<PAGE>

                          SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C.  20549

                                      FORM 10-Q

                 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                        OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended September 30, 1996

                 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                        OF THE SECURITIES EXCHANGE ACT OF 1934

                          Commission file number  0-19891  

                                 SCHULER HOMES, INC.
                (Exact name of registrant as specified in its charter)

                     Delaware                               99-0293125         
          (State or jurisdiction of                         (I.R.S. employer   
          incorporation or organization)                    identification no.)

                           828 Fort Street Mall, Suite 400
                             Honolulu, Hawaii  96813-4321
                 (Address of principal executive offices)(Zip code)

                                    (808) 521-5661
                 (Registrant's telephone number, including area code)

                                    Not Applicable
                 (Former name, former address and former fiscal year,
                            if changed since last report)

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   X                                                     NO     
              ---                                                       ---

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.


      Outstanding at
        Class of Common Stock                         October 31, 1996
        ---------------------                         ----------------
           $.01 par value                                 20,100,177


<PAGE>


                                 SCHULER HOMES, INC.
                                           
                                        INDEX
                                           
                                           
                                           
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

         Independent Accountants' Review Report..........................    3

         Consolidated Balance Sheets - September 30, 1996 and
               December 31, 1995.........................................    4
    
         Consolidated Statements of Income - Three and nine months
               ended September 30, 1996 and 1995.........................    5

         Consolidated Statements of Cash Flows - Nine
               months ended September 30, 1996 and 1995..................    6

         Notes to Consolidated Financial Statements......................    7

Item 2.  Management's Discussion and Analysis of
         Financial Condition and Results of Operations...................   10

PART II. OTHER INFORMATION...............................................   19

SIGNATURES...............................................................   20


                                          2

<PAGE>
                                           
                        INDEPENDENT ACCOUNTANTS' REVIEW REPORT
                                           
                                           
The Board of Directors and Stockholders
Schuler Homes, Inc.

We have reviewed the accompanying interim consolidated balance sheet of Schuler
Homes, Inc. as of September 30, 1996, and the related consolidated statements of
income for the three-month and nine-month periods ended September 30, 1996 and
1995, and the consolidated statements of cash flows for the nine-month periods
ended September 30, 1996 and 1995.  These financial statements are the
responsibility of the Company's management. 

We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants.  A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters.  It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole.  Accordingly, we do not
express such an opinion.

Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying interim consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.  See Note 1.

We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Schuler Homes, Inc. as of December
31, 1995, and the related consolidated statements of income, stockholders'
equity, and cash flows for the year then ended (not presented herein) and in our
report dated March 11, 1996, we expressed an unqualified opinion on those
consolidated financial statements.  In our opinion, the information set forth in
the accompanying consolidated balance sheet as of December 31, 1995, is fairly
stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived.
                                                     

                                                 ERNST & YOUNG LLP


Honolulu, Hawaii
November 6, 1996


                                           3

<PAGE>
                                           
                                 SCHULER HOMES, INC.
                             CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                    September         December
                                                     30,1996          31, 1995
                                                    ---------         --------
                                                   (unaudited)
<S>                                              <C>               <C>
ASSETS
Cash and cash equivalents....................... $    488,000      $  6,147,000
Receivables.....................................      778,000           960,000
Prepaid income taxes............................    1,828,000           557,000
Amount due from affiliate (Note 5)..............       27,000            25,000
Real estate inventories (Note 3)................  245,230,000       246,478,000
Investments in unconsolidated joint ventures....   11,302,000        11,390,000
Deposits........................................      160,000         1,001,000
Deferred offering costs.........................    1,456,000         1,628,000
Notes receivables (Note 2)......................    2,803,000         1,329,000
Deferred income taxes (Note 6)..................    8,295,000         1,818,000
Other assets....................................    1,238,000         1,009,000
                                                 ------------      ------------
Total assets.................................... $273,605,000      $272,342,000
                                                 ------------      ------------


LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable................................ $    573,000      $  1,013,000
Accrued expenses................................    3,557,000         3,197,000
Notes payable to bank (Note 4)..................   54,765,000        36,781,000
6-1/2% convertible subordinated debentures
 due 2003.......................................   57,500,000        57,500,000
                                                -------------      ------------
Total liabilities...............................  116,395,000        98,491,000

Commitments and contingencies (Notes 4 and 7)

Stockholders' equity :
    Common stock, $.01 par value; 30,000,000
     shares authorized; 20,874,177 shares 
     issued at September 30, 1996 and 
     December 31, 1995..........................      209,000           209,000
    Additional paid-in capital..................   93,096,000        93,096,000
    Retained earnings...........................   68,905,000        80,546,000
    Treasury stock, at cost; 774,000 shares at
     September 30, 1996 (Note 9)................   (5,000,000)               --
                                                 ------------      ------------
Total stockholders' equity......................  157,210,000       173,851,000
                                                 ------------      ------------
Total liabilities and stockholders' equity...... $273,605,000      $272,342,000
                                                 ------------      ------------
</TABLE>

                               See accompanying notes.

                                          4

<PAGE>


                                 SCHULER HOMES, INC.
                          CONSOLIDATED STATEMENTS OF INCOME


<TABLE>
<CAPTION>
                                                              Three months ended                      Nine months ended
                                                                 September 30,                           September 30,
                                                              ------------------                      -----------------
                                                           1996                1995                1996                1995
                                                           ----                ----                ----                ----
                                                                  (unaudited)                             (unaudited)

<S>                                                    <C>                <C>                 <C>                  <C>
Residential real estate sales......................... $21,953,000        $29,975,000         $ 71,738,000         $93,356,000

Cost and expense 
    Residential real estate sales.....................  18,122,000         22,567,000           58,345,000          68,997,000
    Inventory impairment loss (Note 3)................          --                 --           23,910,000                  --
    Selling and commissions...........................   2,042,000          1,998,000            5,848,000           5,353,000
    General and administrative........................   1,061,000          1,019,000            3,088,000           3,010,000
                                                       -----------        -----------          -----------         -----------
        Total costs and expenses......................  21,225,000         25,584,000           91,191,000          77,360,000

Income from unconsolidated joint ventures.............      14,000            221,000              114,000             879,000
                                                       -----------        -----------          -----------         -----------
Operating income (loss)...............................     742,000          4,612,000          (19,339,000)         16,875,000

Other income..........................................      45,000            127,000              246,000             345,000
                                                       -----------        -----------          -----------         -----------
   Income (loss) before provision for income taxes....     787,000          4,739,000          (19,093,000)         17,220,000
Provision (credit) for income taxes...................     302,000          1,848,000           (7,452,000)          6,714,000
                                                       -----------        -----------          -----------         -----------
   Net income (loss).................................. $   485,000        $ 2,891,000         $(11,641,000)        $10,506,000
                                                       -----------        -----------          -----------         -----------
Net income (loss) per share:
  
Primary............................................... $      0.02        $      0.14         $      (0.56)        $      0.51
                                                       -----------        -----------          -----------         -----------
   Fully diluted...................................... $      0.02        $      0.14         $      (0.56)        $      0.49
                                                       -----------        -----------          -----------         -----------

</TABLE>

                               See accompanying notes.

                                          5

<PAGE>

                                 SCHULER HOMES, INC.
                        CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                           Nine months ended September 30,
                                                                           -------------------------------
                                                                               1996                1995
                                                                               ----                ----
                                                                                      (unaudited)
<S>                                                                       <C>                  <C>
OPERATING ACTIVITIES
Net income (loss)....................................................     $(11,641,000)        $10,506,000
Adjustments to reconcile net income (loss) to net cash 
 provided by operating activities:
Depreciation and amortization expense................................          142,000              96,000
Income from unconsolidated joint venture (undistributed).............         (144,000)           (970,000)
Sales financed by Company............................................          (86,000)           (127,000)
Principal payments of notes receivable...............................          130,000             318,000
Changes in assets and liabilities:
     Decrease in receivables.........................................          182,000          40,391,000
    (Increase) in prepaid income taxes...............................       (1,271,000)           (612,000)
    (Increase) decrease in deposits..................................          841,000            (911,000)
    (Increase) decrease in real estate inventories...................        1,465,000         (28,828,000)
    (Increase) in other assets.......................................         (332,000)            (25,000)
    (Decrease) in accounts payable...................................         (440,000)            (42,000)
    (Decrease) in accrued expenses...................................       (1,375,000)         (2,699,000)
    (Decrease) in contract restructuring cost payable................               --          (7,979,000)
    Change in deferred income taxes..................................       (6,477,000)          3,198,000
                                                                          ------------         -----------
Net cash provided by (used in) operating activities..................      (19,006,000)         12,316,000

INVESTING ACTIVITIES
Investments in unconsolidated joint ventures.........................               --            (157,000)
Advances to unconsolidated joint venture.............................       (3,765,000)           (216,000)
Repayments of advances to unconsolidated joint venture...............        3,882,000             240,000
Capital distributions from unconsolidated joint venture..............          115,000             259,000
Purchase of furniture, fixtures, and equipment.......................          (39,000)           (136,000)
                                                                          ------------         -----------
    Net cash provided by (used in) investing activities..............          193,000             (10,000)

FINANCING ACTIVITIES
Principal payments on note payable to other..........................               --         (14,583,000)
Proceeds from bank borrowings........................................       97,158,000          89,810,000
Principal payments on bank borrowings................................      (79,174,000)        (89,219,000)
Advances to affiliate................................................          (89,000)            (85,000)
Repayment of advances to affiliate...................................           87,000              95,000
Net decrease in deferred offering costs..............................          172,000             172,000
Reacquisition of the Company's common stock..........................       (5,000,000)                 --
                                                                          ------------         -----------
    Net cash provided by (used in) financing activities..............       13,154,000         (13,810,000)
                                                                          ------------         -----------
(Decrease) in cash...................................................       (5,659,000)         (1,504,000)
Cash and cash equivalents (restricted) at beginning of period........        6,147,000           7,855,000
                                                                          ------------         -----------
Cash and cash equivalents (restricted) at end of period..............     $    488,000        $  6,351,000
                                                                          ------------         -----------

</TABLE>

                                           
                                          6

<PAGE>

                                 SCHULER HOMES, INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 

    
1.  General

    The accompanying unaudited consolidated financial statements have been
    prepared in accordance with generally accepted accounting principles for
    interim financial information and with the instructions to Form 10-Q and
    Article 10 of Regulation S-X.  Accordingly, they do not include all of the
    information and footnotes required by generally accepted accounting
    principles for complete financial statements.  In the opinion of
    management, all adjustments (consisting of normal recurring adjustments)
    considered necessary for a fair presentation have been included.

    These financial statements should be read in conjunction with the Notes to
    Consolidated Financial Statements for the year ended December 31, 1995
    contained in the Company's 1995 annual report on Form 10-K.

    Certain amounts in the consolidated statements of income for the three and
    nine months ended September 30, 1995 have been reclassified to conform to
    the 1996 presentation.

    The Company has experienced, and expects to continue to experience,
    significant variability in quarterly sales and net income.  The results of
    any interim period are not necessarily indicative of the results that can
    be expected for the entire year.

    The preparation of financial statements in conformity with generally
    accepted accounting principles requires management to make estimates and
    assumptions that affect the reported amounts of assets and liabilities and
    disclosure of contingent assets and liabilities at the date of the
    financial statements and the reported amounts of revenues and expenses
    during the reporting period.  Actual results could differ from those
    estimates.

    In June 1996, the Company formed Schuler Homes of California, Inc., a
    wholly-owned California corporation, for the development and sale of homes
    in California.   In August 1996, the Company formed Schuler Homes of
    Washington, Inc., a wholly-owned Washington corporation, for the
    development and sale of homes in the state of Washington.  In October 1996,
    the Company formed Schuler Homes of Oregon, Inc., a wholly-owned Oregon
    corporation, for the development and sales of homes in Oregon.


2.  Notes Receivable

    Notes receivable consist primarily of notes receivable on seller financed
    sales of residential units and residential lots.  The notes provide for
    terms and conditions similar to those offered by financial institutions and
    are collateralized by the residential units and residential lots sold. 
    Certain of the notes are collateralized by second mortgages relating to
    homebuyers who purchased homes as part of the Company's "zero-down" sales
    program.  Revenue and profit recognition on such transactions are deferred
    until the down payment requirement for revenue and profit recognition is
    met.  Revenue and gross profit deferred on such transactions during the
    three month period ended September 30, 1996 was $5,499,000 and $772,000,
    respectively.  Cumulative revenue and gross profit deferred on such
    transactions as of September 30, 1996 are $8,661,000 and $1,236,000,
    respectively.  Cash of $6,619,000 was received from buyers' third party
    lenders in connection with "zero-down" sales during the nine months ended
    September 30, 1996.


3.  Real Estate Inventories

    During the fourth quarter of 1995, the Company changed its method of
    accounting for the carrying amount of its real estate inventories by
    adopting FASB Statement No. 121, "Accounting for the Impairment of 
    Long-Lived Assets and for Long-Lived Assets to be Disposed of."  Under 
    the new standard, inventories which are substantially completed are 
    carried at the lower of cost or fair value less cost to sell.  Fair 
    value is determined by applying a risk adjusted discount rate to 
    estimates of future cash flows, resulting in a lower value than under 
    the net realizable value method previously required.  In addition, 
    land held for future development or inventories under current 
    development are adjusted to fair value, only if an impairment to 
    their value is indicated. 

                                           

                                          7
                                           
<PAGE>
    
    The estimates of future cash flows require significant judgment relating to
    the level of sales prices, rate of new home sales, amount of marketing
    costs and price discounts needed in order to stimulate sales, rate of
    increase in the cost of building materials and labor, introduction of
    building code modifications, and level of consumer confidence in Hawaii's
    economy, among other items.  Accordingly, there exists at any date, a
    reasonable possibility that changes in estimates will occur in subsequent
    periods.

    Approximately  $89,604,000 of total inventory at September 30, 1996
    represents completed inventory.  The remaining inventory represents
    construction in progress and land held for future development.


4.  Notes Payable to Bank

    At September 30, 1996, $55,235,000 of the Company's line of credit is
    unused, of which $700,000 is restricted as to withdrawal for project
    expenses and $209,000 is restricted as to withdrawal for outstanding but
    unused letters of credit.  

    In March 1996, the Company executed a new Credit Agreement, which replaced
    the $50,000,000 line of credit with a $110,000,000 unsecured revolving line
    of credit facility on March 29, 1996.  The facility expires on July 1, 1998
    and includes an option for the lenders to extend the term for an additional
    year.  The Company can select an interest rate of either LIBOR (1, 2, 3 or
    6 month term) plus 1.75% or prime for each borrowing.  If the Company's
    leverage ratio, as defined, exceeds 1 to 1, the interest rate increases to
    LIBOR plus 2.25% and prime plus 0.50%.  In October 1996, the Company
    entered into an interest rate swap to pay a LIBOR rate of 5.89% (fixed for
    5 years) on $30,000,000, while receiving in return an interest payment at a
    floating one-month LIBOR rate.  However, if the one-month LIBOR rate resets
    at or above 8%, the swap reverses for that payment period and no interest
    payments are exchanged.  The Company's ability to draw upon its line of
    credit is dependent upon meeting certain financial ratios and covenants. 
    As of September 30, 1996, the Company met such financial ratios and
    covenants.

    The Company paid interest (relating to notes payable to bank and the
    convertible subordinated debentures) of approximately $2,996,000 during the
    quarter ended September 30, 1996.  Interest incurred and capitalized to
    real estate inventories during the quarter ended September 30, 1996 was
    approximately $2,036,000.  The difference between the amount of interest
    paid and the amount capitalized is comprised of accrued interest payable at
    June 30, 1996, which was paid during the quarter.


5.  Related Party Transactions

    The Company charged $27,000 for the quarter ended September 30, 1996 to
    James K. Schuler & Associates, Inc. (an affiliate) under the management
    agreement  entered into between the Company and James K. Schuler &
    Associates, Inc., pursuant to which certain management and administrative
    personnel of the Company will perform certain functions for James K.
    Schuler & Associates, Inc., to be reimbursed by James K. Schuler &
    Associates, Inc.  At September 30, 1996, the $27,000 was included in Amount
    Due From Affiliate.  Subsequent to September 30, 1996, the receivable was
    paid in full.


6.  Income Taxes

    During the three months ended September 30, 1996, the Company paid income
    taxes of $25,000. 

    The primary component of the Company's deferred income taxes at September
    30, 1996 is a result of inventory impairment losses recognized for
    financial reporting purposes during periods prior to their deduction for
    tax purposes.                          

                                           
                                          8

<PAGE>

7.  Commitments and Contingencies

    The Company is from time to time involved in routine litigation or
    threatened litigation arising in the ordinary course of its business.  Such
    matters, if decided adversely to the Company, would not, in the opinion of
    management, have a material adverse effect on the financial condition of
    the Company.

    In April 1996, the Company was served with a lawsuit by  owners of units
    and the Association of Owners of Fairway Village at Waikele, who seek to
    have a class of all owners certified.  The complaint alleges material
    construction defects and deficiencies, misrepresentation regarding the cost
    of insurance, breach of covenant of good faith and fair dealing, among
    other allegations.  The complaint does not specify an amount of damages,
    but includes a claim for punitive damages, among other claims.  The Company
    is currently evaluating the merits of the complaint.  If this lawsuit were
    decided adversely to the Company, it could have a material adverse effect
    on the Company's business, financial condition and operating results.

    At September 30, 1996, the Company had under contract to purchase for
    approximately $8,514,000, land for future residential development.


8.  Net Income Per Share

    Primary earnings per share for the quarter and nine-month period ended
    September 30, 1996 were computed using the weighted average number of
    common shares outstanding during the periods of 20,495,780 and 20,745,088,
    respectively.  Primary earnings per share for the quarter and nine-month
    period ended September 30, 1995 were computed using the weighted average
    number of common shares outstanding during the periods of 20,874,177.

    Fully diluted earnings per share for the quarter and nine-month period
    ended September 30, 1995 were computed by adding to net income the interest
    charges of $288,000 and $899,000 (net of related income taxes),
    respectively, applicable to convertible subordinated debentures, and
    dividing by 23,508,167, which represents the weighted average number of
    shares assuming conversion of all convertible subordinated debentures.  The
    computation for the three and nine months ended September 30, 1996 resulted
    in amounts less than the primary net income (loss) per share.  Accordingly,
    the primary net income (loss) per share is also presented as the fully
    diluted net income (loss) per share.


9.  Treasury Stock

    In May 1996, the Company adopted a stock repurchase program to reacquire 
    up to an aggregate of $5,000,000 of its outstanding common stock through  
    December 31, 1996.  During the quarterly period ended September 30, 1996, 
    the Company completed its repurchase of 774,000 shares at a cost of 
    $5,000,000. 

                                          9

<PAGE>

                  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                         CONDITION AND RESULTS OF OPERATIONS


    Except for historical information contained herein, the matters discussed
in this report contain forward-looking statements that involve risks and
uncertainties.  The Company's actual results may differ materially from the
results discussed in the forward-looking statements.  Factors that might cause
such a difference include, but are not limited to, those risks discussed herein,
and other risks detailed in the Company's Annual Report on Form 10-K and other
documents filed by the Company with the Securities and Exchange Commission from
time to time. 


OVERVIEW

    For the quarter ended September 30, 1996, the Company recorded sales of
residential real estate of  $21.9 million as compared to sales of $30 million
during the 1995 third quarter.  During the 1996 third quarter, the Company
posted net income of $485,000, compared to net income of $3.0 million during the
1995 third quarter.

    For the first nine months of 1996, the Company reported sales of
residential real estate of $71.7 million, a decrease from sales of $93.4 million
during the first nine months of 1995.  Net loss was $11.6 million or $0.56 per
share during the nine months ended September 30, 1996, which included the impact
of a FASB Statement No. 121 non-cash charge taken earlier this year, as compared
to net income of $10.5 million or $0.49 per share during the same period in the
prior year.  Excluding the impact of the FASB Statement No. 121 charge, the
results of operations for the nine months ended September 30, 1996 were net
income of $2.9 million or $0.14 per share.

    The financial results for the third quarter of 1996 as compared to the
third quarter of 1995 reflect a higher cost of residential real estate sold as a
percentage of sales.  Cost of residential real estate sold as a percentage of
sales increased to 82.5% in the third quarter of 1996 from 75.3% in the third
quarter of 1995, approximately half of the increase being attributable to an
increased level of price discounts to homebuyers, with the remainder
attributable to higher construction and inventory carrying costs.  Sales and
marketing costs represented approximately 9.3% and 6.7% of sales during the
third quarters of 1996 and 1995, respectively.  The Company anticipates that
this increased level of costs will continue to affect its operating results
throughout the balance of 1996 and in 1997.

    During the first quarter of 1996, the rate of new home sales experienced by
the Company improved over the sales rate experienced during the latter part of
1995.  However, during the second and third quarters of 1996, the Company
experienced a decline in the rate of new home sales contracts entered into, as
compared to the first quarter of 1996.  The Company believes that financial
results in 1996 have been and will continue to be adversely affected by fewer
closings of homes sales, lower revenues and continued pressure on margins as
compared to the Company's 1995 financial results.  In particular, as a result of
the slow home sales rates experienced in the third quarter of 1996, the Company
believes that the number of home sales closed, revenues and net income for the
fourth quarter of 1996 will be below the levels achieved in the third quarter of
1996.


                                          10
                                           

<PAGE>

     The following table sets forth, for the periods indicated, the 
percentage of the Company's sales represented by each income statement line 
item presented.  Certain amounts in the consolidated statement of income for 
the three and nine months ended September 30, 1995 have been reclassified to 
conform to the 1996 presentation.


<TABLE>
<CAPTION>

                                                                            Percentage Change
                                                 Three months ended         in Dollar Amounts
                                                      Sept 30,                    From
                                                 1996           1995          1995 to 1996
                                                 ----           ----        -----------------
<S>                                             <C>            <C>          <C>
Residential real estate sales                   100.0%         100.0%            (26.8)%

Costs and expenses
    Residential real estate sales                82.5           75.3             (19.7)
    Selling and commissions                       9.3            6.7               2.2
    General and administrative                    4.9            3.4               4.1
                                                -----          -----
              Total costs and expenses           96.7           85.4             (17.0)

Income from unconsolidated joint ventures         0.1            0.7             (93.7)
                                                -----          -----
Operating income                                  3.4           15.3             (83.9)

Other income                                      0.2            0.4             (64.6)
                                                -----          -----
Income before provision for income taxes          3.6           15.7             (83.4)
Provision for income taxes                        1.4            6.0             (83.7)
                                                -----          -----
Net income                                        2.2%           9.7%            (83.2)
                                                -----          -----

</TABLE>

<TABLE>
<CAPTION>

                                                                            Percentage Change
                                                  Nine months ended         in Dollar Amounts
                                                      Sept 30,                    From
                                                 1996           1995          1995 to 1996
                                                 ----           ----        -----------------
<S>                                             <C>            <C>          <C>

Residential real estate sales                   100.0%         100.0%            (23.2)%

Costs and expenses
    Residential real estate sales                81.3           73.9             (15.4)
    Inventory impairment loss                    33.3            5.8               N/A
    Selling and commissions                       8.2             --               9.2
    General and administrative                    4.3            3.2               2.6
                                                -----          -----
              Total costs and expenses          127.1           82.9              17.9

Income from unconsolidated joint ventures         0.2            0.9             (87.0)
                                                -----          -----
Operating income (loss)                         (26.9)          18.0            (214.6)

Other income                                      0.3            0.4             (28.7)
                                                -----          -----
Income (loss) before provision for income taxes (26.6)          18.4            (210.9)
Provision (credit) for income taxes             (10.4)           7.2            (211.0)
                                                -----          -----
Net income (loss)                               (16.2)%         11.2%           (210.8)
                                                -----          -----
</TABLE>


                                          11

<PAGE>
                                           
RESULTS OF OPERATIONS

SALES OF RESIDENTIAL REAL ESTATE

    The Company's sales of residential real estate (revenues) for the quarter
ended September 30, 1996 were approximately $21.9 million as compared to
approximately $30 million during the quarter ended September 30, 1995.  This
represents a decrease of approximately $8.1 million or 26.8%.

    This decrease in revenues is attributable to a decreased number of home
sales closed for which revenues and profits were recognized.  Including joint
venture project closings, the Company closed a total of 129 sales during the
quarter ended September 30, 1996, compared to the closing of 145 sales during
the quarter ended September 30, 1995, respectively.  Excluding joint venture
projects, the closings of 93 units at an average sales price of $236,000 were
included in revenues recognized during the quarter ended September 30, 1996, as
compared to 127 closings at an average sales price of $236,000 during the
quarter ended September 30, 1995.  In the third quarter of 1996, revenue and
profit recognition on 25 homes sold pursuant to the Company's "zero-down" sales
program was deferred until the down payment requirement for revenue and profit
recognition is met.    Revenue and gross profit deferred on such transactions
during the three month period ended September 30, 1996 was $5.5 million and $0.8
million, respectively.

    The Company's notes receivable increased by $1.1 million during the third
quarter of 1996 primarily as a result of second mortgages provided by the
Company to homebuyers who purchased homes as part of the Company's "zero-down"
sales program.  To the extent the Company provides financing to purchasers of
its homes and residential lots, it becomes subject to the risks inherent with
such practices, including possible defaults by the purchasers.  At September 30,
1996, the Company had approximately $2.8 million of customer financing
outstanding from 54 buyers.

    The Company's sales of residential real estate (revenues) were $71.7
million for the nine months ended September 30, 1996 compared to $93.4 million
during the same period in 1995.  Excluding joint venture projects, included in
revenues for the first nine months of 1996 were 304 closings at an average sales
price of $236,000 compared to 399 closings at an average sales price of $234,000
in the first nine months of 1995.  Revenue and gross profit deferred on 42 homes
sold during the nine months ended September 30, 1996, pursuant to the Company's
"zero-down" sales program was $8.7 million and $1.2 million, respectively.

    The average sales price of homes closed during the third quarter and first
nine months of 1996 is reflective of increased sales price discounts allowed in
order to stimulate home sales activity, offset by the different mix of projects
in which closings occurred, as compared to the third quarter and first nine
months of 1995.

        During the first quarter of 1996, the rate of new home sales experienced
by the Company improved over the sales rate experienced during the latter part
of 1995.  However, during the second and third quarters of 1996, the Company
experienced a decline in the rate of new home sales contracts entered into, as
compared to the first quarter of 1996.  The Company believes that its financial
results in 1996 have been and will continue to be adversely affected by fewer
closings of homes sales, lower revenues and continued pressure on margins as
compared to the Company's 1995 financial results.  In particular, as a result of
the slow home sales rates experienced in the third quarter of 1996, the Company
believes that the number of home sales closed, revenues and net income for the
fourth quarter of 1996 will be below the levels achieved in the third quarter of
1996.  The Company's historical financial performance is not necessarily a
meaningful indicator of future results and, in general, the Company's financial
results will vary from development to development.


                                          12
                                           
<PAGE>

    Hawaii's real estate market continues to face challenges as a result of
Hawaii's economic environment.  Hawaii's economy is recovering slowly.  While
tourism is showing some strength, the construction industry remains depressed
and according to the U.S. Bureau of Labor Statistics, Honolulu reported an
estimated 1.3% decline in jobs this past June compared to a year earlier.  As a
result, the Company anticipates continued pressure on margins and new home sales
rates in Hawaii.  In addition, increases in mortgage rates impact the
homebuyer's ability to qualify for mortgage loans, which could adversely affect
demand for new homes.  Increases in mortgage rates may also reduce the sales
price ceilings established on homes which are subject to governmentally imposed
affordable housing requirements.  The affordable prices are generally determined
at a price at which a purchaser earning up to 140% of the local median income is
able to satisfy specified mortgage criteria.


COSTS AND EXPENSES - RESIDENTIAL REAL ESTATE SALES

    Cost of residential real estate sales represents the acquisition and
development costs for a particular phase of a project attributable to the homes
sold in that phase.  Acquisition and development costs primarily include land
acquisition costs, sitework and construction payments to contractors,
engineering and architectural costs, loan fees, interest and other indirect
costs attributable to development and project management activities and
miscellaneous construction costs.

    Cost of residential real estate sales decreased to approximately $18.1
million during the quarter ended September 30, 1996 from approximately $22.5
million during the same period in 1995, representing a decrease of approximately
$4.4 million or 19.7%.  This decrease in the third quarter of 1996 as compared
to the third quarter of 1995 is the result of a lower number of closings of home
sales, offset in part by a higher cost of residential real estate sales as a
percentage of sales.

    Cost of residential real estate sales as a percentage of sales increased to
82.5% in the third quarter of 1996 from 75.3% in the third quarter of 1995,
approximately half of the increase being attributable to an increased level of
price discounts to homebuyers, with the remainder attributable to higher
construction and inventory carrying costs.  The Company anticipates this
increased level of costs will continue to affect its operating results in future
periods and no assurances can be given that costs will not increase to even
greater levels than reached in the past.

    The cost of residential real estate sold decreased from approximately $69
million during the nine months ended September 30, 1995 to approximately $58.3
million during the same period in 1996, representing a decrease of approximately
$10.7 million or 15.4%.  The decrease reflects the lower number of sales closed,
partially offset by a higher cost of the units closed as a percentage of sales.

    The cost of residential real estate sold as a percentage of sales increased
from 73.9% for the nine months ended September 30, 1995 to 81.3% for the nine
months ended September 30, 1996.  The increase in the cost of residential real
estate sold as a percentage of sales was primarily due to the same factors
mentioned above, which caused the increase in the cost of residential real
estate sold as a percentage of sales from the third quarter of 1995 to the third
quarter of 1996.

    Total interest incurred during each of the quarters ended September 30,
1996 and 1995 was approximately $2.0 million and $1.5 million, respectively. 
Substantially all amounts incurred were  capitalized to development projects. 
Interest capitalized to projects is expensed through cost of residential real
estate sales as sales are closed and revenue is recognized in the particular
project.  


                                          13

<PAGE>
                                           
     Average debt outstanding was approximately $116.8 million and $83.6 
million during the third quarters of 1996 and 1995, respectively.  The 
Company's average interest rate on its debt for the quarters ended September 
30, 1996 and 1995 was approximately 7.0%.  The Company's notes payable bear 
interest based on prime or LIBOR.  Changes in the prime or LIBOR rates will 
affect the amount of interest being capitalized to inventory and subsequently 
expensed through cost of residential real estate sales as sales are closed 
and revenue is recognized.

COSTS AND EXPENSES - INVENTORY IMPAIRMENT LOSS

    During the fourth quarter of 1995, the Company changed its method of
accounting for the carrying amount of its real estate inventories by adopting
FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of."  Under the new standard, inventories
which are substantially completed are carried at the lower of cost or fair value
less cost to sell.  Fair value is determined by applying a risk adjusted
discount rate to estimates of future cash flows, resulting in a lower value than
under the net realizable value method previously required.  In addition, land
held for future development or inventories under current development are
adjusted to fair value, only if an impairment to their value is indicated.

    The estimates of future cash flows require significant judgment relating to
the level of sales prices, rate of new home sales, amount of marketing costs and
price discounts needed in order to stimulate sales, rate of increase in the cost
of building materials and labor, introduction of building code modifications,
and level of consumer confidence in Hawaii's economy, among other items. 
Accordingly, there exists at any date, a reasonable possibility that changes in
estimates will occur in subsequent periods.

    The financial results for the nine months ended September 30, 1996 included
a non-cash charge pursuant to FASB Statement No. 121 in the second quarter of
1996.  The FASB Statement No. 121 non-cash charge had a net after-tax impact of
$14.6 million or $0.70 per share in the second quarter of 1996.  The second
quarter 1996 charge related principally to the Company's completed inventories
at June 30, 1996.  While the Company has been working to reduce completed
inventories in its projects, the current real estate environment and other
factors dictated that the Company adopt a more conservative outlook with respect
to the future performance of its currently completed inventories. 

    The Company's completed inventories increased during 1996 primarily due to
the substantial completion of the second high-rise building at the Company's
Country Club Village project located in Salt Lake on Oahu.  The Company has
postponed the construction of the third and last high-rise building in order to
reduce completed inventories in this project in the future.  
                                           

COST AND EXPENSES - SELLING AND COMMISSIONS

    Sales and marketing costs represented approximately 9.3% and 6.7% of sales
of residential real estate during the quarters ended September 30, 1996 and
1995, respectively.  Such costs represented approximately 8.2% and 5.8% of
residential real estate sales during the nine months ended September 30, 1996
and 1995, respectively.  The increase is a result of increases in sales
incentives offered to buyers, and general increases in sales and marketing
costs, specifically relating to higher commissions and advertising costs
incurred as a percentage of sales.

                                           
                                         14

<PAGE>

COSTS AND EXPENSES - GENERAL AND ADMINISTRATIVE

    General and administrative expense includes salaries, office and other
administrative costs.  Indirect costs attributable to specific projects are
capitalized and deducted as part of cost of residential real estate sales.

    General and administrative expenses increased by $42,000 or 4.1% during the
third quarter of 1996 and by $78,000 or 2.6% during the first nine months of
1996 as compared to the same periods in 1995 primarily due to a reduction in
overhead costs capitalized as indirect project costs resulting from a reduction
in new construction in progress in 1996 as compared to 1995.  As a percentage of
sales, general and administrative expense increased from 3.4% during the quarter
ended September 30, 1995 to 4.8% during the quarter ended September 30, 1996,
which reflects the lower number of sales closed during the 1996 third quarter,
as compared to the same period in 1995.  As a percentage of sales, general and
administrative expense increased from 3.2% during the first nine months of 1995
to 4.3% during the first nine months of 1996, which reflects the lower number of
sales closed during the first nine months of 1996, as compared to the first nine
months of 1995.


INCOME FROM UNCONSOLIDATED JOINT VENTURES

    Income from unconsolidated joint ventures primarily represents the
Company's 50% interest in the operations of Waiakoa Estates Subdivision Joint
Venture and Iao Partners, the joint ventures developing the Waiakoa Kai Estates
and Iao Parkside projects, respectively.  The decrease in this income during the
first nine months of 1995 to the same period in 1996 is primarily the result of
the closing of fewer homes during the first nine months of 1996 as compared to
the comparable period in 1995, the deferral of profit on three sales under a
"zero-down" sales program, and lower profit margins realized for the Iao
Parkside project during the first nine months of 1996 as compared to the first
nine months of 1995, due to increases in construction and sales and marketing
costs.


OTHER INCOME

    Other income is primarily composed of interest income earned on cash
balances and notes receivable.  The decrease in other income from $127,000 in
the third quarter of 1995 to $45,000 in the third quarter of 1996 is primarily
due to lower cash balances in the third quarter of 1996, as compared to the
third quarter of 1995.


PROVISION (CREDIT) FOR INCOME TAXES

    The Company's effective income tax rate for the third quarters of 1996 and
1995 was approximately 39%.

    
VARIABILITY OF RESULTS

    The Company has experienced, and expects to continue to experience,
significant variability in sales and net income.  For example, the Company's
sales of residential real estate for the first and second quarters of 1996 were
$20.0 million and $29.8 million, respectively, while net income for the 1996
first quarter was $948,000 and net loss for the 1996 second quarter was $13.1
million (net of a $14.6 million after-tax charge relating to FASB Statement No.
121).  In addition, the Company's  sales of residential real estate for each of
the four quarters ended December 31, 1995, ranged from approximately $26.8
million to $39.5 million and for each of the four quarters ended December 31,
1994, ranged from approximately $36.0 million to $80.8 million.  The Company's
net income (loss) for each of the four quarters ended December 31, 1995, ranged
from a loss of approximately $3.1 million (after giving effect to a $5.7 million
after-tax charge relating to FASB Statement No. 121 in the fourth quarter of
1995) to net income of $4.7 million and for each of the four quarters ended
December 31, 1994, net income ranged from approximately $6.3 million to $8.9
million.  Factors that contribute to variability of the Company's results
include:  (i) the timing of home closings, a substantial 

                                           
                                          15

<PAGE>

portion of which historically have occurred in the last month of each quarter;
(ii) the Company's ability to continue to acquire additional land on favorable
terms for future developments; (iii) the condition of Hawaii's real estate
market and Hawaii's economy in general; (iv) the cyclical nature of the
homebuilding industry and changes in prevailing interest rates; (v) cost of
material and labor; and (vi) delays in construction schedules caused by timing
of inspections and approval by regulatory agencies, including zoning approvals
and receipt of entitlements, the timing of completion of necessary public
infrastructure, the timing of utility hookups and adverse weather conditions. 
The Company's historical financial performance is not necessarily a meaningful
indicator of future results and, in general, the Company's financial results
will vary from development to development.

    The Company continues to consider its possible expansion into selected
residential housing markets of the United States mainland and into certain
foreign countries and into other homebuilding related industries.  The Company
has and would consider the acquisition of or joint venture with an existing
company, as well as its own acquisition and development of homebuilding projects
in certain areas, in order to facilitate its possible expansion.  In June 1996,
the Company formed Schuler Homes of California, Inc., a wholly-owned California
corporation, for the development and sale of homes in California.  In August
1996, the Company formed Schuler Homes of Washington, Inc., a wholly-owned
Washington corporation for the development and sale of homes in the state of
Washington. In October 1996, the Company formed Schuler Homes of Oregon, Inc., a
wholly-owned Oregon corporation, for the development and sales of homes in
Oregon.  In recent months, the Company committed to the purchase of several
parcels of land in California and Washington for an aggregate of approximately
$8.5 million.  The Company has no experience in the development of homes in
California, Washington or Oregon.  Accordingly, no assurances can be given that
the Company will be able to successfully establish operations in California,
Washington, Oregon or elsewhere outside of its existing Hawaiian markets or that
such expansion will not adversely affect its results of operations.


BACKLOG

    The Company's homes are generally offered for sale in advance of their
construction upon applicable regulatory approval and sold pursuant to standard
sales contracts.  The Company's standard sales contract may be cancelled by the
buyer at any time prior to closing.  The Company does not recognize revenues on
homes covered by such contracts until the sales are closed.  Homes covered by
such sales contracts are considered by the Company as its backlog.

    The following table sets forth the Company's backlog (for both homes and
residential lots) at September 30, 1996 and 1995.


                        September 30, 1996            September 30, 1995
                        ------------------            ------------------
                                  Aggregate                       Aggregate
                    Number       Sales Value        Number       Sales Value
                   -------       -----------        ------       ----------

Homes.........       114         $26,550,000         204         $49,960,000
Lots..........         7           1,079,000          11           1,917,000
                     ---         -----------         ---         -----------
                     121         $27,629,000         215         $51,877,000


                                          16

<PAGE>
                                           
    The Company has observed an increase in its historical cancellation rates,
which the Company  believes to be attributable to uncertainty of prospective
homebuyers as to, and to their general lack of confidence in, the Hawaiian
economy.  The Company's historical cancellation experience (which prior to 1995
had been nominal) may not be indicative of cancellations in future periods.

    The average sales prices of the homes comprising backlog at September 30,
1996 and 1995 were $233,000 and $245,000, respectively.  Due to the ability of
buyers to cancel their sales contracts, no assurances can be given that homes or
residential lots in backlog will result in actual closings.  Backlog data
includes all of the backlog of Waiakoa Estates Subdivision Joint Venture and Iao
Partners, the Company's two joint ventures developing the Waiakoa Kai Estates
and Iao Parkside projects, respectively.


LIQUIDITY AND CAPITAL RESOURCES

    In March 1996, the Company executed a new Credit Agreement, which 
replaces the $50 million line of credit with a $110 million unsecured 
revolving line of credit facility on March 29, 1996.  The lenders include 
First Hawaiian Bank (arranger and agent), Bank of Hawaii, Bank of America, 
Bank of Boston, and National Bank of Detroit.  The facility expires on July 
1, 1998 and includes an option for the lenders to extend the term for an 
additional year.  The Company can select an interest rate of either LIBOR (1, 
2, 3 or 6 month term) plus 1.75% or prime for each borrowing. If the 
Company's leverage ratio, as defined, exceeds 1 to 1, the interest rate 
increases to LIBOR plus 2.25% and prime  plus 0.50%. In October 1996, the 
Company entered into an interest rate swap with Bank of America to pay a 
LIBOR rate of 5.89% (fixed for 5 years) on $30 million, while receiving in 
return an interest payment at a floating one-month LIBOR rate.  However, if 
the one-month LIBOR rate resets at or above 8%, the swap reverses for that 
payment period and no interest payments are exchanged. The Company's ability 
to draw upon its line of credit is dependent upon meeting certain financial 
ratios and covenants.  At October 31, 1996, the Company had bank notes 
payable of approximately $50.3 million.

    Companies in the homebuilding industry are generally highly leveraged and 
require significant up-front expenditures.  Accordingly, the Company incurs 
substantial indebtedness to finance its homebuilding and development 
activities. At September 30, 1996, the Company had bank notes payable of 
approximately $54.8 million.  Peak outstanding debt, including bank 
borrowings and the Convertible Subordinated Debentures, during the quarter 
ended September 30, 1996 was $120 million. In order to service these 
obligations and fund its ongoing operations, the Company has used proceeds 
from its initial public offering, the offering of convertible subordinated 
debentures, secondary offering of common stock, cash flow from operations, 
its available bank credit facilities and financing by the seller of land 
purchased.  The Company's business and earnings are substantially dependent 
on its ability to obtain debt financing on acceptable terms. Previously, all 
of the Company's bank borrowings had been from First Hawaiian Bank.  With the 
establishment of the new $110 million facility in March 1996, the Company has 
expanded its banking relationships to include four major banks in addition to 
First Hawaiian Bank.  Although the Company has in the past been able to 
obtain credit facilities on acceptable terms and believes virtually all of 
its currently planned construction projects will be funded by a combination 
of cash flow from operations and bank or other financing, no assurance can be 
given that it will be able to obtain such bank or other debt financing or 
that any such financing will be on terms acceptable to the Company.  Further, 
the availability of borrowed funds to homebuilders, especially for land 
acquisition and construction financing, has been severely restricted and in 
some cases eliminated entirely.  In compliance with federal guidelines, 
certain lenders are now requiring increased equity commitments by borrowers 
in connection with both new loans and the extension of existing loans.

    During the first nine months of 1996, the Company advanced $3.7 million to
Iao Partners, a joint venture in which the Company has a 50% interest, for the
development of the Iao Parkside project.  During the period, the Company was
repaid $3.8 million, as the closing of home sales occurred.

    The Company currently has commitments to purchase several parcels of land
for approximately $8.5 million.  The Company expects to utilize a combination of
cash flow from operations and bank financing to purchase the land parcels. The
Company intends to consummate the purchase of the land parcels in late 1996 or
early 1997.  However, no assurances can be given that the purchase will be
completed or that the land under purchase option will be acquired.


                                          17
<PAGE>

     The Company  believes that cash flow from operations, and 
borrowings under its credit facilities will provide adequate cash to fund the 
Company's operations at least through 1996.

    Certain of the Company's currently planned projects, as well as future 
projects, are anticipated to be longer term in nature than those developed in 
the past by the Company.  The increased length of such projects further 
exposes the Company to the risks inherent in the homebuilding industry, 
including reductions in the value of land inventory. 

       The Company currently has under construction a 193-unit project in 
Ewa, Oahu, called KulaLei. The Company plans to develop this project as a 
wholly-owned project, and not through Iao Partners, an existing joint 
venture, as had been anticipated earlier. 

    In May 1996, the Company adopted a stock repurchase program to reacquire 
up to an aggregate of $5 million of its outstanding common stock through 
December 31, 1996.  In September 1996, the Company completed its repurchase 
of 774,000 shares at a cost of $5 million.

                                          18
<PAGE>
                                       
                                SCHULER HOMES, INC.
                            PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

         The Company is from time to time involved in routine litigation or
         threatened litigation arising in the ordinary course of its business.
         Such matters, if decided adversely to the Company, would not, in the 
         opinion of management, have a material adverse effect on the financial 
         condition of the Company.
        
         In April 1996, the Company was served with a lawsuit by owners of 
         units and the Association of Owners of Fairway Village at Waikele, 
         who seek to have a class of all owners certified.  The complaint 
         alleges material construction defects and deficiencies, 
         misrepresentation regarding the cost of insurance, breach of 
         covenant of good faith and fair dealing, among other allegations.  
         The complaint does not specify an amount of damages, but includes 
         a claim for punitive damages, among other claims.  The Company is 
         currently evaluating the merits of the complaint.  If this lawsuit 
         were decided adversely to the Company, it could have a material 
         adverse effect on the Company's business, financial condition and 
         operating results.

Items 2  through 5.  Not applicable.

Item 6.  Exhibits and Reports on Form 8-K.

    (a)  Exhibits.
    
              Exhibit Number      Document Description
              --------------      --------------------
 
                   10.1           Real Estate Purchase Agreement between
                                  Schuler Homes of California, Inc. and Frank
                                  J.Andrews, Jr. dated August 20, 1996.

                   10.2           Option Agreement between Schuler Homes of
                                  California, Inc. and Frank J. Andrews, Jr.
                                  dated  August 20, 1996.

                   10.3           Real Estate Purchase and Sale Agreement
                                  between the Company and Coop Family Limited
                                  Partnership, dated September 20, 1996.

                   27.1           Financial Data Schedule

    (b)  Reports on Form 8-K.  There were no reports on Form 8-K for the
quarter ended September 30, 1996.

                                           
                                          19

<PAGE>
                                           
                                 SCHULER HOMES, INC.
                                           
                                      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 thereto duly authorized.

                                                                               
                                            SCHULER HOMES, INC.



Date: November 7, 1996                By: /s/ James K. Schuler
                                          --------------------
                                          James K. Schuler
                                          Chairman of the Board,
                                          President and Chief Executive Officer
                                          (principal executive officer)

Date: November 7, 1996                By: /s/ Pamela S. Jones
                                          -------------------
                                          Pamela S. Jones
                                          Senior Vice President of Finance,
                                          Chief Financial Officer and Director
                                          (principal financial officer)



Date: November 7, 1996                By:  /s/ Douglas M. Tonokawa
                                           -----------------------
                                           Douglas M. Tonokawa
                                           Vice President of Finance,
                                           Chief Accounting Officer
                                           (principal accounting officer)


                                          20
                                           
<PAGE>
                                    EXHIBIT INDEX
                                           


EXHIBIT NUMBER   DOCUMENT DESCRIPTION

    10.1         Real Estate Purchase Agreement between Schuler Homes of
                 California, Inc. and Frank J.Andrews, Jr., dated August 20, 
                 1996.

    10.2         Option Agreement between Schuler Homes of California, Inc. 
                 and Frank J. Andrews, Jr. dated August 20, 1996.

    10.3         Real Estate Purchase and Sale Agreement between the Company 
                 and Coop Family Limited Partnership, dated September 20, 1996.

    27.1         Financial Data Schedule