Income Taxes

12 Months Ended

Dec. 31, 2022

Income Taxes

Income Taxes

Note 17 — Income Taxes

We are organized and conduct our operations to qualify as a REIT and to comply with the provisions of the Internal Revenue Code. A REIT is generally not subject to federal income tax on its REIT-taxable income that is distributed to its stockholders, provided that at least 90% of its REIT–taxable income is distributed and provided that certain other requirements are met. Certain REIT income may be subject to state and local income taxes. We did not have any REIT–federal taxable income, net of dividends paid and net operating loss deductions, for 2022, 2021 and 2020, and therefore, have not provided for REIT federal income tax expense in either year. We have elected to retain excess inclusion income rather than passing it through to our stockholders. In 2022, 2021 and 2020, the REIT incurred no state income tax expense.

Certain of our assets and operations that would not otherwise comply with the REIT requirements, such as the Agency Business and our residential mortgage banking joint venture, are owned or conducted through our taxable REIT subsidiaries (the “TRS Consolidated Group”), the majority of the income of which is subject to U.S. federal, state and local income taxes. The TRS Consolidated Group had no federal net operating losses remaining from prior years. For 2022, 2021 and 2020, we recorded a provision for income taxes related to the assets held in the TRS Consolidated Group and the REIT in the amount of $17.5 million, $46.3 million and $40.4 million, respectively. In 2022, the change in the valuation allowance previously recorded at the TRS Consolidated Group on the deferred tax assets was due to the impact of state tax rate changes. In 2021, a $0.1 million valuation allowance previously recorded at the TRS Consolidated Group on the deferred tax assets subject to loss limitation rules was released. In 2020, the change in valuation allowance was due to the impact of state tax rate changes.

A summary of our pre-tax GAAP income is as follows (in thousands):

	Year Ended December 31,
	2022		2021		2020
Pre‑tax GAAP income:
REIT	$	303,320	$	239,356	$	78,320
TRS Consolidated Group		67,991		184,736		158,230
Total pre‑tax GAAP income	$	371,311	$	424,092	$	236,550

Our provision for income taxes is comprised as follows (in thousands):

	Year Ended December 31,
	2022		2021		2020
Current tax provision:
Federal	$	14,167	$	27,454	$	27,284
State		5,058		7,939		8,383
Total		19,225		35,393		35,667
Deferred tax (benefit) provision :
Federal	$	(1,373)	$	8,287	$	3,932
State		(370)		2,744		780
Valuation allowance		2		(139)		14
Total		(1,741)		10,892		4,726
Total income tax expense	$	17,484	$	46,285	$	40,393

A reconciliation of our effective income tax rate as a percentage of pre-tax income to the U.S. federal statutory rate is as follows:

	Year Ended December 31,
	2022		2021		2020
U.S. federal statutory rate	21.0	%	21.0	%	21.0	%
REIT non‑taxable income	(17.2)	%	(11.9)	%	(7.0)	%
State and local income taxes, net of federal tax benefit	1.0	%	2.0	%	3.0	%
Other	(0.1)	%	(0.2)	%	—	%
Effective income tax rate	4.7	%	10.9	%	17.0	%

The significant components of our deferred tax assets and liabilities of our TRS Consolidated Group are as follows (in thousands):

	December 31,
	2022		2021
Deferred tax assets:
Expenses not currently deductible	$	22,755	$	25,542
Loan loss reserves		7,159		7,110
Net operating and capital loss carryforwards		454		468
Valuation allowance		(294)		(292)
Other		441		372
Deferred tax assets, net	$	30,515	$	33,200
Deferred tax liabilities:
Mortgage servicing rights	$	26,975	$	28,672
Intangibles		6,457		7,243
Interest in equity affiliates—net		6,237		8,179
Deferred tax liabilities, net	$	39,669	$	44,094

At December 31, 2022, our TRS Consolidated Group, had approximately $30.5 million of deferred tax assets, net of a $0.3 million valuation allowance. The deferred tax assets consist of expenses not currently deductible, loan loss reserves, net operating loss and capital loss carryforwards. Our TRS Consolidated Group's deferred tax assets are offset by approximately $39.7 million in deferred tax liabilities consisting of timing differences from mortgage servicing rights, intangibles and investments in equity affiliates.

At December 31, 2021, our TRS Consolidated Group, had $33.2 million of deferred tax assets, net of a $0.3 million valuation allowance. The deferred tax assets consist of expenses not currently deductible, loan loss reserves and net operating loss and capital loss carryforwards. Our TRS Consolidated Group's deferred tax assets are offset by $44.1 million in deferred tax liabilities consisting of timing differences from mortgage servicing rights, intangibles and investments in equity affiliates.

At both December 31, 2022 and 2021, the REIT (excluding the TRS Consolidated Group) had no federal net operating loss carryforwards and no capital loss carryforwards.

At both December 31, 2022 and 2021, the TRS Consolidated Group had no federal net operating loss carryforwards remaining and capital loss carryforwards of $1.1 million, which will expire through 2023.

At both December 31, 2022 and 2021, the TRS Consolidated Group had state net operating loss carryforwards of $0.2 million, which will begin to expire in 2036.

The TRS Consolidated Group is currently under audit in certain state and local jurisdictions for tax years 2017-2020. While the impact of the current income tax examinations was undetermined, it is not expected to be material to our consolidated financial statements.

We have assessed our tax positions for all open years, which includes 2017-2022, and have concluded that there were no material uncertainties to be recognized. We have not recognized any interest and penalties related to tax uncertainties for the years ended 2017 through 2022.