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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 September 30, 2020
☐ 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: 28,745,649 shares outstanding as of October 28, 2020.


M/I HOMES, INC.
FORM 10-Q
TABLE OF CONTENTS
PART 1. FINANCIAL INFORMATION
Item 1. M/I Homes, Inc. and Subsidiaries Unaudited Condensed Consolidated Financial Statements
Unaudited Condensed Consolidated Balance Sheets at September 30, 2020 and December 31, 2019
3
Unaudited Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2020 and 2019
4
Unaudited Condensed Consolidated Statement of Shareholders’ Equity for the Three and Nine Months Ended September 30, 2020 and 2019
5
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019
6
Notes to Unaudited Condensed Consolidated Financial Statements
7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
29
Item 3. Quantitative and Qualitative Disclosures About Market Risk
49
Item 4. Controls and Procedures
51
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
51
Item 1A. Risk Factors
51
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
53
Item 3. Defaults Upon Senior Securities
53
Item 4. Mine Safety Disclosures
53
Item 5. Other Information
53
Item 6. Exhibits
54
Signatures
55


2



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

(Dollars in thousands, except par values) September 30,
2020 		December 31,
2019
(unaudited)
ASSETS:
Cash, cash equivalents and restricted cash $ 202,512  $ 6,083 
Mortgage loans held for sale 140,046  155,244 
Inventory 1,843,409  1,769,507 
Property and equipment - net 25,696  22,118 
Investment in joint venture arrangements 34,038  37,885 
Operating lease right-of-use assets
52,574  18,415 
Deferred income tax asset
9,205  9,631 
Goodwill 16,400  16,400 
Other assets 96,675  70,311 
TOTAL ASSETS $ 2,420,555  $ 2,105,594 
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Accounts payable $ 176,581  $ 125,026 
Customer deposits 66,632  34,462 
Operating lease liabilities 52,666  18,415 
Other liabilities 156,390  147,937 
Community development district obligations 9,892  13,531 
Obligation for consolidated inventory not owned 364  7,934 
Notes payable bank - homebuilding operations —  66,000 
Notes payable bank - financial services operations 136,119  136,904 
Notes payable - other 5,325  5,828 
Senior notes due 2021 - net —  298,988 
Senior notes due 2025 - net 247,483  247,092 
Senior notes due 2028 - net 394,363  — 
TOTAL LIABILITIES $ 1,245,815  $ 1,102,117 
Commitments and contingencies (Note 6)
—  — 
SHAREHOLDERS’ EQUITY:
Common shares - $0.01 par value; authorized 58,000,000 shares at both September 30, 2020 and December 31, 2019;
   issued 30,137,141 shares at both September 30, 2020 and December 31, 2019
301  301 
Additional paid-in capital 336,623  332,861 
Retained earnings 868,370  708,579 
Treasury shares - at cost - 1,391,492 and 1,750,685 shares at September 30, 2020 and December 31, 2019, respectively
(30,554) (38,264)
TOTAL SHAREHOLDERS’ EQUITY $ 1,174,740  $ 1,003,477 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 2,420,555  $ 2,105,594 

See Notes to Unaudited Condensed Consolidated Financial Statements.
3

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

Three Months Ended September 30, Nine Months Ended September 30,
(In thousands, except per share amounts) 2020 2019 2020 2019
Revenue $ 847,921  $ 653,345  $ 2,139,718  $ 1,758,140 
Costs and expenses:
Land and housing 653,407  519,164  1,672,122  1,411,488 
General and administrative 48,879  39,385  123,763  106,248 
Selling 49,539  40,147  127,494  109,150 
Equity in income from joint venture arrangements (252) (52) (307) (118)
Interest 1,239  4,637  8,454  16,626 
Total costs and expenses 752,812  603,281  1,931,526  1,643,394 
Income before income taxes 95,109  50,064  208,192  114,746 
Provision for income taxes 21,572  12,226  48,401  28,939 
Net income $ 73,537  $ 37,838  $ 159,791  $ 85,807 
Earnings per common share:
Basic $ 2.57  $ 1.35  $ 5.60  $ 3.10 
Diluted $ 2.51  $ 1.32  $ 5.50  $ 3.04 
Weighted average shares outstanding:
Basic 28,653  27,981  28,554  27,695 
Diluted 29,286  28,598  29,030  28,238 

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 September 30, 2020
Common Shares
Shares Outstanding Additional Paid-in Capital Retained Earnings Treasury Shares Total Shareholders’ Equity
(Dollars in thousands) Amount
Balance at June 30, 2020
28,543,629  $ 301  $ 334,261  $ 794,833  $ (34,990) $ 1,094,405 
Net income —  —  —  73,537  —  73,537 
Stock options exercised 202,020  —  173  —  4,436  4,609 
Stock-based compensation expense —  —  2,189  —  —  2,189 
Balance at September 30, 2020 28,745,649  $ 301  $ 336,623  $ 868,370  $ (30,554) $ 1,174,740 


Nine Months Ended September 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 —  —  —  159,791  —  159,791 
Stock options exercised 354,620  —  481  —  7,773  8,254 
Stock-based compensation expense —  —  4,915  —  —  4,915 
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 September 30, 2020
28,745,649  $ 301  $ 336,623  $ 868,370  $ (30,554) $ 1,174,740 


Three Months Ended September 30, 2019
Common Shares
Shares Outstanding Additional Paid-in Capital Retained Earnings Treasury Shares Total Shareholders’ Equity
(Dollars in thousands) Amount
Balance at June 30, 2019
27,617,366  $ 301  $ 330,052  $ 628,961  $ (55,074) $ 904,240 
Net income —  —  —  37,838  —  37,838 
Stock options exercised 525,550  —  (416) —  11,487  11,071 
Stock-based compensation expense —  —  1,492  —  —  1,492 
Balance at September 30, 2019 28,142,916  $ 301  $ 331,128  $ 666,799  $ (43,587) $ 954,641 

Nine Months Ended September 30, 2019
Common Shares
Shares Outstanding Additional Paid-in Capital Retained Earnings Treasury Shares Total Shareholders’ Equity
(Dollars in thousands) Amount
Balance at December 31, 2018
27,516,218  $ 301  $ 330,517  $ 580,992  $ (56,507) $ 855,303 
Net income —  —  —  85,807  —  85,807 
Stock options exercised 710,830  —  (1,177) —  15,525  14,348 
Stock-based compensation expense —  —  4,086  —  —  4,086 
Repurchase of common shares (201,088) —  —  —  (5,150) (5,150)
Deferral of executive and director compensation —  —  247  —  —  247 
Executive and director deferred compensation distributions 116,956  —  (2,545) —  2,545  — 
Balance at September 30, 2019
28,142,916  $ 301  $ 331,128  $ 666,799  $ (43,587) $ 954,641 

See Notes to Unaudited Condensed Consolidated Financial Statements.
5

M/I HOMES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
(Dollars in thousands) 2020 2019
OPERATING ACTIVITIES:
Net income $ 159,791  $ 85,807 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Equity in income from joint venture arrangements (307) (118)
Mortgage loan originations (1,287,426) (959,022)
Proceeds from the sale of mortgage loans 1,301,713  997,369 
Fair value adjustment of mortgage loans held for sale 911  2,982 
Fair value adjustment of mortgage servicing rights 507  — 
Capitalization of originated mortgage servicing rights (4,119) (3,366)
Amortization of mortgage servicing rights 1,847  1,112 
Depreciation 9,298  8,655 
Amortization of debt issue costs 1,869  2,029 
Loss on early extinguishment of debt 950  — 
Stock-based compensation expense 4,915  4,086 
Deferred income tax expense 426  1,494 
Change in assets and liabilities:
Inventory (62,524) (156,073)
Other assets (18,493) (3,952)
Accounts payable 51,555  38,017 
Customer deposits 32,170  4,195 
Accrued compensation (4,990) (11,629)
Other liabilities 9,133  (10,609)
Net cash provided by operating activities 197,226  977 
INVESTING ACTIVITIES:
Purchase of property and equipment (8,465) (2,626)
Return of capital from joint venture arrangements 1,213  438 
Investment in joint venture arrangements (24,075) (23,522)
Net cash used in investing activities (31,327) (25,710)
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  568,900 
Repayment of bank borrowings - homebuilding operations (372,800) (496,400)
Net repayments of bank borrowings - financial services operations (785) (44,574)
Principal repayments of notes payable - other and community development district bond obligations (503) (429)
Repurchase of common shares (1,912) (5,150)
Debt issue costs (8,524) (40)
Proceeds from exercise of stock options 8,254  14,348 
Net cash provided by financing activities 30,530  36,655 
Net increase in cash, cash equivalents and restricted cash 196,429  11,922 
Cash, cash equivalents and restricted cash balance at beginning of period 6,083  21,529 
Cash, cash equivalents and restricted cash balance at end of period $ 202,512  $ 33,451 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest — net of amount capitalized $ 15,644  $ 23,034 
Income taxes $ 39,510  $ 26,578 
NON-CASH TRANSACTIONS DURING THE PERIOD:
Community development district infrastructure $ (3,639) $ 1,936 
Consolidated inventory not owned $ (7,570) $ (12,621)
Distribution of single-family lots from joint venture arrangements $ 27,016  $ 11,515 

See Notes to Unaudited Condensed Consolidated Financial Statements.
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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, including as a result of the novel coronavirus (COVID-19) pandemic which has disrupted, and is expected to continue to disrupt, our business. 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, 2019 (the “2019 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 2019 Form 10-K and in “Item 1A. Risk Factors” in Part II of this Quarterly Report on Form 10-Q, as the same may be updated from time to time in our subsequent filings with the SEC.

Recently Adopted Accounting Standards

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to estimate credit losses. ASU 2016-13 is effective for our fiscal year beginning January 1, 2020. Subsequent to the issuance of ASU 2016-13, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses (“ASU 2018-19”) in November 2018, ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”), in April 2019, and ASU No. 2019-05, Financial Instruments-Credit Losses (Topic 326) Targeted Transition Relief (“ASU 2019-05”) in May 2019. These ASUs do not change the core principle of the guidance in ASU 2016-13. Instead these amendments are intended to clarify and improve operability of certain topics included within the credit losses standard. These ASUs will have the same effective date and transition requirements as ASU 2016-13. The adoption of ASU 2016-13 on January 1, 2020 did not have a material impact on our consolidated financial statements and disclosures.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 modifies the disclosure requirements for fair value measurements and removes the requirement to disclose (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (2) the policy for timing of transfers between levels, and (3) the valuation processes for Level 3 fair value measurements. ASU 2018-13 requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For all entities, ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Our adoption of ASU 2018-13 on January 1, 2020 did not have a material impact on our consolidated financial statements and disclosures.

In March 2020, the FASB issued ASU No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 is intended to provide temporary optional expedients and exceptions to the US
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GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance was effective beginning March 12, 2020 and can be applied prospectively through December 31, 2022. The adoption of this guidance did not have a material impact on our consolidated financial statements and disclosures.
Impact of New Accounting Standards and SEC Guidance
In March 2020, the FASB issued ASU No. 2020-03, Codification Improvements to Financial Instruments (“ASU 2020-03”). ASU 2020-03 improves and clarifies various financial instruments topics, including the current expected credit losses (CECL) standard issued in 2016 (described above). ASU 2020-03 includes seven different issues that describe the areas of improvement and the related amendments to GAAP that are intended to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. The amendments have different effective dates. We are currently evaluating the effect of adopting this new accounting guidance, but we do not expect that adoption will have a material impact on our consolidated financial statements and disclosures.

In May 2020, the SEC adopted Release No.33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses” (the “Final Rule”). The Final Rule is effective on January 1, 2021. However, voluntary early adoption is permitted. We are currently evaluating the effect of adopting this new accounting guidance, but we do not expect that adoption will have a material impact on our consolidated financial statements and disclosures.

In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (“ASU 2020-06”), to address the complexity associated with applying GAAP to certain financial instruments with characteristics of liabilities and equity. The ASU includes amendments to the guidance on convertible instruments and the derivative scope exception for contracts in an entity’s own equity and simplifies the accounting for convertible instruments which include beneficial conversion features or cash conversion features by removing certain separation models in Subtopic 470-20. Additionally, the ASU will require entities to use the “if-converted” method when calculating diluted earnings per share for convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. We are currently evaluating the effect of adopting this new accounting guidance, but we do not expect that adoption will have a material impact on our consolidated financial statements and disclosures.

In August 2020, the SEC adopted Release No. 33-10825 “Modernization of Regulation S-K Items 101, 103, and 105” (the “Final S-K Rule”). The Final S-K Rule is effective on November 9, 2020. We are currently evaluating the effect of the Final S-K Rule, but we do not expect it will have a material impact on our consolidated financial statements and disclosures.

Significant Accounting Policies

We believe that there have been no significant changes to our significant accounting policies during the quarter ended September 30, 2020 as compared to those disclosed in our 2019 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 September 30, 2020 and December 31, 2019 is as follows:
(In thousands) September 30, 2020 December 31, 2019
Single-family lots, land and land development costs $ 840,637  $ 858,065 
Land held for sale 4,357  5,670 
Homes under construction 863,603  756,998 
Model homes and furnishings - at cost (less accumulated depreciation: September 30, 2020 - $14,186;
   December 31, 2019 - $12,723)
87,192  98,777 
Community development district infrastructure 9,892  13,531 
Land purchase deposits 37,364  28,532 
Consolidated inventory not owned 364  7,934 
Total inventory $ 1,843,409  $ 1,769,507 

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 September 30, 2020 and December 31, 2019, we had 1,113 homes (with a carrying value of $188.4 million) and 1,459 homes (with a carrying value of $304.0 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 an $9.9 million liability and a $13.5 million liability related to these CDD bond obligations as of September 30, 2020 and December 31, 2019, 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 nine months ended September 30, 2020 and 2019 is as follows:
Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2020 2019 2020 2019
Capitalized interest, beginning of period $ 22,203  $ 22,162  $ 21,607  $ 20,765 
Interest capitalized to inventory 8,758  8,291  23,678  22,461 
Capitalized interest charged to land and housing costs and expenses (8,803) (7,836) (23,127) (20,609)
Capitalized interest, end of period $ 22,158  $ 22,617  $ 22,158  $ 22,617 
Interest incurred $ 9,997  $ 12,928  $ 32,132  $ 39,087 
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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 September 30, 2020 and December 31, 2019, our investment in such joint venture arrangements totaled $34.0 million and $37.9 million, respectively, and was reported as Investment in Joint Venture Arrangements on our Unaudited Condensed Consolidated Balance Sheets. The $3.9 million decrease during the nine-month period ended September 30, 2020 was driven primarily by lot distributions from our joint venture arrangements of $27.0 million, offset, in part, by our cash contributions to our joint venture arrangements during the first nine months of 2020 of $24.1 million.
The majority of our investment in joint venture arrangements for both September 30, 2020 and December 31, 2019 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 September 30, 2020 and December 31, 2019, the Company had $32.1 million and $35.5 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 September 30, 2020 and December 31, 2019, the Company had $1.9 million and $2.4 million, respectively, of equity invested in LLCs. The Company’s percentage of ownership in these LLCs as of both September 30, 2020 and December 31, 2019 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 $0.3 million and less than $0.1 million for the three months ended September 30, 2020 and 2019, respectively, and $0.3 million and $0.1 million for the nine months ended September 30, 2020 and 2019. 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 September 30, 2020 was the amount invested of $34.0 million, which is reported as Investment in Joint Venture Arrangements on our Unaudited Condensed Consolidated Balance Sheets. We expect to invest further amounts in these joint venture arrangements as development of the properties progresses.
The Company assesses its investments in unconsolidated LLCs for recoverability on a quarterly basis. See Note 4 to our financial statements for additional details relating to our procedures for evaluating our investments for impairment.
Variable Interest Entities
With respect to our investments in these LLCs, we are required, under ASC 810-10, Consolidation (“ASC 810”), to evaluate whether or not such entities should be consolidated into our consolidated financial statements. We initially perform these evaluations when each new entity is created and upon any events that require reconsideration of the entity. See Note 1, “Summary of Significant Accounting Policies - Variable Interest Entities” in the Company’s 2019 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 Company’s 2019 Form 10-K. If we are deemed to be the
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primary beneficiary of the VIE, we will consolidate the VIE in our consolidated financial statements and reflect such assets and liabilities in our Consolidated Inventory Not Owned in our Unaudited Condensed Consolidated Balance Sheets. At both September 30, 2020 and December 31, 2019, 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 $11.9 million and $11.4 million, respectively, at September 30, 2020. Therefore, the Company increased its $0.4 million valuation allowance and impairment related to our mortgage servicing rights taken during the first half of 2020 by $0.1 million during the quarter ended September 30, 2020 (which was recorded as a decrease in revenue during the quarter) to bring the carrying value down to the fair value, for a net valuation allowance and impairment of $0.5 million for the nine months ended September 30, 2020. This $0.5 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. At December 31, 2019, the carrying value and fair value of our mortgage servicing rights were both $9.6 million.
The fair value of the Company’s forward sales contracts to broker/dealers solely considers the market price movement of the same type of security between the trade date and the balance sheet date.  The market price changes are multiplied by the notional amount of the forward sales contracts to measure the fair value.
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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.
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 September 30, 2020 and December 31, 2019:
Description of Financial Instrument (in thousands) September 30, 2020 December 31, 2019
Whole loan contracts and related committed IRLCs $ 2,924  $ 1,445 
Uncommitted IRLCs 213,146  87,340 
FMBSs related to uncommitted IRLCs 186,000  88,000 
Whole loan contracts and related mortgage loans held for sale 13,750  6,125 
FMBSs related to mortgage loans held for sale 116,000  144,000 
Mortgage loans held for sale covered by FMBSs 120,257  144,411 
The following table sets forth the amount of (loss) gain recognized, within our revenue in the Unaudited Condensed Consolidated Statements of Income, on assets and liabilities measured on a recurring basis for the three and nine months ended September 30, 2020 and 2019:
Three Months Ended September 30, Nine Months Ended September 30,
Description (in thousands) 2020 2019 2020 2019
Mortgage loans held for sale $ (1,338) $ (1,964) $ (911) $ (2,981)
Forward sales of mortgage-backed securities 1,670  2,299  507  3,631 
Interest rate lock commitments (853) (686) 704  (258)
Whole loan contracts (20) 121  (68) 174 
Total (loss) gain recognized $ (541) $ (230) $ 232  $ 566 
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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
September 30, 2020 September 30, 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 $ 171  Other liabilities $ — 
Interest rate lock commitments Other assets 1,380  Other liabilities — 
Whole loan contracts Other assets —  Other liabilities 106 
Total fair value measurements $ 1,551  $ 106 

Asset Derivatives Liability Derivatives
December 31, 2019 December 31, 2019
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 $ 336 
Interest rate lock commitments Other assets 654  Other liabilities — 
Whole loan contracts Other assets —  Other liabilities 16 
Total fair value measurements $ 654  $ 352 
Assets Measured on a Non-Recurring Basis
Inventory. The Company assesses inventory for recoverability on a quarterly basis based on the difference in the carrying value of the inventory and its fair value at the time of the evaluation. Determining the fair value of a community’s inventory involves a number of variables, estimates and projections, which are Level 3 measurement inputs. See Note 1, “Summary of Significant Accounting Policies - Inventory” in the Company’s 2019 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 nine months ended September 30, 2020 and 2019, the Company did not record any impairment charges on its inventory.
Investment in Unconsolidated Joint Ventures.  We evaluate our investments in unconsolidated joint ventures for impairment on a quarterly basis based on the difference in the investment’s carrying value and its fair value at the time of the evaluation. If the Company has determined that the decline in value is other than temporary, the Company would write down the value of the investment to its estimated fair value. Determining the fair value of investments in unconsolidated joint ventures involves a number of variables, estimates and assumptions, which are Level 3 measurement inputs. See Note 1, “Summary of Significant Accounting Policies - Investment in Unconsolidated Joint Ventures,” in the Company’s 2019 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 nine months ended September 30, 2020 and 2019, 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
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accounting loss is the difference between the market rate at the time of non-performance by the counterparty and the rate to which the Company committed.
The following table presents the carrying amounts and fair values of the Company’s financial instruments at September 30, 2020 and December 31, 2019. 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.
September 30, 2020 December 31, 2019
(In thousands) Fair Value Hierarchy Carrying Amount Fair Value Carrying Amount Fair Value
Assets:
Cash, cash equivalents and restricted cash Level 1 $ 202,512  $ 202,512  $ 6,083  $ 6,083 
Mortgage loans held for sale Level 2 140,046  140,046  155,244  155,244 
Interest rate lock commitments Level 2 1,380  1,380  654  654 
Forward sales of mortgage-backed securities Level 2 171  171  —  — 
Liabilities:
Notes payable - homebuilding operations Level 2 —  —  66,000  66,000 
Notes payable - financial services operations Level 2 136,119  136,119  136,904  136,904 
Notes payable - other Level 2 5,325  5,016  5,828  5,286 
Senior notes due 2021 (a)
Level 2 —  —  300,000  299,250 
Senior notes due 2025 (a)
Level 2 250,000  258,125  250,000  261,563 
Senior notes due 2028 (a)
Level 2 400,000  412,000  —  — 
Whole loan contracts for committed IRLCs and mortgage loans held for sale Level 2 106  106  16  16 
Forward sales of mortgage-backed securities Level 2 —  —  336  336 
(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 September 30, 2020 and December 31, 2019:
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, Commitments to Extend Real Estate Loans, Whole loan Contracts for Committed IRLCs and Mortgage Loans Held for Sale, Senior Notes due 2021, Senior Notes due 2025 and  Senior Notes due 2028. The fair value of these financial instruments was determined based upon market quotes at September 30, 2020 and December 31, 2019. 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 September 30, 2020 under the Company’s $500 million unsecured revolving credit facility, dated July 18, 2013, as amended most recently on June 30, 2020 (the “Credit Facility”), fluctuated daily with the one-month LIBOR rate plus a margin of 250 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 (“M/I Financial”) is a party to two credit agreements: (1) a $125 million secured mortgage warehousing agreement (which increases to $160 million from September 25, 2020 to October 15, 2020 and to $185 million from November 15, 2020 to February 4, 2021, which are periods of increased volume of mortgage originations), dated June 24, 2016, as amended (the “MIF Mortgage Warehousing Agreement”); and (2) a $65 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 third quarter of 2020 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.
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NOTE 5. Guarantees and Indemnifications
In the ordinary course of business, M/I Financial, a 100%-owned subsidiary of M/I Homes, Inc., enters into agreements that provide a limited-life guarantee on loans sold to certain third-party purchasers of its mortgage loans that M/I Financial will repurchase a loan if certain conditions occur, primarily if the mortgagor does not meet the terms of the loan within the first six months after the sale of the loan. Loans totaling approximately $5.7 million and $48.1 million were covered under these guarantees as of September 30, 2020 and December 31, 2019, respectively.  The decrease in loans covered by these guarantees from December 31, 2019 is a result of a change in the mix of investors and their related purchase terms.  A portion of the revenue paid to M/I Financial for providing the guarantees on these loans was deferred at September 30, 2020, and will be recognized in income as M/I Financial is released from its obligation under the guarantees. The risk associated with the guarantees above is offset by the value of the underlying assets.
M/I Financial has received inquiries concerning underwriting matters from purchasers of its loans regarding certain loans totaling approximately $0.6 million at both September 30, 2020 and December 31, 2019.
M/I Financial has also guaranteed the collectability of certain loans to third party insurers (U.S. Department of Housing and Urban Development and U.S. Veterans Administration) of those loans for periods ranging from five to thirty years. As of September 30, 2020 and December 31, 2019, the total of all loans indemnified to third party insurers relating to the above agreements was $0.6 million and $1.0 million, respectively. The maximum potential amount of future payments is equal to the outstanding loan value less the value of the underlying asset plus administrative costs incurred related to foreclosure on the loans, should this event occur.
The Company recorded a liability relating to the guarantees described above totaling $0.5 million at both September 30, 2020 and December 31, 2019, 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 nine months ended September 30, 2020 and 2019 is as follows:
Three Months Ended September 30, Nine Months Ended
September 30,
(In thousands) 2020 2019 2020 2019
Warranty reserves, beginning of period $ 26,175  $ 25,474  $ 26,420  $ 26,459 
Warranty expense on homes delivered during the period 4,961  3,851  12,624  10,332 
Changes in estimates for pre-existing warranties 416  255  (228) 990 
Charges related to stucco-related claims —  —  — 
(a)
— 
Settlements made during the period (4,578) (4,044) (11,842) (12,245)
Warranty reserves, end of period $ 26,974  $ 25,536  $ 26,974  $ 25,536 
(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 month period ended September 30, 2020, we did not record any additional warranty charges or receive any additional recoveries for stucco-related repair costs. During the nine month period ended September 30, 2020, we (1) incurred $0.5 million of additional stucco-related charges and (2) also received $0.5 million of additional recoveries for past stucco-related claims, resulting in a net charge of zero. At September 30, 2020, 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 September 30, 2020. 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 September 30, 2020, 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 September 30, 2020, the Company had outstanding approximately $267.7 million of completion bonds and standby letters of credit, some of which were issued to various local governmental entities that expire at various times through November 2027. Included in this total are: (1) $194.1 million of performance and maintenance bonds and $55.1 million of performance letters of credit that serve as completion bonds for land development work in progress; (2) $11.5 million of financial letters of credit, of which $11.0 million represent deposits on land and lot purchase agreements; and (3) $7.0 million of financial bonds.

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Land Option Contracts and Other Similar Contracts

At September 30, 2020, the Company also had options and contingent purchase agreements to acquire land and developed lots with an aggregate purchase price of approximately $801.4 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 September 30, 2020 and December 31, 2019, we had $0.9 million and $0.7 million reserved for legal expenses, respectively.
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 2019, and as no indicators for impairment existed at December 31, 2019, no impairment was recorded. As a result of the temporary shutdown of our Detroit operations due to COVID-19 from March 23, 2020 through May 7, 2020 (as the state of Michigan did not deem housing construction an essential business), we performed a goodwill impairment analysis of our Detroit reporting unit at September 30, 2020 and determined no impairment existed. 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
The Credit Facility provides for an aggregate commitment amount of $500 million and also includes an accordion feature pursuant to which the maximum borrowing availability may be increased to an aggregate of $600 million, subject to obtaining additional commitments from lenders. The Credit Facility matures on July 18, 2023 for $475 million of commitments and July 18, 2021 for $25 million of commitments. Interest on amounts borrowed under the Credit Facility is payable at a rate which is adjusted daily and is equal to the sum of the one-month LIBOR (subject to a floor of 0.75%) plus a margin of 250 basis points (subject to adjustment in subsequent quarterly periods based on the Company’s leverage ratio). The Credit Facility also contains certain financial covenants. At September 30, 2020, 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 $829.6 million of availability for additional senior debt at September 30, 2020. As a result, the full $500 million commitment amount of the Credit Facility was available, less any borrowings and letters of credit outstanding. At September 30, 2020, there were no borrowings outstanding and $66.6 million of letters of credit outstanding, leaving a net remaining borrowing availability of $433.4 million. The Credit Facility includes a $125 million sub-facility for letters of credit.
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The Company’s obligations under the Credit Facility are guaranteed by all of the Company’s subsidiaries, with the exception of subsidiaries that are primarily engaged in the business of mortgage financing, title insurance or similar financial businesses relating to the homebuilding and home sales business, certain subsidiaries that are not 100%-owned by the Company or another subsidiary, and other subsidiaries designated by the Company as Unrestricted Subsidiaries (as defined in Note 12 to our financial statements), 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 “Guarantor Subsidiaries”) 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 Guarantor Subsidiaries and rank equally in right of payment with all our and the Guarantor Subsidiaries’ existing and future unsecured senior indebtedness. Our obligations under the Credit Facility are effectively subordinated to our and the Guarantor Subsidiaries’ existing and future secured indebtedness with respect to any assets comprising security or collateral for such indebtedness.
Notes Payable — Financial Services
The MIF Mortgage Warehousing Agreement is used to finance eligible residential mortgage loans originated by M/I Financial. The MIF Mortgage Warehousing Agreement provides for a maximum borrowing availability of $125 million, which increases to $160 million from September 25, 2020 to October 15, 2020 and to $185 million from November 15, 2020 to February 4, 2021 (periods of increased volume of mortgage originations). The MIF Mortgage Warehousing Agreement expires on May 28, 2021. Interest on amounts borrowed under the MIF Mortgage Warehousing Agreement is payable at a per annum rate equal to the one-month LIBOR rate (subject to a floor of 1.0%) plus a spread of 200 basis points. The MIF Mortgage Warehousing Agreement also contains certain financial covenants. At September 30, 2020, 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 Repurchase Facility provides for a mortgage repurchase facility with a maximum borrowing availability of $65 million. The MIF Mortgage Repurchase Facility was scheduled to expire on October 26, 2020. 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 plus 175 or 200 basis points depending on the loan type. Effective October 26, 2020, M/I Financial entered into an amendment to the MIF Mortgage Repurchase Facility which, among other things, extends the term of the facility for an additional year to October 25, 2021, increases the maximum borrowing availability to $90 million and establishes a floor on one-month LIBOR of 1.0%. The MIF Mortgage Repurchase Facility also contains certain financial covenants. At September 30, 2020, M/I Financial was in compliance with all financial covenants of the MIF Mortgage Repurchase Facility.
At both September 30, 2020 and December 31, 2019, M/I Financial’s total combined maximum borrowing availability under the two credit facilities was $225.0 million. At September 30, 2020 and December 31, 2019, M/I Financial had $136.1 million and $136.9 million outstanding on a combined basis under its credit facilities, respectively.
Senior Notes
On January 22, 2020, the Company issued $400.0 million aggregate principal amount of the 2028 Senior Notes. 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.
The Company used a portion of the net proceeds from the issuance of the 2028 Senior Notes to redeem all $300 million aggregate principal amount of its then outstanding 6.75% Senior Notes due 2021 (the “2021 Senior Notes”) at 100.000% of the principal amount outstanding, plus accrued and unpaid interest thereon, on January 22, 2020.

As of both September 30, 2020 and December 31, 2019, 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 will initially be
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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 September 30, 2020, 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 Guarantor Subsidiaries. The 2028 Senior Notes and the 2025 Senior Notes are general, unsecured senior obligations of the Company and the Guarantor Subsidiaries and rank equally in right of payment with all our and the Guarantor Subsidiaries’ existing and future unsecured senior indebtedness.  The 2028 Senior Notes and the 2025 Senior Notes are effectively subordinated to our and the Guarantor Subsidiaries’ existing and future secured indebtedness with respect to any assets comprising security or collateral for such indebtedness.
The indenture governing 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, 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 $328.6 million at September 30, 2020 and $264.5 million at December 31, 2019. 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.
Notes Payable - Other
The Company had other borrowings, which are reported in Notes Payable - Other in our Unaudited Condensed Consolidated Balance Sheets, totaling $5.3 million and $5.8 million as of September 30, 2020 and December 31, 2019, respectively, which are comprised of notes payable acquired in the normal course of business.

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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 nine months ended September 30, 2020 and 2019:
Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands, except per share amounts) 2020 2019 2020 2019
NUMERATOR
Net income $ 73,537  $ 37,838  $ 159,791  $ 85,807 
DENOMINATOR
Basic weighted average shares outstanding 28,653  27,981  28,554  27,695 
Effect of dilutive securities:
Stock option awards 376  403  253  338 
Deferred compensation awards 257  214  223  205 
Diluted weighted average shares outstanding $ 29,286  $ 28,598  $ 29,030  $ 28,238 
Earnings per common share:
Basic $ 2.57  $ 1.35  $ 5.60  $ 3.10 
Diluted $ 2.51  $ 1.32  $ 5.50  $ 3.04 
Anti-dilutive equity awards not included in the calculation of diluted earnings per common share
435  —  360  412 
NOTE 10. Income Taxes
During the three months ended September 30, 2020 and 2019, the Company recorded a tax provision of $21.6 million and $12.2 million, respectively, which reflects income tax expense related to the periods’ income before income taxes. The effective tax rate for the three months ended September 30, 2020 and 2019 was 22.7% and 24.4%, respectively. During the three months ended September 30, 2020, we recorded a $2.5 million tax benefit related to the retroactive reinstatement of energy efficient homes tax credits. During the nine months ended September 30, 2020 and 2019, the Company recorded a tax provision of $48.4 million and $28.9 million, respectively. The effective tax rate for the nine months ended September 30, 2020 and 2019 was 23.2% and 25.2%, respectively. During the nine months ended September 30, 2020, we recorded a $3.7 million tax benefit related to the retroactive reinstatement of energy efficient homes tax credits and a $0.4 million increase in tax benefit from equity compensation taken during the first nine months of 2020.
The Company had $0.2 million of state net operating loss (“NOL”) carryforwards, net of the federal benefit, at September 30, 2020. Our state NOLs may be carried forward from one to 15 years, depending on the tax jurisdiction, with $0.1 million expiring between 2022 and 2027 and $0.1 million expiring between 2028 and 2032, absent sufficient state taxable income.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act includes several significant business tax provisions including modifications for net operating losses, credit for prior-year minimum tax liability and limitations on business interest and charitable contributions. The CARES Act also provides for an employee retention credit and technical corrections regarding qualified improvement property. We are assessing the tax impact of the CARES Act as it relates to the Company but do not expect it to have a material impact on our tax rate for 2020.

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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 nine months ended September 30, 2020 and 2019, as well as the Company’s income before income taxes for such periods:
Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2020 2019 2020 2019
Revenue:
Northern homebuilding $ 350,591  $ 270,063  $ 890,201  $ 723,295 
Southern homebuilding 468,384  369,828  1,188,056  995,305 
Financial services (a)
28,946  13,454  61,461  39,540 
Total revenue $ 847,921  $ 653,345  $ 2,139,718  $ 1,758,140 
Operating income:
Northern homebuilding $ 38,365  $ 29,587 
(b)
$ 91,487  $ 70,559 
(b)
Southern homebuilding 55,861  32,500  129,037  76,308 
Financial services (a)
19,887  6,609  37,706  19,943 
Less: Corporate selling, general and administrative expense (18,017) (14,047) (41,891) (35,556)
Total operating income $ 96,096  $ 54,649 
(b)
$ 216,339  $ 131,254 
(b)
Interest expense:
Northern homebuilding $ 122  $ 1,505  $ 2,636  $ 5,360 
Southern homebuilding 409  2,146  3,759  8,602 
Financial services (a)
708  986  2,059  2,664 
Total interest expense $ 1,239  $ 4,637  $ 8,454  $ 16,626 
Equity in income from joint venture arrangements (252) (52) (307) (118)
Income before income taxes $ 95,109  $ 50,064  $ 208,192  $ 114,746 
(a)Our financial services operational results should be viewed in connection with our homebuilding business as its operations originate loans and provide title services primarily for our homebuying customers, with the exception of an immaterial amount of mortgage refinancing.
(b)Includes $0.1 million of acquisition-related charges taken during the three months ended September 30, 2019 and $0.6 million of acquisition-related charges taken during the nine months ended September 30, 2019 as a result of our acquisition of Pinnacle Homes in Detroit, Michigan on March 1, 2018.
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The following tables show total assets by segment at September 30, 2020 and December 31, 2019:
September 30, 2020
(In thousands) Northern Southern Corporate, Financial Services and Unallocated Total
Deposits on real estate under option or contract $ 4,173  $ 33,191  $ —  $ 37,364 
Inventory (a)
832,855  973,190  —  1,806,045 
Investments in joint venture arrangements 1,324  32,714  —  34,038 
Other assets 39,462  64,660 
(b)
438,986 
(c)
543,108 
Total assets $ 877,814  $ 1,103,755  $ 438,986  $ 2,420,555 

December 31, 2019
(In thousands) Northern Southern Corporate, Financial Services and Unallocated Total
Deposits on real estate under option or contract $ 3,655  $ 24,877  $ —  $ 28,532 
Inventory (a)
783,972  957,003  —  1,740,975 
Investments in joint venture arrangements 1,672  36,213  —  37,885 
Other assets 21,564  52,662 
(b)
223,976  298,202 
Total assets $ 810,863  $ 1,070,755  $ 223,976  $ 2,105,594 
(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.
(c)Includes a $34.2 million increase in operating lease right-of-use assets primarily due to the commencement of a ten-year renewable lease on June 29, 2020 for the Company’s new corporate headquarters.

NOTE 12. Supplemental Guarantor Information
The Company’s obligations under the 2028 Senior Notes and the 2025 Senior Notes are not guaranteed by all of the Company’s subsidiaries and, therefore, the Company has disclosed condensed consolidating financial information in accordance with SEC Regulation S-X Rule 3-10, Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered. The Guarantor Subsidiaries of the 2028 Senior Notes and the 2025 Senior Notes are the same.
The following condensed consolidating financial information includes balance sheets, statements of income and cash flow information for M/I Homes, Inc. (the parent company and the issuer of the aforementioned guaranteed notes), the Guarantor Subsidiaries, collectively, and for all other subsidiaries and joint ventures of the Company (the “Unrestricted Subsidiaries”), collectively. Each Guarantor Subsidiary is a direct or indirect 100%-owned subsidiary of M/I Homes, Inc. and has fully and unconditionally guaranteed the (1) 2028 Senior Notes on a joint and several senior unsecured basis and (2) 2025 Senior Notes on a joint and several senior unsecured basis.
There are no significant restrictions on the parent company’s ability to obtain funds from its Guarantor Subsidiaries in the form of a dividend, loan, or other means.
As of September 30, 2020, each of the Company’s subsidiaries is a Guarantor Subsidiary, 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, subject to limitations on the aggregate amount invested in such Unrestricted Subsidiaries in accordance with the terms of the Credit Facility and the indenture governing the 2028 Senior Notes and the indenture governing the 2025 Senior Notes.
In the condensed financial tables presented below, the parent company presents all of its 100%-owned subsidiaries as if they were accounted for under the equity method. All applicable corporate expenses have been allocated appropriately among the Guarantor Subsidiaries and Unrestricted Subsidiaries.
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UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF INCOME
Three Months Ended September 30, 2020
(In thousands) M/I Homes, Inc. Guarantor Subsidiaries Unrestricted Subsidiaries Eliminations Consolidated
Revenue $ —  $ 818,975  $ 28,946  $ —  $ 847,921 
Costs and expenses:
Land and housing —  653,407  —  —  653,407 
General and administrative —  39,325  9,554  —  48,879 
Selling —  49,539  —  —  49,539 
Equity in income from joint venture arrangements —  —  (252) —  (252)
Interest —  531  708  —  1,239 
Total costs and expenses —  742,802  10,010  —  752,812 
Income before income taxes —  76,173  18,936  —  95,109 
Provision for income taxes —  17,533  4,039  —  21,572 
Equity in subsidiaries 73,537  —  —  (73,537) — 
Net income $ 73,537  $ 58,640  $ 14,897  $ (73,537) $ 73,537 

Three Months Ended September 30, 2019
(In thousands) M/I Homes, Inc. Guarantor Subsidiaries Unrestricted Subsidiaries Eliminations Consolidated
Revenue $ —  $ 639,891  $ 13,454  $ —  $ 653,345 
Costs and expenses:
Land and housing —  519,164  —  —  519,164 
General and administrative —  32,332  7,053  —  39,385 
Selling —  40,147  —  —  40,147 
Equity in income from joint venture arrangements —  —  (52) —  (52)
Interest —  3,650  987  —  4,637 
Total costs and expenses —  595,293  7,988  —  603,281 
Income before income taxes —  44,598  5,466  —  50,064 
Provision for income taxes —  11,222  1,004  —  12,226 
Equity in subsidiaries 37,838  —  —  (37,838) — 
Net income $ 37,838  $ 33,376  $ 4,462  $ (37,838) $ 37,838 
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Nine Months Ended September 30, 2020
(In thousands) M/I Homes, Inc. Guarantor Subsidiaries Unrestricted Subsidiaries Eliminations Consolidated
Revenue $ —  $ 2,078,257  $ 61,461  $ —  $ 2,139,718 
Costs and expenses:
Land and housing —  1,672,122  —  —  1,672,122 
General and administrative —  99,065  24,698  —  123,763 
Selling —  127,494  —  —  127,494 
Equity in income from joint venture arrangements —  —  (307) —  (307)
Interest —  6,395  2,059  —  8,454 
Total costs and expenses —  1,905,076  26,450  —  1,931,526 
Income before income taxes —  173,181  35,011  —  208,192 
Provision for income taxes —  41,181  7,220  —  48,401 
Equity in subsidiaries 159,791  —  —  (159,791) — 
Net income $ 159,791  $ 132,000  $ 27,791  $ (159,791) $ 159,791 

Nine Months Ended September 30, 2019
(In thousands) M/I Homes, Inc. Guarantor Subsidiaries Unrestricted Subsidiaries Eliminations Consolidated
Revenue $ —  $ 1,718,600  $ 39,540  $ —  $ 1,758,140 
Costs and expenses:
Land and housing —  1,411,488  —  —  1,411,488 
General and administrative —  86,080  20,168  —  106,248 
Selling —  109,150  —  —  109,150 
Equity in income from joint venture arrangements —  —  (118) —  (118)
Interest —  13,962  2,664  —  16,626 
Total costs and expenses —  1,620,680  22,714  —  1,643,394 
Income before income taxes —  97,920  16,826  —  114,746 
Provision for income taxes —  25,555  3,384  —  28,939 
Equity in subsidiaries 85,807  —  —  (85,807) — 
Net income $ 85,807  $ 72,365  $ 13,442  $ (85,807) $ 85,807 
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UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
September 30, 2020
(In thousands) M/I Homes, Inc. Guarantor Subsidiaries Unrestricted Subsidiaries Eliminations Consolidated
ASSETS:
Cash, cash equivalents and restricted cash $ —  $ 156,744  $ 45,768  $ —  $ 202,512 
Mortgage loans held for sale —  —  140,046  —  140,046 
Inventory —  1,843,409  —  —  1,843,409 
Property and equipment - net —  24,919  777  —  25,696 
Investment in joint venture arrangements —  32,139  1,899  —  34,038 
Operating lease right-of-use assets —  42,405  10,169  —  52,574 
Deferred income tax asset —  9,205  —  —  9,205 
Investment in subsidiaries 1,079,323  —  —  (1,079,323) — 
Intercompany assets 734,269  —  —  (734,269) — 
Goodwill —  16,400  —  —  16,400 
Other assets 2,994  78,709  14,972  —  96,675 
TOTAL ASSETS $ 1,816,586  $ 2,203,930  $ 213,631  $ (1,813,592) $ 2,420,555 
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Accounts payable $ —  $ 175,668  $ 913  $ —  $ 176,581 
Customer deposits —  66,632  —  —  66,632 
Operating lease liabilities —  42,497  10,169  —  52,666 
Intercompany liabilities —  733,275  994  (734,269) — 
Other liabilities —  147,478  8,912  —  156,390 
Community development district obligations —  9,892  —  —  9,892 
Obligation for consolidated inventory not owned —  364  —  —  364 
Notes payable bank - homebuilding operations —  —  —  —  — 
Notes payable bank - financial services operations —  —  136,119  —  136,119 
Notes payable - other —  5,325  —  —  5,325 
Senior notes due 2025 - net 247,483  —  —  —  247,483 
Senior notes due 2028 - net 394,363  —  —  —  394,363 
TOTAL LIABILITIES 641,846  1,181,131  157,107  (734,269) 1,245,815 
SHAREHOLDERS’ EQUITY 1,174,740  1,022,799  56,524  (1,079,323) 1,174,740 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 1,816,586  $ 2,203,930  $ 213,631  $ (1,813,592) $ 2,420,555 

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CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2019
(In thousands) M/I Homes, Inc. Guarantor Subsidiaries Unrestricted Subsidiaries Eliminations Consolidated
ASSETS:
Cash, cash equivalents and restricted cash $ —  $ 219  $ 11,589  $ (5,725) $ 6,083 
Mortgage loans held for sale —  —  155,244  —  155,244 
Inventory —  1,769,507  —  —  1,769,507 
Property and equipment - net —  21,372  746  —  22,118 
Investment in joint venture arrangements —  35,391  2,494  —  37,885 
Operating lease right-of-use assets —  15,689  2,726  —  18,415 
Deferred income tax asset —  9,631  —  —  9,631 
Investment in subsidiaries 928,942  —  —  (928,942) — 
Intercompany assets 619,204  —  —  (619,204) — 
Goodwill —  16,400  —  —  16,400 
Other assets 1,411  56,134  12,766  —  70,311 
TOTAL ASSETS $ 1,549,557  $ 1,924,343  $ 185,565  $ (1,553,871) $ 2,105,594 
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES:
Accounts payable $ —  $ 130,136  $ 615  $ (5,725) $ 125,026 
Customer deposits —  34,462  —  —  34,462 
Intercompany liabilities —  618,946  258  (619,204) — 
Operating lease liabilities —  15,691  2,724  —  18,415 
Other liabilities —  141,015  6,922  —  147,937 
Community development district obligations —  13,531  —  —  13,531 
Obligation for consolidated inventory not owned —  7,934  —  —  7,934 
Notes payable bank - homebuilding operations —  66,000  —  —  66,000 
Notes payable bank - financial services operations —  —  136,904  —  136,904 
Notes payable - other —  5,828  —  —  5,828 
Senior notes due 2021 - net 298,988  —  —  —  298,988 
Senior notes due 2025 - net 247,092  —  —  —  247,092 
TOTAL LIABILITIES 546,080  1,033,543  147,423  (624,929) 1,102,117 
SHAREHOLDERS’ EQUITY 1,003,477  890,800  38,142  (928,942) 1,003,477 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 1,549,557  $ 1,924,343  $ 185,565  $ (1,553,871) $ 2,105,594 


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UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2020
(In thousands) M/I Homes, Inc. Guarantor Subsidiaries Unrestricted Subsidiaries Eliminations Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities $ 10,360  $ 153,255  $ 43,021  $ (9,410) $ 197,226 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment —  (8,151) (314) —  (8,465)
Return of capital from unconsolidated joint ventures —  —  1,213  —  1,213 
Intercompany investing (110,525) —  —  110,525  — 
Investments in and advances to joint venture arrangements —  (24,060) (15) —  (24,075)
Net cash (used in) provided by investing activities (110,525) (32,211) 884  110,525  (31,327)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of senior notes due 2021 (300,000) —  —  —  (300,000)
Proceeds from issuance of senior notes due 2028 400,000  —  —  —  400,000 
Proceeds from bank borrowings - homebuilding operations —  306,800  —  —  306,800 
Principal repayments of bank borrowings - homebuilding operations —  (372,800) —  —  (372,800)
Net repayments of bank borrowings - financial services operations
—  —  (785) —  (785)
Principal repayments of notes payable - other and CDD bond obligations —  (503) —  —  (503)
Intercompany financing —  104,291  509  (104,800) — 
Repurchase of common shares (1,912) —  —  —  (1,912)
Dividends paid —  —  (9,410) 9,410  — 
Debt issue costs (6,177) (2,307) (40) —  (8,524)
Proceeds from exercise of stock options 8,254  —  —  —  8,254 
Net cash provided by (used in) financing activities 100,165  35,481  (9,726) (95,390) 30,530 
Net increase in cash, cash equivalents and restricted cash —  156,525  34,179  5,725  196,429 
Cash, cash equivalents and restricted cash balance at beginning of period —  219  11,589  (5,725) 6,083 
Cash, cash equivalents and restricted cash balance at end of period $ —  $ 156,744  $ 45,768  $ —  $ 202,512 

Nine Months Ended September 30, 2019
(In thousands) M/I Homes, Inc. Guarantor Subsidiaries Unrestricted Subsidiaries Eliminations Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by (used in) operating activities $ 9,530  $ (48,625) $ 49,602  $ (9,530) $ 977 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment —  (2,438) (188) —  (2,626)
Return of capital from unconsolidated joint ventures —  —  438  —  438 
Intercompany Investing (18,728) —  —  18,728  — 
Investments in and advances to joint venture arrangements —  (23,351) (171) —  (23,522)
Net cash (used in) provided by investing activities (18,728) (25,789) 79  18,728  (25,710)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings - homebuilding operations
—  568,900  —  —  568,900 
Principal repayments of bank borrowings - homebuilding operations
—  (496,400) —  —  (496,400)
Net repayments of bank borrowings - financial services operations
—  —  (44,574) —  (44,574)
Principal repayments of notes payable - other and CDD bond obligations
—  (429) —  —  (429)
Intercompany financing —  16,155  2,573  (18,728) — 
Repurchase of common shares (5,150) —  —  —  (5,150)
Dividends paid —  —  (9,530) 9,530  — 
Debt issue costs —  —  (40) —  (40)
Proceeds from exercise of stock options 14,348  —  —  —  14,348 
Net cash provided by (used in) financing activities 9,198  88,226  (51,571) (9,198) 36,655 
Net increase (decrease) in cash, cash equivalents and restricted cash —  13,812  (1,890) —  11,922 
Cash, cash equivalents and restricted cash balance at beginning of period —  5,554  15,975  —  21,529 
Cash, cash equivalents and restricted cash balance at end of period $ —  $ 19,366  $ 14,085  $ —  $ 33,451 

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NOTE 13. 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 quarter of 2020, the Company repurchased 0.1 million outstanding common shares at an aggregate purchase price of $1.9 million under the 2018 Share Repurchase Program. The Company did not repurchase any shares during the second or third quarter of 2020. As of September 30, 2020, 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 remains available for repurchases under the 2018 Share Repurchase Program. The timing, amount and other terms and conditions of any additional repurchases under the 2018 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, corporate considerations, general market and economic conditions and legal requirements. The 2018 Share Repurchase Program does not have an expiration date and the Board may modify, discontinue or suspend it at any time.
NOTE 14. 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.

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
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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 September 30, Nine Months Ended September 30,
(Dollars in thousands) 2020 2019 2020 2019
Housing $ 812,999  $ 631,380  $ 2,067,148  $ 1,695,558 
Land sales 5,976  8,511  11,109  23,042 
Financial services (a)
28,946 
(b)
13,454  61,461 
(b)
39,540 
Total revenue $ 847,921  $ 653,345  $ 2,139,718  $ 1,758,140 
(a)Revenues include hedging losses of $5.7 million and $4.7 million for the three months ended September 30, 2020 and 2019, respectively, and $16.3 million and $10.7 million for the nine months ended September 30, 2020 and 2019, respectively. Hedging losses do not represent revenues recognized from contracts with customers.
(b)Revenues for the three and nine months ended September 30, 2020 include $0.1 million and $0.5 million of net impairment charges taken on our mortgage serving rights, respectively, which was recorded as a reduction of revenue. The net impairment charges were 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 nine months ended September 30, 2020 and 2019, 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 125,500 homes since commencing homebuilding activities in 1976.  The Company’s homes are marketed and sold primarily under the M/I Homes brand (M/I Homes and Showcase Collection (exclusively by M/I)). In addition, the Hans Hagen brand is used in older communities in our Minneapolis/St. Paul, Minnesota market. 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 also include statements regarding the impacts of the COVID-19 pandemic. 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 negative impact of COVID-19, interest rates, availability of resources, competition, market concentration, land development activities, integration of acquisitions, 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, 2019 (the “2019 Form 10-K”) and “Item 1A. Risk Factors” in Part II of this Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, 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 2019 Form 10-K for additional information about our accounting policies.
We believe that there have been no significant changes to our critical accounting policies during the quarter ended September 30, 2020 as compared to those disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2019 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 third quarter and nine months ended September 30, 2020, we achieved record levels of new contracts, homes delivered, revenue and income before income taxes. During the third quarter of 2020, we also achieved all-time quarterly records for income before income taxes, new contracts, homes delivered, number of homes in backlog and backlog sales value. In addition, our financial services operations achieved all-time quarterly records for revenue and income before income taxes and originated a record number of loans during the third quarter, while benefiting from a lower mortgage interest rate environment in both the third quarter and nine months ended September 30, 2020.

Following a substantial decline in new contracts in the latter half of March and April as a result of the COVID-19 pandemic, we experienced a sharp recovery and an increase in sales activity commencing in May as pandemic-related restrictions began to ease. This trend of increasing sales volume continued into our third quarter, resulting in the Company achieving an all-time quarterly record for new contracts in the third quarter, along with all-time quarterly records in a number of other operating and financial metrics described further below. We believe that the homebuilding industry benefited from record-low interest rates, a continued undersupply of available homes and consumers’ desire to move from rental apartments and densely populated areas to single family homes in suburban locations. We believe these factors will continue to support demand for the remainder of 2020 and into 2021, subject to the uncertainties caused by the COVID-19 pandemic, including the timing and extent of the associated decline in economic activity and subsequent recovery.

During the third quarter and nine months ended September 30, 2020, we achieved the following record results in comparison to the third quarter and nine months ended September 30, 2019:
•New contracts increased 71% to 2,949 (an all-time quarterly record) and 43% to 7,299, respectively
•Homes delivered increased 29% to 2,137 homes (an all-time quarterly record) and 25% to 5,467 homes, respectively
•Number of homes in backlog at September 30, 2020 increased 54% to an all-time record 4,503 homes
•Total sales value in backlog increased 60% to $1.8 billion, an all-time record for the Company
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•Revenue increased 30% to $847.9 million (an all-time quarterly record) and 22% to $2.1 billion, respectively
•Income before income taxes increased 90% to $95.1 million (an all-time quarterly record) and 81% to $208.2 million, respectively

In addition to the results described above, we achieved net income of $73.5 million for the third quarter of 2020, a 94% increase from prior year, and $159.8 million for the nine months ended September 30, 2020, an 86% increase. Our financial services operations also achieved record income before income taxes for the third quarter, 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 third quarter of 2020 improved to 4.6 per month compared to 2.6 per month for the prior year’s third quarter. Partially as a result of this accelerated sales pace, our number of active communities declined to 207 from 221 at the end of the third quarter of 2019 and 220 at the end of 2020’s second 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 timely could impact our ability to meet current demand and negatively impact our recent growth trends in the number of active communities. We continue to work to open new communities, and we are also actively managing sales pace, in part by selectively increasing prices, to better match our availability of lots and production schedule.
Summary of Company Financial Results

Income before income taxes for the third quarter of 2020 increased 90% from $50.1 million in the third quarter of 2019 to an all-time quarterly record $95.1 million in 2020. For the nine months ended September 30, 2020, income before income taxes increased 81% from $114.7 million for the nine months ended September 30, 2019 to $208.2 million. Income before income taxes for the nine months ended September 30, 2019 was unfavorably impacted by $0.6 million of acquisition-related charges as a result of our acquisition of Pinnacle Homes in March 2018.
We achieved third quarter net income of $73.5 million, or $2.51 per diluted share, in 2020's third quarter, a 94% increase, or $35.7 million, from net income of $37.8 million, or $1.32 per diluted share, in 2019's third quarter. Our effective tax rate was 22.7% in 2020’s third quarter compared to 24.4% in 2019. In the nine months ended September 30, 2020, we achieved net income of $159.8 million, or $5.50 per diluted share, compared to net income of $85.8 million, or $3.04 per diluted share, in the nine months ended September 30, 2019, which included $0.6 million of pre-tax acquisition-related charges ($0.02 per diluted share) as discussed above. Our effective tax rate was 23.3% in 2020's first nine months compared to 25.2% in the same period in 2019.
During the quarter ended September 30, 2020, we recorded all-time quarterly record total revenue of $847.9 million, of which $813.0 million was from homes delivered, $6.0 million was from land sales and $28.9 million was from our financial services operations. Revenue from homes delivered increased 29% in 2020's third quarter compared to the same period in 2019 driven primarily by a 29% increase in the number of homes delivered (486 units), offset, in part, by a 1% decrease in the average sales price of homes delivered ($2,000 per home delivered), which was primarily the result of the mix of homes delivered. Revenue from land sales decreased $2.5 million from the third quarter of 2019 primarily due to fewer land sales in our Northern region in 2020's third quarter compared to the prior year. Revenue from our financial services segment increased 115% to an all-time quarterly record $28.9 million in the third quarter of 2020 as a result of an increase in loans closed and sold and higher margins on loans sold, in each case, during the period compared to prior year. In the nine months ended September 30, 2020, we recorded record total revenue of $2.1 billion, of which $2.07 billion was from homes delivered, $11.1 million was from land sales and $61.5 million was from our financial services operations. Revenue from homes delivered increased 22% in the nine months ended September 30, 2020 compared to the same period in 2019 driven primarily by a 25% increase in the number of homes delivered (1,092 units), partially offset by a 3% decrease in the average sales price of homes delivered ($10,000 per home delivered). Revenue from land sales decreased $11.9 million from the nine months ended September 30, 2019 due to fewer land sales in both our Northern and Southern regions in 2020's first nine months compared to the prior year. Revenue from our financial services segment increased 55% to $61.5 million in the first nine months of 2020 as a result of an increase in loans closed and sold in the first nine months of 2020, 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 $60.3 million in the third quarter of 2020 compared to the third quarter of 2019 as a result of a $44.8 million improvement in the gross margin of our homebuilding operations and a $15.5 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 $44.7 million primarily as a result of the 29% increase in the number of homes delivered. Our housing gross margin percentage improved 120 basis points from 19.1% in prior year's third quarter to 20.3% in 2020's third quarter, primarily as a result of the mix of homes delivered during 2020's third quarter. Our gross margin on land sales (land sale gross margin) improved $0.1 million in the third quarter
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of 2020 compared to the third quarter of 2019. The gross margin of our financial services operations increased $15.5 million in the third quarter of 2020 compared to the third quarter of 2019 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 third quarter of 2020 compared to the third quarter of 2019. Total gross margin increased $120.9 million in the nine months ended September 30, 2020 compared to the same period in 2019 as a result of a $99.0 million improvement in the gross margin of our homebuilding operations and a $21.9 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 $99.3 million as a result of the 25% increase in the number of homes delivered, offset partially by the 3% decrease in the average sales price of homes delivered. Our housing gross margin percentage improved 150 basis points from 18.1% in prior year’s first nine months to 19.6% in 2020's first nine months, primarily as a result of the mix of homes delivered during the period. The nine months ended September 30, 2019 includes $0.6 million of acquisition-related charges (as discussed above). Our gross margin on land sales declined $0.3 million in 2020's first nine months compared to the same period in 2019. The gross margin of our financial services operations increased $21.9 million in the nine months ended September 30, 2020 compared to the same period in 2019 as a result of increases in the number of loan originations, in addition to higher margins on loans sold during the first nine months of 2020 compared to the nine months ended September 30, 2019.
We opened 51 new communities during the nine months ended September 30, 2020. We sell a variety of home types in various communities and markets, each of which yields a different gross margin. The timing of the openings of new replacement communities as well as underlying lot costs varies from year to year. As a result, our new contracts and housing gross margin may fluctuate up or down from quarter to quarter depending on the mix of communities delivering homes. As a result of the record number of sales this year, we are selling through communities faster; therefore, our ability to replace existing communities timely could impact our ability to meet current demand and negatively impact our recent growth trends in number of active communities.
For the three months ended September 30, 2020, selling, general and administrative expense increased $18.9 million, which partially offset the increase in our gross margin dollars discussed above, but declined as a percentage of revenue from 12.2% in the third quarter of 2019 to 11.6% in the third quarter of 2020. Selling expense increased $9.4 million from 2019's third quarter but improved as a percentage of revenue to 5.8% in 2020's third quarter from 6.1% for the same period in 2019. Variable selling expense for sales commissions contributed $8.8 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 $0.6 million increase in non-variable selling expense primarily related to increased headcount in our sales offices and models. General and administrative expense increased $9.5 million compared to the third quarter of 2019 but declined as a percentage of revenue from 6.0% in the third quarter of 2019 to 5.8% in the third quarter of 2020. The dollar increase in general and administrative expense was primarily due to a $5.6 million increase in compensation-related expenses due to our strong performance during the quarter, a $0.7 million increase in professional fees, a $0.6 million increase in corporate home office rent-related expenses, a $0.5 million increase in land-related expenses, a $0.3 million increase in COVID-19-related cleaning expenses, a $0.3 million increase in rent related to our division offices and a $1.5 million increase in miscellaneous expenses. For the nine months ended September 30, 2020, selling, general and administrative expense increased $35.9 million, which partially offset the increase in our gross margin dollars discussed above, but declined as a percentage of revenue from 12.3% in the nine months ended September 30, 2019 to 11.7% in the nine months ended September 30, 2020. Selling expense increased $18.3 million from the nine months ended September 30, 2019 but improved as a percentage of revenue to 6.0% in 2020’s first nine months from 6.2% for the same period in 2019. Variable selling expense for sales commissions contributed $18.0 million to the increase due to the higher number of homes delivered year to date. The increase in selling expense was also attributable to a $0.3 million increase in non-variable selling expense primarily related to increased headcount in our sales offices and models. General and administrative expense increased $17.5 million compared to the nine months ended September 30, 2019 but declined as a percentage of revenue from 6.0% in the nine month period ended September 30, 2019 to 5.8% in the nine months ended September 30, 2020. The dollar increase in general and administrative expense was primarily due to a $10.8 million increase in compensation-related expenses due to our increased headcount and our strong financial performance during the period, a $1.3 million increase in corporate home office rent-related expenses, a $1.3 million increase in professional fees, a $1.0 million increase in land-related expenses, a $0.9 million increase in rent related to our division offices, a $0.9 million increase in COVID-19-related cleaning expenses, and a $1.3 million increase in miscellaneous expenses.

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Outlook
We believe that new home sales will continue to benefit from record-low interest rates, a continued undersupply of available homes and consumer demographics, including a growing number of homebuyers moving from rental apartments and more densely populated areas to single family homes in suburban locations. However, we also expect that overall economic conditions in the United States will continue to be negatively impacted by the COVID-19 pandemic, although the magnitude and duration of such impact is uncertain, and such conditions could negatively impact new home sales across our markets for the fourth quarter of 2020 and potentially into subsequent reporting periods.

In both our second and third quarters of 2020, we experienced cost increases in certain construction materials and are actively managing and monitoring 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 third quarter, our ability to raise prices, together with cost management, allowed us to achieve a total gross margin percentage of 22.9%, an improvement of 100 basis points compared with 2020’s second quarter. 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.

We are also closely monitoring mortgage availability and a recent tightening of lending standards related to an expected decline in the economy. Although interest rates remain at historic lows, we have seen a decline in mortgage availability beginning in late March including a tightening of underwriting standards. To date, this tightening has not had a significant impact on our business, although it has had some effect on lower credit quality borrowers and those using non-agency loan programs. We are seeing an impact related to mortgage availability due to layoffs and concerns about employment and business shutdowns, particularly with self-employed borrowers, and to address these concerns, we have reduced the time frames for verifying employment and we are following agency recommendations for pre-closing documentation. In addition, we are aggressively working to deliver and fund loans with investors more quickly.

We expect to emphasize the following strategic business objectives throughout the remainder of 2020:
•managing our land spend and inventory levels;
•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 nine months ended September 30, 2020, we invested $266.8 million in land acquisitions and $222.6 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, including any potential effects as a result of the COVID-19 pandemic, and we will adjust our land and inventory home investment spend accordingly. As a result, we are not providing land spending estimates for 2020 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, we are not providing estimated community count information for 2020 at this time. However, as a result of our accelerated pace of home sales, we are selling through communities at a faster pace, which will make it challenging to achieve an increase in our number of active communities for the full year in 2020. We opened 51 communities and closed 69 communities in the nine months ended September 30, 2020, ending the third quarter with a total of 207 communities, compared to 221 at the end of last year’s third quarter.
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.
See Part II, Item 1A., “Risk Factors,” for further information regarding the potential impacts of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows.
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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 nine months ended September 30, 2020 and 2019:
Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2020 2019 2020 2019
Revenue:
Northern homebuilding $ 350,591  $ 270,063  $ 890,201  $ 723,295 
Southern homebuilding 468,384  369,828  1,188,056  995,305 
Financial services (a)
28,946  13,454  61,461  39,540 
Total revenue $ 847,921  $ 653,345  $ 2,139,718  $ 1,758,140 
Gross margin:
Northern homebuilding $ 67,644  $ 51,768 
(b)
$ 167,270  $ 131,461 
(b)
Southern homebuilding 97,924  68,959  238,865  175,651 
Financial services (a)
28,946  13,454  61,461  39,540 
Total gross margin $ 194,514  $ 134,181 
(b)
$ 467,596  $ 346,652 
(b)
Selling, general and administrative expense:
Northern homebuilding $ 29,279  $ 22,181  $ 75,783  $ 60,902 
Southern homebuilding 42,063  36,459  109,828  99,343 
Financial services (a)
9,059  6,845  23,755  19,597 
Corporate 18,017  14,047  41,891  35,556 
Total selling, general and administrative expense $ 98,418  $ 79,532  $ 251,257  $ 215,398 
Operating income (loss):
Northern homebuilding $ 38,365  $ 29,587 
(b)
$ 91,487  $ 70,559 
(b)
Southern homebuilding 55,861  32,500  129,037  76,308 
Financial services (a)
19,887  6,609  37,706  19,943 
Less: Corporate selling, general and administrative expense (18,017) (14,047) (41,891) (35,556)
Total operating income $ 96,096  $ 54,649 
(b)
$ 216,339  $ 131,254 
(b)
Interest expense:
Northern homebuilding $ 122  $ 1,505  $ 2,636  $ 5,360 
Southern homebuilding 409  2,146  3,759  8,602 
Financial services (a)
708  986  2,059  2,664 
Total interest expense $ 1,239  $ 4,637  $ 8,454  $ 16,626 
Equity in income of joint venture arrangements (252) (52) (307) (118)
Income before income taxes $ 95,109  $ 50,064  $ 208,192  $ 114,746 
(a)Our financial services operational results should be viewed in connection with our homebuilding business as its operations originate loans and provide title services primarily for our homebuying customers, with the exception of a small amount of mortgage refinancing.
(b)Includes $0.1 million of acquisition-related charges taken during the three months ended September 30, 2019 and $0.6 million of acquisition-related charges taken during the nine months ended September 30, 2019 as a result of our acquisition of Pinnacle Homes in Detroit, Michigan on March 1, 2018.
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The following tables show total assets by segment at September 30, 2020 and December 31, 2019:
At September 30, 2020
(In thousands) Northern Southern Corporate, Financial Services and Unallocated Total
Deposits on real estate under option or contract $ 4,173  $ 33,191  $ —  $ 37,364 
Inventory (a)
832,855  973,190  —  1,806,045 
Investments in joint venture arrangements 1,324  32,714  —  34,038 
Other assets 39,462  64,660 
(b)
438,986 
(c)
543,108 
Total assets $ 877,814  $ 1,103,755  $ 438,986  $ 2,420,555 
At December 31, 2019
(In thousands) Northern Southern Corporate, Financial Services and Unallocated Total
Deposits on real estate under option or contract $ 3,655  $ 24,877  $ —  $ 28,532 
Inventory (a)
783,972  957,003  —  1,740,975 
Investments in joint venture arrangements 1,672  36,213  —  37,885 
Other assets 21,564  52,662 
(b)
223,976  298,202 
Total assets $ 810,863  $ 1,070,755  $ 223,976  $ 2,105,594 
(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.
(c)Includes a $34.2 million increase in operating lease right-of-use assets due to the commencement of a ten-year renewable lease on June 29, 2020 for the Company’s new corporate headquarters.

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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 nine months ended September 30, 2020 and 2019:
Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in thousands) 2020 2019 2020 2019
Northern Region
Homes delivered 868  651  2,190  1,739 
New contracts, net 1,176  635  2,951  2,040 
Backlog at end of period 1,904  1,231  1,904  1,231 
Average sales price of homes delivered $ 402  $ 406  $ 405  $ 412 
Average sales price of homes in backlog $ 427  $ 430  $ 427  $ 430 
Aggregate sales value of homes in backlog $ 813,909  $ 529,090  $ 813,909  $ 529,090 
Housing revenue $ 348,774  $ 264,274  $ 887,662  $ 716,421 
Land sale revenue $ 1,817  $ 5,789  $ 2,539  $ 6,874 
Operating income homes (a)
$ 38,308  $ 29,511 
(b)
$ 91,385  $ 70,428 
(b)
Operating income land $ 57  $ 76  $ 102  $ 131 
Number of average active communities 90  89  94  89 
Number of active communities, end of period 86  89  86  89 
Southern Region
Homes delivered 1,269  1,000  3,277  2,636 
New contracts, net 1,773  1,086  4,348  3,056 
Backlog at end of period 2,599  1,684  2,599  1,684 
Average sales price of homes delivered $ 366  $ 367  $ 360  $ 371 
Average sales price of homes in backlog $ 387  $ 361  $ 387  $ 361 
Aggregate sales value of homes in backlog $ 1,005,322  $ 608,117  $ 1,005,322  $ 608,117 
Housing revenue $ 464,225  $ 367,106  $ 1,179,486  $ 979,137 
Land sale revenue $ 4,159  $ 2,722  $ 8,570  $ 16,168 
Operating income homes (a)
$ 55,731  $ 32,502  $ 128,888  $ 75,910 
Operating income (loss) land $ 130  $ (2) $ 149  $ 398 
Number of average active communities 124  132  125  127 
Number of active communities, end of period 121  132  121  132 
Total Homebuilding Regions
Homes delivered 2,137  1,651  5,467  4,375 
New contracts, net 2,949  1,721  7,299  5,096 
Backlog at end of period 4,503  2,915  4,503  2,915 
Average sales price of homes delivered $ 380  $ 382  $ 378  $ 388 
Average sales price of homes in backlog $ 404  $ 390  $ 404  $ 390 
Aggregate sales value of homes in backlog $ 1,819,231  $ 1,137,207  $ 1,819,231  $ 1,137,207 
Housing revenue $ 812,999  $ 631,380  $ 2,067,148  $ 1,695,558 
Land sale revenue $ 5,976  $ 8,511  $ 11,109  $ 23,042 
Operating income homes (a)
$ 94,039  $ 62,013 
(b)
$ 220,273  $ 146,338 
(b)
Operating income land $ 187  $ 74  $ 251  $ 529 
Number of average active communities 214  221  219  216 
Number of active communities, end of period 207  221  207  221 
(a)Includes the effect of total homebuilding selling, general and administrative expense for the region as disclosed in the first table set forth in this “Outlook” section.
(b)Includes $0.1 million of acquisition-related charges taken during the three months ended September 30, 2019 and $0.6 million of acquisition-related charges taken during the nine months ended September 30, 2019 as a result of our acquisition of Pinnacle Homes in Detroit, Michigan on March 1, 2018.
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Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in thousands) 2020 2019 2020 2019
Financial Services
Number of loans originated 1,636  1,243  4,142  3,078 
Value of loans originated $ 513,456  $ 388,033  $ 1,287,426  $ 959,022 
Revenue $ 28,946  $ 13,454  $ 61,461  $ 39,540 
Less: Selling, general and administrative expenses 9,059  6,845  23,755  19,597 
Less: Interest expense 708  986  2,059  2,664 
Income before income taxes $ 19,179  $ 5,623  $ 35,647  $ 17,279 
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 nine months ended September 30, 2020 and 2019:
Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Northern 8.2  % 10.9  % 9.7  % 10.6  %
Southern 10.4  % 13.5  % 12.6  % 14.4  %
Total cancellation rate 9.5  % 12.6  % 11.5  % 12.9  %

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, our results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that we may achieve in future periods.
Year Over Year Comparison
Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019
Northern Region. During the three months ended September 30, 2020, homebuilding revenue in our Northern region increased $80.5 million, from $270.1 million in the third quarter of 2019 to $350.6 million in the third quarter of 2020. This 30% increase in homebuilding revenue was primarily the result of a 33% increase in the number of homes delivered (217 units), offset partially by a decrease in the average sales price of homes delivered ($4,000 per home delivered) which was due to the mix of communities delivering homes. Operating income in our Northern region increased $8.8 million from $29.6 million in the third quarter of 2019 to $38.4 million during the quarter ended September 30, 2020. This increase in operating income was the result of a $15.9 million improvement in our gross margin, offset partially by a $7.1 million increase in selling, general and administrative expense. With respect to our homebuilding gross margin, our housing gross margin improved $15.9 million primarily due to the 33% increase in the number of homes delivered noted above. Our housing gross margin percentage declined 20 basis points to 19.4% in the third quarter of 2020 from 19.6% in the prior year’s third quarter. The decline in
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housing gross margin percentage was primarily due to changes in product type and market mix of homes delivered compared to 2019's same period. Our land sale gross margin remained flat in the third quarter of 2020 compared to the same period in 2019.

Selling, general and administrative expense increased $7.1 million, from $22.2 million for the quarter ended September 30, 2019 to $29.3 million for the quarter ended September 30, 2020, and increased as a percentage of revenue to 8.4% in 2020's third quarter from 8.2% in 2019's third 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 $2.3 million increase in general and administrative expense primarily related to a $0.9 million increase in land-related expenses, a $0.7 million increase in incentive compensation as a result of our improved performance, a $0.5 million increase in professional fees and a $0.2 million increase in COVID-19-related cleaning expenses.
During the three months ended September 30, 2020, we experienced an 85% increase in new contracts in our Northern region, from 635 in the third quarter of 2019 to 1,176 in the third quarter of 2020, and a 55% increase in homes in backlog from 1,231 homes at September 30, 2019 to 1,904 homes at September 30, 2020. The increases in new contracts and homes in backlog were primarily due to improving demand in our newer communities compared to prior year. Average sales price in backlog decreased, however, to $427,000 at September 30, 2020 compared to $430,000 at September 30, 2019 which was primarily due to changes in product type and market mix. During the three months ended September 30, 2020, we opened five new communities in our Northern region compared to opening six communities during 2019's third quarter. Our monthly absorption rate in our Northern region improved to 4.4 per community in the third quarter of 2020 compared to 2.4 per community in 2019's third quarter.
Southern Region. During the three month period ended September 30, 2020, homebuilding revenue in our Southern region increased $98.6 million, from $369.8 million in the third quarter of 2019 to $468.4 million in the third quarter of 2020. This 27% increase in homebuilding revenue was the result of a 27% increase in the number of homes delivered (269 units), offset partially by a decrease in the average sales price of homes delivered ($1,000 per home delivered) which was due to the mix of communities delivering homes. Operating income in our Southern region increased $23.4 million from $32.5 million in the third quarter of 2019 to $55.9 million during the quarter ended September 30, 2020. This increase in operating income was the result of a $29.0 million improvement in our gross margin, partially offset by a $5.6 million increase in selling, general, and administrative expense. With respect to our homebuilding gross margin, our housing gross margin improved $28.8 million, due primarily to the 27% increase in the number of homes delivered noted above. Our housing gross margin percentage improved from 18.8% in prior year’s third quarter to 21.1% in the third quarter of 2020, largely due to the more affordable mix of communities delivering homes and construction efficiencies. Our land sale gross margin improved $0.2 million in the third quarter of 2020 compared to the third quarter of 2019. We did not record any additional warranty charges for stucco-related repair costs in our Florida communities during the third quarter of 2020. With respect to this matter, during the quarter ended September 30, 2020, we identified 20 additional homes in need of repair and completed repairs on 22 homes, and, at September 30, 2020, we have 113 homes in various stages of repair.  See Note 6 to our financial statements for further information.
Selling, general and administrative expense increased $5.6 million from $36.5 million in the third quarter of 2019 to $42.1 million in the third quarter of 2020 but declined as a percentage of revenue to 9.0% from 9.9% in the third quarter of 2019. The increase in selling, general and administrative expense was attributable, in part, to a $4.6 million increase in selling expense due to a $4.8 million increase in variable selling expenses resulting from increases in sales commissions produced by the higher number of homes delivered, partially offset by a $0.2 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 $1.0 million increase in general and administrative expense primarily related to an increase in incentive compensation due to our improved performance.
During the three months ended September 30, 2020, we experienced a 63% increase in new contracts in our Southern region, from 1,086 in the third quarter of 2019 to 1,773 in the third quarter of 2020, and a 54% increase in homes in backlog from 1,684 homes at September 30, 2019 to 2,599 homes at September 30, 2020. 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 $387,000 at September 30, 2020 from $361,000 at September 30, 2019 due to changes in product type and market mix. During the three months ended September 30, 2020, we opened seven new communities in our Southern region compared to opening 10 communities during 2019's third quarter. Our monthly absorption rate in our Southern region improved to 4.8 per community in the third quarter of 2020 compared to 2.7 per community in the third quarter of 2019.
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Financial Services. Revenue from our mortgage and title operations increased 115% to a third quarter record of $28.9 million in the third quarter of 2020 from $13.5 million in the third quarter of 2019 due to a 32% increase in the number of loan originations from 1,243 in 2019's third quarter to 1,636 in the third quarter of 2020 as well as an increase in the average loan amount from $312,000 in the quarter ended September 30, 2019 to $314,000 in the quarter ended September 30, 2020. We also experienced higher margins on loans sold during the period compared to prior year’s third quarter.
We experienced a $13.3 million increase in operating income in the third quarter of 2020 compared to 2019's third quarter, which was primarily due to the increase in revenue discussed above, offset partially by a $2.2 million increase in selling, general and administrative expense compared to the third quarter of 2019. This increase was primarily due to an increase in compensation expense related to our increase in employee headcount due to new mortgage locations.
At September 30, 2020, M/I Financial, LLC (“M/I Financial”) provided financing services in all of our markets.
Approximately 85% of our homes delivered during the third quarter of 2020 were financed through M/I Financial, the same as in the third quarter of 2019. 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 $4.0 million from $14.0 million for the third quarter of 2019 to $18.0 million for the third quarter of 2020. This increase primarily resulted from a $2.0 million increase in compensation expense due to our improved performance, a $0.7 million increase in computer costs related to our investment in new information systems, a $0.5 million increase in rent-related expense due to our new home office headquarters and a $0.8 million increase in miscellaneous expenses.
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 $0.3 million and less than $0.1 million, respectively, of equity in income from its LLCs during the three months ended September 30, 2020 and 2019, respectively.
Interest Expense - Net. Interest expense for the Company decreased $3.4 million from $4.6 million for the three months ended September 30, 2019 to $1.2 million for the three months ended September 30, 2020. This decrease was primarily the result of a decrease in average borrowings under our Credit Facility (as defined below) during the third quarter of 2020 compared to prior year. Our weighted average borrowings decreased from $848.9 million in 2019's third quarter to $736.3 million in 2020's third quarter. Our weighted average borrowing rate decreased from 6.13% in the third quarter of 2019 to 5.57% for third quarter of 2020.
Income Taxes. Our overall effective tax rate was 22.7% for the three months ended September 30, 2020 and 24.4% for the same period in 2019. The decrease in the effective rate from the three months ended September 30, 2019 was primarily attributable to a $2.5 million tax benefit related to the retroactive reinstatement of energy efficient homes tax credits (see Note 10 to our financial statements for more information).
Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019
Northern Region. During the nine months ended September 30, 2020, homebuilding revenue in our Northern region increased $166.9 million, from $723.3 million in the nine months ended September 30, 2019 to $890.2 million in the nine months ended September 30, 2020. This 23% increase in homebuilding revenue was the result of a 26% increase in the number of homes delivered (451 units), partially offset by a 2% decrease in the average sales price of homes delivered ($7,000 per home delivered) and a $4.3 million decrease in land sale revenue. Operating income in our Northern region increased $20.9 million, from $70.6 million during the nine months ended September 30, 2019 to $91.5 million during the nine months ended September 30, 2020. The increase in operating income was primarily the result of a $35.8 million increase in our gross margin, offset, in part, by a $14.9 million increase in selling, general, and administrative expense. With respect to our homebuilding gross margin, our housing gross margin improved $35.8 million, primarily due to the 26% increase in the number of homes delivered. Our housing gross margin percentage improved 50 basis points from 18.3% in the nine months ended September 30, 2019 to 18.8% for the same period in 2020, primarily due to a change in product type and market mix of homes delivered compared to the prior year. Our housing gross margin for the nine months ended September 30, 2019 was unfavorably impacted by $0.6 million of acquisition-related charges from our Detroit acquisition. Our land sale gross margin improved slightly by 10 basis points in the nine months ended September 30, 2020 compared to the same period in 2019.

Selling, general and administrative expense increased $14.9 million, from $60.9 million for the nine months ended September 30, 2019 to $75.8 million for the nine months ended September 30, 2020, and increased slightly as a percentage of revenue to 8.5% in the first nine months of 2020 compared to 8.4% in the same period in 2019. The increase in selling, general and
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administrative expense was attributable, in part, to a $10.3 million increase in selling expense due to (1) an $8.0 million increase in variable selling expenses resulting from increases in sales commissions produced by the higher number of homes delivered, and (2) a $2.3 million increase in non-variable selling expenses primarily related to costs associated with our additional sales offices and models as a result of our increased average community count. The increase in selling, general and administrative expense was also attributable to a $4.6 million increase in general and administrative expense, which was primarily related to a $1.9 million increase in compensation-related expense due to increased headcount as well as our improved performance during the period, a $1.4 million increase in professional fees, a $0.8 million increase in land-related expenses and a $0.5 million increase in COVID-19-related cleaning expenses.
During the nine months ended September 30, 2020, we experienced a 45% increase in new contracts in our Northern region, from 2,040 in the nine months ended September 30, 2019 to 2,951 in the first nine months of 2020, and a 55% increase in homes in backlog from 1,231 homes at September 30, 2019 to 1,904 homes at September 30, 2020. The increases in new contracts and homes in backlog were due to improving demand in our newer communities compared to prior year and an increase in our average number of communities during the period. Average sales price in backlog decreased, however, to $427,000 at September 30, 2020 compared to $430,000 at September 30, 2019, which was primarily due to product type and market mix. During the nine months ended September 30, 2020, we opened 21 new communities in our Northern region compared to 14 during the same period in 2019. Our monthly absorption rate in our Northern region improved to 3.5 per community in the nine months ended September 30, 2020 from 2.5 per community in the same period in 2019.
Southern Region. During the nine months ended September 30, 2020, homebuilding revenue in our Southern region increased $192.8 million from $995.3 million in the nine months ended September 30, 2019 to $1.19 billion in the nine months ended September 30, 2020. This 19% increase in homebuilding revenue was the result of a 24% increase in the number of homes delivered (641 units), offset partially by a $7.6 million decrease in land sale revenue and a 3% decrease in the average sales price of homes delivered ($11,000 per home delivered). Operating income in our Southern region increased $52.7 million from $76.3 million in the nine months ended September 30, 2019 to $129.0 million during the nine months ended September 30, 2020. This increase in operating income was the result of a $63.2 million improvement in our gross margin offset, in part, by a $10.5 million increase in selling, general, and administrative expense. With respect to our homebuilding gross margin, our gross margin on homes delivered improved $63.5 million, due primarily to the 24% increase in the number of homes delivered noted above. Our housing gross margin percentage improved 230 basis points from 17.9% in the nine months ended September 30, 2019 to 20.2% in the same period in 2020, largely due to the more affordable mix of communities delivering homes. construction efficiencies and decreased lot costs. Our land sale gross margin declined $0.3 million in the nine months ended September 30, 2020 compared to the same period in 2019.
Selling, general and administrative expense increased $10.5 million from $99.3 million in the nine months ended September 30, 2019 to $109.8 million in the nine months ended September 30, 2020 but declined as a percentage of revenue to 9.2% compared to 10.0% for the nine months ended September 30, 2019. The increase in selling, general and administrative expense was attributable to an $8.0 million increase in selling expense due to a $10.0 million increase in variable selling expenses resulting from increases in sales commissions produced by the higher number of homes delivered, offset partially by a $2.0 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 $2.5 million increase in general and administrative expense, which was primarily related to an increase in incentive compensation due to our improved performance.

During the nine months ended September 30, 2020, we experienced a 42% increase in new contracts in our Southern region, from 3,056 in the nine months ended September 30, 2019 to 4,348 in the first nine months of 2020, and a 54% increase in backlog from 1,684 homes at September 30, 2019 to 2,599 homes at September 30, 2020. 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 from $361,000 at September 30, 2019 to $387,000 at September 30, 2020 due to a change in product type and market mix. During the nine months ended September 30, 2020, we opened 30 communities in our Southern region compared to 44 during the same period in 2019. Our monthly absorption rate in our Southern region improved to 3.9 per community in the nine months ended September 30, 2020 from 2.7 per community in the nine months ended September 30, 2019.
Financial Services. Revenue from our mortgage and title operations increased $22.0 million (55%) from $39.5 million in the nine months ended September 30, 2019 to $61.5 million in the nine months ended September 30, 2020 due to a 35% increase in the number of loan originations from 3,078 in the nine months ended September 30, 2019 to 4,142 in the nine months ended September 30, 2020, offset partially by a decrease in the average loan amount from $312,000 in the nine months ended September 30, 2019 to $311,000 in the nine months ended September 30, 2020. We also experienced higher margins on loans sold during the period compared to 2019's first nine months. Revenue was reduced by a $0.5 million impairment charge on our
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mortgage servicing rights caused by the disruption in the mortgage industry as a result of the COVID-19 pandemic. See Note 4 to our financial statements for further information.
We experienced a $17.8 million increase in operating income in the nine months ended September 30, 2020 compared to the same period in 2019, which was primarily due to the increase in revenue discussed above offset partially by a $4.2 million increase in selling, general and administrative expense compared to the nine months ended September 30, 2019. The increase in selling, general and administrative expense was primarily attributable to an increase in compensation expense related to an increase in employee headcount and an increase in incentive compensation due to improved results.
At September 30, 2020, M/I Financial provided financing services in all of our markets. Approximately 84% of our homes delivered during the nine months ended September 30, 2020 were financed through M/I Financial, compared to 81% in the nine months ended September 30, 2019. 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 $6.3 million from $35.6 million for the nine months ended September 30, 2019 to $41.9 million for the nine months ended September 30, 2020. The increase was primarily due to a $3.0 million increase in incentive compensation expense due to improved results during the period, a $1.2 million increase in corporate home office rent-related expense, a $0.9 million increase due to computer costs, a $0.3 million increase in charitable contributions and a $0.9 million increase in miscellaneous expenses.
Equity in Income from Joint Venture Arrangements. The Company earned $0.3 million and $0.1 million of equity in income from its LLCs during the nine months ended September 30, 2020 and 2019, respectively.
Interest Expense - Net. Interest expense for the Company decreased $8.2 million from $16.6 million in the nine months ended September 30, 2019 to $8.5 million in the nine months ended September 30, 2020. This decrease was primarily the result of a decrease in average borrowings under our Credit Facility (as defined below) during the first nine months of 2020 compared to prior year, the redemption of our 6.75% Senior Notes due 2021 (the “2021 Senior Notes”) at the beginning of the first quarter of 2020, and the issuance of our new 2028 Senior Notes, which were not outstanding during the nine months ended September 30, 2019 and have a lower interest rate than the 2021 Senior Notes. Our weighted average borrowings decreased from $845.9 million in the nine months ended September 30, 2019 to $783.3 million in the nine months ended September 30, 2020, and our weighted average borrowing rate declined from 6.21% in 2019's first nine months to 5.51% in 2020's first nine months.
Income Taxes. Our overall effective tax rate was 23.2% for the nine months ended September 30, 2020 and 25.2% for the nine months ended September 30, 2019. The decrease in the effective rate for the nine months ended September 30, 2020 was primarily attributable to a $3.7 million tax benefit related to the retroactive reinstatement of energy efficient homes tax credits and a $0.4 million increase in tax benefit from equity compensation taken during 2020's first nine months (see Note 10 to our financial statements for more information).
LIQUIDITY AND CAPITAL RESOURCES
Overview of Capital Resources and Liquidity.
At September 30, 2020, we had $202.5 million of cash, cash equivalents and restricted cash, with $202.3 million of this amount comprised of unrestricted cash and cash equivalents, which represents a $196.5 million increase in unrestricted cash and cash equivalents from December 31, 2019. Our principal uses of cash for the nine months ended September 30, 2020 were investment in land and land development, construction of homes, mortgage loan originations, investment in joint ventures, operating expenses, short-term working capital, debt service requirements, including the redemption of our 2021 Senior Notes and the repayment of amounts outstanding under our credit facilities, and the repurchase of $1.9 million of our outstanding common shares under our 2018 Share Repurchase Program (as defined below) during the first quarter of 2020. In order to fund these uses of cash, we used proceeds from home deliveries and the sale of mortgage loans, as well as excess cash balances, proceeds from the issuance of our 2028 Senior Notes (as described below), borrowings under our credit facilities, and other sources of liquidity.
The Company is a party to three primary credit agreements: (1) a $500 million unsecured revolving credit facility, dated July 18, 2013, as amended most recently on June 30, 2020 (the “Credit Facility”), with M/I Homes, Inc. as borrower and guaranteed by the Company’s wholly owned homebuilding subsidiaries; (2) a $125 million secured mortgage warehousing agreement (which increases to $160 million from September 25, 2020 to October 15, 2020 and to $185 million from November 15, 2020 to February 4, 2021), dated June 24, 2016, as amended most recently on May 29, 2020, with M/I Financial as borrower (the
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“MIF Mortgage Warehousing Agreement”); and (3) a $90 million mortgage repurchase agreement, dated October 30, 2017, as amended most recently on October 26, 2020, with M/I Financial as borrower (the “MIF Mortgage Repurchase Facility”).

In January 2020, we issued $400 million aggregate principal amount of our 2028 Senior Notes at par, for net proceeds of approximately $393.9 million. We used $300.4 million of the net proceeds to redeem all $300.0 million aggregate principal amount of our 2021 Senior Notes, at par, and we used the remaining net proceeds to repay a portion of our outstanding borrowings under the Credit Facility. As of September 30, 2020, there were no borrowings outstanding and $66.6 million of letters of credit outstanding under our $500 million Credit Facility, leaving $433.4 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 and availability under our Credit Facility.

During the nine months ended September 30, 2020, we delivered 5,467 homes, started 6,193 homes, and spent $266.8 million on land purchases and $222.6 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 September 30, 2020, we had a total of 24,532 lots under contract, with an aggregate purchase price of approximately $801.4 million to be acquired during the remainder of 2020 through 2028.
Operating Cash Flow Activities. During the nine-month period ended September 30, 2020, we generated $197.2 million of cash from operating activities, compared to generating $1.0 million of cash in operating activities during the nine months ended September 30, 2019. The cash generated from operating activities in the first nine months of 2020 was primarily a result of net income of $159.8 million, $14.3 million of proceeds from the sale of mortgage loans net of mortgage loan originations, and an increase in accounts payable, other liabilities and customer deposits totaling $92.9 million, offset, in part, by a $62.5 million increase in inventory and an increase in other assets of $18.5 million. The $1.0 million of cash generated in operating activities in 2019's first nine months was primarily a result of net income of $85.8 million, $38.3 million of proceeds from the sale of mortgage loans net of mortgage loan originations, and an increase in accounts payable and customer deposits totaling $42.2 million, offset partially by a $156.1 million increase in inventory and a decrease in accrued compensation and other liabilities of $22.2 million.

Investing Cash Flow Activities. During the nine months ended September 30, 2020, we used $31.3 million of cash in investing activities, compared to using $25.7 million of cash in investing activities during the nine months ended September 30, 2019. This increase in cash used was primarily due to an increase in purchases of property and equipment during the period compared to prior year.

Financing Cash Flow Activities. During the nine months ended September 30, 2020, we generated $30.5 million of cash from financing activities, compared to generating $36.7 million of cash during the nine months ended September 30, 2019. The cash generated from financing activities in 2020 was primarily due to the issuance of our 2028 Senior Notes, net of debt issuance costs, for $391.5 million, offset partially by the redemption of all $300.0 million aggregate principal amount of our then outstanding 2021 Senior Notes, and repayments of $66.0 million (net of proceeds from borrowings) under our Credit Facility during the nine months ended September 30, 2020. The cash generated from financing activities during the first nine months of 2019 was primarily due to higher borrowings under our Credit Facility, partially offset by net repayments of borrowings under our two M/I Financial credit facilities.
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 13 to our financial statements). During the first quarter of 2020, the Company repurchased 80,000 common shares with an aggregate purchase price of $1.9 million which was funded with cash on hand and borrowings under our Credit Facility. As of September 30, 2020, the Company is authorized to repurchase an additional $17.2 million of outstanding common shares under the 2018 Share Repurchase Program.

At September 30, 2020 and December 31, 2019, our ratio of homebuilding debt to capital was 36% and 38%, respectively, calculated as the carrying value of our outstanding homebuilding debt 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.
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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 September 30, 2020:
(In thousands) Expiration
Date 		Outstanding
Balance 		Available
Amount
Notes payable – homebuilding (a)
(a) $ —  $ 433,434 
Notes payable – financial services (b)
(b) $ 136,119  $ 964 
(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 $829.6 million of availability for additional senior debt at September 30, 2020. As a result, the full $500 million commitment amount of the facility was available, less any borrowings and letters of credit outstanding. There were no borrowings outstanding and $66.6 million of letters of credit outstanding at September 30, 2020, leaving $433.4 million available. The Credit Facility has an expiration date of July 18, 2023 for $475.0 million of commitments and July 18, 2021 for $25.0 million of commitments.
(b)The available amount is computed in accordance with the borrowing base calculations under the MIF Mortgage Warehousing Agreement and the MIF Mortgage Repurchase Facility, each of which may be increased by pledging additional mortgage collateral.  The maximum aggregate commitment amount of M/I Financial’s warehousing agreements as of September 30, 2020 was $225 million. The MIF Mortgage Warehousing Agreement has an expiration date of May 28, 2021. Subsequent to the quarter ended September 30, 2020, M/I Financial entered into an amendment to the MIF Mortgage Repurchase Facility which extended its term for an additional year to October 25, 2021 and also increased the maximum borrowing availability to $90 million from $65 million.
Notes Payable - Homebuilding.  

Homebuilding Credit Facility. The Credit Facility provides for an aggregate commitment amount of $500 million, and also includes an accordion feature pursuant to which the maximum borrowing availability may be increased to an aggregate of $600 million, subject to obtaining additional commitments from lenders. The Credit Facility matures on July 18, 2023 for $475.0 million of commitments and July 18, 2021 for $25.0 million of commitments. Interest on amounts borrowed under the Credit Facility is payable at a rate which is adjusted daily and is equal to the sum of one-month LIBOR (subject to a floor of 0.75%) plus a margin of 250 basis points (subject to adjustment in subsequent quarterly periods based on the Company’s leverage ratio).

Borrowings under the Credit Facility constitute senior, unsecured indebtedness and availability is subject to, among other things, a borrowing base calculated using various advance rates for different categories of inventory. The Credit Facility also provides for a $125 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 $779.1 million (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 Note 12 to our financial statements), 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 $400.0 million aggregate principal amount of 4.95% Senior Notes due 2028 (the “2028 Senior Notes”) and our $250.0 million aggregate principal amount of 5.625% Senior Notes due 2025 (the “2025 Senior Notes”).
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As of September 30, 2020, the Company was in compliance with all covenants of the Credit Facility, including financial covenants. The following table summarizes the most significant restrictive covenant thresholds under the Credit Facility and our compliance with such covenants as of September 30, 2020:
Financial Covenant Covenant Requirement Actual
 (Dollars in millions)
Consolidated Tangible Net Worth ≥ $ 779.1  $ 1,091.4 
Leverage Ratio ≤ 0.60 0.32
Interest Coverage Ratio ≥ 1.5 to 1.0 7.7 to 1.0
Investments in Unrestricted Subsidiaries and Joint Ventures ≤ $ 327.4  $ 2.3 
Unsold Housing Units and Model Homes ≤ 2,780  905 

Notes Payable - Financial Services.

MIF Mortgage Warehousing Agreement. The MIF Mortgage Warehousing Agreement is used to finance eligible residential mortgage loans originated by M/I Financial. The MIF Mortgage Warehousing Agreement provides a maximum borrowing availability of $125 million, which increases to $160 million from September 25, 2020 to October 15, 2020 and to $185 million from November 15, 2020 to February 4, 2021, which are periods of expected increases in the volume of mortgage originations. The MIF Mortgage Warehousing Agreement expires on May 28, 2021. Interest on amounts borrowed under the MIF Mortgage Warehousing Agreement is payable at a per annum rate equal to the one-month LIBOR rate (subject to a floor of 1.0%) plus a spread of 200 basis points.
The MIF Mortgage Warehousing Agreement is secured by certain mortgage loans originated by M/I Financial that are being “warehoused” prior to their sale to investors. The MIF Mortgage Warehousing Agreement provides for limits with respect to certain loan types that can secure outstanding borrowings. There are currently no guarantors of the MIF Mortgage Warehousing Agreement.
As of September 30, 2020, there was $97.8 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 September 30, 2020:
Financial Covenant Covenant Requirement Actual
(Dollars in millions)
Leverage Ratio ≤ 10.0 to 1.0 3.5 to 1.0
Liquidity ≥ $ 6.25  $ 43.2 
Adjusted Net Income > $ 0.0  $ 25.5 
Tangible Net Worth ≥ $ 12.5  $ 46.0 
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 $65 million. The MIF Mortgage Repurchase Facility was scheduled to expire on October 26, 2020. 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 plus 175 or 200 basis points depending on the loan type.
Subsequent to the quarter ended September 30, 2020, M/I Financial entered into an amendment to the MIF Mortgage Repurchase Facility with an effective date of October 26, 2020. The amendment, among other things, extends the term of the MIF Mortgage Repurchase Facility for an additional year to October 25, 2021, increases the maximum borrowing availability to $90 million, and establishes a floor on one-month LIBOR of 1.0%.
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 September 30, 2020, there was $38.3 million outstanding under the MIF Mortgage Repurchase Facility. M/I Financial was in compliance with all financial covenants under the MIF Mortgage Repurchase Facility as of September 30, 2020.

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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 September 30, 2020, the Company was in compliance with all terms, conditions, and covenants under the indenture.

The Company used a portion of the net proceeds from the issuance of the 2028 Senior Notes to redeem all of its outstanding 2021 Senior Notes at 100.000% of the principal amount outstanding, plus accrued and unpaid interest thereon, on January 22, 2020. See Note 8 to our financial statements for more information regarding the 2028 Senior Notes.
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 September 30, 2020, 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 2025 Senior Notes.
Weighted Average Borrowings. For the three months ended September 30, 2020 and 2019, our weighted average borrowings outstanding were $736.3 million and $848.9 million, respectively, with a weighted average interest rate of 5.57% and 6.13%, respectively. The decrease in our weighted average borrowings and our weighted average interest rate related to decreased borrowings under our Credit Facility during the third quarter of 2020 compared to the same period in 2019 as well as the issuance of our 2028 Senior Notes on January 22, 2020, which have a lower interest rate than our 2021 Senior Notes which were redeemed on January 22, 2020.

At September 30, 2020, we had no borrowings outstanding under the Credit Facility compared to $66.0 million of borrowings outstanding at December 31, 2019. During the first nine months of 2020, the Company used the Credit Facility for investment in land and land development, construction of homes, operating expenses, working capital requirements and share repurchases under our 2018 Share Repurchase Program. During the nine months ended September 30, 2020, the average daily amount outstanding under the Credit Facility was $23.1 million and the maximum amount outstanding under the Credit Facility was $111.3 million. Based on our currently anticipated spending on home construction, land acquisition and development during the remainder of 2020, offset by expected cash receipts from home deliveries, we do not expect to borrow under the Credit Facility through the end of 2020. Our expectation not to borrow under the Credit Facility during the remainder of 2020 is based on numerous assumptions, including homebuilding conditions not materially changing during the period as a result of the COVID-19 pandemic or otherwise. To the extent our assumptions or market conditions change, we may borrow under the Credit Facility and the actual amount borrowed during the remainder of 2020 and the related timing would 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 would also be impacted by other cash receipts and payments, any capital markets transactions or other additional financings by the Company, any repayments or redemptions of outstanding debt, any additional share repurchases under the 2018 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 $66.6 million of letters of credit issued and outstanding under the Credit Facility at September 30, 2020. During the nine months ended September 30, 2020, the average daily amount of letters of credit outstanding under the Credit Facility was $67.4 million and the maximum amount of letters of credit outstanding under the Credit Facility was $69.9 million.

At September 30, 2020, M/I Financial had $97.8 million outstanding under the MIF Mortgage Warehousing Agreement.  During the nine months ended September 30, 2020, the average daily amount outstanding under the MIF Mortgage Warehousing Agreement was $37.3 million and the maximum amount outstanding was $109.2 million, which occurred during April.
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At September 30, 2020, M/I Financial had $38.3 million outstanding under the MIF Mortgage Repurchase Facility.  During the nine months ended September 30, 2020, the average daily amount outstanding under the MIF Mortgage Repurchase Facility was $31.7 million and the maximum amount outstanding was $59.9 million, which occurred during August.
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 Annual Report on Form 10-K for the year ended December 31, 2019, except for the Third Amendment to the Credit Facility entered into on June 30, 2020, the Fourth Amendment to the MIF Warehousing Agreement, dated May 29, 2020, and the Third Amendment to the MIF Mortgage Repurchase Facility, dated October 26, 2020, as described above in Note 8 of our 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 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 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 September 30, 2020 and December 31, 2019, 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 September 30, 2020, “Consolidated Inventory Not Owned” was $0.4 million. At September 30, 2020, the corresponding liability of $0.4 million has been classified as Obligation for Consolidated Inventory Not Owned on our Unaudited Condensed Consolidated Balance Sheets.

Other than the Consolidated Inventory Not Owned balance, the Company currently believes that its maximum exposure as of September 30, 2020 related to our land option agreements is equal to the amount of the Company’s outstanding deposits and prepaid acquisition costs, which totaled $61.6 million, including cash deposits of $37.4 million, prepaid acquisition costs of $9.8 million, letters of credit of $11.0 million and $3.4 million of other non-cash deposits.
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Letters of Credit and Completion Bonds.  The Company provides standby letters of credit and completion bonds for development work in progress, deposits on land and lot purchase agreements and miscellaneous deposits.  As of September 30, 2020, the Company had outstanding $267.7 million of completion bonds and standby letters of credit, some of which were issued to various local governmental entities, that expire at various times through November 2027.  Included in this total are: (1) $194.1 million of performance and maintenance bonds and $55.1 million of performance letters of credit that serve as completion bonds for land development work in progress; (2) $11.5 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.

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 $725 million as of September 30, 2020, subject to availability constraints. Additionally, M/I Financial is exposed to interest rate risk associated with its mortgage loan origination services.

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

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

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

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

The table below shows the notional amounts of our financial instruments at September 30, 2020 and December 31, 2019:
September 30, December 31,
Description of Financial Instrument (in thousands) 2020 2019
Whole loan contracts and related committed IRLCs $ 2,924  $ 1,445 
Uncommitted IRLCs 213,146  87,340 
FMBSs related to uncommitted IRLCs 186,000  88,000 
Whole loan contracts and related mortgage loans held for sale 13,750  6,125 
FMBSs related to mortgage loans held for sale 116,000  144,000 
Mortgage loans held for sale covered by FMBSs 120,257  144,411 

The table below shows the measurement of assets and liabilities at September 30, 2020 and December 31, 2019:
September 30, December 31,
Description of Financial Instrument (in thousands) 2020 2019
Mortgage loans held for sale $ 140,046  $ 155,244 
Forward sales of mortgage-backed securities 171  (336)
Interest rate lock commitments 1,380  654 
Whole loan contracts (106) (16)
Total $ 141,491  $ 155,546 

The following table sets forth the amount of (loss) gain recognized on assets and liabilities for the three and nine months ended September 30, 2020 and 2019:
Three Months Ended September 30, Nine Months Ended September 30,
Description (in thousands) 2020 2019 2020 2019
Mortgage loans held for sale $ (1,338) $ (1,964) $ (911) $ (2,981)
Forward sales of mortgage-backed securities 1,670  2,299  507  3,631 
Interest rate lock commitments (853) (686) 704  (258)
Whole loan contracts (20) 121  (68) 174 
Total (loss) gain recognized $ (541) $ (230) $ 232  $ 566 

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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 September 30, 2020. Because the MIF Mortgage Warehousing Agreement and MIF Mortgage Repurchase Facility are effectively secured by certain mortgage loans held for sale which are typically sold within 30 to 45 days, their outstanding balances are included in the most current period presented. The interest rates for our variable rate debt represent the weighted average interest rates in effect at September 30, 2020. 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) 2020 2021 2022 2023 2024 Thereafter Total 9/30/2020
ASSETS:
Mortgage loans held for sale:
Fixed rate $ 145,475  —  —  —  —  —  $ 145,475  $ 140,046 
Weighted average interest rate 2.86  % —  —  —  —  —  2.86  %
LIABILITIES:
Long-term debt — fixed rate $ 127  $ 1,215  $ 1,039  $ 304  $ 77  $ 650,000  $ 652,762  $ 672,613 
Weighted average interest rate 5.63  % 5.63  % 5.63  % 5.63  % 5.63  % 5.21  % 5.21  %
Short-term debt — variable rate $ 136,119  —  —  —  —  —  $ 136,119  $ 136,119 
Weighted average interest rate 2.72  % —  —  —  —  —  2.72  %

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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 September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II - OTHER INFORMATION

Item 1. Legal Proceedings

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

The Company and certain of its subsidiaries have been named as defendants in certain other legal proceedings which are incidental to our business. While management currently believes that the ultimate resolution of these other legal proceedings, individually and in the aggregate, will not have a material effect on the Company’s financial condition, 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.

Item 1A. Risk Factors

Except as set forth below, there have been no material changes to the risk factors appearing in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Our business could be materially and adversely disrupted by the present outbreak of COVID-19 or by another epidemic, pandemic or similar public health issue, or fear of such an event, and the measures that international, federal, state and local governments, agencies and/or health authorities implement to address it.

An epidemic, pandemic or similar public health issue, or fear of such an event, and the measures undertaken by governmental authorities to address it, could significantly disrupt or prevent us from operating our business in the ordinary course for an extended period, and thereby, and/or along with any associated economic and/or social instability or distress, have a material adverse effect on our business, results of operations, financial condition and/or cash flows.

On March 11, 2020, the World Health Organization characterized the outbreak of COVID-19 as a global pandemic and recommended containment and mitigation measures. On March 13, 2020, the United States declared a national emergency with respect to the COVID-19 outbreak, and several states and municipalities have declared public health emergencies. Numerous international, federal, state and local public health and governmental authorities have taken extraordinary and wide-ranging actions to contain and combat the outbreak and spread of COVID-19, including quarantines, “stay-at-home” orders, social distancing guidelines and similar mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations.

In response to these developments, we have undertaken a number of actions and initiatives. We encouraged all employees at our corporate and division offices whose duties could be performed from home to work remotely until further notice, transitioned all of our Design Studios to appointment-only with pre-screened individuals or virtual appointments, instituted mandatory social distancing and hygiene/sanitation guidelines in accordance with recommended protocols throughout the organization
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(including in our Design Studios, and with respect to trade partners and their employees on our jobsites) and postponed non-essential customer care service and warranty requests.

While necessary and appropriate, the above-referenced actions and initiatives, together with the unprecedented uncertainty resulting from the COVID-19 pandemic and related factors, impacted our ability to operate our business in the ordinary course consistent with our past practices. These actions and initiatives, combined with a reduction in the availability, capacity and efficiency of municipal and private services necessary to progress land development, homebuilding, mortgage loan originations and home closings (which, in each case, has varied by market depending on the scope of restrictions state and local governments have established) and the unprecedented uncertainty resulting from the COVID-19 pandemic, caused our sales pace to significantly decline, our cancellation rate to significantly increase and our home construction and deliveries in certain of our markets to be delayed commencing in the latter half of March and continuing through April. Conditions started to improve in May as state and local governments in our markets began to ease public health restrictions and we began to take steps to gradually resume our normal operations (including opening our Design Studios and model homes to the general public) and our sales and closings have rebounded since May. However, the potential magnitude and duration of the business and economic impacts from the unprecedented public health effort to contain and combat the spread of COVID-19, which include, among other things, high unemployment levels and significant volatility in the financial markets, are uncertain. In addition, we can provide no assurance as to whether the COVID-19 public health effort will be intensified to such an extent that we will not be able to conduct any business operations in certain of our markets or at all for an indefinite period, particularly in response to any resurgence in COVID-19 cases, including the rise in cases that certain of our markets are currently experiencing.

Our business could also be negatively impacted over the medium-to-longer term if the disruptions related to COVID-19 decrease consumer confidence generally or with respect to purchasing a home, cause civil unrest, and/or precipitate a prolonged economic downturn and/or an extended rise in unemployment or tempering of wage growth, any of which could lower demand for our homes and/or impair our ability to sell and build homes in a typical manner or at all, generate revenues and cash flows, and/or access the capital or lending markets (or significantly increase the costs of doing so), as may be necessary to sustain our business; increase the costs or decrease the supply of building materials or the availability of labor and subcontractors; and/or result in our recognizing material charges in future periods for inventory impairments or land option contract abandonments, or both. The unprecedented uncertainty surrounding COVID-19, due, in part, to rapidly changing governmental directives, public health challenges and progress, macroeconomic consequences and market reactions thereto also makes it more challenging for our management to estimate the future performance of our business and develop strategies to generate growth and achieve our objectives.

Should the adverse impacts described above (or others that are currently unknown) occur, whether individually or collectively, we could experience, among other things, increases in our cancellation rate and decreases in our new contracts, homes delivered, revenues and profitability, as we experienced in the first several weeks of our second quarter. Such impacts could be material to our business, results of operations, financial condition and cash flows in the fourth quarter and subsequent reporting periods. We could also be forced to reduce our average selling prices to generate demand or in response to actions taken by our competitors. In addition, should the COVID-19 public health effort intensify to such an extent that we cannot operate in most or all of our markets, we could generate few or no new contracts and deliver few, if any, homes during the applicable period, which could be prolonged. Also, if there are prolonged government restrictions on our business and customers and/or an extended economic recession, we could be unable to produce revenues and cash flows sufficient to conduct our business, comply with the terms of the covenants and other requirements under our Credit Facility, indentures governing our senior notes, mortgage financing arrangements, land contracts due to land sellers and other loans and/or service our outstanding debt. Such a circumstance could, among other things, exhaust our available liquidity and ability to access additional liquidity sources and/or trigger an acceleration to pay a significant portion or all of our then-outstanding indebtedness, which we may be unable to do.

In addition to the risks described above, the COVID-19 pandemic may also have the effect of heightening other risks disclosed in the Risk Factors section of our 2019 Form 10-K, including, but not limited to, risks related to deterioration in homebuilding and general economic conditions, competition, availability of mortgage financing, impairments, supply and/or labor shortages, changes in energy prices, access to capital markets (including the debt and secondary mortgage markets), our ability to resell mortgages or liability for mortgages sold, compliance with the terms of our indebtedness (including the Credit Facility and the indentures governing our senior notes) and our leverage.
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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 September 30, 2020.

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 2018 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, corporate considerations, general market and economic conditions and legal requirements.

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
31.1
31.2
32.1
32.2
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: October 30, 2020 By: /s/ Robert H. Schottenstein
Robert H. Schottenstein
Chairman, Chief Executive Officer and
President
(Principal Executive Officer)
Date: October 30, 2020 By: /s/ Ann Marie W. Hunker
Ann Marie W. Hunker
Vice President, Corporate Controller
(Principal Accounting Officer)

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EXECUTION
AMENDMENT NO. 3
TO SECOND AMENDED AND RESTATED MASTER REPURCHASE AGREEMENT
Amendment No. 3 to Second Amended and Restated Master Repurchase Agreement, dated as of October 26, 2020 (this “Amendment”), between STERLING NATIONAL BANK (the “Buyer”) and M/I FINANCIAL, LLC (the “Seller”).
RECITALS
The Buyer and the Seller are parties to that certain Second Amended and Restated Master Repurchase Agreement, dated as of October 30, 2017 (as amended by that certain Amendment No. 1 to Second Amended and Restated Master Repurchase Agreement, dated as of October 29, 2018 and Amendment No. 2 to Second Amended and Restated Master Repurchase Agreement, dated as of October 28, 2019, each by and between the Buyer and the Seller, and this Amendment, the “Existing Repurchase Agreement”; and as further amended by this Amendment, the “Repurchase Agreement”). Capitalized terms used but not otherwise defined herein shall have the meanings given to them in the Existing Repurchase Agreement.
The Buyer and the Seller have agreed, subject to the terms and conditions of this Amendment, that the Existing Repurchase Agreement be amended to reflect certain agreed upon revisions to the terms of the Existing Repurchase Agreement.
Accordingly, the Buyer and the Seller hereby agree, in consideration of the mutual promises and mutual obligations set forth herein, that the Existing Repurchase Agreement is hereby amended as follows:
SECTION 1.Requirements of Law. Section 6 of the Existing Repurchase Agreement is hereby amended by adding the following new paragraph at the end thereof:
(c)    Upon the occurrence of a LIBOR Transition Event, the Buyer and the Seller shall endeavor to amend this Agreement to replace the LIBOR Rate with a LIBOR Replacement Rate.  The Buyer will promptly notify the Seller in writing of any occurrence of a LIBOR Transition Event.  Following a LIBOR Transition Event and until this Agreement has been amended to replace the LIBOR Rate with a LIBOR Replacement Rate in accordance with the terms hereof, the Pricing Rate shall be a rate per annum equal to the greater of (a) the Prime Rate and (b) the Pricing Floor.
SECTION 2.Maximum Purchase Price. Section 2 of Schedule 2 to the Existing Repurchase Agreement is hereby amended by deleting the definition of “Maximum Purchase Price” in its entirety and replacing it with the following:
“Maximum Purchase Price” shall mean $90,000,000.
SECTION 3.Termination Date. Section 4 of Schedule 2 to the Existing Repurchase Agreement is hereby amended by deleting such section in its entirety and replacing it with the following:
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Termination Date. The Termination Date shall mean October 25, 2021, or such other date declared by either Seller or Buyer as contemplated below, or such date as determined by Buyer pursuant to its rights and remedies under the Agreement.
SECTION 4.Price Differential; Pricing Rate; Post-Default Rate. Section 6 of Schedule 2 to the Existing Repurchase Agreement is hereby amended by:

4.1    deleting the definitions of “Pricing Rate” and “Pricing Spread” in their entirety and replacing them with the following:
The “Pricing Rate” shall be a rate per annum equal to the greater of (a) the sum of (i) the Index Rate plus (ii) the Pricing Spread and (b) the Pricing Floor. Buyer’s calculations with respect thereto shall be conclusive absent manifest error.
The “Pricing Spread” shall equal:
(a)    with respect to Transactions the subject of which are Mortgage Loans which are Conforming Mortgage Loans, Agency High Balance Mortgage Loans, Jumbo Mortgage Loans and Exception Mortgage Loans, 1.75%; or
(b)    with respect to Transactions the subject of which are Mortgage Loans which are Aged Mortgage Loans, 2.00%.
4.2    deleting the definition of “LIBOR Rate” in its entirety and replacing it with the following:
The “LIBOR Rate” shall mean for each day the rate per annum determined on the basis of the rate for deposits in Dollars for a period equal to thirty (30) days appearing on the Official ICE LIBOR Fixings page by Bloomberg or in the Wall Street Journal (or any successor page). In the event that such rate does not appear on the Official ICE LIBOR Fixings page by Bloomberg or in the Wall Street Journal (or otherwise on such screen), the LIBOR Rate shall be determined by reference to such other comparable publicly available service for displaying Eurodollar rates as may be selected by Buyer and Seller.
4.3    adding the following definitions at the end thereof:
A “LIBOR Transition Event” shall mean (a) a determination by Buyer that adequate and reasonable means do not exist for ascertaining LIBOR or (b) a public statement or publication of information by or on behalf of (i) the administrator of the LIBOR Rate, (ii) the regulatory supervisor for the administrator of the LIBOR Rate, or (iii) the U.S. Federal Reserve System, announcing that (x) such administrator has ceased or will cease to provide the LIBOR Rate, permanently or indefinitely provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide the LIBOR Rate or (y) the LIBOR Rate is no longer representative.

The “LIBOR Replacement Rate” shall mean the alternate benchmark rate (which may include SOFR) selected by the Buyer and the Seller in accordance with (i) any selection or recommendation of a replacement rate or the mechanism for determining such a rate by the
2


Federal Reserve Board and/or the Federal Reserve Bank of New York at such time or, in the event such a selection or recommendation is not available, and (ii) any evolving or then-prevailing market convention for determining a rate of interest as a replacement to the LIBOR Rate for Dollar-denominated credit and/or repurchase facilities;  such alternate benchmark rate shall include any spread adjustment or method for calculating or determining such spread adjustment recommended by the Federal Reserve or, if no such recommendation is available, any evolving or then-prevailing market convention for determining such a spread adjustment to the applicable LIBOR Replacement Rate.
The “Pricing Floor” shall equal:
(a)    with respect to Transactions the subject of which are Mortgage Loans which are Conforming Mortgage Loans, Agency High Balance Mortgage Loans, Jumbo Mortgage Loans and Exception Mortgage Loans, 2.75%; or
(b)    with respect to Transactions the subject of which are Mortgage Loans which are Aged Mortgage Loans, 3.00%.
The “Prime Rate” shall mean, as of any date of determination, the per annum rate of interest last published by the Wall Street Journal as the consensus prime rate among large banks, which Prime Rate shall change simultaneously with any change in such announced rate.
The “SOFR” shall mean, with respect to any day, the secured overnight financing rate published for such day by the Federal Reserve Bank of New York, as the administrator of the benchmark, (or a successor administrator) on the Federal Reserve Bank of New York’s website.
SECTION 5.Certain Financial Condition Covenants. Section 7 of Schedule 2 to the Existing Repurchase Agreement is hereby amended by deleting paragraph (d) in its entirety and replacing it with the following:
(d)    Maintenance of Profitability. Seller shall not permit, for any Test Period, Net Income for such Test Period, before income taxes for such Test Period and distributions made during such Test Period, to be less than $1.00. “Test Period” shall mean any two (2) consecutive calendar quarters.
SECTION 6.Warehouse and Other Fees. Section 12 of Schedule 2 to the Existing Repurchase Agreement is hereby amended by deleting paragraphs (a) and (b) in their entirety and replacing them with the following:
(a)    Commitment Fee. Seller shall pay to Buyer in immediately available funds, earned on October 26, 2020 (the “Third Amendment Effective Date”), a non-refundable Commitment Fee equal to 0.20% multiplied by the Maximum Purchase Price. The Commitment Fee shall be paid in full on the Third Amendment Effective Date.
(b)    Non-Use Fee. No later than the 15th day (and if such day is not a Business Day, the following Business Day) following the end of each calendar month, Seller shall pay in immediately available funds to Buyer a non-refundable Non-Use Fee equal to the product of (a)
3


0.125% per annum calculated on the basis of a 360 day year and (b) the excess of (i) 50% of then applicable Maximum Purchase Price over (ii) the average daily Purchase Price of the Purchased Mortgage Loans during such calendar month.
SECTION 7.Compliance Certificate. Exhibit F to the Existing Repurchase Agreement is hereby amended by deleting such exhibit in its entirety and replacing it with Annex A hereto.
SECTION 8.Conditions Precedent. This Amendment shall become effective as of the date hereof (the “Amendment Effective Date”), subject to the satisfaction of the following conditions precedent:
8.1    Delivered Documents. On the Amendment Effective Date, the Buyer shall have received the following documents, each of which shall be satisfactory to the Buyer in form and substance:
(a)this Amendment, executed and delivered by the duly authorized officers of the Buyer and the Seller;
(b)the Commitment Fee in an amount equal to $180,000, incurred in connection with the extension of the Termination Date; and
(c)such other documents as the Buyer or counsel to the Buyer may reasonably request.
SECTION 9.Representations and Warranties. Seller hereby represents and warrants to the Buyer that it is in compliance with all the terms and provisions set forth in the Existing Repurchase Agreement on its part to be observed or performed, and that no Default or Event of Default has occurred and is continuing, and hereby confirms and reaffirms the representations and warranties contained in Section 11 of the Existing Repurchase Agreement.
SECTION 10.Limited Effect. Except as expressly amended and modified by this Amendment, the Existing Repurchase Agreement shall continue to be, and shall remain, in full force and effect in accordance with its terms.
SECTION 11.Counterparts. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Amendment by signing any such counterpart. The parties agree that this Amendment, any addendum or amendment hereto or any other document necessary for the consummation of the transaction contemplated by this Amendment may be accepted, executed or agreed to through the use of an electronic signature in accordance with the Electronic Signatures in Global and National Commerce Act, the Official Text of the Uniform Electronic Transactions Act as approved by the National Conference of Commissioners on Uniform State Laws at its Annual Conference on July 29, 1999 and any applicable state law.  Any document accepted, executed or agreed to in conformity with such laws will be binding on all parties hereto to the same extent as if it were physically executed and each party hereby consents to the use of any secure third party electronic signature capture service providers, as long as such service providers use system logs and audit trails that establish a temporal and
4


process link between the presentation of identity documents and the electronic signing, together with identifying information that can be used to verify the electronic signature and its attribution to the signer’s identity and evidence of the signer’s agreement to conduct the transaction electronically and of the signer’s execution of each electronic signature.
SECTION 12.Severability. Each provision and agreement herein shall be treated as separate and independent from any other provision or agreement herein and shall be enforceable notwithstanding the unenforceability of any such other provision or agreement.
SECTION 13.GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
[Remainder of page intentionally left blank]

5


IN WITNESS WHEREOF, the parties have caused their names to be signed hereto by their respective officers thereunto duly authorized as of the day and year first above written.
STERLING NATIONAL BANK, as Buyer
By: /s/ Eddie Othman
      Name: Eddie Othman
      Title: Senior Vice President




M/I FINANCIAL, LLC, as Seller































By: /s/ Derek J. Klutch
      Name: Derek J. Klutch
      Title: President and CEO



ANNEX A
EXHIBIT F
FORM OF COMPLIANCE CERTIFICATE
I, ___________________, do hereby certify that I am the [duly elected, qualified and authorized] [CFO/TREASURER/FINANCIAL OFFICER] of M/I Financial, LLC (“Seller”). This Certificate is delivered to you in connection with Section 12(d)(iv) of the Second Amended and Restated Master Repurchase Agreement dated as of October 30, 2017, between M/I Financial, LLC and Sterling National Bank (as amended from time to time, the “Agreement”), as the same may have been amended from time to time. Capitalized terms shall have the meaning set forth in the Agreement. I hereby certify that, as of the date of the financial statements attached hereto and as of the date hereof, M/I Financial, LLC is and has been in compliance with all the terms of the Agreement and, without limiting the generality of the foregoing, I certify that:
Maintenance of Tangible Net Worth plus Subordinated Debt. The Seller has maintained a Tangible Net Worth* plus Subordinated Debt§ of not less than $12,500,000. A detailed summary of the calculation of the Seller’s Tangible Net Worth is set forth on Schedule 1 hereto.
Maintenance of Ratio of Indebtedness to Tangible Net Worth. The Seller has maintained the ratio of (a) Indebtedness less Subordinated Debt to (b) Tangible Net Worth plus Subordinated Debt no greater than 10:1. A detailed summary of the calculation of the Seller’s ratio of Indebtedness to Tangible Net Worth is set forth on Schedule 1 hereto.
Maintenance of Profitability. Seller has not permitted, for any Test Period, Net Income for such Test Period, before income taxes for such Test Period and distributions made during such Test Period, to be less than $1.00. A detailed summary of the calculation of Seller’s Net Income is set forth on Schedule 1 hereto.
Guarantees. Seller has not created, incurred, assumed or suffered to exist any Guarantees, except to the extent reflected in the Seller’s Financial Statements or notes thereto.
Total Warehouse Capacity. Seller has ensured that the Maximum Purchase Price does not exceed 50% of the total aggregate maximum availability under its Warehouse Facilities (whether drawn or undrawn).
Maintenance of Liquidity. The Seller has maintained, as of the end of each calendar month, it has Liquidity in an amount not less than $6,250,000.
Warehouse Lines. All warehouse lines of Seller existing on the date hereof are listed on Schedule 3 hereto.


Limitation on Dividends and Distributions. Upon the occurrence and after the continuance of an Event of Default, Seller has not made any payment on account of, or set apart assets for, a sinking or other analogous fund for the purchase, redemption, defeasance, retirement or other acquisition of any equity interest of Seller, whether now or hereafter outstanding, or made any other distribution or dividend in respect of any of the foregoing or to any shareholder or equity owner of Seller, either directly or indirectly, whether in cash or property or in obligations of Seller or any of its consolidated Subsidiaries.
Financial Statements. The financial statements attached fairly present in all material respects the financial condition and results of operations of Seller and its consolidated Subsidiaries and the financial condition and results of operations of Seller, in accordance with GAAP, consistently applied, as at the end of, and for, the calendar month ending on [DATE] (subject to normal year-end adjustments).
Originations. Attached hereto as Schedule 2 is a true and correct summary of all Mortgage Loans originated by Seller for the calendar month ending [DATE] and for the year to date ending [DATE].
Documentation. Seller has performed the documentation procedures required by its operational guidelines with respect to endorsements and assignments, including the recordation of assignments, or has verified that such documentation procedures have been performed by a prior holder of such Mortgage Loan.
Compliance. Seller has observed or performed in all material respects all of its covenants and other agreements, and satisfied every condition, contained in the Agreement and the other Program Documents to be observed, performed and satisfied by it. [If a covenant or other agreement or condition has not been complied with, Seller shall describe such lack of compliance and provide the date of any related waiver thereof.]
Regulatory Action. Seller is not currently under investigation or, to best of Seller’s knowledge, no investigation by any federal, state or local government agency is threatened. Seller has not been the subject of any government investigation which has resulted in the voluntary or involuntary suspension of a license, a cease and desist order, or such other action as could adversely impact Seller’s business. [If so, Seller shall describe the situation in reasonable detail and describe the action that Seller has taken or proposes to take in connection therewith.]
No Default. No Default or Event of Default has occurred or is continuing. [If any Default or Event of Default has occurred and is continuing, Seller shall describe the same in reasonable detail and describe the action Seller has taken or proposes to take with respect thereto, and if such Default or Event of Default has been expressly waived by Buyer in writing, Seller shall describe the Default or Event of Default and provide the date of the related waiver.]


IN WITNESS WHEREOF, I have set my hand this _____ day of ________, ________.
M/I Financial, LLC

By: ____________________
Name:     __________________
Title:    ___________________






SCHEDULE 1 TO OFFICER’S COMPLIANCE CERTIFICATE
CALCULATIONS OF FINANCIAL COVENANTS

As of the month ended: [Date]
Covenant Actual Requirement
Compliance
(Y/N)
TNW (including Sub Debt)* $12,500,000
Leverage** 10:1
Quarterly Profitability *** >1
Liquidity **** $6,250,000
Total Warehouse Covenant*****
< 50% of Maximum Purchase Price

*
TNW Calculation

Book Net Worth
Less:
Prepaid Expenses
Intercompany Receivables
Employee Receivables
Restricted Cash
Deposits
Goodwill
Other
Tangible Net Worth

**

Leverage:
Indebtedness (excluding Sub Debt)
TNW (including Sub Debt)

***

Net Income:
Monthly
As of Most Recent two (2) consecutive Quarters

****



Liquidity:
Unrestricted Cash
Cash Equivalents
Available Borrowing Capacity


*****

Total Warehouse Covenant
Total Warehouse Lines
50% of Maximum Purchase Price




SCHEDULE 2 to OFFICER’S COMPLIANCE CERTIFICATE

PRODUCTION INFORMATION (banked)

Monthly Year to Date
Conventional Conforming
FHA/VA
Agency High Balance
Jumbo
TOTAL
% Refinance
% Purchase
% Retail
% Wholesale





SCHEDULE 3 to OFFICER’S COMPLIANCE CERTIFICATE

WAREHOUSE LINES


Line Amount Amount Outstanding Expiration Date
Sterling National Bank
Comerica Bank



Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, Robert H. Schottenstein, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of M/I Homes, Inc. for the fiscal quarter ended September 30, 2020;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/Robert H. Schottenstein
Date: October 30, 2020
Robert H. Schottenstein
Chairman, Chief Executive Officer and
President



EXHIBIT 31.2


CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, Phillip G. Creek, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of M/I Homes, Inc. for the fiscal quarter ended September 30, 2020;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/Phillip G. Creek
Date: October 30, 2020
Phillip G. Creek
Executive Vice President and Chief Financial Officer



EXHIBIT 32.1


CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Quarterly Report of M/I Homes, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert H. Schottenstein, Chairman, Chief Executive Officer and President of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



/s/Robert H. Schottenstein Date: October 30, 2020
Robert H. Schottenstein
Chairman, Chief Executive Officer and
President



EXHIBIT 32.2


CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Quarterly Report of M/I Homes, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Phillip G. Creek, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



/s/Phillip G. Creek Date: October 30, 2020
Phillip G. Creek
Executive Vice President and Chief Financial Officer