Income Taxes

12 Months Ended

Dec. 31, 2020

Income Taxes

Income Taxes

Note 26. Income Taxes

The Company is a REIT pursuant to Internal Revenue Code Section 856. Our qualification as a REIT depends on our ability to meet various requirements imposed by the Internal Revenue Code, which relate to our organizational structure, diversity of stock ownership and certain requirements with regard to the nature of our assets and the sources of our income. As a REIT, we generally must distribute annually at least 90% of our net taxable income, subject to certain adjustments and excluding any net capital gain, in order for U.S. federal income tax not to apply to our earnings that we distribute. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our net taxable income, we will be subject to U.S. federal income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws. Even if we qualify as a REIT, we may be subject to certain U.S. federal income and excise taxes and state and local taxes on our income and assets. If we fail to maintain our qualification as a REIT for any taxable year, we may be subject to material penalties as well as federal, state and local income tax on our taxable income at regular corporate rates and we would not be able to qualify as a REIT for the subsequent four taxable years. As of December 31, 2020 and 2019, we are in compliance with all REIT requirements.

Certain of our subsidiaries have elected to be treated as taxable REIT subsidiaries (“TRSs”). TRSs permit us to participate in certain activities that would not be qualifying income if earned directly by the parent REIT, as long as these activities meet specific criteria, are conducted within the parameters of certain limitations established by the Internal Revenue Code, and are conducted in entities which elect to be treated as taxable subsidiaries under the Internal Revenue Code. To the extent these criteria are met, we will continue to maintain our qualification as a REIT. Our TRSs engage in various real estate - related operations, including originating and securitizing commercial and residential mortgage loans, and investments in real property. The majority of our TRSs are held within the SBC originations, SBA originations, acquisitions and servicing, and residential mortgage banking segments.  Our TRSs are not consolidated for federal income tax purposes, but are instead taxed as corporations. For financial reporting purposes, a provision for current and deferred income taxes is established for the portion of earnings recognized by us with respect to our interest in TRSs.

During 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and the Consolidated Appropriations Act of 2021 (the “CAA”) were signed into law. Among other things, the provisions of these laws relate to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, and technical corrections to tax depreciation methods for qualified improvement property. As of December 31, 2020, we have recognized a benefit of $2.7 million due to changes in net operating loss carryback provisions which allow net operating losses from tax years beginning in 2018, 2019, or 2020 to be carried back for five years. We will continue to monitor the impacts on our business due to legislative developments related to the COVID-19 pandemic.

Our income tax provision consists of the following:

	Year Ended December 31,
(In Thousands)	2020		2019		2018
Current
Federal income tax (benefit)	$	(1,795)	$	523	$	356
State and local income tax (benefit)		57		47		169
Net current tax provision (benefit)		(1,738)		570		525
Deferred
Federal income tax (benefit)		8,776		(9,739)		1,167
State and local income tax (benefit)		1,346		(1,383)		(306)
Net deferred tax provision (benefit)		10,122		(11,122)		861
Total income tax provision (benefit)	$	8,384	$	(10,552)	$	1,386

The following table is a reconciliation of our federal income tax determined using our statutory federal tax rate to our reported income tax provision for the years ended December 31, 2020 and 2019:

	Year Ended December 31,
(In Thousands)	2020				2019
U.S. statutory tax	$	12,381	21.0	%	$	13,579	21.0	%
State and local income tax (benefit)		1,716	2.9			(1,717)	(2.6)
Income attributable to REIT		(3,090)	(5.3)			(19,641)	(30.4)
Income attributable to Non-controlling interests		(67)	(0.1)			(462)	(0.7)
Nondeductible		(242)	(0.4)			(2,692)	(4.2)
Change in tax rate / Deferred true-up		(91)	(0.2)			381	0.6
NOL carryback rate impact		(2,702)	(4.6)			—	—
Current write-off		479	0.8			—	—
Effective income tax (benefit)	$	8,384	14.1	%	$	(10,552)	(16.3)	%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred tax assets and liabilities are presented net by tax jurisdiction and are reported in other assets and other liabilities, respectively. The following table presents the tax effects of temporary differences on their respective net deferred tax assets and liabilities:

	Year Ended December 31,
(In Thousands)	2020		2019
Deferred tax assets:
Net operating loss carryforwards	$	12,893	$	23,277
Unrealized losses		313		40
Accruals		723		2,917
Depreciation and amortization		1,185		1,379
Goodwill		3,171		3,702
Compensation		—		248
Other		111		240
Total deferred tax assets	$	18,396	$	31,803
Deferred tax liabilities:
Loan / servicing rights balance	$	11,600	$	17,793
Derivative instruments		3,868		439
Other taxable temporary difference		1,371		525
Total deferred tax liabilities	$	16,839	$	18,757
Net deferred tax assets (liabilities)	$	1,557	$	13,046

The Company has approximately $43.0 million of federal and $100.0 million of state net operating loss carryforwards that will begin to expire in 2033.

We recognize deferred tax assets and liabilities for the future tax consequences arising from differences between the carrying amounts of existing assets and liabilities under GAAP and their respective tax bases. We evaluate our deferred tax assets for recoverability using a consistent approach which considers the relative impact of negative and positive evidence, including our historical profitability and projections of future taxable income.

As of December 31, 2020, we continued to conclude that the positive evidence in favor of the recoverability of our deferred tax asset outweighed the negative evidence and that it is more likely than not that our deferred tax assets will be realized. Our framework for assessing the recoverability of deferred tax assets requires us to weigh all available evidence, including the sustainability of recent profitability required to realize the deferred tax assets, the cumulative net income in our consolidated statements of income in recent years, the future reversals of existing taxable temporary differences, and the carryforward periods for any carryforwards of net operating losses.

The difference between the statutory rate of 21% and the effective income tax rate is primarily due to state and local taxes.

As of December 31, 2020 and 2019, the Company had no uncertain tax positions recorded or disclosed in the financial statements. Additionally, it is the belief of management that the total amount of uncertain tax positions, if any, will not materially change over the next 12 months.

Our major tax jurisdictions where we file income tax returns include Federal, New York State and New York City. Our 2017 and forward tax years are subject to examination.  The TRS major tax jurisdictions are Federal, Louisiana, New York City, New Jersey and California. For Federal and state purposes, with the exception of New Jersey, the TRS entities are subject to examination for the 2017 and forward tax years. For New Jersey, the TRS entities are subject to examination for the 2016 and forward tax years.