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Income Taxes

12 Months Ended

Dec. 31, 2021

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 taxable income which it distributes to its stockholders, provided that it distributes at least 90% of its REIT–taxable income and meets certain other requirements. 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 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. Consequently, we had REIT-federal taxable income, net of dividends paid deduction, for 2019, and therefore, have provided for REIT federal income tax expense of $0.6 million attributable to excess inclusion income. In 2021 and 2020, the REIT incurred no state income tax expense, while in 2019, the REIT incurred state income tax expense of $0.1 million.

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 federal net operating losses from prior years which has been used against the income from the Agency Business subject to loss limitation rules. For 2021, 2020 and 2019, we recorded a provision for income taxes related to the assets held in the TRS Consolidated Group and the REIT in the amount of $46.3 million, $40.4 million and $15.0 million, respectively.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. In 2019, a $3.3 million valuation allowance previously recorded at the TRS Consolidated Group on the deferred tax assets subject to loss limitation rules was released.

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

​

​	​	​	​	​	​	​	​	​	​
​	​	Year Ended December 31,
​		2021			2020			2019
Pre‑tax GAAP income:		​			​			​
REIT	​	$	239,356	​	$	78,320	​	$	94,076
TRS Consolidated Group	​		184,736	​		158,230	​		76,198
Total pre‑tax GAAP income	​	$	424,092	​	$	236,550	​	$	170,274

​

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

​

​	​	​	​	​	​	​	​	​	​
​	​	Year Ended December 31,
​		2021			2020			2019
Current tax provision:		​			​			​
Federal	​	$	27,453	​	$	27,284	​	$	12,381
State	​		7,939	​		8,383	​		2,505
Total	​		35,392	​		35,667	​		14,886
Deferred tax provision :	​			​			​
Federal	​	$	8,288	​	$	3,932	​	$	2,743
State	​		2,744	​		780	​		688
Valuation allowance	​		(139)	​		14	​		(3,281)
Total	​		10,893	​		4,726	​		150
Total income tax expense	​	$	46,285	​	$	40,393	​	$	15,036

​

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,					​
​		2021		2020		2019
U.S. federal statutory rate		21.0	%	21.0	%	21.0	%
REIT non‑taxable income		(11.9)		(7.0)		(11.3)	​
State and local income taxes, net of federal tax benefit		2.0		3.0		1.5	​
Change in valuation allowance		—		—		(1.9)	​
Other		(0.2)		—		(0.5)	​
Effective income tax rate		10.9	%	17.0	%	8.8	%

​

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

​

​	​	​	​	​	​	​
​	​	December 31,
​		2021			2020
Deferred tax assets:		​			​
Expenses not currently deductible	​	$	25,542	​	$	24,603
Loan loss reserves	​		7,110	​		7,047
Net operating and capital loss carryforwards	​		468	​		691
Valuation allowance	​		(292)	​		(431)
Other	​	​	372	​	​	306
Deferred tax assets, net	​	$	33,200	​	$	32,216
Deferred tax liabilities:	​			​
Mortgage servicing rights	​	$	28,672	​	$	23,628
Interest in equity affiliates—net	​	​	8,179	​	​	589
Intangibles	​		7,243	​		8,002
Deferred tax liabilities, net	​	$	44,094	​	$	32,219

​

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, investments in equity affiliates and intangibles.

At December 31, 2020, our TRS Consolidated Group, had $32.2 million of deferred tax assets, net of a $0.4 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 $32.2 million in deferred tax liabilities consisting of timing differences from mortgage servicing rights, investments in equity affiliates and intangibles.

As of both December 31, 2021 and 2020, the REIT (excluding the TRS Consolidated Group) had no federal net operating loss carryforwards and no capital loss carryforwards.

At December 31, 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 December 31, 2020, the TRS Consolidated Group had federal net operating loss carryforwards of $0.5 million and capital loss carryforwards of $1.1 million expiring through 2023.

At December 31, 2021 and 2020, the TRS Consolidated Group had state net operating loss carryforwards of $0.2 million and $0.3 million, respectively, 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 2017-2021, 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 2021.

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The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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