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Income taxes
 9 Months Ended
Sep. 30, 2025
Income Tax Disclosure  
Income Taxes
Note 26 – Income taxes
The table below presents a reconciliation of
 
the statutory income tax rate to the effective income tax
 
rate:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters ended
September 30, 2025
September 30, 2024
(In thousands)
Amount
 
% of pre-tax
income
 
Amount
% of pre-tax
income
Computed income tax expense at statutory rates
 
$
92,733
37.5
%
$
74,169
37.5
%
Net benefit of tax exempt income
(51,732)
(20.9)
(29,055)
(13.3)
Effect of income subject to preferential tax rate
(2,490)
(1.0)
(327)
-
Deferred tax asset valuation allowance
2,748
1.1
451
-
Difference in tax rates due to multiple jurisdictions
(6,212)
(2.5)
(6,764)
(3.1)
State and local taxes
2,717
1.1
3,429
0.4
Others
(1,794)
(0.8)
560
-
Income tax expense
$
35,970
14.5
%
$
42,463
21.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended
September 30, 2025
September 30, 2024
(In thousands)
Amount
 
% of pre-tax
income
 
Amount
% of pre-tax
income
 
Computed income tax expense at statutory rates
 
$
273,066
37.5
%
$
215,582
37.5
%
Net benefit of tax exempt income
(137,061)
(18.8)
(91,035)
(15.8)
Effect of income subject to preferential tax rate
(4,009)
(0.6)
(475)
(0.1)
Deferred tax asset valuation allowance
10,680
1.5
2,779
0.5
Difference in tax rates due to multiple jurisdictions
(11,469)
(1.6)
(11,893)
(2.1)
Other tax benefits
-
-
(4,500)
(0.8)
Tax on intercompany
 
distributions
[1]
-
-
24,325
4.2
U.S., States, and local taxes
7,167
1.0
6,669
1.2
Others
(9,456)
(1.3)
(2,962)
(0.5)
Income tax expense
$
128,918
17.7
%
$
138,490
24.1
%
[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
September 30, 2025, and December 31, 2024,
 
were as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2025
 
(In thousands)
PR
US
Total
Deferred tax assets:
Tax credits available
 
for carryforward
$
4,861
$
38,382
$
43,243
Net operating loss and other carryforward available
 
60,370
584,546
644,916
Postretirement and pension benefits
28,228
-
28,228
Allowance for credit losses
249,065
28,482
277,547
Deferred loan origination fees/cost
4,533
(2,844)
1,689
Depreciation
7,700
7,742
15,442
FDIC-assisted transaction
152,665
-
152,665
Lease liability
28,040
18,572
46,612
Unrealized net loss on investment securities
179,530
14,083
193,613
Difference in outside basis from pass-through entities
53,182
-
53,182
Mortgage Servicing Rights
15,051
-
15,051
Other temporary differences
33,698
8,555
42,253
Total gross deferred
 
tax assets
816,923
697,518
1,514,441
Deferred tax liabilities:
Intangibles
91,503
55,023
146,526
Right of use assets
25,509
16,666
42,175
Loans acquired
17,244
-
17,244
Other temporary differences
7,476
429
7,905
 
Total gross deferred
 
tax liabilities
141,732
72,118
213,850
Valuation allowance
78,134
386,914
465,048
Net deferred tax asset
$
597,057
$
238,486
$
835,543
 
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
 
September
 
30,
 
2025,
 
is
 
reflected
 
in
 
the
 
Consolidated
 
Statements
 
of
Financial Condition as $
837.3
 
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 September 30, 2025, the net deferred tax
 
assets of the U.S. operations amounted to $
625.4
 
million with a valuation allowance of
$
386.9
 
million, for
 
net
 
deferred tax
 
assets
 
after valuation
 
allowance of
 
$
238.5
 
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.
 
These historical financial results are objectively verifiable positive evidence, evaluated
 
together with the positive evidence of
stable credit
 
metrics. 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 and
 
the
length of the federal budget
 
impasse that could negatively impact U.
 
S. operations’ achieving expected pre-tax income
 
levels in the
near future.
 
As of September 30, 2025, after weighting all positive and negative evidence, the Corporation concluded that it is more
likely than not that $
238.5
 
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 September 30, 2025,
 
the Corporation’s net deferred
 
tax assets related to
 
its Puerto Rico operations amounted
 
to $
597.1
 
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 $
78.1
 
million as of September 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
Balance at September 30
$
1.5
$
1.5
At September
 
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 September 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 September 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 September 30, 2025, the following years remain subject to examination in the U.S.
Federal jurisdiction: 2022 and thereafter; and in
 
the Puerto Rico jurisdiction, 2018 and thereafter.