XML 55 R40.htm IDEA: XBRL DOCUMENT
v3.21.2

Income taxes | 9 Months Ended
--- | ---
Sep. 30, 2021
Income Tax Disclosure |
Income Taxes | Note 30 – Income taxes The reason for the difference between the income tax expense applicable to income before provision for income taxes and the amount computed by applying the statutory tax rate in Puerto Rico, were as follows:
|  |  | Quarters ended |
|  |  | September 30, 2021 |  |  |  | September 30, 2020 |
(In thousands) |  | Amount | % of pre-tax income |  |  |  | Amount | % of pre-tax income |
Computed income tax expense at statutory rates | $ | 124,370 | 38 | % |  | $ | 78,594 | 38 | %
Net benefit of tax exempt interest income |  | (34,294) | (10) |  |  |  | (31,177) | (15) |
Deferred tax asset valuation allowance |  | 3,529 | 1 |  |  |  | 2,185 | 1 |
Difference in tax rates due to multiple jurisdictions |  | (9,600) | (3) |  |  |  | (2,584) | (1) |
Effect of income subject to preferential tax rate |  | (5,441) | (2) |  |  |  | (3,095) | (2) |
Unrecognized tax benefits |  | (5,484) | (2) |  |  |  | (2,163) | (1) |
Adjustment due to estimate on the annual effective rate |  | 4,001 | 1 |  |  |  | (4,030) | (2) |
State and local taxes |  | 6,352 | 2 |  |  |  | 3,748 | 2 |
Others |  | 109 | - |  |  |  | (310) | - |
Income tax expense | $ | 83,542 | 25 | % |  | $ | 41,168 | 20 | %
|  |  | Nine months ended |
|  |  | September 30, 2021 |  |  |  | September 30, 2020 |
(In thousands) |  | Amount | % of pre-tax income |  |  |  | Amount | % of pre-tax income |
Computed income tax expense at statutory rates | $ | 360,859 | 38 | % |  | $ | 149,715 | 38 | %
Net benefit of tax exempt interest income |  | (105,297) | (11) |  |  |  | (93,497) | (24) |
Deferred tax asset valuation allowance |  | 19,682 | 2 |  |  |  | 10,333 | 3 |
Difference in tax rates due to multiple jurisdictions |  | (25,429) | (3) |  |  |  | 2,081 | 1 |
Effect of income subject to preferential tax rate |  | (10,175) | (1) |  |  |  | (7,722) | (2) |
Adjustment due to estimate on the annual effective rate |  | (6,732) | (1) |  |  |  | 2,821 | 1 |
Unrecognized tax benefits |  | (5,484) | (1) |  |  |  | (2,163) | (1) |
State and local taxes |  | 8,943 | 1 |  |  |  | 5,807 | 1 |
Others |  | (2,901) | - |  |  |  | 1,518 | - |
Income tax expense | $ | 233,466 | 24 | % |  | $ | 68,893 | 17 | %
For the quarter and nine months ended September 30, 2021, the Corporation recorded an income tax expense of $83.5 million and $233.5 million, respectively, compared to $41.2 million and $68.9 million for the respective period of 2020. The increase in income tax expense was primarily due to higher pre-tax income resulting primarily from a lower provision for credit losses partially offset by higher net exempt interest income and higher income from the U.S. operations subject to lower statutory tax rate. The following table presents a breakdown of the significant components of the Corporation’s deferred tax assets and liabilities.
|  |  | September 30, 2021
(In thousands) |  | PR |  | US |  | Total
Deferred tax assets: |  |  |  |  |  |
Tax credits available for carryforward | $ | 3,718 | $ | 2,781 | $ | 6,499
Net operating loss and other carryforward available |  | 106,024 |  | 682,305 |  | 788,329
Postretirement and pension benefits |  | 73,189 |  | - |  | 73,189
Deferred loan origination fees |  | 11,251 |  | (3,997) |  | 7,254
Allowance for credit losses |  | 254,120 |  | 32,493 |  | 286,613
Accelerated depreciation |  | 4,400 |  | 7,325 |  | 11,725
FDIC-assisted transaction |  | 152,665 |  | - |  | 152,665
Intercompany deferred gains |  | 1,458 |  | - |  | 1,458
Lease liability |  | 27,670 |  | 24,757 |  | 52,427
Difference in outside basis from pass-through entities |  | 56,358 |  | - |  | 56,358
Other temporary differences |  | 40,689 |  | 8,443 |  | 49,132
| Total gross deferred tax assets |  | 731,542 |  | 754,107 |  | 1,485,649
Deferred tax liabilities: |  |  |  |  |  |
Indefinite-lived intangibles |  | 75,803 |  | 50,562 |  | 126,365
Unrealized net gain (loss) on trading and available-for-sale securities |  | 35,095 |  | 5,882 |  | 40,977
Right of use assets |  | 25,564 |  | 21,065 |  | 46,629
Other temporary differences |  | 52,623 |  | 1,507 |  | 54,130
| Total gross deferred tax liabilities |  | 189,085 |  | 79,016 |  | 268,101
Valuation allowance |  | 124,351 |  | 417,013 |  | 541,364
Net deferred tax asset | $ | 418,106 | $ | 258,078 | $ | 676,184
|  |  | December 31, 2020
(In thousands) |  | PR |  | US |  | Total
Deferred tax assets: |  |  |  |  |  |
Tax credits available for carryforward | $ | 3,003 | $ | 5,269 | $ | 8,272
Net operating loss and other carryforward available |  | 124,355 |  | 698,842 |  | 823,197
Postretirement and pension benefits |  | 80,179 |  | - |  | 80,179
Deferred loan origination fees |  | 12,079 |  | (2,652) |  | 9,427
Allowance for credit losses |  | 373,010 |  | 38,606 |  | 411,616
Accelerated depreciation |  | 3,439 |  | 5,390 |  | 8,829
FDIC-assisted transaction |  | 152,665 |  | - |  | 152,665
Intercompany deferred gains |  | 1,728 |  | - |  | 1,728
Lease liability |  | 22,790 |  | 18,850 |  | 41,640
Difference in outside basis from pass-through entities |  | 61,222 |  | - |  | 61,222
Other temporary differences |  | 38,954 |  | 7,344 |  | 46,298
| Total gross deferred tax assets |  | 873,424 |  | 771,649 |  | 1,645,073
Deferred tax liabilities: |  |  |  |  |  |
Indefinite-lived intangibles |  | 73,305 |  | 37,745 |  | 111,050
Unrealized net gain (loss) on trading and available-for-sale securities |  | 67,003 |  | 8,595 |  | 75,598
Right of use assets |  | 20,708 |  | 15,510 |  | 36,218
Other temporary differences |  | 50,247 |  | 1,169 |  | 51,416
| Total gross deferred tax liabilities |  | 211,263 |  | 63,019 |  | 274,282
Valuation allowance |  | 112,871 |  | 407,225 |  | 520,096
Net deferred tax asset | $ | 549,290 | $ | 301,405 | $ | 850,695
The net deferred tax asset shown in the table above at September 30, 2021 is reflected in the consolidated statements of financial condition as $0.7 billion in net deferred tax assets in the “Other assets” caption (December 31, 2020 - $0.9 billion) and $869 thousand in deferred tax liabilities in the “Other liabilities” caption (December 31, 2020 - $897 thousand), reflecting the aggregate deferred tax assets or liabilities of individual tax-paying subsidiaries of the Corporation in their respective tax jurisdiction, Puerto Rico or the United States. At September 30, 2021 the net deferred tax asset of the U.S. operations amounted to $675 million with a valuation allowance of approximately $417 million, for a net deferred tax asset after valuation allowance of approximately $258 million. The Corporation evaluates the realization of the deferred tax asset by taxing jurisdiction. The U.S. operation is not in a cumulative three-year loss position and had sustained profitability for the three-year period ended September 30, 2021 with strong pre-tax income for the first three quarters of 2021. This objectively verifiable positive evidence, together with the positive evidence of stable credit metrics, in combination with the length of the expiration of the NOLs are enough to overcome any negative evidence related to the COVID-19 pandemic and the uncertainty created by new variants. As of September 30, 2021, after weighting all positive and negative evidence, the Corporation concluded that it is more likely than not that approximately $258 million of the deferred tax asset from the U.S. operations, comprised mainly of net operating losses, will be realized. The Corporation based this determination on its estimated earnings available to realize the deferred tax asset for the remaining carryforward period, together with the historical level of book income adjusted by permanent differences. Management will continue to monitor and review the U.S. operation’s results and the pre-tax earnings forecast on a quarterly basis to assess the future realization of the deferred tax asset. Management will closely monitor factors, including, net income versus forecast, targeted loan growth, net interest income margin, allowance for credit losses, charge offs, NPLs inflows and NPA balances. At September 30, 2021, the Corporation’s net deferred tax assets related to its Puerto Rico operations amounted to $418 million net of valuation allowance pertaining to the Holding Company operation. The Corporation’s Puerto Rico Banking operation is not in a cumulative three-year loss position and had sustained profitability for the three-year period ended September 30, 2021. This is considered a strong piece of objectively verifiable positive evidence that outweighs any negative evidence considered by management in the evaluation of the realization of the deferred tax asset. Based on this evidence and management’s estimate of future taxable income, the Corporation has concluded that it is more likely than not that such net deferred tax asset of the Puerto Rico Banking operations will be realized as of September 30, 2021. The Holding Company operation is in a cumulative loss position, taking into account taxable income exclusive of reversing temporary differences, for the three years period ending September 30, 2021. Management expects these losses will be a trend in future years. This objectively verifiable negative evidence is considered by management a strong negative evidence that will suggest that income in future years will be insufficient to support the realization of all deferred tax asset. After weighting of all positive and negative evidence management concluded, as of the reporting date, that it is more likely than not that the Holding Company will not be able to realize any portion of the deferred tax assets, considering the criteria of ASC Topic 740. Accordingly, the Corporation has maintained a valuation allowance on the deferred tax asset of $124 million as of September 30, 2021. The reconciliation of unrecognized tax benefits, excluding interest, was as follows:
(In millions) |  | 2021 |  |  | 2020
Balance at January 1 | $ | 14.8 |  | $ | 16.3
Balance at March 31 | $ | 14.8 |  | $ | 16.3
Balance at June 30 | $ | 14.8 |  | $ | 16.3
Reduction as a result of lapse of statute of limitations - July through September |  | (11.3) |  |  | (1.5)
Balance at September 30 | $ | 3.5 |  | $ | 14.8
At September 30, 2021, the total amount of accrued interest recognized in the statement of financial condition approximated $2.6 million (December 31, 2020 - $4.8 million). The total interest expense recognized at September 30, 2021 was $810 thousand, net of the reduction of $2.9 million due to the expiration of the statute of limitation (September 30, 2020 - $1.6 million) net of the reduction of $645 thousand due to the expiration of the statute of limitation). Management determined that at September 30, 2021 and December 31, 2020 there was no need to accrue for the payment of penalties. The Corporation’s policy is to report interest related to unrecognized tax benefits in income tax expense, while the penalties, if any, are reported in other operating expenses in the consolidated statements of operations. After consideration of the effect on U.S. federal tax of unrecognized U.S. state tax benefits, the total amount of unrecognized tax benefits, including U.S. and Puerto Rico, that if recognized, would affect the Corporation’s effective tax rate, was approximately $5.4 million at September 30, 2021 (December 31, 2020 - $10.2 million). The amount of unrecognized tax benefits may increase or decrease in the future for various reasons including adding amounts for current tax year positions, expiration of open income tax returns due to the statutes of limitation, changes in management’s judgment about the level of uncertainty, status of examinations, litigation and legislative activity and the addition or elimination of uncertain tax positions. The Corporation and its subsidiaries file income tax returns in Puerto Rico, the U.S. federal jurisdiction, various U.S. states and political subdivisions, and foreign jurisdictions. At September 30, 2021, the following years remain subject to examination in the U.S. Federal jurisdiction: 2018 and thereafter; and in the Puerto Rico jurisdiction, 2017 and thereafter. The Corporation anticipates a reduction in the total amount of unrecognized tax benefits within the next 12 months, which could amount to approximately $1.4 million, including interest.

X
- References No definition available. + Details
Name: | us-gaap_IncomeTaxDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
Name: | us-gaap_IncomeTaxDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration