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Income taxes
 6 Months Ended
Jun. 30, 2025
Income Tax Disclosure  
Income Taxes
Note 30 – Income taxes
The table below presents a reconciliation of
 
the statutory income tax rate to the effective income tax
 
rate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters ended
June 30, 2025
June 30, 2024
(In thousands)
Amount
 
% of pre-tax
income
 
Amount
% of pre-tax
income
Computed income tax expense at statutory rates
 
$
96,871
37.5
%
$
81,843
37.5
%
Net benefit of tax exempt income
(45,374)
(17.6)
(33,220)
(15.2)
Effect of income subject to preferential tax rate
(606)
(0.2)
1,272
0.6
Deferred tax asset valuation allowance
4,050
1.6
(235)
(0.1)
Difference in tax rates due to multiple jurisdictions
(2,282)
(0.9)
(4,456)
(2.1)
Other tax benefits
-
-
(4,500)
(2.1)
State and local taxes
414
0.1
2,204
1.0
Others
(5,189)
(2.0)
(2,449)
(1.1)
Income tax expense
$
47,884
18.5
%
$
40,459
18.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended
June 30, 2025
June 30, 2024
(In thousands)
Amount
 
% of pre-tax
income
 
Amount
% of pre-tax
income
 
Computed income tax expense at statutory rates
 
$
180,333
37.5
%
$
141,412
37.5
%
Net benefit of tax exempt income
(85,329)
(17.7)
(61,979)
(16.4)
Effect of income subject to preferential tax rate
(1,519)
(0.3)
(148)
-
Deferred tax asset valuation allowance
7,932
1.6
2,328
0.6
Difference in tax rates due to multiple jurisdictions
(5,257)
(1.1)
(5,129)
(1.4)
Other tax benefits
-
-
(4,500)
(1.2)
Tax on intercompany
 
distributions
[1]
-
-
24,325
6.4
U.S., States, and local taxes
4,450
0.9
3,240
0.9
Others
(7,663)
(1.6)
(3,522)
(0.9)
Income tax expense
$
92,947
19.3
%
$
96,027
25.5
%
[1]
Includes $
16.5
 
million of out-of-period adjustment recorded during the
 
first quarter of 2024.
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
June 30, 2025, and December 31, 2024, were
 
as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2025
 
(In thousands)
PR
US
Total
Deferred tax assets:
Tax credits available
 
for carryforward
$
4,861
$
32,925
$
37,786
Net operating loss and other carryforward available
 
59,441
594,642
654,083
Postretirement and pension benefits
28,197
-
28,197
Allowance for credit losses
245,070
28,339
273,409
Deferred loan origination fees/cost
3,005
(2,702)
303
Depreciation
7,700
7,551
15,251
FDIC-assisted transaction
152,665
-
152,665
Lease liability
27,417
13,953
41,370
Unrealized net loss on investment securities
202,822
15,914
218,736
Difference in outside basis from pass-through entities
53,043
-
53,043
Mortgage Servicing Rights
14,561
-
14,561
Other temporary differences
36,015
8,743
44,758
Total gross deferred
 
tax assets
834,797
699,365
1,534,162
Deferred tax liabilities:
Intangibles
90,392
57,493
147,885
Right of use assets
24,908
12,280
37,188
Loans acquired
17,471
-
17,471
Other temporary differences
7,138
429
7,567
 
Total gross deferred
 
tax liabilities
139,909
70,202
210,111
Valuation allowance
76,804
386,914
463,718
Net deferred tax asset
$
618,084
$
242,249
$
860,333
 
December 31, 2024
 
(In thousands)
PR
US
Total
Deferred tax assets:
Tax credits available
 
for carryforward
$
4,861
$
24,728
$
29,589
Net operating loss and other carryforward available
 
52,211
610,279
662,490
Postretirement and pension benefits
27,786
-
27,786
Allowance for credit losses
247,153
24,415
271,568
Depreciation
7,700
7,229
14,929
FDIC-assisted transaction
152,665
-
152,665
Lease liability
25,167
16,451
41,618
Unrealized net loss on investment securities
252,411
20,996
273,407
Difference in outside basis from pass-through entities
50,144
-
50,144
Mortgage Servicing Rights
14,475
-
14,475
Other temporary differences
41,127
9,072
50,199
Total gross deferred
 
tax assets
875,700
713,170
1,588,870
Deferred tax liabilities:
Intangibles
88,351
55,926
144,277
Right of use assets
22,784
14,454
37,238
Deferred loan origination fees/cost
(1,880)
2,085
205
Loans acquired
18,415
-
18,415
Other temporary differences
6,799
429
7,228
 
Total gross deferred
 
tax liabilities
134,469
72,894
207,363
Valuation allowance
69,837
386,914
456,751
Net deferred tax asset
$
671,394
$
253,362
$
924,756
The net
 
deferred tax
 
assets
 
shown in
 
the table
 
above at
 
June 30,
 
2025, is
 
reflected in
 
the Consolidated
 
Statements of
 
Financial
Condition as $
862.1
 
million in net
 
deferred tax assets
 
in the “Other assets”
 
caption (December 31,
 
2024 - $
926.3
 
million) and $
1.8
million in deferred tax liabilities in the “Other liabilities” caption
 
(December 31, 2024 - $
1.6
 
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.
 
At
 
June
 
30,
 
2025,
 
the
 
net
 
deferred
 
tax
 
assets
 
of
 
the
 
U.S.
 
operations
 
amounted
 
to
 
$
629.1
 
million
 
with
 
a
 
valuation
 
allowance
 
of
$
386.9
 
million, for
 
net
 
deferred tax
 
assets
 
after valuation
 
allowance of
 
$
242.2
 
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
 
last three
years
 
and
 
better
 
results
 
than
 
projected
 
for
 
the
 
period
 
ended
 
June
 
30,
 
2025.
 
These
 
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 that could stem from
U. S. tariff policies and global geopolitical challenges,
 
in addition to the economic effect of cuts in federal government spending that
could negatively impact U. S. operations’ achieving expected pre-tax
 
income levels.
 
As of June 30, 2025, after weighting all positive
and negative evidence,
 
the Corporation concluded
 
that it is
 
more likely than
 
not that $
242.2
 
million of the
 
deferred tax assets
 
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
 
assets 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, including recent earnings trends, the pre-tax earnings
 
forecast, any new tax initiative, and other factors,
 
including net income
versus forecast, targeted loan growth, net interest income margin, changes in deposit costs, allowance
 
for credit losses, charge offs,
non-performing loans
 
held-in-portfolio (“NPLs”)
 
inflows
 
and
 
non-performing asset
 
(“NPA”)
 
balances. Significant
 
changes
 
in these
factors or sustainable continuance of financial improvement
 
could impact the future realization of the deferred
 
tax assets.
At June 30,
 
2025, the Corporation’s
 
net deferred tax
 
assets related to
 
its Puerto Rico
 
operations amounted to
 
$
618.1
 
million.
 
The
Corporation’s Puerto Rico
 
Banking operation has
 
a historical record
 
of profitability.
 
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
 
assets.
 
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 assets of the Puerto Rico Banking
 
operations will be realized.
The Holding Company operation has been in a cumulative
 
loss position in recent years.
 
Management expects these losses will be a
trend
 
in
 
future
 
years.
 
This
 
objectively
 
verifiable
 
negative
 
evidence is
 
considered
 
by
 
Management strong
 
negative
 
evidence that
suggests that
 
income in
 
future years
 
will be
 
insufficient to
 
support the
 
realization of
 
all deferred
 
tax assets.
 
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. Accordingly, the
 
Corporation has maintained a valuation
allowance on the deferred tax assets of $
76.8
 
million as of June 30, 2025.
The reconciliation of unrecognized tax benefits, excluding
 
interest, was as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
2025
2024
Balance at January 1
$
1.5
$
1.5
Balance at March 31
$
1.5
$
1.5
Balance at June 30
$
1.5
$
1.5
At June
 
30, 2025,
 
the total
 
amount of
 
accrued interest
 
recognized in the
 
statement of
 
financial condition
 
amounted to
 
$
2.5
 
million
(December 31, 2024 -
 
$
2.4
 
million). Management determined that at
 
June 30, 2025 and December
 
31, 2024, 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 that if recognized, would affect the Corporation’s effective tax rate, was $
3.0
 
million at June 30, 2025 (December 31, 2024 -
$
3.0
 
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 does not
 
anticipate a reduction
 
in the total
 
amount of unrecognized tax
 
benefits within the
next 12 months.
 
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
 
June
 
30,
 
2025,
 
the
 
following
 
years
 
remain
 
subject
 
to
 
examination
 
in
 
the
 
U.S.
Federal jurisdiction: 2021 and thereafter; and in
 
the Puerto Rico jurisdiction, 2018 and thereafter.