XML 80 R47.htm IDEA: XBRL DOCUMENT v3.24.0.1
Income taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure  
Income Taxes
Note 35 – Income taxes
The components of income
 
tax expense for the
 
years ended December 31, 2023,
 
2022, and 2021 are
 
summarized in the following
table.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
2023
2022
2021
Current income tax expense:
Puerto Rico
$
168,001
$
156,425
$
69,415
Federal and States
9,335
9,034
10,232
 
Subtotal
177,336
165,459
79,647
Deferred income tax (benefit) expense:
Puerto Rico
(50,871)
(4,373)
179,688
Federal and States
7,732
(28,756)
49,683
 
Subtotal
(43,139)
(33,129)
229,371
Total income tax
 
expense
$
134,197
$
132,330
$
309,018
The reasons
 
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:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2023
2022
2021
(In thousands)
Amount
 
% of pre-tax
income
Amount
% of pre-tax
income
Amount
% of pre-tax
income
Computed income tax at statutory rates
 
$
253,327
38
%
$
463,114
38
%
$
466,465
38
%
Net benefit of tax exempt interest income
(95,222)
(14)
(165,065)
(13)
(139,426)
(12)
Effect of income subject to preferential tax rate
(1,854)
-
(86,797)
(7)
(11,981)
(1)
Deferred tax asset valuation allowance
2,304
-
(21,469)
(2)
20,932
2
NOL Adjustments
-
-
(34,817)
(3)
-
-
Difference in tax rates due to multiple jurisdictions
(12,857)
(2)
(26,887)
(2)
(30,719)
(3)
Change in tax rates
(18,714)
(3)
-
-
-
-
Unrecognized tax benefits
(1,529)
-
(1,503)
-
(5,484)
-
Other tax benefits
(2,925)
-
-
-
-
-
State and local taxes
25,401
3
14,981
1
14,629
1
Others
(13,734)
(2)
(9,227)
(1)
(5,398)
-
Income tax expense
$
134,197
20
%
$
132,330
11
%
$
309,018
25
%
For the year ended December 31, 2023, the Corporation
 
recorded income tax expense of $
134.2
 
million, compared to $
132.3
 
million
for
 
the same
 
period of
 
2022. The
 
net increase
 
of
 
$
1.9
 
million in
 
income tax
 
expense reflects
 
the impact
 
of
 
the composition
 
and
source of taxable
 
income between both
 
years.
 
For the year
 
ended December 31,
 
2023, the income
 
before tax
 
was lower than
 
for
the year ended
 
December 31, 2022,
 
which would have
 
resulted in a
 
lower income tax
 
expense; however, the
 
income tax expense
for 2022 benefited from:
 
the reversal of a portion of the deferred tax
 
assets valuation allowance of the U. S. operations, resulting in
an income tax benefit of $
68.2
 
million, higher exempt income, net of disallowance,
 
and the gain on sale of Evertec shares, taxable at
a preferential tax rate.
Deferred income taxes reflect the
 
net tax effects
 
of temporary differences between the
 
carrying amounts of assets and
 
liabilities for
financial reporting
 
purposes and
 
their tax
 
bases. Significant
 
components of
 
the Corporation’s
 
deferred tax
 
assets and
 
liabilities at
December 31, 2023 and 2022 were as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2023
 
(In thousands)
PR
US
Total
Deferred tax assets:
Tax credits available
 
for carryforward
$
263
$
10,281
$
10,544
Net operating loss and other carryforward available
 
122,634
620,982
743,616
Postretirement and pension benefits
38,121
-
38,121
Allowance for credit losses
244,956
28,222
273,178
Depreciation
6,774
6,578
13,352
FDIC-assisted transaction
152,665
-
152,665
Lease liability
29,070
20,492
49,562
Unrealized net loss on investment securities
312,583
19,037
331,620
Difference in outside basis from pass-through entities
46,056
-
46,056
Mortgage Servicing Rights
14,085
-
14,085
Other temporary differences
47,679
9,625
57,304
Total gross deferred
 
tax assets
1,014,886
715,217
1,730,103
Deferred tax liabilities:
Intangibles
84,635
51,944
136,579
Right of use assets
26,648
18,030
44,678
Deferred loan origination fees/cost
(1,056)
1,486
430
Loans acquired
20,430
-
20,430
Other temporary differences
6,402
422
6,824
 
Total gross deferred
 
tax liabilities
137,059
71,882
208,941
Valuation allowance
139,347
374,035
513,382
Net deferred tax asset
$
738,480
$
269,300
$
1,007,780
 
December 31, 2022
 
(In thousands)
PR
US
Total
Deferred tax assets:
Tax credits available
 
for carryforward
$
261
$
2,781
$
3,042
Net operating loss and other carryforward available
 
121,742
661,144
782,886
Postretirement and pension benefits
47,122
-
47,122
Allowance for credit losses
250,615
32,688
283,303
Depreciation
5,972
6,309
12,281
FDIC-assisted transaction
152,665
-
152,665
Lease liability
28,290
23,521
51,811
Unrealized net loss on investment securities
265,955
23,913
289,868
Difference in outside basis from pass-through entities
40,602
-
40,602
Mortgage Servicing Rights
13,711
-
13,711
Other temporary differences
17,122
7,815
24,937
Total gross deferred
 
tax assets
944,057
758,171
1,702,228
Deferred tax liabilities:
Intangibles
81,174
54,623
135,797
Right of use assets
26,015
20,262
46,277
Deferred loan origination fees/cost
1,076
2,961
4,037
Loans acquired
23,353
-
23,353
Other temporary differences
1,531
-
1,531
 
Total gross deferred
 
tax liabilities
133,149
77,846
210,995
Valuation allowance
137,863
402,333
540,196
Net deferred tax asset
$
673,045
$
277,992
$
951,037
The net deferred
 
tax asset shown
 
in the
 
table above at
 
December 31, 2023
 
is reflected in
 
the consolidated statements
 
of financial
condition as $
1.0
 
billion in net deferred tax assets (in the
 
“other assets” caption) (December 31, 2022 - $
1.0
 
billion) and $
1.3
 
million
in deferred
 
tax liabilities
 
(in the
 
“other liabilities”
 
caption) (December
 
31, 2022-
 
$
2.6
 
million), 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.
The net reduction in the valuation
 
allowance of approximately $
27
 
million during the year ended December 31,
 
2023
was due primarily to the change in the blended
 
state tax rate applicable to net operating losses
 
of the U.S. operation.
The deferred tax asset related to the NOLs and
 
other carryforwards as of December 31, 2023, expires
 
as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In thousands)
2024
$
9,234
2025
13,516
2026
13,367
2027
15,202
2028
244,706
2029
111,307
2030
137,344
2031
106,295
2032
51,302
2033
8,198
2034
901
2035
32,244
$
743,616
At December
 
31, 2023
 
the net
 
deferred tax
 
asset of
 
the U.S.
 
operations amounted
 
to $
643
 
million with
 
a valuation
 
allowance of
$
374
 
million,
 
for
 
a
 
net
 
deferred
 
tax
 
asset
 
of
 
$
269
 
million.
 
The
 
Corporation evaluates
 
on
 
a
 
quarterly
 
basis
 
the
 
realization of
 
the
deferred tax asset by taxing jurisdiction.
 
The U. S. operations sustained profitability for the three years
 
period ended December 31,
2023.
 
The financial results for year
 
2023 were lower than prior
 
year; however, this
 
additional component of negative evidence was
offset by
 
positive evidence of
 
recent historical results,
 
still demonstrating financial
 
stability for the
 
U. S.
 
Operations.
 
The historical
financial results are objectively verifiable positive evidence, evaluated together
 
with the positive evidence of stable
 
credit metrics, in
combination with
 
the
 
length
 
of
 
the expiration
 
of
 
the
 
NOLs.
 
On
 
the other
 
hand,
 
the
 
Corporation evaluated
 
the
 
negative evidence
accumulated over
 
the years,
 
including financial
 
results lower
 
than expectations
 
and challenges
 
to the
 
economy due
 
to inflationary
pressures and global geopolitical uncertainty that have
 
resulted in a reduction of pre-tax
 
income for the year 2023.
 
As of December
31,
 
2023,
 
after
 
weighting
 
all
 
positive
 
and
 
negative
 
evidence,
 
the
 
Corporation
 
concluded
 
that
 
it
 
is
 
more
 
likely
 
than
 
not
 
that
approximately $
269
 
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,
 
the
 
pre-tax
 
earnings
 
forecast,
 
and
 
other
 
factors,
 
including
 
net
income versus
 
forecast, targeted
 
loan growth,
 
net interest
 
income margin,
 
changes in
 
deposits costs,
 
allowance for
 
credit losses,
charge offs, NPLs inflows and NPA balances, to assess the future realization
 
of the deferred tax asset.
At December
 
31, 2023,
 
the Corporation’s
 
net deferred
 
tax assets
 
related to
 
its Puerto
 
Rico operations
 
amounted to
 
$
738
 
million.
The Corporation’s
 
Puerto Rico
 
Banking operation
 
has strong
 
historical record
 
of profitability.
 
This is
 
considered a
 
strong piece
 
of
objectively verifiable
 
positive evidence
 
that
 
outweigh 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.
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 ended
 
December 31,
 
2023. Management expects
 
these losses
 
will be
 
a trend
 
in
future years. This
 
objectively verifiable negative evidence is
 
considered by management strong negative
 
evidence that will suggest
that income
 
in future
 
years will
 
be insufficient
 
to support
 
the realization
 
of all
 
of the
 
deferred tax
 
asset. After
 
weighting 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.
 
Accordingly,
 
the
 
Corporation
 
has
 
maintained
 
a
 
full
 
valuation
allowance on the deferred tax asset of $
139
 
million as of December 31, 2023.
The Corporation’s
 
subsidiaries in
 
the United
 
States file
 
a consolidated
 
federal income
 
tax return.
 
The intercompany
 
settlement of
taxes paid is based on tax sharing agreements
 
which generally allocate taxes to each
 
entity based on a separate return basis.
The following table presents a reconciliation of
 
unrecognized tax benefits.
 
 
 
 
 
 
 
 
 
(In millions)
Balance at January 1, 2022
$
3.5
Reduction as a result of lapse of statute of limitations
(1.0)
Balance at December 31, 2022
$
2.5
Reduction as a result of change in tax position
(1.0)
Balance at December 31, 2023
$
1.5
At
 
December 31,
 
2023, the
 
total amount
 
of
 
interest recognized
 
in the
 
statement of
 
financial condition
 
approximated
 
$
2.3
 
million
(2022 -
 
$
2.6
 
million). The
 
total interest
 
expense recognized
 
during 2023
 
was $
199
 
thousand net
 
of a
 
reduction of
 
$
475
 
thousand
due
 
to
 
the
 
expiration
 
of
 
the
 
statute
 
of
 
limitation
 
(2022
 
-
 
$
268
 
thousand
 
net
 
of
 
a
 
reduction
 
of
 
$
448
 
thousand).
 
Management
determined that, as of
 
December 31, 2023 and
 
2022, 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 $
2.9
million at December 31, 2023 (2022 - $
4.3
 
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
 
statute
 
of
 
limitations,
 
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. As
 
of December 31,
 
2023, the
 
following years remain
 
subject to
 
examination in the
U.S. Federal jurisdiction – 2020 and thereafter and
 
in the Puerto Rico jurisdiction – 2018 and thereafter.