2.	Segment Information, Nature of Operations, and Certain Concentrations

NVR’s homebuilding operations primarily construct and sell single-family detached homes, townhomes and condominium buildings under three trade names: Ryan Homes, NVHomes and Heartland Homes. The Ryan Homes product is marketed primarily to first-time and first-time move-up buyers. Ryan Homes operates in twenty-nine metropolitan areas located in Maryland, Virginia, Washington, D.C., West Virginia, Pennsylvania, New York, North Carolina, South Carolina, Florida, Ohio, New Jersey, Delaware, Indiana, Illinois and Tennessee. The NVHomes and Heartland Homes products are marketed primarily to move-up and upscale buyers. NVHomes operates in Delaware and the Washington, D.C., Baltimore, MD, Philadelphia, PA and Raleigh, NC metropolitan areas. Heartland Homes operates in the Pittsburgh, PA metropolitan area. NVR derived approximately 30% and 13% of its 2016 homebuilding revenues from the Washington, D.C. and Baltimore, MD metropolitan areas, respectively.

NVR’s mortgage banking segment is a regional mortgage banking operation. Substantially all of the mortgage banking segment’s loan closing activity is for NVR’s homebuilding customers. NVR’s mortgage banking business generates revenues primarily from origination fees, gains on sales of loans, and title fees. A substantial portion of the Company’s mortgage operations is conducted in the Washington, D.C. and Baltimore, MD metropolitan areas.

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

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

Homebuilding profit before tax includes all revenues and income generated from the sale of homes, less the cost of homes sold, selling, general and administrative expenses, and a corporate capital allocation charge. The corporate capital allocation charge is eliminated in consolidation and is based on the segment’s average net assets employed. The corporate capital allocation charged to the operating segment allows the Chief Operating Decision Maker (“CODM”) to determine whether the operating segment’s results are providing the desired rate of return after covering the Company’s cost of capital. In addition, certain assets including goodwill and intangible assets, and consolidation adjustments as discussed further below, are not allocated to the operating segments as those assets are neither included in the operating segment’s corporate capital allocation charge, nor in the CODM’s evaluation of the operating segment’s performance. The Company records charges on contract land deposits when it is determined that it is probable that recovery of the deposit is impaired. For segment reporting purposes, impairments on contract land deposits are charged to the operating segment upon the determination to terminate a Lot Purchase Agreement with the developer, or to restructure a Lot Purchase Agreement resulting in the forfeiture of the deposit. Mortgage banking profit before tax consists of revenues generated from mortgage financing, title insurance and closing services, less the costs of such services and general and administrative costs. Mortgage banking operations are not charged a corporate capital allocation charge.

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

Following are tables presenting segment revenues, profit before taxes, assets, interest income, interest expense, depreciation and amortization and expenditures for property and equipment, with reconciliations to the amounts reported for the consolidated enterprise, where applicable:

	Year Ended December 31,
	2016		2015		2014
Revenues:
Homebuilding Mid Atlantic	$	3,319,776	$	3,022,789	$	2,617,108
Homebuilding North East		462,385		432,145		376,862
Homebuilding Mid East		1,192,472		1,014,920		892,513
Homebuilding South East		734,590		595,346		488,576
Mortgage Banking		113,321		93,808		69,509
Consolidated revenues	$	5,822,544	$	5,159,008	$	4,444,568

	Year Ended December 31,
	2016			2015			2014
Profit before taxes:
Homebuilding Mid Atlantic	$	301,173		$	322,829		$	271,965
Homebuilding North East		21,947			37,914			33,390
Homebuilding Mid East		121,166			86,336			47,538
Homebuilding South East		71,098			57,384			37,525
Mortgage Banking		63,711			51,236			30,388
Total segment profit		579,095			555,699			420,806
Reconciling items:
Contract land deposit reserve adjustment (1)		10,933			13,805			3,612
Equity-based compensation expense		(43,598	)		(54,091	)		(63,227	)
Corporate capital allocation (2)		189,992			171,170			152,140
Unallocated corporate overhead		(89,376	)		(83,124	)		(61,108	)
Consolidation adjustments and other		35,204			22,622			23,867
Corporate interest expense		(20,553	)		(22,869	)		(22,544	)
Reconciling items sub-total		82,602			47,513			32,740
Consolidated profit before taxes	$	661,697		$	603,212		$	453,546

	As of December 31,
	2016			2015
Assets:
Homebuilding Mid Atlantic	$	1,054,779		$	994,804
Homebuilding North East		126,720			133,106
Homebuilding Mid East		222,736			220,094
Homebuilding South East		214,225			175,572
Mortgage Banking		403,250			372,203
Total segment assets		2,021,710			1,895,779
Reconciling items:
Consolidated variable interest entity		1,251			1,749
Cash and cash equivalents		375,748			397,522
Deferred taxes		170,652			161,805
Intangible assets and goodwill		51,526			52,909
Contract land deposit reserve		(31,306	)		(42,239	)
Consolidation adjustments and other		54,362			44,193
Reconciling items sub-total		622,233			615,939
Consolidated assets	$	2,643,943		$	2,511,718

	Year Ended December 31,
	2016		2015		2014
Interest income:
Mortgage Banking	$	7,569	$	6,485	$	4,940
Total segment interest income		7,569		6,485		4,940
Other unallocated interest income		1,111		1,211		1,311
Consolidated interest income	$	8,680	$	7,696	$	6,251

	Year Ended December 31,
	2016			2015			2014
Interest expense:
Homebuilding Mid Atlantic	$	119,808		$	107,748		$	96,364
Homebuilding North East		18,141			16,991			12,114
Homebuilding Mid East		28,307			27,263			26,300
Homebuilding South East		23,804			19,217			17,409
Mortgage Banking		1,086			641			549
Total segment interest expense		191,146			171,860			152,736
Corporate capital allocation		(189,992	)		(171,170	)		(152,140	)
Senior Notes and other interest		20,553			22,869			22,544
Consolidated interest expense	$	21,707		$	23,559		$	23,140

	Year Ended December 31,
	2016		2015		2014
Depreciation and amortization:
Homebuilding Mid Atlantic	$	8,089	$	7,876	$	6,489
Homebuilding North East		2,053		1,571		1,208
Homebuilding Mid East		3,748		4,003		3,212
Homebuilding South East		2,276		2,191		1,715
Mortgage Banking		1,117		1,136		1,089
Total segment depreciation and amortization		17,283		16,777		13,713
Unallocated corporate		4,986		4,757		3,901
Consolidated depreciation and amortization	$	22,269	$	21,534	$	17,614

	Year Ended December 31,
	2016		2015		2014
Expenditures for property and equipment:
Homebuilding Mid Atlantic	$	8,838	$	8,287	$	9,047
Homebuilding North East		3,423		2,220		2,311
Homebuilding Mid East		4,027		3,774		6,982
Homebuilding South East		3,594		1,753		3,472
Mortgage Banking		726		265		2,580
Total segment expenditures for property and equipment		20,608		16,299		24,392
Unallocated corporate		1,761		1,978		7,280
Consolidated expenditures for property and equipment	$	22,369	$	18,277	$	31,672

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

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

	Year Ended December 31,
	2016		2015		2014
Corporate capital allocation charge:
Homebuilding Mid Atlantic	$	119,758	$	107,705	$	96,328
Homebuilding North East		18,132		16,987		12,107
Homebuilding Mid East		28,303		27,263		26,299
Homebuilding South East		23,799		19,215		17,406
Total corporate capital allocation charge	$	189,992	$	171,170	$	152,140