Income Taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income Taxes

Note 19 — Income Taxes

The Company elected to be treated as a corporation, for tax purposes, effective January 1, 2018. The following table details the Company’s income tax expense (benefit) (in thousands):

	December 31,
	2023		2022			2021
Current tax expense (benefit):
Federal	$	13,631	$	(90	)	$	15,042
State		2,509		552			5,477
Total current tax expense	$	16,140	$	462		$	20,519
Deferred tax expense (benefit):
Federal	$	1,654	$	8,553		$	(7,362	)
State		1,040		3,018			(2,588	)
Total deferred tax expense (benefit)	$	2,694	$	11,571		$	(9,950	)
Total income tax expense	$	18,834	$	12,033		$	10,569

The following table contains a reconciliation of the Company’s provision for income taxes at the federal statutory tax rate to the provision for income taxes at the effective tax rate as of December 31, 2023, 2022, and 2021:

	December 31,
	2023				2022				2021
Federal income tax provision at statutory rate		21.0		%		21.0		%		21.0		%
State income taxes, net of federal tax benefit		6.2				6.3				5.6
Permanent items		0.6				0.2				0.1
Federal true-ups		0.1				—				—
Tax credits		(0.3	)			(0.3	)			(0.2	)
Change in unrecognized tax benefit		(2.3	)			—				—
Other		(0.1	)			—				0.1
Effective tax rate		25.2		%		27.2		%		26.6		%

The changes in state income taxes and unrecognized tax benefit in the reconciliation are primarily due to changes in state apportionment and the related valuation impacts on taxes payable as well as the deferred tax asset in the prior year.

The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities as of December 31, 2023 and 2022 are presented below (in thousands):

	December 31,
	2023			2022
Deferred tax assets:
Net operating loss	$	—		$	8,451
Mark-to-market on loans		—			355
Lease liability		780			783
Stock compensation		1,779			1,485
Accrued vacation		386			283
Intangibles		3			5
REO		160			—
Deferred state taxes		374			696
Research and experimental expenditures capitalization		1,721			—
MSR Valuation Allowance		53			—
Derivative - OCI		427			—
ERC Refund		1,038			—
Other		—			154
Gross deferred tax assets		6,721			12,212
Deferred tax liabilities:
REMIC book-tax basis difference		(2,522	)		(4,941	)
Mark-to-market on loans		(36	)
Right-of-use assets		(735	)		(717	)
Deferred origination costs		(63	)		(138	)
Property and equipment		(332	)		(595	)
REO		—			(30	)
MSR valuation		—			(758	)
Other		(694	)		—
Gross deferred tax liabilities		(4,382	)		(7,179	)
Total net deferred tax asset	$	2,339		$	5,033

The Company’s main temporary difference is due to the difference between the U.S. income tax and U.S. GAAP treatment with respect to its REMIC securities. For tax purposes, the issuances are considered taxable sales; whereas, for U.S. GAAP purposes, the REMIC issuances are considered financings.

Federal net operating loss ("NOL") carryforwards of $5.7 million are utilized to offset current U.S. federal taxable income in 2023. State NOL carryforwards totaling $2.5 million are utilized to offset taxable income in 2023. There are no additional NOL carryforwards after 2023.

The Company had no valuation allowance as of December 31, 2023 and 2022. Based on the Company’s estimates of taxable income over the years in which the items giving rise to the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences.

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal, state, and local jurisdictions, where applicable. As of December 31, 2023, the Company is no longer subject to U.S. tax examinations for years before 2020 and is no longer subject to state tax examinations for years before 2019.

The Company periodically reviews its income tax positions based on tax laws and regulations and financial reporting considerations, and records adjustments as appropriate. This review takes into consideration the status of current taxing authorities' examinations of the Company's tax returns, recent positions taken by the taxing authorities on similar transactions, if any, and the overall tax environment.

The Company had gross unrecognized tax benefits in the amount of $0.4 million and $1.9 million recorded as of December 31, 2023 and 2022, respectively. If recognized, $0.3 million of the unrecognized tax benefit would affect the 2023 annual effective tax rate. Interest and penalties on unrecognized tax benefits is reported by the Company as a component of tax expense, and the Company recorded interest and penalties in its consolidated statements of income in the amount of $0.5 million, $0.1 million, and $0.1million as of December 31, 2023, 2022, and 2021, respectively. As of December 31, 2023 and 2022, the accrued interest and penalties related to unrecognized tax benefits were $32.9 thousand and $0.6 million, respectively.

There are no positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within 12 months of the reporting date.

Detailed below is a reconciliation of the Company's gross unrecognized tax benefits for the years ended December 31, 2023 and 2022, respectively (in thousands):

	December 31,
	2023			2022			2021
Beginning balance	$	1,940		$	1,911		$	1,860
Changes related to current year tax positions		93			68			49
Changes related to prior year tax positions		25			19			2
Decreases due to lapsed statutes of limitations		(1,668	)		(58	)		—
Ending balance	$	390		$	1,940		$	1,911