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INCOME TAXES | 12 Months Ended
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Dec. 31, 2022
INCOME TAXES [Abstract] |
INCOME TAXES [Text Block] | NOTE 22 – INCOME TAXES Income tax expense includes Puerto Rico and USVI income taxes, as well as applicable U.S. federal and state taxes. The Corporation is subject to Puerto Rico income tax on its income from all sources. As a Puerto Rico corporation, FirstBank is treated as a foreign corporation for U.S. and USVI income tax purposes and, accordingly, is generally subject to U.S. and USVI income tax only on its income from sources within the U.S. and USVI or income effectively connected with the conduct of a trade or business in those jurisdictions. Any such tax paid in the U.S. and USVI is also creditable against the Corporation’s Puerto Rico tax liability, subject to certain conditions and limitations. Under the 2011 PR Code, the Corporation and its subsidiaries are treated as separate taxable entities and are not entitled to file consolidated tax returns and, thus, the Corporation is generally not entitled to utilize losses from one subsidiary to offset gains in another subsidiary. Accordingly, in order to obtain a tax benefit from a net operating loss (“NOL”), a particular subsidiary must be able to demonstrate sufficient taxable income within the applicable NOL carry-forward period. Pursuant to the 2011 PR Code, the carry-forward period for NOLs incurred during taxable years that commenced after December 31, 2004 and ended before January 1, 2013 is 12 years; for NOLs incurred during taxable years commencing after December 31, 2012, the carryover period is 10 years. The 2011 PR Code provides a dividend received deduction of 100 % on dividends received from “controlled” subsidiaries subject to taxation in Puerto Rico and 85 % on dividends received from other taxable domestic corporations. The Corporation has maintained an effective tax rate lower than the Puerto Rico maximum statutory rate of 37.5 % mainly by investing in government obligations and MBS exempt from U.S. and Puerto Rico income taxes and by doing business through an IBE unit of the Bank, and through the Bank’s subsidiary, FirstBank Overseas Corporation, whose interest income and gains on sales are exempt from Puerto Rico income taxation. The IBE unit and FirstBank Overseas Corporation were created under the International Banking Entity Act of Puerto Rico, which provides for total Puerto Rico tax exemption on net income derived by IBEs operating in Puerto Rico on the specific activities identified in the IBE Act. An IBE that operates as a unit of a bank pays income taxes at the corporate standard rates to the extent that the IBE’s net income exceeds 20 % of the bank’s total net taxable income. The components of income tax expense are summarized below for the indicated periods: Year Ended December 31, 2022 2021 2020 (In thousands) Current income tax expense $ 88,296 $ 28,469 $ 18,421 Deferred income tax expense: Reversal of deferred tax asset valuation allowance - - (8,000) Other deferred income tax expense 54,216 118,323 3,629 Total income tax expense $ 142,512 $ 146,792 $ 14,050 The differences between the income tax expense applicable to income before the provision for income taxes and the amount computed by applying the statutory tax rate in Puerto Rico were as follows for the indicated periods: Year Ended December 31, 2022 2021 2020 Amount % of Pretax Income Amount % of Pretax Income Amount % of Pretax Income (Dollars in thousands) Computed income tax at statutory rate $ 167,844 37.5 % $ 160,431 37.5 % $ 43,621 37.5 % Federal and state taxes 10,268 2.2 % 7,014 1.6 % 4,944 4.2 % Benefit of net exempt income (31,266) (7.0) % (20,717) (4.8) % (26,780) (23.0) % Disallowed NOL carryforward resulting from net exempt income 14,221 3.2 % 8,791 2.0 % 9,054 7.8 % Deferred tax valuation allowance (8,410) (1.9) % (13,572) (3.2) % (12,095) (10.4) % Share-based compensation windfall (1,492) (0.3) % (1,044) (0.2) % 157 0.1 % Other permanent differences (7,647) (1.7) % (1,185) (0.3) % (387) (0.3) % Tax return to provision adjustments (519) (0.1) % (406) (0.1) % 597 0.5 % Other-net (487) (0.1) % 7,480 1.7 % (5,061) (4.3) % Total income tax expense $ 142,512 31.8 % $ 146,792 34.2 % $ 14,050 12.1 % 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 as of December 31, 2022 and 2021 were as follows: December 31, 2022 2021 (In thousands) Deferred tax asset: NOL and capital losses carryforward $ 72,485 $ 137,860 Allowance for credit losses 104,014 105,917 Alternative Minimum Tax credits available for carryforward 40,823 37,361 Unrealized loss on OREO valuation 6,462 7,703 Settlement payment-closing agreement 7,031 7,031 Legal and other reserves 6,345 4,576 Reserve for insurance premium cancellations 781 881 Differences between the assigned values and tax bases of assets and liabilities recognized in purchase business combinations 5,665 8,926 Unrealized loss on available-for-sale debt securities, net 100,776 14,181 Other 7,722 4,420 Total gross deferred tax assets $ 352,104 $ 328,856 Deferred tax liabilities: Servicing assets 9,786 10,510 Pension Plan assets 719 2,035 Other 509 506 Total gross deferred tax liabilities 11,014 13,051 Valuation allowance (185,506) (107,323) Net deferred tax asset $ 155,584 $ 208,482 Accounting for income taxes requires that companies assess whether a valuation allowance should be recorded against their deferred tax asset based on an assessment of the amount of the deferred tax asset that is “more likely than not” to be realized. Valua tion allowances are established, when necessary, to reduce deferred tax assets to the amount that is more likely than not to be realized. Management assesses the valuation allowance recorded against deferred tax assets at each reporting date. The determ ination of whether a valuation allowance for deferred tax assets is appropriate is subject to considerable judgment and requires the evaluation of positive and negative evidence that can be objectively verified. Consideration must be given to all sources of taxable income available to realize the deferred tax asset, including, as applicable, the future reversal of existing temporary differences, future taxable income forecasts exclusive of the reversal of temporary differences and carryforwards, and tax planning strategies. In estimating taxes, management assesses the relative merits and risks of the appropriate tax treatment of transactions considering statutory, judicial, and regulatory guidance. The net deferred tax asset of the Corporation’s banking subsidiary, FirstBank, amounted to $ 155.6 million as of December 31, 2022, net of a valuation allowance of $ 149.5 million, compared to a net deferred tax asset of $ 208.4 million, net of a valuation allowance of $ 69.7 million, as of December 31, 2021. The decrease in the deferred tax assets was mainly driven by the usage of NOLs. The increase in the valuation allowance during 2022 was primarily related to the change in the market value of available-for- sale debt securities. The Corporation maintains a full valuation allowance for its deferred tax assets associated with capital losses carry forward and unrealized losses of available-for-sale debt securities. Thus, the change in the market value of available-for-sale debt securities resulted in a change in the deferred tax asset and an equal change in the valuation allowance without impacting earnings. Management’s estimate of future taxable income is based on internal projections that consider historical performance, multiple internal scenarios and assumptions, as well as external data that management believes is reasonable. If events are identified that affect the Corporation’s ability to utilize its deferred tax assets, the analysis will be updated to determine if any adjustments to the valuation allowance are required. If actual results differ significantly from the current estimates of future taxable income, even if caused by adverse macro-economic conditions, the remaining valuation allowance may need to be increased. Such an increase could have a material adverse effect on the Corporation’s financial condition and results of operations. As of December 31, 2022, approximately $ 279.9 million of the deferred tax assets of the Corporation are attributable to temporary differences or tax credit carryforwards that have no expiration date, compared to $ 177.9 million in 2021. The valuation allowance attributable to FirstBank’s deferred tax assets of $ 149.5 million as of December 31, 2022 is related to the change in the market value of available-for-sale debt securities, NOLs attributable to the Virgin Islands jurisdiction, and capital losses. The remaining balance of $ 36.0 million of the Corporation’s deferred tax asset valuation allowance non-attributable to FirstBank is mainly related to NOLs and capital losses at the holding company level. The Corporation will continue to provide a valuation allowance against its deferred tax assets in each applicable tax jurisdiction until the need for a valuation allowance is eliminated. The need for a valuation allowance is eliminated when the Corporation determines that it is more likely than not the deferred tax assets will be realized. The ability to recognize the remaining deferred tax assets that continue to be subject to a valuation allowance will be evaluated on a quarterly basis to determine if there are any significant events that would affect the ability to utilize these deferred tax assets. As of December 31, 2022, of the $ 72.5 million of NOL and capital losses carryforward, $ 61.2 million, which are fully valued, have expiration dates ranging from year 2023 through year 2037. From this amount, approximately $ 30.5 million expires in year 2023 and are not expected to be realized. In 2017, the Corporation completed a formal ownership change analysis within the meaning of Section 382 of the U.S. Internal Revenue Code (“Section 382”) covering a comprehensive period and concluded that an ownership change had occurred during such period. The Section 382 limitation has resulted in higher U.S. and USVI income tax liabilities that we would have incurred in the absence of such limitation. The Corporation has mitigated to an extent the adverse effects associated with the Section 382 limitation as any such tax paid in the U.S. or USVI can be creditable against Puerto Rico tax liabilities or taken as a deduction against taxable income. However, our ability to reduce our Puerto Rico tax liability through such a credit or deduction depends on our tax profile at each annual taxable period, which is dependent on various factors. For 2022, 2021 and 2020, the Corporation incurred current income tax expense of approximately $ 10.3 million, $ 6.8 million and $ 4.9 million, respectively, related to its U.S. operations. The limitation did not impact the USVI operations in 2022, 2021 and 2020. On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was signed into law in the United States. The IRA includes various tax provisions, including a 1% excise tax on stock repurchases, and a 15% corporate alternative minimum tax that generally applies to U.S. corporations with average adjusted financial statement income over a three-year period in excess of $1 billion. The legislation did not have an effect on the Corporation’s effective tax rate in 2022 and is not expected to have a material impact on our 2023 financial results, including on our annual estimated effective tax rate or on our liquidity. The Corporation accounts for uncertain tax positions under the provisions of ASC Topic 740. The Corporation’s policy is to report interest and penalties related to unrecognized tax positions in income tax expense. As of December 31, 2022, the Corporation had $ 0.2 million of accrued interest and penalties related to uncertain tax positions in the amount of $ 1.0 million that it acquired from BSPR, which, if recognized, would decrease the effective income tax rate in future periods. During 2022, a $ 0.4 million benefit was recognized as a result of the expiration of uncertain tax positions acquired from BSPR. 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, the status of examinations, litigation and legislative activity, and the addition or elimination of uncertain tax positions. The statute of limitations under the 2011 PR code is four years after a tax return is due or filed, whichever is later; the statute of limitations for U.S. and USVI income tax purposes is three years after a tax return is due or filed, whichever is later. The completion of an audit by the taxing authorities or the expiration of the statute of limitations for a given audit period could result in an adjustment to the Corporation’s liability for income taxes. Any such adjustment could be material to the results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. For U.S. and USVI income tax purposes, all tax years subsequent to 2018 remain open to examination. For Puerto Rico tax purposes, all tax years subsequent to 2017 remain open to examination.

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- 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 https://asc.fasb.org/extlink&oid=121826272&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 https://asc.fasb.org/extlink&oid=122134291&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 https://asc.fasb.org/extlink&oid=121826272&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 https://asc.fasb.org/extlink&oid=122134291&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 https://asc.fasb.org/extlink&oid=121826272&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 https://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 https://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 https://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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