Company’s 2020 Form 10-K for additional information regarding the Company’s methodology for evaluating entities for consolidation.
Land Option Agreements
In the ordinary course of business, the Company enters into land option or purchase agreements for which we generally pay non-refundable deposits. Pursuant to these land option agreements, the Company provides a deposit to the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices. In accordance with ASC 810, we analyze our land option or purchase agreements to determine whether the corresponding land sellers are variable interest entities (“VIEs”) and, if so, whether we are the primary beneficiary, as further described in Note 1, “Summary of Significant Accounting Policies - Land Option Agreements” in the 2020 Form 10-K. If we are deemed to be the primary beneficiary of the VIE, we will consolidate the VIE in our consolidated financial statements and reflect such assets and
9

liabilities in our Consolidated Inventory Not Owned in our Unaudited Condensed Consolidated Balance Sheets. At both June 30, 2021 and December 31, 2020, we concluded that we were not the primary beneficiary of any VIEs from which we are purchasing land under option or purchase agreements.
NOTE 4. Fair Value Measurements
There are three measurement input levels for determining fair value: Level 1, Level 2, and Level 3. Fair values determined by Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
Assets Measured on a Recurring Basis
The Company measures both mortgage loans held for sale and interest rate lock commitments (“IRLCs”) at fair value. Fair value measurement results in a better presentation of the changes in fair values of the loans and the derivative instruments used to economically hedge them.
In the normal course of business, our financial services segment enters into contractual commitments to extend credit to buyers of single-family homes with fixed expiration dates. The commitments become effective when the borrowers “lock-in” a specified interest rate within established time frames. Market risk arises if interest rates move adversely between the time of the “lock-in” of rates by the borrower and the sale date of the loan to an investor. To mitigate the effect of the interest rate risk inherent in providing rate lock commitments to borrowers, the Company enters into optional or mandatory delivery forward sale contracts to sell whole loans and mortgage-backed securities to broker/dealers. The forward sale contracts lock in an interest rate and price for the sale of loans similar to the specific rate lock commitments. The Company does not engage in speculative trading or derivative activities. Both the rate lock commitments to borrowers and the forward sale contracts to broker/dealers or investors are undesignated derivatives, and accordingly, are marked to fair value through earnings. Changes in fair value measurements are included in earnings in the accompanying statements of income.
The fair value of mortgage loans held for sale is estimated based primarily on published prices for mortgage-backed securities with similar characteristics. To calculate the effects of interest rate movements, the Company utilizes applicable published mortgage-backed security prices, and multiplies the price movement between the rate lock date and the balance sheet date by the notional loan commitment amount. The Company applies a fallout rate to IRLCs when measuring the fair value of rate lock commitments. Fallout is defined as locked loan commitments for which the Company does not close a mortgage loan and is based on management’s judgment and company experience.
The Company sells loans on a servicing released or servicing retained basis and receives servicing compensation. Thus, the value of the servicing rights included in the fair value measurement is based upon contractual terms with investors and depends on the loan type. Mortgage servicing rights (Level 3 financial instruments as they are measured using significant unobservable inputs such as mortgage prepayment rates, discount rates and delinquency rates) are periodically evaluated for impairment. The amount of impairment is the amount by which the mortgage servicing rights, net of accumulated amortization, exceed their fair value, which is calculated using third-party valuations. Impairment, if any, is recognized through a valuation allowance and a reduction of revenue. The carrying value and fair value of mortgage servicing rights was $13.7 million at June 30, 2021. At December 31, 2020, the carrying value and fair value of our mortgage servicing rights were $9.4 million and $9.2 million, respectively. This $0.2 million decrease in the value of our mortgage servicing rights was caused by the disruption in the mortgage industry as a result of the COVID-19 pandemic, and was recorded as a decrease in revenue to bring the carrying value down to the fair value, for a net valuation allowance and impairment of $0.2 million for the year ended December 31, 2020.
The fair value of the Company’s forward sales contracts to broker/dealers solely considers the market price movement of the same type of security between the trade date and the balance sheet date. The market price changes are multiplied by the notional amount of the forward sales contracts to measure the fair value.
Interest Rate Lock Commitments. IRLCs are extended to certain homebuying customers who have applied for a mortgage loan and meet certain defined credit and underwriting criteria. Typically, the IRLCs will have a term of less than six months; however, in certain markets, the term could extend to nine months.
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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 and FMBSs related to mortgage loans held for sale are classified and accounted for as non-designated derivative instruments and are recorded at fair value, with gains and losses recorded in current earnings.
Mortgage Loans Held for Sale. Mortgage loans held for sale consists primarily of single-family residential loans collateralized by the underlying property. Generally, all of the mortgage loans and related servicing rights are sold to third-party investors shortly after origination. During the period between when a loan is closed and when it is sold to an investor, the interest rate risk is covered through the use of a whole loan contract or by FMBSs.
The table below shows the notional amounts of our financial instruments at June 30, 2021 and December 31, 2020:

Description of Financial Instrument (in thousands) | June 30, 2021 |  | December 31, 2020
Whole loan contracts and related committed IRLCs | $ | 2,418 |  |  | $ | 2,354 |
Uncommitted IRLCs | 302,394 |  |  | 208,500 |
FMBSs related to uncommitted IRLCs | 279,000 |  |  | 183,000 |
Whole loan contracts and related mortgage loans held for sale | 4,689 |  |  | 78,142 |
FMBSs related to mortgage loans held for sale | 164,000 |  |  | 131,000 |
Mortgage loans held for sale covered by FMBSs | 160,826 |  |  | 148,331 |

The following table sets forth the amount of gain (loss) recognized, within our revenue in the Unaudited Condensed Consolidated Statements of Income, on assets and liabilities measured on a recurring basis for the three and six months ended June 30, 2021 and 2020:

| Three Months Ended June 30, |  | Six Months Ended June 30,
Description (in thousands) | 2021 |  | 2020 |  | 2021 |  | 2020
Mortgage loans held for sale | $ | 6,682 |  |  | $ | (3,312) |  |  | $ | (258) |  |  | $ | 427 |
Forward sales of mortgage-backed securities | (8,329) |  |  | 5,417 |  |  | 1,017 |  |  | (1,163) |
Interest rate lock commitments | 3,128 |  |  | (826) |  |  | 510 |  |  | 1,557 |
Whole loan contracts | (60) |  |  | (102) |  |  | 353 |  |  | (48) |
Total gain recognized | $ | 1,421 |  |  | $ | 1,177 |  |  | $ | 1,622 |  |  | $ | 773 |

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The following tables set forth the fair value of the Company’s derivative instruments and their location within the Unaudited Condensed Consolidated Balance Sheets for the periods indicated (except for mortgage loans held for sale which are disclosed as a separate line item):

|  | Asset Derivatives |  | Liability Derivatives
|  | June 30, 2021 |  | June 30, 2021
Description of Derivatives |  | Balance Sheet Location |  | Fair Value (in thousands) |  | Balance Sheet Location |  | Fair Value (in thousands)
Forward sales of mortgage-backed securities |  | Other assets |  | $ | — |  |  | Other liabilities |  | $ | 624 |
Interest rate lock commitments |  | Other assets |  | 2,153 |  |  | Other liabilities |  | — |
Whole loan contracts |  | Other assets |  | — |  |  | Other liabilities |  | 47 |
Total fair value measurements |  |  |  | $ | 2,153 |  |  |  |  | $ | 671 |

|  | Asset Derivatives |  | Liability Derivatives
|  | December 31, 2020 |  | December 31, 2020
Description of Derivatives |  | Balance Sheet Location |  | Fair Value (in thousands) |  | Balance Sheet Location |  | Fair Value (in thousands)
Forward sales of mortgage-backed securities |  | Other assets |  | $ | — |  |  | Other liabilities |  | $ | 1,640 |
Interest rate lock commitments |  | Other assets |  | 1,664 |  |  | Other liabilities |  | — |
Whole loan contracts |  | Other assets |  | — |  |  | Other liabilities |  | 422 |
Total fair value measurements |  |  |  | $ | 1,664 |  |  |  |  | $ | 2,062 |

Assets Measured on a Non-Recurring Basis
Inventory. The Company assesses inventory for recoverability on a quarterly basis based on the difference in the carrying value of the inventory and its fair value at the time of the evaluation. Determining the fair value of a community’s inventory involves a number of variables, estimates and projections, which are Level 3 measurement inputs. See Note 1, “Summary of Significant Accounting Policies - Inventory” in the 2020 Form 10-K for additional information regarding the Company’s methodology for determining fair value.
The Company uses significant assumptions to evaluate the recoverability of its inventory, such as estimated average selling price, construction and development costs, absorption rate (reflecting any product mix change strategies implemented or to be implemented), selling strategies, alternative land uses (including disposition of all or a portion of the land owned), or discount rates. Changes in these assumptions could materially impact future cash flow and fair value estimates and may lead the Company to incur additional impairment charges in the future. Our analysis is conducted only if indicators of a decline in value of our inventory exist, which include, among other things, declines in gross margin on sales contracts in backlog or homes that have been delivered, slower than anticipated absorption pace, declines in average sales price or high incentive offers by management to improve absorptions, declines in margins regarding future land sales, or declines in the value of the land itself as a result of third party appraisals. If communities are not recoverable based on the estimated future undiscounted cash flows, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. During the three and six months ended June 30, 2021 and 2020, the Company did not record any impairment charges on its inventory.
Investment in Unconsolidated Joint Ventures. We evaluate our investments in unconsolidated joint ventures for impairment on a quarterly basis based on the difference in the investment’s carrying value and its fair value at the time of the evaluation. If the Company has determined that the decline in value is other than temporary, the Company would write down the value of the investment to its estimated fair value. Determining the fair value of investments in unconsolidated joint ventures involves a number of variables, estimates and assumptions, which are Level 3 measurement inputs. See Note 1, “Summary of Significant Accounting Policies - Investment in Unconsolidated Joint Ventures,” in the 2020 Form 10-K for additional information regarding the Company’s methodology for determining fair value. Because of the high degree of judgment involved in developing these assumptions, it is possible that changes in these assumptions could materially impact future cash flow and fair value estimates of the investments which may lead the Company to incur additional impairment charges in the future. During the three and six months ended June 30, 2021 and 2020, the Company did not record any impairment charges on its investments in unconsolidated joint ventures.
Financial Instruments
Counterparty Credit Risk. To reduce the risk associated with losses that would be recognized if counterparties failed to perform as contracted, the Company limits the entities with whom management can enter into commitments. This risk of accounting loss is the difference between the market rate at the time of non-performance by the counterparty and the rate to which the Company committed.
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The following table presents the carrying amounts and fair values of the Company’s financial instruments at June 30, 2021 and December 31, 2020. The objective of the fair value measurement is to estimate the price at which an orderly transaction to sell the asset or transfer the liability would take place between market participants at the measurement date under current market conditions.

|  | June 30, 2021 |  | December 31, 2020
(In thousands) | Fair Value Hierarchy | Carrying Amount |  | Fair Value |  | Carrying Amount |  | Fair Value
Assets: |  |  |  |  |  |  |  |
Cash, cash equivalents and restricted cash | Level 1 | $ | 371,806 |  |  | $ | 371,806 |  |  | $ | 260,810 |  |  | $ | 260,810 |
Mortgage loans held for sale | Level 2 | 172,760 |  |  | 172,760 |  |  | 234,293 |  |  | 234,293 |
Interest rate lock commitments | Level 2 | 2,153 |  |  | 2,153 |  |  | 1,664 |  |  | 1,664 |
Liabilities: |  |  |  |  |  |  |  |
Notes payable - financial services operations | Level 2 | 167,119 |  |  | 167,119 |  |  | 225,634 |  |  | 225,634 |
Notes payable - other | Level 2 | 4,126 |  |  | 5,021 |  |  | 4,072 |  |  | 3,647 |
Senior notes due 2025 (a) | Level 2 | 250,000 |  |  | 258,125 |  |  | 250,000 |  |  | 259,375 |
Senior notes due 2028 (a) | Level 2 | 400,000 |  |  | 419,000 |  |  | 400,000 |  |  | 421,000 |
Whole loan contracts for committed IRLCs and mortgage loans held for sale | Level 2 | 47 |  |  | 47 |  |  | 422 |  |  | 422 |
Forward sales of mortgage-backed securities | Level 2 | 624 |  |  | 624 |  |  | 1,640 |  |  | 1,640 |

(a)Our senior notes are stated at the principal amount outstanding which does not include the impact of premiums, discounts, and debt issuance costs that are amortized to interest cost over the respective terms of the notes.
The following methods and assumptions were used by the Company in estimating its fair value disclosures of financial instruments at June 30, 2021 and December 31, 2020:
Cash, Cash Equivalents and Restricted Cash. The carrying amounts of these items approximate fair value because they are short-term by nature.
Mortgage Loans Held for Sale, Forward Sales of Mortgage-Backed Securities, Interest Rate Lock Commitments, Whole loan Contracts for Committed IRLCs and Mortgage Loans Held for Sale, Senior Notes due 2025 and Senior Notes due 2028. The fair value of these financial instruments was determined based upon market quotes at June 30, 2021 and December 31, 2020. The market quotes used were quoted prices for similar assets or liabilities along with inputs taken from observable market data by correlation. The inputs were adjusted to account for the condition of the asset or liability.
Notes Payable - Homebuilding Operations. The interest rate available to the Company during the quarter ended June 30, 2021 under the Company’s $550 million unsecured revolving credit facility, dated July 18, 2013, as amended most recently on June 10, 2021 (the “Credit Facility”), fluctuated daily with the one-month LIBOR rate plus a margin of 175 basis points, and thus the carrying value is a reasonable estimate of fair value. See Note 8 to our financial statements for additional information regarding the Credit Facility.
Notes Payable - Financial Services Operations. M/I Financial, LLC, a 100%-owned subsidiary of M/I Homes, Inc. (“M/I Financial”), is a party to two credit agreements: (1) a $175 million secured mortgage warehousing agreement, dated June 24, 2016, as amended (the “MIF Mortgage Warehousing Agreement”); and (2) a $90 million mortgage repurchase agreement, dated October 30, 2017, as amended (the “MIF Mortgage Repurchase Facility”). For each of these credit facilities, the interest rate is based on a variable rate index, and thus their carrying value is a reasonable estimate of fair value. The interest rate available to M/I Financial during the second quarter of 2021 fluctuated with LIBOR. See Note 8 to our financial statements for additional information regarding the MIF Mortgage Warehousing Agreement and the MIF Mortgage Repurchase Facility.
Notes Payable - Other. The estimated fair value was determined by calculating the present value of the future cash flows using the Company’s current incremental borrowing rate.
NOTE 5. Guarantees and Indemnifications
In the ordinary course of business, M/I Financial enters into agreements that provide a limited-life guarantee on loans sold to certain third-party purchasers of its mortgage loans that M/I Financial will repurchase a loan if certain conditions occur, primarily if the mortgagor does not meet the terms of the loan within the first six months after the sale of the loan. Loans totaling approximately $66.8 million and $21.1 million were covered under these guarantees as of June 30, 2021 and December 31, 2020, respectively. The increase in loans covered by these guarantees from December 31, 2020 is a result of a change in the mix of investors and their related purchase terms. A portion of the revenue paid to M/I Financial for providing the guarantees on these loans was deferred at June 30, 2021, and will be recognized in income as M/I Financial is released from
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its obligation under the guarantees. The risk associated with the guarantees above is offset by the value of the underlying assets.
M/I Financial has received inquiries concerning underwriting matters from purchasers of its loans regarding certain loans totaling approximately $1.7 million and $0.6 million at June 30, 2021 and December 31, 2020, respectively.
M/I Financial has also guaranteed the collectability of certain loans to third party insurers (U.S. Department of Housing and Urban Development and U.S. Veterans Administration) of those loans for periods ranging from five to thirty years. The maximum potential amount of future payments is equal to the outstanding loan value less the value of the underlying asset plus administrative costs incurred related to foreclosure on the loans, should this event occur.
The Company recorded a liability relating to the guarantees described above totaling $0.6 million and $0.4 million at June 30, 2021 and December 31, 2020, respectively, which is management’s best estimate of the Company’s liability with respect to such guarantees.
NOTE 6. Commitments and Contingencies
Warranty
We use subcontractors for nearly all aspects of home construction. Although our subcontractors are generally required to repair and replace any product or labor defects, we are, during applicable warranty periods, ultimately responsible to the homeowner for making such repairs. As such, we record warranty reserves to cover our exposure to the costs for materials and labor not expected to be covered by our subcontractors to the extent they relate to warranty-type claims. Warranty reserves are established by charging cost of sales and crediting a warranty reserve for each home delivered. The amounts charged are estimated by management to be adequate to cover expected warranty-related costs under the Company’s warranty programs. Warranty reserves are recorded for warranties under our Home Builder’s Limited Warranty (“HBLW”) and our transferable structural warranty in Other Liabilities on the Company’s Unaudited Condensed Consolidated Balance Sheets.
The warranty reserves for the HBLW are established as a percentage of average sales price and adjusted based on historical payment patterns determined, generally, by geographic area and recent trends. Factors that are given consideration in determining the HBLW reserves include: (1) the historical range of amounts paid per average sales price on a home; (2) type and mix of amenity packages added to the home; (3) any warranty expenditures not considered to be normal and recurring; (4) timing of payments; (5) improvements in quality of construction expected to impact future warranty expenditures; and (6) conditions that may affect certain projects and require a different percentage of average sales price for those specific projects. Changes in estimates for warranties occur due to changes in the historical payment experience and differences between the actual payment pattern experienced during the period and the historical payment pattern used in our evaluation of the warranty reserve balance at the end of each quarter. Actual future warranty costs could differ from our current estimated amount.
Our warranty reserves for our transferable structural warranty programs are established on a per-unit basis. While the structural warranty reserve is recorded as each house is delivered, the sufficiency of the structural warranty per unit charge and total reserve is reevaluated on an annual basis, with the assistance of an actuary, using our own historical data and trends, industry-wide historical data and trends, and other project specific factors. The reserves are also evaluated quarterly and adjusted if we encounter activity that is inconsistent with the historical experience used in the annual analysis. These reserves are subject to variability due to uncertainties regarding structural defect claims for products we build, the markets in which we build, claim settlement history, insurance and legal interpretations, among other factors.
Our warranty reserve amounts are based upon historical experience and geographic location. While we believe that our warranty reserves are sufficient to cover our projected costs, there can be no assurances that historical data and trends will accurately predict our actual warranty costs.
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A summary of warranty activity for the three and six months ended June 30, 2021 and 2020 is as follows:

| Three Months Ended June 30, |  | Six Months Ended June 30, |
(In thousands) | 2021 |  | 2020 |  | 2021 |  | 2020 |
Warranty reserves, beginning of period | $ | 29,426 |  |  | $ | 26,040 |  |  | $ | 29,012 |  |  | $ | 26,420 |  |
Warranty expense on homes delivered during the period | 5,586 |  |  | 4,242 |  |  | 10,412 |  |  | 7,663 |  |
Changes in estimates for pre-existing warranties | 248 |  |  | (623) |  |  | 611 |  |  | (644) |  |
Charges related to stucco-related claims | — |  |  | — |  | (a) | — |  |  | — |  | (a)
Settlements made during the period | (5,380) |  |  | (3,484) |  |  | (10,155) |  |  | (7,264) |  |
Warranty reserves, end of period | $ | 29,880 |  |  | $ | 26,175 |  |  | $ | 29,880 |  |  | $ | 26,175 |  |

(a) Represents charges for stucco-related repair costs, net of recoveries during the period.
We have received claims related to stucco installation from homeowners in certain of our communities in our Tampa and Orlando, Florida markets and have been named as a defendant in legal proceedings initiated by certain of such homeowners. These claims primarily relate to homes built prior to 2014 which have second story elevations with frame construction.
During the three and six month periods ended June 30, 2021, we did not record any additional warranty charges or receive any additional recoveries for stucco-related repair costs. At June 30, 2021, the remaining reserve for (1) homes in our Florida communities that we have identified as needing repair but have not yet completed the repair and (2) estimated repair costs for homes in our Florida communities that we have not yet identified as needing repair but that may require repair in the future included within our warranty reserve was $3.7 million. We believe that this amount is sufficient to cover both known and estimated future repair costs as of June 30, 2021. Our remaining stucco-related reserve is gross of any recoveries. Stucco-related recoveries are recorded in the period the reimbursement is received.
Our review of the stucco-related issues in our Florida communities is ongoing. Our estimate of future costs of stucco-related repairs is based on our judgment, various assumptions and internal data. Due to the degree of judgment and the potential for variability in our underlying assumptions and data, as we obtain additional information, we may revise our estimate, including to reflect additional estimated future stucco-related repairs costs, which revision could be material.
We continue to investigate the extent to which we may be able to further recover a portion of our stucco repair and claims handling costs from other sources, including our direct insurers, the subcontractors involved with the construction of the homes and their insurers. As of June 30, 2021, we are unable to estimate any additional amount that we believe is probable of recovery from these sources and, as noted above, we have not recorded a receivable for recoveries nor included an estimated amount of recoveries in determining our stucco-related warranty reserve.
Performance Bonds and Letters of Credit
At June 30, 2021, the Company had outstanding approximately $318.3 million of completion bonds and standby letters of credit, some of which were issued to various local governmental entities that expire at various times through November 2027. Included in this total are: (1) $230.2 million of performance and maintenance bonds and $72.5 million of performance letters of credit that serve as completion bonds for land development work in progress; (2) $8.6 million of financial letters of credit, of which $8.2 million represent deposits on land and lot purchase agreements; and (3) $7.0 million of financial bonds.
Land Option Contracts and Other Similar Contracts
At June 30, 2021, the Company also had options and contingent purchase agreements to acquire land and developed lots with an aggregate purchase price of approximately $993.0 million. Purchase of properties under these agreements is contingent upon satisfaction of certain requirements by the Company and the sellers.
Legal Matters
In addition to the legal proceedings related to stucco, the Company and certain of its subsidiaries have been named as defendants in certain other legal proceedings which are incidental to our business. While management currently believes that the ultimate resolution of these other legal proceedings, individually and in the aggregate, will not have a material effect on the Company’s financial position, results of operations and cash flows, such legal proceedings are subject to inherent uncertainties. The Company has recorded a liability to provide for the anticipated costs, including legal defense costs, associated with the resolution of these other legal proceedings. However, the possibility exists that the costs to resolve these legal proceedings could differ from the recorded estimates and, therefore, have a material effect on the Company’s net income for the periods in which they are resolved. At June 30, 2021 and December 31, 2020, we had $1.7 million and $0.8 million reserved for legal expenses, respectively.
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NOTE 7. Goodwill
Goodwill represents the excess of the purchase price paid over the fair value of the net assets acquired and liabilities assumed in business combinations. In connection with the Company’s acquisition of the homebuilding assets and operations of Pinnacle Homes in Detroit, Michigan in March of 2018, the Company recorded goodwill of $16.4 million, which is included as Goodwill in our Consolidated Balance Sheets. This amount was based on the estimated fair values of the acquired assets and liabilities at the date of the acquisition in accordance with ASC 350.
In accordance with ASC 350, the Company analyzes goodwill for impairment on an annual basis (or more often if indicators of impairment exist). The Company performs a qualitative assessment to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If the qualitative assessment indicates that it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount, then a quantitative assessment is performed to determine the reporting unit’s fair value. If the reporting unit’s carrying value exceeds its fair value, then an impairment loss is recognized for the amount of the excess of the carrying amount over the reporting unit’s fair value. The Company performed its annual goodwill impairment analysis during the fourth quarter of 2020, and no impairment was recorded at December 31, 2020. At June 30, 2021, no indicators for impairment existed and therefore no impairment was recorded. However, we will continue to monitor the fair value of the reporting unit in future periods if conditions worsen or other events occur that could impact the fair value of the reporting unit.
NOTE 8. Debt
Notes Payable - Homebuilding
On June 10, 2021, the Company entered into an amendment to the Credit Facility which, among other things (1) increased the commitments from lenders to $550 million from $500 million, (2) extended the maturity to July 18, 2025, (3) increased the required minimum level of Consolidated Tangible Net Worth from $848.2 million to $946.2 million (subject to increase over time based on earnings and proceeds from equity offerings), (4) increased the 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, (5) reduced the floor on one-month LIBOR to 0.25% from 0.75% and decreased the LIBOR margin by 75 basis points to 175 basis points (subject to adjustment in subsequent quarterly periods based on the Company’s leverage ratio), (6) decreased the fee paid quarterly on the remaining available commitment amount by 15 basis points, to 30 basis points (which is also subject to adjustment in subsequent quarterly periods based on the Company’s leverage ratio), (7) increased the sub-facility for letters of credit included in the Credit Facility to $150 million from $125 million, and (8) increased the borrowing base advance rates for certain categories of inventory used to calculate the available amount under the Credit Facility.
At June 30, 2021, the Company was in compliance with all financial covenants of the Credit Facility.
The available amount under the Credit Facility is computed in accordance with a borrowing base, which is calculated by applying various advance rates for different categories of inventory, and totaled $1.14 billion of availability for additional senior debt at June 30, 2021. As a result, the full $550 million commitment amount of the Credit Facility was available, less any borrowings and letters of credit outstanding. At June 30, 2021, there were no borrowings outstanding and $81.1 million of letters of credit outstanding, leaving a net remaining borrowing availability of $468.9 million. The Credit Facility includes a $150 million sub-facility for letters of credit.
The Company’s obligations under the Credit Facility are guaranteed by all of the Company’s subsidiaries, with the exception of subsidiaries that are primarily engaged in the business of mortgage financing, title insurance or similar financial businesses relating to the homebuilding and home sales business, certain subsidiaries that are not 100%-owned by the Company or another subsidiary, and other subsidiaries designated by the Company as Unrestricted Subsidiaries (as defined in the Credit Facility), 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 Company’s $400.0 million aggregate principal amount of 4.95% Senior Notes due 2028 (the “2028 Senior Notes”) and the Company’s $250.0 million aggregate principal amount of 5.625% Senior Notes due 2025 (the “2025 Senior Notes”). The guarantors for the Credit Facility (the “Subsidiary Guarantors”) are the same subsidiaries that guarantee the 2028 Senior Notes and the 2025 Senior Notes.
The Company’s obligations under the Credit Facility are general, unsecured senior obligations of the Company and the Subsidiary Guarantors and rank equally in right of payment with all our and the Subsidiary Guarantors’ existing and future unsecured senior indebtedness. Our obligations under the Credit Facility are effectively subordinated to our and the Subsidiary Guarantors’ existing and future secured indebtedness with respect to any assets comprising security or collateral for such indebtedness.
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Notes Payable - Financial Services
The MIF Mortgage Warehousing Agreement is used to finance eligible residential mortgage loans originated by M/I Financial. In May 2021, M/I Financial entered into an amendment to the MIF Mortgage Warehousing Agreement, which, among other things, extended the expiration date to May 27, 2022, increased the base maximum borrowing availability to $175 million from $125 million, allows the maximum borrowing availability to increase to $210 million from September 25, 2021 to October 15, 2021 and to $235 million from November 15, 2021 to February 4, 2022, which are periods of increased volume of mortgage originations, reduced the floor on one-month LIBOR from 1.0% to 0.5%, reduced the LIBOR margin from 2.0% to 1.9%, increased the required minimum level of Minimum Tangible Net Worth from $12.5 million to $15.0 million, and increased the required minimum level of liquidity from $6.25 million to $7.0 million. The MIF Mortgage Warehousing Agreement also contains certain financial covenants. At June 30, 2021, M/I Financial was in compliance with all financial covenants of the MIF Mortgage Warehousing Agreement.
The MIF Mortgage Repurchase Facility is used to finance eligible residential mortgage loans originated by M/I Financial. The MIF Mortgage Repurchase Facility provides for a mortgage repurchase facility with a maximum borrowing availability of $90 million. The MIF Mortgage Repurchase Facility expires on October 25, 2021. 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 1.0%) plus 175 or 200 basis points depending on the loan type. The MIF Mortgage Repurchase Facility also contains certain financial covenants. At June 30, 2021, M/I Financial was in compliance with all financial covenants of the MIF Mortgage Repurchase Facility.
At June 30, 2021 and December 31, 2020, M/I Financial’s total combined maximum borrowing availability under the two credit facilities was $265.0 million and $275.0 million, respectively. At June 30, 2021 and December 31, 2020, M/I Financial had $167.1 million and $225.6 million outstanding on a combined basis under its credit facilities, respectively.
Senior Notes
As of both June 30, 2021 and December 31, 2020, we had $400.0 million of our 2028 Senior Notes outstanding. The 2028 Senior Notes bear interest at a rate of 4.95% per year, payable semiannually in arrears on February 1 and August 1 of each year and mature on February 1, 2028. We may redeem all or any portion of the 2028 Senior Notes on or after February 1, 2023 at a stated redemption price, together with accrued and unpaid interest thereon. The redemption price will initially be 103.713% of the principal amount outstanding, but will decline to 102.475% of the principal amount outstanding if redeemed during the 12-month period beginning on February 1, 2024, will further decline to 101.238% of the principal amount outstanding if redeemed during the 12-month period beginning on February 1, 2025 and will further decline to 100.000% of the principal amount outstanding if redeemed on or after February 1, 2026, but prior to maturity.
As of both June 30, 2021 and December 31, 2020, we had $250.0 million of our 2025 Senior Notes outstanding. The 2025 Senior Notes bear interest at a rate of 5.625% per year, payable semiannually in arrears on February 1 and August 1 of each year, and mature on August 1, 2025. We may redeem all or any portion of the 2025 Senior Notes on or after August 1, 2020 at a stated redemption price, together with accrued and unpaid interest thereon. The redemption price is initially 104.219% of the principal amount outstanding, but will decline to 102.813% of the principal amount outstanding if redeemed during the 12-month period beginning on August 1, 2021, will further decline to 101.406% of the principal amount outstanding if redeemed during the 12-month period beginning on August 1, 2022 and will further decline to 100.000% of the principal amount outstanding if redeemed on or after August 1, 2023, but prior to maturity.
The 2028 Senior Notes and the 2025 Senior Notes contain certain covenants, as more fully described and defined in the indenture governing the 2028 Senior Notes and the indenture governing the 2025 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 and the indenture governing the 2025 Senior Notes. As of June 30, 2021, the Company was in compliance with all terms, conditions, and covenants under the indentures.
The 2028 Senior Notes and the 2025 Senior Notes are fully and unconditionally guaranteed jointly and severally on a senior unsecured basis by the Subsidiary Guarantors. The 2028 Senior Notes and the 2025 Senior Notes are general, unsecured senior obligations of the Company and the Subsidiary Guarantors and rank equally in right of payment with all our and the Subsidiary Guarantors’ existing and future unsecured senior indebtedness. The 2028 Senior Notes and the 2025 Senior Notes are effectively subordinated to our and the Subsidiary Guarantors’ existing and future secured indebtedness with respect to any assets comprising security or collateral for such indebtedness.
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The indenture governing our 2028 Senior Notes and the indenture governing the 2025 Senior Notes limit our ability to pay dividends on, and repurchase, our common shares and any of our preferred shares then outstanding to the amount of the positive balance in our “restricted payments basket,” as defined in the indentures. In each case, the “restricted payments basket” is equal to $125.0 million plus (1) 50% of our aggregate consolidated net income (or minus 100% of our aggregate consolidated net loss) from October 1, 2015, excluding income or loss from Unrestricted Subsidiaries (as defined in the indentures), plus (2) 100% of the net cash proceeds from either contributions to the common equity of the Company after December 1, 2015 or the sale of qualified equity interests after December 1, 2015, plus other items and subject to other exceptions. The positive balance in our restricted payments basket was $444.7 million at June 30, 2021 and $363.0 million at December 31, 2020. The determination to pay future dividends on, or make future repurchases of, our common shares will be at the discretion of our board of directors and will depend upon our results of operations, financial condition, capital requirements and compliance with debt covenants, and other factors deemed relevant by our board of directors (see Note 1 2 to our financial statements for more information).
Notes Payable - Other
The Company had other borrowings, which are reported in Notes Payable - Other in our Unaudited Condensed Consolidated Balance Sheets, totaling $4.1 million as of both June 30, 2021 and December 31, 2020, which are comprised of notes payable acquired in the normal course of business.
NOTE 9. Earnings Per Share
The table below presents a reconciliation between basic and diluted weighted average shares outstanding, net income, and basic and diluted income per share for the three and six months ended June 30, 2021 and 2020:

| Three Months Ended |  | Six Months Ended
| June 30, |  | June 30,
(In thousands, except per share amounts) | 2021 |  | 2020 |  | 2021 |  | 2020
NUMERATOR |  |  |  |  |  |  |
Net income | $ | 107,607 |  |  | $ | 54,508 |  |  | $ | 192,473 |  |  | $ | 86,254 |
DENOMINATOR |  |  |  |  |  |  |
Basic weighted average shares outstanding | 29,271 |  |  | 28,531 |  |  | 29,144 |  |  | 28,504 |
Effect of dilutive securities: |  |  |  |  |  |  |
Stock option awards | 512 |  |  | 115 |  |  | 487 |  |  | 210 |
Deferred compensation awards | 310 |  |  | 190 |  |  | 304 |  |  | 206 |
Diluted weighted average shares outstanding | $ | 30,093 |  |  | $ | 28,836 |  |  | $ | 29,935 |  |  | $ | 28,920 |
Earnings per common share: |  |  |  |  |  |  |
Basic | $ | 3.68 |  |  | $ | 1.91 |  |  | $ | 6.60 |  |  | $ | 3.03 |
Diluted | $ | 3.58 |  |  | $ | 1.89 |  |  | $ | 6.43 |  |  | $ | 2.98 |
Anti-dilutive equity awards not included in the calculation of diluted earnings per common share | 6 |  |  | 1,178 |  |  | 3 |  |  | 676 |

NOTE 10. Income Taxes
During the three months ended June 30, 2021 and 2020, the Company recorded a tax provision of $33.7 million and $17.2 million, respectively, which reflects income tax expense related to the periods’ income before income taxes. The effective tax rate for the three months ended June 30, 2021 and 2020 was 23.8% and 24.0%, respectively. During the six months ended June 30, 2021 and 2020, the Company recorded a tax provision of $59.1 million and $26.8 million, respectively. The effective tax rate for the six months ended June 30, 2021 and 2020 was 23.5% and 23.7%, respectively.
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NOTE 11. Business Segments
The Company’s chief operating decision makers evaluate the Company’s performance in various ways, including: (1) the results of our individual homebuilding operating segments and the results of our financial services operations; (2) the results of our homebuilding reportable segments; and (3) our consolidated financial results.
In accordance with ASC 280, Segment Reporting (“ASC 280”), we have identified each homebuilding division as an operating segment and have elected to aggregate our operating segments into separate reportable segments as they share similar aggregation characteristics prescribed in ASC 280 in the following regards: (1) long-term economic characteristics; (2) historical and expected future long-term gross margin percentages; (3) housing products, production processes and methods of distribution; and (4) geographical proximity.
The homebuilding operating segments that comprise each of our reportable segments are as follows:

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 |

The following table shows, by segment, revenue, operating income and interest expense for the three and six months ended June 30, 2021 and 2020, as well as the Company’s income before income taxes for such periods:

| Three Months Ended June 30, |  |  | Six Months Ended June 30, |
(In thousands) | 2021 |  | 2020 |  |  | 2021 |  | 2020 |
Revenue: |  |  |  |  |  |  |  |  |
Northern homebuilding | $ | 417,787 |  |  | $ | 299,340 |  |  |  | $ | 750,785 |  |  | $ | 539,610 |  |
Southern homebuilding | 514,618 |  |  | 395,806 |  |  |  | 980,747 |  |  | 719,672 |  |
Financial services (a) | 28,635 |  |  | 19,048 |  |  |  | 58,284 |  |  | 32,515 |  |
Total revenue | $ | 961,040 |  |  | $ | 714,194 |  |  |  | $ | 1,789,816 |  |  | $ | 1,291,797 |  |
Operating income: |  |  |  |  |  |  |  |  |
Northern homebuilding | $ | 61,982 |  |  | $ | 32,241 |  |  |  | $ | 100,966 |  |  | $ | 53,122 |  |
Southern homebuilding | 79,064 |  |  | 44,319 |  |  |  | 145,279 |  |  | 73,176 |  |
Financial services (a) | 18,925 |  |  | 11,457 |  |  |  | 39,561 |  |  | 17,819 |  |
Less: Corporate selling, general and administrative expense | (18,257) |  |  | (13,778) |  |  |  | (32,795) |  |  | (23,874) |  |
Total operating income | $ | 141,714 |  |  | $ | 74,239 |  |  |  | $ | 253,011 |  |  | $ | 120,243 |  |
Interest expense (income): |  |  |  |  |  |  |  |  |
Northern homebuilding | $ | — |  |  | $ | 703 |  |  |  | $ | 76 |  |  | $ | 2,514 |  |
Southern homebuilding | — |  |  | 1,192 |  |  |  | 157 |  |  | 3,350 |  |
Financial services (a) | 949 |  |  | 620 |  |  |  | 1,892 |  |  | 1,351 |  |
Corporate | (497) |  |  | — |  |  |  | (497) |  |  | — |  |
Total interest expense | $ | 452 |  |  | $ | 2,515 |  |  |  | $ | 1,628 |  |  | $ | 7,215 |  |
Equity in income from joint venture arrangements | (35) |  |  | (3) |  |  |  | (195) |  |  | (55) |  |
Income before income taxes | $ | 141,297 |  |  | $ | 71,727 |  |  |  | $ | 251,578 |  |  | $ | 113,083 |  |

(a)Our financial services operational results should be viewed in connection with our homebuilding business as its operations originate loans and provide title services primarily for our homebuying customers, with the exception of an immaterial amount of mortgage refinancing.
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The following tables show total assets by segment at June 30, 2021 and December 31, 2020:

| June 30, 2021
(In thousands) | Northern |  | Southern |  | Corporate, Financial Services and Unallocated |  | Total
Deposits on real estate under option or contract | $ | 4,860 |  |  | $ | 39,177 |  |  | $ | — |  |  | $ | 44,037 |
Inventory (a) | 873,152 |  |  | 1,159,280 |  |  | — |  |  | 2,032,432 |
Investments in joint venture arrangements | — |  |  | 32,833 |  |  | — |  |  | 32,833 |
Other assets | 43,221 |  |  | 73,660 |  | (b) | 635,229 |  |  | 752,110 |
Total assets | $ | 921,233 |  |  | $ | 1,304,950 |  |  | $ | 635,229 |  |  | $ | 2,861,412 |

| December 31, 2020
(In thousands) | Northern |  | Southern |  | Corporate, Financial Services and Unallocated |  | Total
Deposits on real estate under option or contract | $ | 5,031 |  |  | $ | 40,326 |  |  | $ | — |  |  | $ | 45,357 |
Inventory (a) | 847,524 |  |  | 1,023,727 |  |  | — |  |  | 1,871,251 |
Investments in joint venture arrangements | 1,378 |  |  | 33,295 |  |  | — |  |  | 34,673 |
Other assets | 37,465 |  |  | 57,588 |  | (b) | 596,711 |  |  | 691,764 |
Total assets | $ | 891,398 |  |  | $ | 1,154,936 |  |  | $ | 596,711 |  |  | $ | 2,643,045 |

(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.
NOTE 12. Share Repurchase Program
On August 14, 2018, the Company announced that its Board of Directors authorized a share repurchase program (the “2018 Share Repurchase Program”) pursuant to which the Company may purchase up to $50 million of its outstanding common shares through open market transactions, privately negotiated transactions or otherwise in accordance with all applicable laws. During the first half of 2021, the Company did not repurchase any outstanding common shares under the 2018 Share Repurchase Program. As of June 30, 2021, the Company has repurchased 1.4 million outstanding common shares at an aggregate purchase price of $32.8 million under the 2018 Share Repurchase Program and $17.2 million remained available for repurchases under the 2018 Share Repurchase Program.
On July 28, 2021, the Company announced that its Board of Directors has approved a new share repurchase program, pursuant to which the Company may purchase up to $100 million of its common shares (the “2021 Share Repurchase Program”), which replaces the 2018 Share Repurchase Program. Such common shares may be purchased through open market transactions, privately negotiated transactions or otherwise in accordance with all applicable laws. The timing and amount of any purchases 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. The 2021 Share Repurchase Program has no expiration date and may be modified, discontinued or suspended at any time.
NOTE 13. Revenue Recognition
Revenue and the related profit from the sale of a home and revenue and the related profit from the sale of land to third parties are recognized in the financial statements on the date of closing if delivery has occurred, title has passed to the buyer, all performance obligations (as defined below) have been met, and control of the home or land is transferred to the buyer in an amount that reflects the consideration we expect to be entitled to receive in exchange for the home or land. If not received immediately upon closing, cash proceeds from home closings are held in escrow for the Company’s benefit, typically for up to three days, and are included in Cash, cash equivalents and restricted cash on the Condensed Consolidated Balance Sheets.
Sales incentives vary by type of incentive and by amount on a community-by-community and home-by-home basis. The costs of any sales incentives in the form of free or discounted products and services provided to homebuyers are reflected in Land and housing costs in the Condensed Consolidated Statements of Income because such incentives are identified in our home purchase contracts with homebuyers as an intrinsic part of our single performance obligation to deliver and transfer title to their home for the transaction price stated in the contracts. Sales incentives that we may provide in the form of closing cost allowances are recorded as a reduction of housing revenue at the time the home is delivered.
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We record sales commissions within Selling expenses in the Condensed Consolidated Statements of Income when incurred (i.e., when the home is delivered) as the amortization period is generally one year or less and therefore capitalization is not required as part of the practical expedient for incremental costs of obtaining a contract.
Contract liabilities include customer deposits related to sold but undelivered homes. Substantially all of our home sales are scheduled to close and be recorded to revenue within one year from the date of receiving a customer deposit. Contract liabilities expected to be recognized as revenue, excluding revenue pertaining to contracts that have an original expected duration of one year or less, is not material.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. All of our home purchase contracts have a single performance obligation as the promise to transfer the home is not separately identifiable from other promises in the contract and, therefore, not distinct. Our performance obligation, to deliver the agreed-upon home, is generally satisfied in less than one year from the original contract date. Deferred revenue resulting from uncompleted performance obligations existing at the time we deliver new homes to our homebuyers is not material.
Although our third party land sale contracts may include multiple performance obligations, the revenue we expect to recognize in any future year related to remaining performance obligations, excluding revenue pertaining to contracts that have an original expected duration of one year or less, is not material. We do not disclose the value of unsatisfied performance obligations for land sale contracts with an original expected duration of one year or less.
We recognize the majority of the revenue associated with our mortgage loan operations when the mortgage loans are sold and/or related servicing rights are sold to third party investors or retained and managed under a third party sub-service arrangement. The revenue recognized is reduced by the fair value of the related guarantee provided to the investor. The fair value of the guarantee is recognized in revenue when the Company is released from its obligation under the guarantee (note that guarantees are excluded from the scope of ASC 606, Revenue from Contracts with Customers). We recognize financial services revenue associated with our title operations as homes are delivered, closing services are rendered, and title policies are issued, all of which generally occur simultaneously as each home is delivered. All of the underwriting risk associated with title insurance policies is transferred to third-party insurers.
The following table presents our revenues disaggregated by revenue source:

| Three Months Ended June 30, |  | Six Months Ended June 30, |
(Dollars in thousands) | 2021 |  | 2020 |  | 2021 |  | 2020 |
Housing | $ | 927,506 |  |  | $ | 694,700 |  |  | $ | 1,725,785 |  |  | $ | 1,254,149 |  |
Land sales | 4,899 |  |  | 446 |  |  | 5,747 |  |  | 5,133 |  |
Financial services (a) | 28,635 |  |  | 19,048 |  | (b) | 58,284 |  |  | 32,515 |  | (b)
Total revenue | $ | 961,040 |  |  | $ | 714,194 |  |  | $ | 1,789,816 |  |  | $ | 1,291,797 |  |

(a)Revenue includes hedging gains of $2.7 million and hedging losses of $7.0 million for the three months ended June 30, 2021 and 2020, respectively, and hedging gains of $3.9 million and hedging losses of $10.6 million for the six months ended June 30, 2021 and 2020, respectively. Hedging gains/losses do not represent revenue recognized from contracts with customers.
(b)Revenue for the three months ended June 30, 2020 includes a $0.6 million reversal of the $1.0 million charge taken on our mortgage serving rights during the first quarter of 2020. This $0.6 million was recorded as an increase in revenue. Revenue for the six months ended June 30, 2020 includes a net $0.4 million impairment charge taken on our mortgage serving rights which was recorded as a reduction of revenue. The net impairment charge taken during the first half of 2020 was caused by the disruption in the mortgage industry as a result of the COVID-19 pandemic.
Refer to Note 11 for presentation of our revenues disaggregated by geography. As our homebuilding operations accounted for over 97% of our total revenues for the three and six months ended June 30, 2021 and 2020, with most of those revenues generated from home purchase contracts with customers, we believe the disaggregation of revenues as disclosed above and in Note 11 fairly depict how the nature, amount, timing and uncertainty of cash flows are affected by economic factors.
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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
M/I Homes, Inc. and subsidiaries (the “Company” or “we”) is one of the nation’s leading builders of single-family homes having sold over 133,000 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; and Charlotte and Raleigh, North Carolina.
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;
•Summary of Our Contractual Obligations;
•Discussion of Our Utilization of Off-Balance Sheet Arrangements; and
•Impact of Interest Rates and Inflation.
FORWARD-LOOKING STATEMENTS
Certain information included in this report or in other materials we have filed or will file with the Securities and Exchange Commission (the “SEC”) (as well as information included in oral statements or other written statements made or to be made by us) contains or may contain forward-looking statements, including, but not limited to, statements regarding our future financial performance and financial condition. Words such as “expects,” “anticipates,” “envisions,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words and similar expressions are intended to identify such forward-looking statements. 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, the impact of the COVID-19 pandemic, 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, 2020 (the “2020 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.
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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 2020 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, 2021 as compared to those disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2020 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 |

Overview
For both the second quarter and first half of 2021, we achieved record levels of new contracts, homes delivered, revenue and income before income taxes. For the second quarter of 2021, we also achieved all-time quarterly records for income before income taxes, revenues, homes delivered, number of homes in backlog and backlog sales value. In addition, our financial services operations achieved second quarter and year-to-date records for revenue, income before income taxes and number of loans originated.
We believe that the homebuilding industry benefited from low interest rates, a continued undersupply of available homes and a heightened demand for home ownership, including an increase in millennial buyers, as many consumers move from rental apartments and densely populated areas to single family homes in suburban locations. We further believe these factors will continue to support strong demand throughout 2021, subject to any slowdown in the economic recovery, adverse developments related to the COVID-19 pandemic or increases in mortgage rates, unemployment levels, or inflationary cost pressures.
During the second quarter and first half ended June 30, 2021, we achieved the following record results in comparison to the second quarter and first half of 2020:
•New contracts increased to 2,267 from 2,261 and increased 24% to 5,376 from 4,350, respectively
•Homes delivered increased 23% to 2,258 homes (an all-time quarterly record) and 28% to 4,277 homes, respectively
•Number of homes in backlog at June 30, 2021 increased 49% to an all-time record 5,488 homes
•Total sales value in backlog increased 71% to $2.5 billion, an all-time record
•Revenue increased 35% to $961.0 million (an all-time quarterly record) and 39% to $1.8 billion, respectively
•Income before income taxes increased 97% to $141.3 million (an all-time quarterly record) and 122% to $251.6 million, respectively
•Net income increased 97% to $107.6 million and 123% to $192.5 million, respectively
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In addition to the results described above, our financial services operations also achieved record income before income taxes for the second quarter and the first half of 2021, benefiting from an increase in homes closed, the number of mortgages originated and higher margins, as well as technology enabled efficiencies.
Our company-wide absorption pace of sales per community for the second quarter of 2021 improved to 4.2 per month compared to 3.4 per month for the prior year’s second quarter. Partially as a result of this accelerated sales pace, our number of active communities declined to 175 from 220 at the end of the second quarter of 2020 and from 187 at the end of 2021’s first quarter. We believe we maintain a strong land position, and we continue to place additional land under contract for communities that will be brought online in future periods. However, our ability to replace existing communities in the short-term that are selling out faster than we anticipated could negatively impact our number of active communities in 2021. We continue to work to open new communities to grow our community count. We are also actively managing sales pace, in part by selectively increasing prices and limiting sales in the majority of our 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 2021 increased 97% from $71.7 million in the second quarter of 2020 to an all-time quarterly record $141.3 million in 2021. For the six months ended June 30, 2021, income before income taxes increased 122% from $113.1 million for the first half of 2020 to $251.6 million. We achieved net income of $107.6 million ($3.58 per diluted share), in 2021's second quarter, a 97% increase, or $53.1 million, from net income of $54.5 million ($1.89 per diluted share), in 2020's second quarter. Our effective tax rate was 23.8% in 2021’s second quarter compared to 24.0% in 2020. In the first half of 2021, we achieved net income of $192.5 million, or $6.43 per diluted share, compared to net income of $86.3 million, or $2.98 per diluted share, in the six months ended June 30, 2020. Our effective tax rate was 23.5% in 2021's first half compared to 23.7% in the same period in 2020.
During the quarter ended June 30, 2021, we recorded all-time quarterly record total revenue of $961.0 million, of which $927.5 million was from homes delivered, $4.9 million was from land sales and $28.6 million was from our financial services operations. Revenue from homes delivered increased 34% in 2021's second quarter compared to the same period in 2020 driven primarily by a 23% increase in the number of homes delivered (423 units) in addition to an 8% increase in the average sales price of homes delivered ($32,000 per home delivered), which was primarily the result of strong demand. Revenue from land sales increased $4.5 million from the second quarter of 2020 due to more land sales in 2021's second quarter compared to the prior year. Revenue from our financial services segment increased 50% to a second quarter record $28.6 million in the second quarter of 2021 as a result of an increase in loans closed and sold as well as higher margins on loans sold during the period compared to prior year. In the first half of 2021, we recorded year-to-date record total revenue of $1.8 billion, of which $1.73 billion was from homes delivered, $5.7 million was from land sales and $58.3 million was from our financial services operations. Revenue from homes delivered increased 38% in the first half of 2021 compared to the same period in 2020 driven primarily by a 28% increase in the number of homes delivered (947 units) and a 7% increase in the average sales price of homes delivered ($27,000 per home delivered). Revenue from land sales increased $0.6 million from the six months ended June 30, 2020 due to increased land sales in 2021's first six months compared to the prior year. Revenue from our financial services segment increased 79% to $58.3 million in the first half of 2021 as a result of an increase in loans closed and sold in the first half of 2021, in addition to higher margins on loans sold during the period compared to the prior year.
Total gross margin (total revenue less total land and housing costs) increased $85.0 million in the second quarter of 2021 compared to the second quarter of 2020 as a result of a $75.4 million improvement in the gross margin of our homebuilding operations and a $9.6 million improvement in the gross margin of our financial services operations. With respect to our homebuilding gross margin, our gross margin on homes delivered (housing gross margin) improved $74.4 million primarily as a result of the 8% increase in average sales price of homes delivered and the 23% increase in the number of homes delivered. Our housing gross margin percentage improved 300 basis points from 19.8% in prior year's second quarter to 22.8% in 2021's second quarter, primarily as a result of strong demand during 2021's second quarter. Our gross margin on land sales (land sale gross margin) improved $1.0 million in the second quarter of 2021 compared to the second quarter of 2020. The gross margin of our financial services operations increased $9.6 million in the second quarter of 2021 compared to the second quarter of 2020 as a result of increases in the number of loan originations and the average loan amount, in addition to higher margins on loans sold during the second quarter of 2021 compared to the second quarter of 2020. Total gross margin increased $170.5 million in the first half of 2021 compared to the same period in 2020 as a result of a $144.7 million improvement in the gross margin of our homebuilding operations and a $25.8 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 $143.6 million as a result of the 28% increase in the number of homes delivered and the 7% increase in the average sales price of homes delivered. Our housing gross margin percentage improved 310 basis points from 19.2% in prior year’s first half to 22.3% in 2021's first half, primarily as a result of strong demand during the period. Our gross margin on land sales improved $1.1 million in 2021's first six months
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compared to the same period in 2020. The gross margin of our financial services operations increased $25.8 million in the first half of 2021 compared to the same period in 2020 as a result of increases in the number of loan originations, in addition to higher margins on loans sold during the first half of 2021 compared to the first half of 2020. 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 the record number of sales in 2020 and during the first half of 2021, we are selling through communities faster, which has negatively impacted our number of active communities.We opened 37 new communities during the first half of 2021 and closed out of 64 communities.
For the three months ended June 30, 2021, selling, general and administrative expense increased $17.5 million, which partially offset the increase in our gross margin dollars discussed above, but declined as a percentage of revenue from 11.5% in the second quarter of 2020 to 10.4% in the second quarter of 2021. Selling expense increased $9.4 million from 2020's second quarter but improved as a percentage of revenue to 5.3% in 2021's second quarter from 5.8% for the same period in 2020. Variable selling expense for sales commissions contributed $8.4 million to the increase due to the higher number of homes delivered in the quarter. The increase in selling expense was also attributable to a $1.0 million increase in non-variable selling expense primarily related to increased headcount in our sales offices and models. General and administrative expense increased $8.1 million compared to the second quarter of 2020 but declined as a percentage of revenue from 5.7% in the second quarter of 2020 to 5.1% in the second quarter of 2021. The dollar increase in general and administrative expense was primarily due to a $7.6 million increase in compensation-related expenses due to our increased headcount and our strong financial performance during the quarter and a $0.5 million increase in land-related expenses. For the six months ended June 30, 2021, selling, general and administrative expense increased $37.7 million, which partially offset the increase in our gross margin dollars discussed above, but declined as a percentage of revenue from 11.8% in the six months ended June 30, 2020 to 10.6% in the first six months of 2021. Selling expense increased $18.3 million from the first half of 2020 but improved as a percentage of revenue to 5.4% in 2021's first half from 6.0% for the same period in 2020. Variable selling expense for sales commissions contributed $17.5 million to the increase due to the higher number of homes delivered during the first half of 2021. The increase in selling expense was also attributable to a $0.8 million increase in non-variable selling expense primarily related to increased headcount in our sales offices and models. General and administrative expense increased $19.4 million compared to the first half of 2020 but declined as a percentage of revenue from 5.8% in the six months ended June 30, 2020 to 5.3% in the first six months of 2021. The dollar increase in general and administrative expense was primarily due to a $16.0 million increase in compensation-related expenses due to our increased headcount and our strong financial performance during the period, a $2.0 million increase in land-related expenses, a $0.5 million increase in computer costs related to our investment in new information systems, a $0.4 million increase in charitable contributions, and a $0.5 million increase in miscellaneous expenses.
Outlook
We believe that new home sales will continue to benefit from low interest rates, a continued undersupply of available homes and consumer demographics, including a growing number of homebuyers, and an increase in millennial buyers, moving from rental apartments and more densely populated areas to single family homes in suburban locations. However, while overall economic conditions in the United States are recovering and housing conditions are currently favorable, such conditions, including the level of employment, inflationary cost pressures, secondary mortgage markets, consumer confidence and availability of mortgage loans, could be negatively impacted by adverse developments related to the COVID-19 pandemic, increases in mortgage rates, or other factors.
In the first half of 2021, we continued to experience cost increases in certain construction materials, and we continue to actively manage and monitor those costs. We have been able to raise home prices in many of our communities to offset these cost increases and preserve or increase our margins. During the second quarter, our ability to raise prices, together with cost management, allowed us to achieve a total gross margin percentage of 25.1%, an improvement of 320 basis points compared with 2020’s second quarter. We may experience future shortages in materials and labor as well as price increases for materials and labor and may not be able to maintain our current level of direct construction costs as a percentage of average sales price. We remain sensitive to changes in market conditions, and continue to focus on controlling overhead leverage and carefully managing our investment in land and land development spending.
Also due to strong overall housing demand, we have experienced periodic disruptions in our supply chain, including the availability of skilled labor and the timely availability of certain products such as lumber, cabinets and appliances which have lengthened the production cycles in certain markets. During the first half of 2021, we were able to manage through these disruptions, but we cannot predict the extent to which any such disruptions will affect our business in the remainder of 2021.
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We expect to emphasize the following strategic business objectives throughout the remainder of 2021:
•managing our land spend and inventory levels;
•manage our community sales pace to maximize returns;
•accelerating the readiness of new communities 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 2021, we invested $242.6 million in land acquisitions and $157.6 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 spending and investment in inventory homes accordingly. As a result of the uncertainty of the current environment, and complexity of land transactions, including zoning and approvals, along with timing of development, we are not providing land spending estimates for 2021 at this time.
We are also not providing estimated community count information for 2021 at this time due to the uncertainty of the current environment and the unknown effects on the specific timing of opening and closing out communities. As of June 30, 2021, we had approximately 44,000 lots under control, which represents a 28% increase from our approximately 34,500 lots under control at the end of last year’s second quarter . We opened 37 communities and closed 64 communities in the first half of 2021, ending the second quarter with a total of 175 communities, compared to 220 at the end of last year’s second quarter. Of our total communities at the end of the second quarter of 2021, 62 offered our more affordable Smart Series designs, which are primarily designed for first-time homebuyers. We are actively managing our sales pace to optimize our availability of lots and maximize financial returns, while also maintaining a manageable timeline for construction and delivery of our homes.
We believe 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 to manage through the current economic environment.
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The following table shows, by segment, revenue; gross margin; selling, general and administrative expense; operating income (loss); and interest expense for the three and six months ended June 30, 2021 and 2020:

| Three Months Ended June 30, |  |  | Six Months Ended June 30, |
(In thousands) | 2021 |  | 2020 |  |  | 2021 |  | 2020 |
Revenue: |  |  |  |  |  |  |  |  |
Northern homebuilding | $ | 417,787 |  |  | $ | 299,340 |  |  |  | $ | 750,785 |  |  | $ | 539,610 |  |
Southern homebuilding | 514,618 |  |  | 395,806 |  |  |  | 980,747 |  |  | 719,672 |  |
Financial services (a) | 28,635 |  |  | 19,048 |  |  |  | 58,284 |  |  | 32,515 |  |
Total revenue | $ | 961,040 |  |  | $ | 714,194 |  |  |  | $ | 1,789,816 |  |  | $ | 1,291,797 |  |
Gross margin: |  |  |  |  |  |  |  |  |
Northern homebuilding | $ | 91,902 |  |  | $ | 57,068 |  |  |  | $ | 158,465 |  |  | $ | 99,626 |  |
Southern homebuilding | 120,831 |  |  | 80,287 |  |  |  | 226,810 |  |  | 140,941 |  |
Financial services (a) | 28,635 |  |  | 19,048 |  |  |  | 58,284 |  |  | 32,515 |  |
Total gross margin | $ | 241,368 |  |  | $ | 156,403 |  |  |  | $ | 443,559 |  |  | $ | 273,082 |  |
Selling, general and administrative expense: |  |  |  |  |  |  |  |  |
Northern homebuilding | $ | 29,920 |  |  | $ | 24,827 |  |  |  | $ | 57,499 |  |  | $ | 46,504 |  |
Southern homebuilding | 41,767 |  |  | 35,968 |  |  |  | 81,531 |  |  | 67,765 |  |
Financial services (a) | 9,710 |  |  | 7,591 |  |  |  | 18,723 |  |  | 14,696 |  |
Corporate | 18,257 |  |  | 13,778 |  |  |  | 32,795 |  |  | 23,874 |  |
Total selling, general and administrative expense | $ | 99,654 |  |  | $ | 82,164 |  |  |  | $ | 190,548 |  |  | $ | 152,839 |  |
Operating income (loss): |  |  |  |  |  |  |  |  |
Northern homebuilding | $ | 61,982 |  |  | $ | 32,241 |  |  |  | $ | 100,966 |  |  | $ | 53,122 |  |
Southern homebuilding | 79,064 |  |  | 44,319 |  |  |  | 145,279 |  |  | 73,176 |  |
Financial services (a) | 18,925 |  |  | 11,457 |  |  |  | 39,561 |  |  | 17,819 |  |
Less: Corporate selling, general and administrative expense | (18,257) |  |  | (13,778) |  |  |  | (32,795) |  |  | (23,874) |  |
Total operating income | $ | 141,714 |  |  | $ | 74,239 |  |  |  | $ | 253,011 |  |  | $ | 120,243 |  |
Interest expense (income): |  |  |  |  |  |  |  |  |
Northern homebuilding | $ | — |  |  | $ | 703 |  |  |  | $ | 76 |  |  | $ | 2,514 |  |
Southern homebuilding | — |  |  | 1,192 |  |  |  | 157 |  |  | 3,350 |  |
Financial services (a) | 949 |  |  | 620 |  |  |  | 1,892 |  |  | 1,351 |  |
Corporate | (497) |  |  | — |  |  |  | (497) |  |  | — |  |
Total interest expense | $ | 452 |  |  | $ | 2,515 |  |  |  | $ | 1,628 |  |  | $ | 7,215 |  |
Equity in income of joint venture arrangements | (35) |  |  | (3) |  |  |  | (195) |  |  | (55) |  |
Income before income taxes | $ | 141,297 |  |  | $ | 71,727 |  |  |  | $ | 251,578 |  |  | $ | 113,083 |  |

(a)Our financial services operational results should be viewed in connection with our homebuilding business as its operations originate loans and provide title services primarily for our homebuying customers, with the exception of a small amount of mortgage refinancing.
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The following tables show total assets by segment at June 30, 2021 and December 31, 2020:

| At June 30, 2021
(In thousands) | Northern |  | Southern |  | Corporate, Financial Services and Unallocated |  | Total
Deposits on real estate under option or contract | $ | 4,860 |  |  | $ | 39,177 |  |  | $ | — |  |  | $ | 44,037 |
Inventory (a) | 873,152 |  |  | 1,159,280 |  |  | — |  |  | 2,032,432 |
Investments in joint venture arrangements | — |  |  | 32,833 |  |  | — |  |  | 32,833 |
Other assets | 43,221 |  |  | 73,660 |  | (b) | 635,229 |  |  | 752,110 |
Total assets | $ | 921,233 |  |  | $ | 1,304,950 |  |  | $ | 635,229 |  |  | $ | 2,861,412 |

| At December 31, 2020
(In thousands) | Northern |  | Southern |  | Corporate, Financial Services and Unallocated |  | Total
Deposits on real estate under option or contract | $ | 5,031 |  |  | $ | 40,326 |  |  | $ | — |  |  | $ | 45,357 |
Inventory (a) | 847,524 |  |  | 1,023,727 |  |  | — |  |  | 1,871,251 |
Investments in joint venture arrangements | 1,378 |  |  | 33,295 |  |  | — |  |  | 34,673 |
Other assets | 37,465 |  |  | 57,588 |  | (b) | 596,711 |  |  | 691,764 |
Total assets | $ | 891,398 |  |  | $ | 1,154,936 |  |  | $ | 596,711 |  |  | $ | 2,643,045 |

(a)Inventory includes single-family lots; land and land development costs; land held for sale; homes under construction; model homes and furnishings; community development district infrastructure; and consolidated inventory not owned.
(b)Includes development reimbursements from local municipalities.
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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, 2021 and 2020:

| Three Months Ended June 30, |  |  | Six Months Ended June 30, |
(Dollars in thousands) | 2021 |  | 2020 |  |  | 2021 |  | 2020 |
Northern Region |  |  |  |  |  |  |  |  |
Homes delivered | 961 |  |  | 734 |  |  |  | 1,762 |  |  | 1,322 |  |
New contracts, net | 884 |  |  | 922 |  |  |  | 2,190 |  |  | 1,775 |  |
Backlog at end of period | 2,243 |  |  | 1,596 |  |  |  | 2,243 |  |  | 1,596 |  |
Average sales price of homes delivered | $ | 433 |  |  | $ | 408 |  |  |  | $ | 425 |  |  | $ | 408 |  |
Average sales price of homes in backlog | $ | 468 |  |  | $ | 419 |  |  |  | $ | 468 |  |  | $ | 419 |  |
Aggregate sales value of homes in backlog | $ | 1,049,811 |  |  | $ | 668,356 |  |  |  | $ | 1,049,811 |  |  | $ | 668,356 |  |
Housing revenue | $ | 416,247 |  |  | $ | 299,340 |  |  |  | $ | 749,055 |  |  | $ | 538,888 |  |
Land sale revenue | $ | 1,540 |  |  | $ | — |  |  |  | $ | 1,730 |  |  | $ | 722 |  |
Operating income homes (a) | $ | 61,706 |  |  | $ | 32,242 |  |  |  | $ | 100,634 |  |  | $ | 53,077 |  |
Operating income (loss) land | $ | 276 |  |  | $ | (1) |  |  |  | $ | 332 |  |  | $ | 45 |  |
Number of average active communities | 83 |  |  | 96 |  |  |  | 85 |  |  | 96 |  |
Number of active communities, end of period | 79 |  |  | 94 |  |  |  | 79 |  |  | 94 |  |
Southern Region |  |  |  |  |  |  |  |  |
Homes delivered | 1,297 |  |  | 1,101 |  |  |  | 2,515 |  |  | 2,008 |  |
New contracts, net | 1,383 |  |  | 1,339 |  |  |  | 3,186 |  |  | 2,575 |  |
Backlog at end of period | 3,245 |  |  | 2,095 |  |  |  | 3,245 |  |  | 2,095 |  |
Average sales price of homes delivered | $ | 394 |  |  | $ | 359 |  |  |  | $ | 388 |  |  | $ | 356 |  |
Average sales price of homes in backlog | $ | 444 |  |  | $ | 378 |  |  |  | $ | 444 |  |  | $ | 378 |  |
Aggregate sales value of homes in backlog | $ | 1,440,115 |  |  | $ | 791,720 |  |  |  | $ | 1,440,115 |  |  | $ | 791,720 |  |
Housing revenue | $ | 511,259 |  |  | $ | 395,360 |  |  |  | $ | 976,730 |  |  | $ | 715,261 |  |
Land sale revenue | $ | 3,359 |  |  | $ | 446 |  |  |  | $ | 4,017 |  |  | $ | 4,411 |  |
Operating income homes (a) | $ | 78,414 |  |  | $ | 44,323 |  |  |  | $ | 144,435 |  |  | $ | 73,157 |  |
Operating income (loss) land | $ | 650 |  |  | $ | (4) |  |  |  | $ | 844 |  |  | $ | 19 |  |
Number of average active communities | 98 |  |  | 126 |  |  |  | 103 |  |  | 127 |  |
Number of active communities, end of period | 96 |  |  | 126 |  |  |  | 96 |  |  | 126 |  |
Total Homebuilding Regions |  |  |  |  |  |  |  |  |
Homes delivered | 2,258 |  |  | 1,835 |  |  |  | 4,277 |  |  | 3,330 |  |
New contracts, net | 2,267 |  |  | 2,261 |  |  |  | 5,376 |  |  | 4,350 |  |
Backlog at end of period | 5,488 |  |  | 3,691 |  |  |  | 5,488 |  |  | 3,691 |  |
Average sales price of homes delivered | $ | 411 |  |  | $ | 379 |  |  |  | $ | 404 |  |  | $ | 377 |  |
Average sales price of homes in backlog | $ | 454 |  |  | $ | 396 |  |  |  | $ | 454 |  |  | $ | 396 |  |
Aggregate sales value of homes in backlog | $ | 2,489,926 |  |  | $ | 1,460,076 |  |  |  | $ | 2,489,926 |  |  | $ | 1,460,076 |  |
Housing revenue | $ | 927,506 |  |  | $ | 694,700 |  |  |  | $ | 1,725,785 |  |  | $ | 1,254,149 |  |
Land sale revenue | $ | 4,899 |  |  | $ | 446 |  |  |  | $ | 5,747 |  |  | $ | 5,133 |  |
Operating income homes (a) | $ | 140,120 |  |  | $ | 76,565 |  |  |  | $ | 245,069 |  |  | $ | 126,234 |  |
Operating income (loss) land | $ | 926 |  |  | $ | (5) |  |  |  | $ | 1,176 |  |  | $ | 64 |  |
Number of average active communities | 181 |  |  | 222 |  |  |  | 188 |  |  | 223 |  |
Number of active communities, end of period | 175 |  |  | 220 |  |  |  | 175 |  |  | 220 |  |

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

| Three Months Ended June 30, |  | Six Months Ended June 30,
(Dollars in thousands) | 2021 |  | 2020 |  | 2021 |  | 2020
Financial Services |  |  |  |  |  |  |
Number of loans originated | 1,704 |  |  | 1,375 |  |  | 3,279 |  |  | 2,506 |
Value of loans originated | $ | 572,156 |  |  | $ | 428,020 |  |  | $ | 1,088,033 |  |  | $ | 773,970 |
Revenue | $ | 28,635 |  |  | $ | 19,048 |  |  | $ | 58,284 |  |  | $ | 32,515 |
Less: Selling, general and administrative expenses | 9,710 |  |  | 7,591 |  |  | 18,723 |  |  | 14,696 |
Less: Interest expense | 949 |  |  | 620 |  |  | 1,892 |  |  | 1,351 |
Income before income taxes | $ | 17,976 |  |  | $ | 10,837 |  |  | $ | 37,669 |  |  | $ | 16,468 |

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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, 2021 and 2020:

| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2021 |  | 2020 |  | 2021 |  | 2020
Northern | 6.1 | % |  | 11.6 | % |  | 6.2 | % |  | 10.7 | %
Southern | 7.6 | % |  | 15.6 | % |  | 7.7 | % |  | 14.1 | %
Total cancellation rate | 7.0 | % |  | 14.0 | % |  | 7.1 | % |  | 12.7 | %

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. Additionally, given the disruption in economic activity caused by the COVID-19 pandemic, and the uneven impact of the recovery on housing sales, our results for the six months ended June 30, 2021 are not necessarily indicative of the results that we may achieve in future periods.
Year Over Year Comparison
Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020
Northern Region. During the three months ended June 30, 2021, homebuilding revenue in our Northern region increased $118.5 million, from $299.3 million in the second quarter of 2020 to $417.8 million in the second quarter of 2021. This 40% increase in homebuilding revenue was primarily the result of a 31% increase in the number of homes delivered (227 units) and a 6% increase in the average sales price of homes delivered ($25,000 per home delivered) which was due to increased demand during the period. Operating income in our Northern region increased $29.8 million from $32.2 million in the second quarter of 2020 to $62.0 million during the quarter ended June 30, 2021. This increase in operating income was the result of a $34.9 million improvement in our gross margin, offset partially by a $5.1 million increase in selling, general and administrative expense. With respect to our homebuilding gross margin, our housing gross margin improved $34.6 million primarily due to the increase in average sales price of homes delivered and the 31% increase in the number of homes delivered noted above. Our housing gross margin percentage improved 290 basis points to 22.0% in the second quarter of 2021 from 19.1% in the prior year’s second quarter. The improvement in housing gross margin percentage was primarily due to increased demand during the period. Our land sale gross margin increased $0.3 million in the second quarter of 2021 compared to the same period in 2020 due to more land sales during the period.
Selling, general and administrative expense increased $5.1 million, from $24.8 million for the quarter ended June 30, 2020 to $29.9 million for the quarter ended June 30, 2021, but improved as a percentage of revenue to 7.2% in 2021's second quarter from 8.3% in 2020's second quarter. The increase in selling, general and administrative expense was attributable, in part, to a $4.8 million increase in selling expense due to (1) a $4.0 million increase in variable selling expenses resulting from increases in sales commissions produced by the higher number of homes delivered, and (2) a $0.8 million increase in non-variable selling expenses primarily related to costs associated with our additional sales offices and models as a result of increased headcount. The increase in selling, general and administrative expense was also attributable to a $0.3 million increase in general and administrative expense primarily related to a $0.9 million increase in compensation-related expenses due to our increased
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headcount and our strong financial performance during the period and a $0.3 million increase in land-related expenses, offset partially by a $0.9 million decrease in professional fees.
During the three months ended June 30, 2021, we experienced a 4% decrease in new contracts in our Northern region, from 922 in the second quarter of 2020 to 884 in the second quarter of 2021 primarily due to our decreased community count. Homes in backlog increased 41% from 1,596 homes at June 30, 2020 to 2,243 homes at June 30, 2021. Average sales price in backlog increased to $468,000 at June 30, 2021 compared to $419,000 at June 30, 2020 which was primarily due to strong demand. During the three months ended June 30, 2021, we opened five new communities in our Northern region compared to opening seven communities during 2020's second quarter. Our monthly absorption rate in our Northern region improved to 3.6 per community in the second quarter of 2021 compared to 3.2 per community in 2020's second quarter.
Southern Region. During the three month period ended June 30, 2021, homebuilding revenue in our Southern region increased $118.8 million, from $395.8 million in the second quarter of 2020 to $514.6 million in the second quarter of 2021. This 30% increase in homebuilding revenue was the result of an 18% increase in the number of homes delivered (196 units) and an increase in the average sales price of homes delivered ($35,000 per home delivered) which was due to strong demand. Operating income in our Southern region increased $34.8 million from $44.3 million in the second quarter of 2020 to $79.1 million during the quarter ended June 30, 2021. This increase in operating income was the result of a $40.6 million improvement in our gross margin, partially offset by a $5.8 million increase in selling, general, and administrative expense. With respect to our homebuilding gross margin, our housing gross margin improved $39.9 million, due primarily to the increase in average sales price of homes delivered and the 18% increase in the number of homes delivered noted above. Our housing gross margin percentage improved from 20.3% in prior year’s second quarter to 23.5% in the second quarter of 2021, largely due to the more affordable mix of communities delivering homes and strong demand. Our land sale gross margin improved $0.7 million in the second quarter of 2021 compared to the second quarter of 2020. We did not record any additional warranty charges for stucco-related repair costs in our Florida communities during the second quarter of 2021. With respect to this matter, during the quarter ended June 30, 2021, we identified 13 additional homes in need of repair and completed repairs on 23 homes, and, at June 30, 2021, we have 100 homes in various stages of repair. See Note 6 to our financial statements for further information.
Selling, general and administrative expense increased $5.8 million from $36.0 million in the second quarter of 2020 to $41.8 million in the second quarter of 2021 but declined as a percentage of revenue to 8.1% from 9.1% in the second quarter of 2020. The increase in selling, general and administrative expense was attributable to a $4.4 million increase in selling expense due to an 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 $1.4 million increase in general and administrative expense primarily related to an increase in compensation-related expenses due to our increased headcount and our strong financial performance.
During the three months ended June 30, 2021, we experienced a 3% increase in new contracts in our Southern region, from 1,339 in the second quarter of 2020 to 1,383 in the second quarter of 2021, and a 55% increase in homes in backlog from 2,095 homes at June 30, 2020 to 3,245 homes at June 30, 2021. The increases in new contracts and backlog were primarily due to improving demand in our more affordable communities compared to prior year. Average sales price in backlog also increased to $444,000 at June 30, 2021 from $378,000 at June 30, 2020 due to strong demand. During the three months ended June 30, 2021, we opened 11 new communities in our Southern region compared to opening 15 communities during 2020's second quarter. Our monthly absorption rate in our Southern region improved to 4.7 per community in the second quarter of 2021 compared to 3.6 per community in the second quarter of 2020.
Financial Services. Revenue from our mortgage and title operations increased 50% to a second quarter record of $28.6 million in the second quarter of 2021 from $19.0 million in the second quarter of 2020 due to a 24% increase in the number of loan originations from 1,375 in 2020's second quarter to 1,704 in the second quarter of 2021 as well as an increase in the average loan amount from $311,000 in the quarter ended June 30, 2020 to $336,000 in the quarter ended June 30, 2021. We also experienced higher margins on loans sold during the period compared to prior year’s second quarter.
We experienced a $7.5 million increase in operating income in the second quarter of 2021 compared to 2020's second quarter, which was primarily due to the increase in revenue discussed above, offset partially by a $2.1 million increase in selling, general and administrative expense compared to the second quarter of 2020. This increase was primarily the result of a $1.1 million increase in compensation-related expenses due to our increase in employee headcount due to new mortgage locations and our strong financial performance, in addition to a $1.0 million increase in other miscellaneous expenses.
At June 30, 2021, M/I Financial, LLC (“M/I Financial”) provided financing services in all of our markets.
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Approximately 84% of our homes delivered during the second quarter of 2021 were financed through M/I Financial, compared to 83% in the second quarter of 2020. 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 $13.8 million for the second quarter of 2020 to $18.3 million for the second quarter of 2021. This increase primarily resulted from an increase in compensation-related expenses due to our increased headcount and our strong financial performance.
Equity in Income from Joint Venture Arrangements. Equity in income from joint venture arrangements represents our portion of pre-tax earnings from our joint venture arrangements where a special purpose entity is established (“LLCs”) with the other partners. The Company earned less than $0.1 million of equity in income from its LLCs during both the three months ended June 30, 2021 and 2020.
Interest Expense - Net. Interest expense for the Company decreased $2.0 million from $2.5 million for the three months ended June 30, 2020 to $0.5 million for the three months ended June 30, 2021. This decrease was primarily the result of a decrease in average borrowings under our Credit Facility (as defined below) during the second quarter of 2021 compared to prior year as well as higher interest capitalization due to the high level of inventory we have under development compared to the prior year. Our weighted average borrowings decreased from $753.7 million in 2020's second quarter to $702.5 million in 2021's second quarter. Our weighted average borrowing rate increased, however, from 5.44% in the second quarter of 2020 to 5.76% for second quarter of 2021.
Income Taxes. Our overall effective tax rate was 23.8% for the three months ended June 30, 2021 and 24.0% for the same period in 2020. The decrease in the effective rate from the three months ended June 30, 2020 was primarily attributable to a $1.0 million increase in tax benefit from equity compensation (see Note 10 to our financial statements for more information).
Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
Northern Region. During the first half of 2021, homebuilding revenue in our Northern region increased $211.2 million, from $539.6 million in the first six months of 2020 to $750.8 million in the first six months of 2021. This 39% increase in homebuilding revenue was the result of a 33% increase in the number of homes delivered (440 units), a 4% increase in the average sales price of homes delivered ($17,000 per home delivered) and a $1.0 million increase in land sale revenue. Operating income in our Northern region increased $47.9 million, from $53.1 million during the first half of 2020 to $101.0 million during the six months ended June 30, 2021. The increase in operating income was primarily the result of a $58.9 million increase in our gross margin, offset, in part, by an $11.0 million increase in selling, general, and administrative expense. With respect to our homebuilding gross margin, our housing gross margin improved $58.6 million, primarily due to the increase in the average sale price of homes delivered and the 33% increase in the number of homes delivered. Our housing gross margin percentage improved 260 basis points from 18.5% in the first six months of 2020 to 21.1% for the same period in 2021, primarily due to strong demand compared to the prior year. Our land sale gross margin increased by $0.3 million in the first half of 2021 compared to the same period in 2020.
Selling, general and administrative expense increased $11.0 million, from $46.5 million for the six months ended June 30, 2020 to $57.5 million for the six months ended June 30, 2021, and declined as a percentage of revenue to 7.7% in the first half of 2021 compared to 8.6% in the same period in 2020. The increase in selling, general and administrative expense was attributable, in part, to an $8.4 million increase in selling expense due to (1) a $7.6 million increase in variable selling expenses resulting from increases in sales commissions produced by the higher number of homes delivered, and (2) a $0.8 million increase in non-variable selling expenses primarily related to costs associated with our additional sales offices and models as a result of increased headcount. The increase in selling, general and administrative expense was also attributable to a $2.6 million increase in general and administrative expense, which was primarily related to a $2.3 million increase in compensation-related expenses due to our increased headcount and our strong financial performance during the period and a $1.5 million increase in land-related expenses, offset partially by a $1.2 million decrease in professional fees.
During the six months ended June 30, 2021, we experienced a 23% increase in new contracts in our Northern region, from 1,775 in the six months ended June 30, 2020 to 2,190 in the first half of 2021, and a 41% increase in homes in backlog from 1,596 homes at June 30, 2020 to 2,243 homes at June 30, 2021. The increases in new contracts and homes in backlog were due to strong demand compared to prior year. Average sales price in backlog increased to $468,000 at June 30, 2021 compared to $419,000 at June 30, 2020, which was primarily due to strong demand compared to prior year. During the six months ended June 30, 2021, we opened 18 new communities in our Northern region compared to 16 during the same period in 2020. Our
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monthly absorption rate in our Northern region improved to 4.3 per community in the six months ended June 30, 2021 from 3.1 per community in the same period in 2020.
Southern Region. During the six months ended June 30, 2021, homebuilding revenue in our Southern region increased $261.0 million from $719.7 million in the first half of 2020 to $980.7 million in the first half of 2021. This 36% increase in homebuilding revenue was the result of a 25% increase in the number of homes delivered (507 units) and a 9% increase in the average sales price of homes delivered ($32,000 per home delivered), offset partially by a $0.4 million decrease in land sale revenue. Operating income in our Southern region increased $72.1 million from $73.2 million in the first half of 2020 to $145.3 million during the six months ended June 30, 2021. This increase in operating income was the result of an $85.9 million improvement in our gross margin offset, in part, by a $13.7 million increase in selling, general, and administrative expense. With respect to our homebuilding gross margin, our gross margin on homes delivered improved $85.1 million, due primarily to the increase in average sale price of homes delivered and the 25% increase in the number of homes delivered noted above. Our housing gross margin percentage improved 340 basis points from 19.7% in the six months ended June 30, 2020 to 23.1% in the same period in 2021, largely due to strong demand compared to prior year. Our land sale gross margin improved $0.8 million in the first half of 2021 compared to the same period in 2020.
Selling, general and administrative expense increased $13.7 million from $67.8 million in the first half of 2020 to $81.5 million in the first half of 2021 but declined as a percentage of revenue to 8.3% compared to 9.4% for the first half of 2020. The increase in selling, general and administrative expense was attributable to a $9.4 million increase in selling expense due to a $9.9 million increase in variable selling expenses resulting from increases in sales commissions produced by the higher number of homes delivered, offset partially by a $0.5 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 increase in selling, general and administrative expense was also attributable to a $4.3 million increase in general and administrative expense, which was primarily related to a $4.0 million increase in compensation-related expenses due to our increased headcount and our strong financial performance and a $0.3 million increase in land-related expenses.
During the six months ended June 30, 2021, we experienced a 24% increase in new contracts in our Southern region, from 2,575 in the six months ended June 30, 2020 to 3,186 in the first half of 2021, and a 55% increase in backlog from 2,095 homes at June 30, 2020 to 3,245 homes at June 30, 2021. The increases in new contracts and backlog were primarily due to strong demand compared to prior year. Average sales price in backlog also increased from $378,000 at June 30, 2020 to $444,000 at June 30, 2021 due to strong demand. During the six months ended June 30, 2021, we opened 19 communities in our Southern region, compared to 23 during the first half of 2020. Our monthly absorption rate in our Southern region improved to 5.2 per community in the first half of 2021 from 3.4 per community in the first half of 2020.
Financial Services. Revenue from our mortgage and title operations increased $25.8 million (79%) from $32.5 million in the first half of 2020 to $58.3 million in the first half of 2021 due to a 31% increase in the number of loan originations from 2,506 in the first half of 2020 to 3,279 in the first half of 2021 and an increase in the average loan amount from $309,000 in the six months ended June 30, 2020 to $332,000 in the six months ended June 30, 2021. We also experienced higher margins on loans sold during the period compared to 2020's first half.
We experienced a $21.7 million increase in operating income in the first half of 2021 compared to the same period in 2020, which was primarily due to the increase in revenue discussed above offset partially by a $4.0 million increase in selling, general and administrative expense compared to the first half of 2020. The $4.0 million increase in selling, general and administrative expense was primarily attributable to a $2.5 million increase in compensation-related expenses due to an increase in employee headcount and an increase in incentive compensation due to improved results, in addition to a $1.5 million increase in other miscellaneous expenses.
At June 30, 2021, M/I Financial provided financing services in all of our markets. Approximately 84% of our homes delivered during the first half of 2021 were financed through M/I Financial, the same as in the first half of 2020. 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 $23.9 million for the six months ended June 30, 2020 to $32.8 million for the six months ended June 30, 2021. The increase was primarily due to an increase in compensation-related expenses due to our increased headcount and our strong financial results during the period.
Equity in Income from Joint Venture Arrangements. The Company earned $0.2 million and less than $0.1 million of equity in income from its LLCs during the six months ended June 30, 2021 and 2020, respectively.
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Interest Expense - Net. Interest expense for the Company decreased $5.6 million from $7.2 million in the six months ended June 30, 2020 to $1.6 million in the six months ended June 30, 2021. This decrease was primarily the result of a decrease in average borrowings under our Credit Facility (as defined below) during the first half of 2021 compared to prior year. Our weighted average borrowings decreased from $760.9 million in the first half of 2020 to $705.2 million in the first half of 2021, and our weighted average borrowing rate declined from 5.81% in 2020's first half to 5.74% in 2021's first half.
Income Taxes. Our overall effective tax rate was 23.5% for the six months ended June 30, 2021 and 23.7% for the six months ended June 30, 2020. The decrease in the effective rate from the six months ended June 30, 2020 was primarily attributable to a $1.5 million increase in tax benefit from equity compensation.
LIQUIDITY AND CAPITAL RESOURCES
Overview of Capital Resources and Liquidity.
At June 30, 2021, we had $371.8 million of cash, cash equivalents and restricted cash, with $371.3 million of this amount comprised of unrestricted cash and cash equivalents, which represents a $110.7 million increase in unrestricted cash and cash equivalents from December 31, 2020. Our principal uses of cash for the six months ended June 30, 2021 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. In order to fund these uses of cash, we used proceeds from home deliveries, the sale of mortgage loans and the sale of mortgage servicing rights, as well as excess cash balances, borrowings under our credit facilities, and other sources of liquidity.
The Company is a party to three primary credit agreements: (1) a $550 million unsecured revolving credit facility, dated July 18, 2013, as amended most recently on June 10, 2021 (the “Credit Facility”), with M/I Homes, Inc. as borrower and guaranteed by the Company’s wholly owned homebuilding subsidiaries; (2) a $175 million secured mortgage warehousing agreement, dated June 24, 2016, as amended most recently on May 28, 2021, 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, with M/I Financial as borrower (the “MIF Mortgage Repurchase Facility”).
As of June 30, 2021, there were no borrowings outstanding and $81.1 million of letters of credit outstanding under our $550 million Credit Facility, leaving $468.9 million available. We expect to continue managing our balance sheet and liquidity carefully 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 capital requirements from cash receipts, excess cash balances and availability under our Credit Facility.
During the first half of 2021, we delivered 4,277 homes, started 5,149 homes, and spent $242.6 million on land purchases and $157.6 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, 2021, we had a total of 25,777 lots under contract, with an aggregate purchase price of approximately $993.0 million, to be acquired during the remainder of 2021 through 2028.
Operating Cash Flow Activities. During the six-month period ended June 30, 2021, we generated $173.8 million of cash from operating activities, compared to generating $82.8 million of cash in operating activities during the first half of 2020. 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. The $82.8 million of cash generated in operating activities in 2020's first half was primarily a result of net income of $86.3 million and an increase in accounts payable, other liabilities and customer deposits totaling $83.4 million, offset, in part, by a $51.6 million increase in inventory, an increase in other assets of $20.8 million, and a decrease in accrued compensation of $16.7 million.
Investing Cash Flow Activities. During the first half of 2021, we used $12.8 million of cash from investing activities, compared to using $20.7 million of cash in investing activities during the first half of 2020. The cash used was primarily a result of a $17.1 million increase in our investment in joint venture arrangements, partially offset by return of capital from joint venture arrangements of $1.1 million and $4.3 million of proceeds from the sale of a portion of our mortgage servicing rights in the first half of 2021. Our cash used during the first half of 2020 was primarily due to our increased investment in joint venture arrangements during the period.
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Financing Cash Flow Activities. During the six months ended June 30, 2021, we used $50.0 million of cash from financing activities, compared to generating $25.8 million of cash during the first six months of 2020. The cash used in financing activities in 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. The cash generated from financing activities in 2020 was primarily due to the issuance of our$400.0 million aggregate principal amount of 4.95% Senior Notes due 2028 (the “2028 Senior Notes”), net of debt issuance costs, for $391.6 million, offset partially by the redemption of all $300.0 million of our then outstanding 6.75% Senior Notes due 2021, and repayments of $66.0 million (net of proceeds from borrowings) under our Credit Facility during the first half of 2020.
On August 14, 2018, the Company announced that its Board of Directors authorized a share repurchase program (the “2018 Repurchase Program”) pursuant to which the Company may purchase up to $50 million of its outstanding common shares (see Note 12 to our financial statements). The Company did not repurchase any common shares during the first half of 2021. As of June 30, 2021, the Company was authorized to repurchase an additional $17.2 million of outstanding common shares under the 2018 Share Repurchase Program. On July 28, 2021, the Company announced that its Board of Directors approved a new share repurchase authorization of $100 million which replaces and supersedes the 2018 Share Repurchase Program (the “2021 Repurchase Program”) (see Note 12 to our financial statements for more information).
At June 30, 2021 and December 31, 2020, our ratio of homebuilding debt to capital was 31% and 34%, respectively, calculated as the carrying value of our outstanding homebuilding debt (which consists of borrowings under our Credit Facility, our 2028 Senior Notes, our 2025 Senior Notes (as defined below), 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, 2021:

(In thousands) | Expiration Date | Outstanding Balance | Available Amount
Notes payable – homebuilding (a) | (a) | $ | — |  | $ | 468,876 |
Notes payable – financial services (b) | (b) | $ | 167,119 |  | $ | 1,068 |

(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 $1.14 billion of availability for additional senior debt at June 30, 2021. 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 $81.1 million of letters of credit outstanding at June 30, 2021, leaving $468.9 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 $265 million as of June 30, 2021. The MIF Mortgage Warehousing Agreement has an expiration date of May 27, 2022 and the MIF Mortgage Repurchase Facility has an expiration date of October 25, 2021.
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Notes Payable - Homebuilding.
Homebuilding Credit Facility. On June 10, 2021, the Company entered into an amendment to the Credit Facility, which, among other things, (1) increased the commitments from lenders to $550 million, (2) extended the maturity to July 18, 2025, (3) increased the required minimum level of Consolidated Tangible Net Worth from $848.2 million to $946.2 million at March 31, 2021 (subject to increase over time based on earnings and proceeds from equity offerings), (4) increased the 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, (5) reduced the floor on one-month LIBOR to 0.25% from 0.75% and decreased the LIBOR margin by 75 basis points to 175 basis points (subject to adjustment in subsequent quarterly periods based on the Company’s leverage ratio), (6) decreased the fee paid quarterly on the remaining available commitment amount by 15 basis points, to 30 basis points (which is also subject to adjustment in subsequent quarterly periods based on the Company’s leverage ratio), (7) increased the sub-facility for letters of credit included in the Credit Facility to $150 million from $125 million, and (8) increased the borrowing base advance rates for certain categories of inventory used to calculate the available amount under the Credit Facility.
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 $993.1 million as of June 30, 2021 (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 indentures), 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 the 2028 Senior Notes and our $250.0 million aggregate principal amount of 5.625% Senior Notes due 2025 (the “2025 Senior Notes”).
As of June 30, 2021, 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, 2021:

Financial Covenant |  | Covenant Requirement |  | Actual
|  | (Dollars in millions)
Consolidated Tangible Net Worth | ≥ | $ | 993.1 |  |  | $ | 1,380.3 |
Leverage Ratio | ≤ | 0.60 |  | 0.20
Interest Coverage Ratio | ≥ | 1.5 to 1.0 |  | 14.4 to 1.0
Investments in Unrestricted Subsidiaries and Joint Ventures | ≤ | $ | 414.1 |  |  | $ | 0.6 |
Unsold Housing Units and Model Homes | ≤ | 3,030 |  |  | 467 |

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. In May 2021, M/I Financial entered into an amendment to the MIF Mortgage Warehousing Agreement, which, among other things, extended the expiration date to May 27, 2022, increased the base maximum borrowing availability to $175 million, allows the maximum borrowing availability to increase to $210 million from September 25, 2021 to October 15, 2021 and to $235 million from November 15, 2021 to February 4, 2022, which are periods of increased volume of mortgage originations, reduced the floor on one-month LIBOR from 1.0% to 0.5%, reduced the LIBOR margin from 2.0% to 1.9%, increased the required minimum level of Minimum Tangible Net Worth from $12.5 million to $15.0 million, and increased the required minimum level of liquidity from $6.25 million to $7.0 million.
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
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certain loan types that can secure outstanding borrowings. There are currently no guarantors of the MIF Mortgage Warehousing Agreement.
As of June 30, 2021, there was $133.6 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, 2021:

Financial Covenant |  | Covenant Requirement |  | Actual
|  | (Dollars in millions)
Leverage Ratio | ≤ | 10.0 to 1.0 |  | 4.9 to 1.0
Liquidity | ≥ | $ | 7.00 |  |  | $ | 38.3 |
Adjusted Net Income | > | $ | 0.0 |  |  | $ | 46.3 |
Tangible Net Worth | ≥ | $ | 15.0 |  |  | $ | 40.8 |

MIF Mortgage Repurchase Facility. The MIF Mortgage Repurchase Facility is used to finance eligible residential mortgage loans originated by M/I Financial and is structured as a mortgage repurchase facility. The MIF Mortgage Repurchase Facility provides for a maximum borrowing availability of $90 million. The MIF Mortgage Repurchase Facility expires on October 25, 2021. 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 1.0%) plus 175 or 200 basis points depending on the loan type. 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. We expect to extend the MIF Mortgage Repurchase Facility on or prior to the current expiration date of October 25, 2021, but we cannot provide any assurance that we will be able to obtain such an extension.
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, 2021, there was $33.6 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, 2021.
Senior Notes.
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 June 30, 2021, the Company was in compliance with all terms, conditions, and covenants under the indenture.
5.625% Senior Notes. In August 2017, the Company issued $250 million aggregate principal amount of 5.625% Senior Notes due 2025. The 2025 Senior Notes contain certain covenants, as more fully described and defined in the indenture governing the 2025 Senior Notes, which limit the ability of the Company and the restricted subsidiaries to, among other things: incur additional indebtedness; make certain payments, including dividends, or repurchase any shares, in an aggregate amount exceeding our “restricted payments basket”; make certain investments; and create or incur certain liens, consolidate or merge with or into other companies, or liquidate or sell or transfer all or substantially all of our assets. These covenants are subject to a number of exceptions and qualifications as described in the indenture governing the 2025 Senior Notes. As of June 30, 2021, 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 2028 Senior Notes and the 2025 Senior Notes.
Supplemental Financial Information.
As of June 30, 2021, M/I Homes, Inc. had $400.0 million aggregate principal amount of its 2028 Senior Notes and $250.0 million aggregate principal amount of its 2025 Senior Notes outstanding.
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The 2028 Senior Notes and the 2025 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 2028 Senior Notes and the 2025 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 2028 Senior Notes and the 2025 Senior Notes (the “Non-Guarantor Subsidiaries”). The Subsidiary Guarantors of the 2028 Senior Notes, the 2025 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 2028 Senior Notes and the 2025 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 2028 Senior Notes and the 2025 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) | As of June 30, 2021 | As of December 31, 2020
Assets: |  |
Cash | $ | 326,347 |  | $ | 223,284 |
Investment in joint venture arrangements | $ | 32,631 |  | $ | 33,764 |
Amounts due from Non-Guarantor Subsidiaries | $ | 2,896 |  | $ | 2,073 |
Total assets | $ | 2,613,157 |  | $ | 2,343,936 |
Liabilities and Shareholders’ Equity |  |
Total liabilities | $ | 1,202,253 |  | $ | 1,133,884 |
Shareholders’ equity | $ | 1,410,904 |  | $ | 1,210,052 |

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Summarized Statement of Income Data

| Six Months Ended
(In thousands) | June 30, 2021
Revenues | $ | 1,731,532 |
Land and housing costs | $ | 1,346,257 |
Selling, general and administrative expense | $ | 171,031 |
Income before income taxes | $ | 214,508 |
Net income | $ | 163,404 |

Weighted Average Borrowings. For the three months ended June 30, 2021 and 2020, our weighted average borrowings outstanding were $702.5 million and $753.7 million, respectively, with a weighted average interest rate of 5.76% and 5.44%, respectively. The decrease in our weighted average borrowings related to decreased borrowings under our Credit Facility during the second quarter of 2021 compared to the same period in 2020.
At both June 30, 2021 and December 31, 2020, we had no borrowings outstanding under the Credit Facility. Based on our currently anticipated spending on home construction, overhead expenses, land acquisition and development during the remainder of 2021, offset by expected cash receipts from home deliveries, we may borrow under the Credit Facility during 2021, but do not expect the peak amount outstanding to exceed $100 million. The actual amount borrowed (and the estimated peak amount outstanding) during the remainder of 2021 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 share repurchases under the 2021 Share Repurchase Program and any other extraordinary events or transactions, including the uncertain effects of the COVID-19 pandemic. 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 $81.1 million of letters of credit issued and outstanding under the Credit Facility at June 30, 2021. During the six months ended June 30, 2021, the average daily amount of letters of credit outstanding under the Credit Facility was $67.9 million and the maximum amount of letters of credit outstanding under the Credit Facility was $81.1 million.
At June 30, 2021, M/I Financial had $133.6 million outstanding under the MIF Mortgage Warehousing Agreement. During the six months ended June 30, 2021, the average daily amount outstanding under the MIF Mortgage Warehousing Agreement was $8.6 million and the maximum amount outstanding was $168.1 million, which occurred during January 2021, while the temporary increase provision was in effect and the maximum borrowing availability was $185 million.
At June 30, 2021, M/I Financial had $33.6 million outstanding under the MIF Mortgage Repurchase Facility. During the six months ended June 30, 2021, the average daily amount outstanding under the MIF Mortgage Repurchase Facility was $43.5 million and the maximum amount outstanding was $78.6 million, which occurred during April 2021.
Universal Shelf Registration. In June 2019, the Company filed a $400 million universal shelf registration statement with the SEC, which registration statement became effective upon filing and will expire in June 2022. Pursuant to the registration statement, the Company may, from time to time, offer debt securities, common shares, preferred shares, depositary shares, warrants to purchase debt securities, common shares, preferred shares, depositary shares or units of two or more of those securities, rights to purchase debt securities, common shares, preferred shares or depositary shares, stock purchase contracts and units. The timing and amount of offerings, if any, will depend on market and general business conditions.
CONTRACTUAL OBLIGATIONS
There have been no material changes to our contractual obligations appearing in the Contractual Obligations section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2020 Form 10-K for the year ended December 31, 2020, except for the amendment to the Credit Facility entered into on June 10, 2021 and the amendment to the MIF Warehousing Agreement, dated May 28, 2021, as described above in Note 8 of our Unaudited Condensed Consolidated Financial Statements and the “Liquidity and Capital Resources” section.
OFF-BALANCE SHEET ARRANGEMENTS
Notes 3, 5 and 6 to our Condensed Consolidated Financial Statements discuss our off-balance sheet arrangements with respect to land acquisition contracts and option agreements, and land development joint ventures, including the nature and amounts of
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financial obligations relating to these items. In addition, these Notes discuss the nature and amounts of certain types of commitments that arise in the ordinary course of our land development and homebuilding operations, including commitments of land development joint ventures for which we might be obligated.
Our off-balance sheet arrangements relating to our homebuilding operations include joint venture arrangements, land option agreements, guarantees and indemnifications associated with acquiring and developing land, and the issuance of letters of credit and completion bonds. Our use of these arrangements is for the purpose of securing the most desirable lots on which to build homes for our homebuyers in a manner that we believe reduces the overall risk to the Company. Additionally, in the ordinary course of its business, M/I Financial issues guarantees and indemnities relating to the sale of loans to third parties.
Land Option Agreements. In the ordinary course of business, the Company enters into land option or purchase agreements for which we generally pay non-refundable deposits. Pursuant to these land option agreements, the Company provides a deposit to the seller as consideration for the right to purchase land at different times in the future, usually at predetermined prices. In accordance with Accounting Standards Codification 810-10 Consolidation (“ASC 810”), we analyze our land option or purchase agreements to determine whether the corresponding land sellers are variable interest entities (“VIE”) and, if so, whether we are the primary beneficiary. Although we do not have legal title to the optioned land, ASC 810 requires a company to consolidate a VIE if the company is determined to be the primary beneficiary. In cases where we are the primary beneficiary, even though we do not have title to such land, we are required to consolidate these purchase/option agreements and reflect such assets and liabilities as Consolidated Inventory not Owned in our Unaudited Condensed Consolidated Balance Sheets. At both June 30, 2021 and December 31, 2020, we have concluded that we were not the primary beneficiary of any VIEs from which we are purchasing under land option or purchase agreements.
In addition, we evaluate our land option or purchase agreements to determine for each contract if (1) a portion or all of the purchase price is a specific performance requirement, or (2) the amount of deposits and prepaid acquisition and development costs have exceeded certain thresholds relative to the remaining purchase price of the lots. If either is the case, then the remaining purchase price of the lots (or the specific performance amount, if applicable) is recorded as an asset and liability in Consolidated Inventory Not Owned on our Consolidated Balance Sheets.
At June 30, 2021, “Consolidated Inventory Not Owned” was $12.5 million. At June 30, 2021, the corresponding liability of $12.5 million has been classified as Obligation for Consolidated Inventory Not Owned on our Unaudited Condensed Consolidated Balance Sheets.
Other than the Consolidated Inventory Not Owned balance, the Company currently believes that its maximum exposure as of June 30, 2021 related to our land option agreements is equal to the amount of the Company’s outstanding deposits and prepaid acquisition costs, which totaled $66.9 million, including cash deposits of $44.0 million, prepaid acquisition costs of $12.3 million, letters of credit of $8.2 million and $2.4 million of other non-cash deposits.
Letters of Credit and Completion Bonds. The Company provides standby letters of credit and completion bonds for development work in progress, deposits on land and lot purchase agreements and miscellaneous deposits. As of June 30, 2021, the Company had outstanding $318.3 million of completion bonds and standby letters of credit, some of which were issued to various local governmental entities, that expire at various times through November 2027. Included in this total are: (1) $230.2 million of performance and maintenance bonds and $72.5 million of performance letters of credit that serve as completion bonds for land development work in progress; (2) $8.6 million of financial letters of credit; and (3) $7.0 million of financial bonds. The development agreements under which we are required to provide completion bonds or letters of credit are generally not subject to a required completion date and only require that the improvements are in place in phases as houses are built and sold. In locations where development has progressed, the amount of development work remaining to be completed is typically less than the remaining amount of bonds or letters of credit due to timing delays in obtaining release of the bonds or letters of credit.
Guarantees and Indemnities. In the ordinary course of business, M/I Financial enters into agreements that guarantee purchasers of its mortgage loans that M/I Financial will repurchase a loan if certain conditions occur. The risks associated with these guarantees are offset by the value of the underlying assets, and the Company accrues its best estimate of the probable loss on these loans. Additionally, the Company has provided certain other guarantees and indemnities in connection with the acquisition and development of land by our homebuilding operations. See Note 5 to our Condensed Consolidated Financial Statements for additional details relating to our guarantees and indemnities.
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INTEREST RATES AND INFLATION
Our business is significantly affected by general economic conditions within the United States and, particularly, by the impact of interest rates and inflation. Inflation can 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.
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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risk results from fluctuations in interest rates. We are exposed to interest rate risk through borrowings under our revolving credit facilities, consisting of the Credit Facility, the MIF Mortgage Warehousing Agreement, and the MIF Mortgage Repurchase Facility which permitted borrowings of up to $815 million as of June 30, 2021, 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, 2021 and December 31, 2020:

| June 30, |  | December 31,
Description of Financial Instrument (in thousands) | 2021 |  | 2020
Whole loan contracts and related committed IRLCs | $ | 2,418 |  |  | $ | 2,354 |
Uncommitted IRLCs | 302,394 |  |  | 208,500 |
FMBSs related to uncommitted IRLCs | 279,000 |  |  | 183,000 |
Whole loan contracts and related mortgage loans held for sale | 4,689 |  |  | 78,142 |
FMBSs related to mortgage loans held for sale | 164,000 |  |  | 131,000 |
Mortgage loans held for sale covered by FMBSs | 160,826 |  |  | 148,331 |

The table below shows the measurement of assets and liabilities at June 30, 2021 and December 31, 2020:

| June 30, |  | December 31,
Description of Financial Instrument (in thousands) | 2021 |  | 2020
Mortgage loans held for sale | $ | 172,760 |  |  | $ | 234,293 |
Forward sales of mortgage-backed securities | (624) |  |  | (1,640) |
Interest rate lock commitments | 2,153 |  |  | 1,664 |
Whole loan contracts | (47) |  |  | (422) |
Total | $ | 174,242 |  |  | $ | 233,895 |

The following table sets forth the amount of gain (loss) recognized on assets and liabilities for the three and six months ended June 30, 2021 and 2020:

| Three Months Ended June 30, |  | Six Months Ended June 30,
Description (in thousands) | 2021 |  | 2020 |  | 2021 |  | 2020
Mortgage loans held for sale | $ | 6,682 |  |  | $ | (3,312) |  |  | $ | (258) |  |  | $ | 427 |
Forward sales of mortgage-backed securities | (8,329) |  |  | 5,417 |  |  | 1,017 |  |  | (1,163) |
Interest rate lock commitments | 3,128 |  |  | (826) |  |  | 510 |  |  | 1,557 |
Whole loan contracts | (60) |  |  | (102) |  |  | 353 |  |  | (48) |
Total gain recognized | $ | 1,421 |  |  | $ | 1,177 |  |  | $ | 1,622 |  |  | $ | 773 |

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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, 2021. 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, 2021. For fixed-rate debt, changes in interest rates generally affect the fair market value of the debt instrument, but not our earnings or cash flow. Conversely, for variable-rate debt, changes in interest rates generally do not affect the fair market value of the debt instrument, but do affect our earnings and cash flow. We do not have the obligation to prepay fixed-rate debt prior to maturity, and, as a result, interest rate risk and changes in fair market value should not have a significant impact on our fixed-rate debt until we are required or elect to refinance it.

|  |  | Expected Cash Flows by Period |  | Fair Value
(Dollars in thousands) |  |  | 2021 |  | 2022 |  | 2023 |  | 2024 |  | 2025 |  | Thereafter |  | Total |  | 6/30/2021
ASSETS: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage loans held for sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed rate |  |  | $ | 175,029 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | $ | 175,029 |  |  | $ | 172,760 |
Weighted average interest rate |  |  | 2.90 | % |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 2.90 | % |  |
LIABILITIES: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Long-term debt — fixed rate |  |  | $ | 1,062 |  |  | $ | 39 |  |  | $ | — |  |  | $ | — |  |  | $ | 250,000 |  |  | $ | 400,000 |  |  | $ | 651,101 |  |  | $ | 679,246 |
Weighted average interest rate |  |  | 5.63 | % |  | 5.63 | % |  | — |  |  | — |  |  | 5.63 | % |  | 4.95 | % |  | 5.21 | % |  |
Short-term debt — variable rate |  |  | $ | 167,119 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | $ | 167,119 |  |  | $ | 167,119 |
Weighted average interest rate |  |  | 2.47 | % |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 2.47 | % |  |

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ITEM 4: CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
An evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended) was performed by the Company’s management, with the participation of the Company’s principal executive officer and principal financial officer. Based on that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company’s legal proceedings are discussed in Note 6 to the Company’s Consolidated Financial Statements.
Item 1A. Risk Factors
There have been no material changes to the risk factors appearing in our 2020 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Recent Sales of Unregistered Securities - None.
(b) Use of Proceeds - Not Applicable.
(c) Purchases of Equity Securities
There were no purchases made by, or on behalf of, the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3)
under the Securities Exchange Act of 1934, as amended) of the Company’s common shares during the three months ended June 30, 2021.
See Note 8 to our Condensed Consolidated Financial Statements above for more information regarding the limit imposed by the indenture governing our 2028 Senior Notes and the indenture governing our 2025 Senior Notes on our ability to pay dividends on, and repurchase, our common shares and any preferred shares of the Company then outstanding to the amount of the positive balance in our “restricted payments basket,” as defined in the indentures.
The timing, amount and other terms and conditions of any future repurchases under the 2021 Share Repurchase Program will be determined by the Company’s management at its discretion based on a variety of factors, including the market price of the Company’s common shares, business considerations, general market and economic conditions and legal requirements.See Note 12 to the Condensed Consolidated Financial Statements for more information regarding the 2021 Share Repurchase Program.
Item 3. Defaults Upon Senior Securities - None.
Item 4. Mine Safety Disclosures - None.
Item 5. Other Information - None.
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Item 6. Exhibits
The exhibits required to be filed herewith are set forth below.

Exhibit Number |  | Description
10.1 |  | F ifth Amendment to Second Amended and Restated Mortgage Warehousing Agreement, dated May 2 8, 202 1, by and among M/I Financial, LLC, as borrower, the lenders party thereto and Comerica Bank, as administrative agent (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 2, 202 1).
10.2 |  | Fourth Amendment to Credit Agreement, dated June 10, 202 1, by and among M/I Homes, Inc., as borrower, the lenders party thereto, and PNC Bank, National Association, as administrative agent (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on J une 1 1, 202 1).
22 |  | List of Subsidiary Guarantors (incorporated herein by reference to Exhibit 22 to the Company’s Quarterly Report on Form 10-Q filed on April 28, 2021).
31.1 |  | Certification by Robert H. Schottenstein, Chief Executive Officer, pursuant to Item 601 of Regulation S-K as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
31.2 |  | Certification by Phillip G. Creek, Chief Financial Officer, pursuant to Item 601 of Regulation S-K as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
32.1 |  | Certification by Robert H. Schottenstein, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
32.2 |  | Certification by Phillip G. Creek, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
101.INS |  | XBRL Instance Document. (Furnished herewith.)
101.SCH |  | XBRL Taxonomy Extension Schema Document. (Furnished herewith.)
101.CAL |  | XBRL Taxonomy Extension Calculation Linkbase Document. (Furnished herewith.)
101.LAB |  | XBRL Taxonomy Extension Label Linkbase Document. (Furnished herewith.)
101.PRE |  | XBRL Taxonomy Extension Presentation Linkbase Document. (Furnished herewith.)
101.DEF |  | XBRL Taxonomy Extension Definition Linkbase Document. (Furnished herewith.)
104 |  | Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101).

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

|  |  |  | M/I Homes, Inc.
|  |  |  | (Registrant)
Date: |  | July 29, 2021 |  | By: | /s/ Robert H. Schottenstein
|  |  |  |  | Robert H. Schottenstein
|  |  |  |  | Chairman, Chief Executive Officer and President
|  |  |  |  | (Principal Executive Officer)
Date: |  | July 29, 2021 |  | By: | /s/ Ann Marie W. Hunker
|  |  |  |  | Ann Marie W. Hunker
|  |  |  |  | Vice President, Chief Accounting Officer and Controller
|  |  |  |  | (Principal Accounting Officer)

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