Introduction to Mortgage Servicing Examinations Training - March 2023

Mortgage, LLC Notes to Consolidated Financial Statements (continued) (Dollars in Thousands)

and corresponding liability are recorded at the unpaid principal balance of the loan, which approximates its fair value. Income Taxes

At the beginning of 2020,

was a subsidiary of

, which elected S corporation

status and

elected to be treated as a qualified Subchapter S subsidiary.

and

its direct and indirect subsidiaries, which are single-member LLCs, are treated as divisions of The shareholders of as shareholders of an S corporation, are responsible for the federal income tax liabilities, and therefore, no provision for federal income taxes is necessary. A provision for state income taxes is still required for certain jurisdictions that tax S corporations and their divisions.

During 2020, as part of a series of transactions,

was converted to a single-member LLC and the

Company is now owned by

, a partnership. The single-member LLCs are treated as disregarded

entities for U.S. federal income taxes. The partners of are responsible for the federal income tax liabilities, and therefore, no provision for federal income taxes is necessary for the single-member LLCs. A provision for state income taxes is still required for certain jurisdictions that tax these entities as regarded entities. Deferred income taxes arise from temporary differences between the financial statement carrying amount and the tax basis of assets and liabilities. In evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise, we consider all available positive and negative evidence. If based upon all available positive and negative evidence, it is more likely than not that the deferred tax assets will not be realized, a valuation allowance is established. The valuation allowance may be reversed in a subsequent reporting period if the Company determines that it is more likely than not that all or part of the deferred tax asset will become realizable. Our interpretations of tax laws are subject to review and examination by various taxing authorities and jurisdictions where the Company operates, and disputes may occur regarding its view on a tax position. These disputes over interpretations with the various tax authorities may be settled by audit, administrative appeals or adjudication in the court systems of the tax jurisdictions in which the Company operates. We regularly review whether we may be assessed additional income taxes as a result of the resolution of these matters, and the Company records additional reserves as appropriate. In addition, the Company may revise its estimate of income taxes due to changes in income tax laws, legal interpretations, and business strategies. We recognize the financial statement effects of uncertain income tax positions when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. We record interest and penalties related to uncertain income tax positions in income tax expense. Distributions are made to our holding company with respect to the tax liability based on our income subject to the availability of cash and restrictions on distributions imposed by corporate law. Refer to Note 11, Income

Taxes for further information. Share-based compensation

Share-based compensation is comprised of equity awards and is measured and expensed accordingly under Accounting Standards Codification (“ASC”) 718 Compensation-Stock Compensation. Refer to Note 15, Share

based Compensation for further information. Recently Adopted Accounting Standards

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope to clarify that Topic 848 is applicable to many derivative instruments and hedging relationships. Subject to meeting certain criteria, the new guidance provides optional expedients and exceptions to applying contract modification accounting under existing U.S. GAAP, to address the expected phase out of the London Inter-

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