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INCOME TAXES
 6 Months Ended
Jun. 30, 2024
INCOME TAXES [Abstract]  
INCOME TAXES
NOTE 16 –
 
INCOME TAXES
 
The Corporation is subject to Puerto Rico income tax on
 
its income from all sources. Under the Puerto Rico Internal
 
Revenue Code,
as amended (the “PR Tax
 
Code”), the Corporation and its subsidiaries are treated as
 
separate taxable entities and are not entitled to file
consolidated tax returns. However,
 
certain subsidiaries that are
 
organized as limited liability
 
companies with a partnership
 
election are
treated as
 
pass-through entities
 
for Puerto
 
Rico tax
 
purposes. Furthermore,
 
the Corporation
 
conducts business
 
through certain
 
entities
that
 
have
 
special
 
tax
 
treatments,
 
including
 
doing
 
business
 
through
 
an
 
IBE
 
unit
 
of
 
the
 
Bank
 
and
 
through
 
FirstBank
 
Overseas
Corporation,
 
each
 
of
 
which
 
are
 
generally
 
exempt
 
from
 
Puerto
 
Rico
 
income
 
taxation
 
under
 
the
 
International
 
Banking
 
Entity
 
Act
 
of
Puerto Rico
 
(“IBE Act”),
 
and through
 
a wholly-owned
 
subsidiary that
 
engages in
 
certain Puerto
 
Rico qualified
 
investing and
 
lending
activities that have certain tax advantages under Act 60 of 2019.
For the second quarter
 
of 2024, the Corporation
 
recorded an income tax
 
expense of $
25.5
 
million, compared to $
30.3
 
million in the
second quarter of
 
2023. For the first
 
six months of
 
2024, the Corporation
 
recorded an income
 
tax expense of
 
$
49.5
 
million, compared
to $
62.2
 
million for the
 
same period in
 
2023. The decrease
 
in income
 
tax expense for
 
the second quarter
 
and first six
 
months of
 
2024
was mainly
 
driven by
 
a lower
 
effective tax
 
rate as
 
a result of
 
the Corporation
 
engaging in
 
certain business
 
activities with
 
preferential
tax treatment under
 
the PR Tax
 
Code during the
 
fourth quarter of
 
2023 which resulted
 
in a lower effective
 
tax rate for
 
the second half
of 2023
 
and for
 
the year
 
2024. The
 
Corporation has
 
maintained an
 
effective
 
tax rate
 
lower than
 
the Puerto
 
Rico maximum
 
statutory
rate of
37.5
%. The
 
Corporation’s
 
estimated annual
 
effective
 
tax rate,
 
excluding entities
 
with pre-tax
 
losses from
 
which a
 
tax benefit
cannot be recognized and discrete items, was
24.1
% for the first six months of 2024, compared to
30.1
% for the same period in 2023.
Income
 
tax
 
expense
 
also
 
includes
 
USVI
 
income
 
taxes,
 
as
 
well
 
as
 
applicable
 
U.S.
 
federal
 
and
 
state
 
taxes.
 
As
 
a
 
Puerto
 
Rico
corporation, FirstBank
 
is treated as
 
a foreign corporation
 
for U.S. and
 
USVI income tax
 
purposes and 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.
 
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.
 
For the
 
quarter and
 
six-month period
 
ended June
 
30, 2024,
 
FirstBank incurred
current income
 
tax expense
 
of approximately
 
$
2.9
 
million and
 
$
5.1
 
million, respectively,
 
related to
 
its U.S.
 
operations, compared
 
to
$
1.5
 
million and $
4.0
 
million, respectively,
 
for the comparable periods in 2023.
As of June
 
30, 2024, the
 
Corporation had
 
a net deferred
 
tax asset of
 
$
142.7
 
million, net of
 
a valuation allowance
 
of $
141.1
 
million
against the deferred tax asset, compared to a net deferred tax asset of $
150.1
 
million, net of a valuation allowance of $
139.2
 
million, as
of December
 
31, 2023.
 
The net deferred
 
tax asset
 
of the
 
Corporation’s
 
banking subsidiary,
 
FirstBank, amounted
 
to $
142.7
 
million as
of
 
June
 
30,
 
2024,
 
net
 
of
 
a
 
valuation
 
allowance
 
of
 
$
113.2
 
million,
 
compared
 
to
 
a
 
net
 
deferred
 
tax
 
asset
 
of
 
$
150.1
 
million,
 
net
 
of
 
a
valuation allowance
 
of $
111.4
 
million, as
 
of December
 
31, 2023.
 
The decrease
 
in the
 
net deferred
 
tax asset was
 
mainly related
 
to the
usage of alternative minimum tax
 
credits and the decrease in
 
the ACL. Meanwhile, the increase
 
in the valuation allowance was
 
related
primarily to changes
 
in the market
 
value of available-for-sale
 
debt securities which
 
resulted in an
 
equal change in
 
the net deferred
 
tax
asset
 
without
 
impacting
 
earnings.
 
The
 
Corporation
 
maintains
 
a
 
full
 
valuation
 
allowance
 
for
 
its
 
deferred
 
tax
 
assets
 
associated
 
with
capital loss carryforwards, NOL carryforwards and unrealized losses of available
 
-for-sale debt securities.
See Note 22
 
– “Income Taxes,”
 
to the audited
 
consolidated financial statements
 
included in the
 
2023 Annual Report
 
on Form 10-K
for information
 
on the
 
tax treatment
 
of net
 
operating loss
 
(“NOL”) carryforwards
 
and dividend
 
received deduction
 
under the
 
PR Tax
Code and the limitation under Section 382 of the U.S. Internal Revenue
 
Code.
The
 
Corporation
 
accounts
 
for
 
uncertain
 
tax
 
positions
 
under
 
the
 
provisions
 
of
 
ASC
 
Topic
 
740,
 
Income
 
Taxes.
 
The
 
Corporation’s
policy
 
is
 
to
 
report
 
interest
 
and
 
penalties
 
related
 
to
 
unrecognized
 
tax
 
positions
 
in
 
income
 
tax
 
expense.
 
As
 
of
 
June
 
30,
 
2024,
 
the
Corporation had
 
$
0.2
 
million of
 
accrued interest
 
and penalties
 
related to
 
uncertain tax
 
positions in
 
the amount
 
of $
0.8
 
million that
 
it
acquired
 
from
 
BSPR,
 
which,
 
if
 
recognized,
 
would
 
decrease
 
the
 
effective
 
income
 
tax
 
rate
 
in
 
future
 
periods.
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
 
PR
 
Tax
 
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 2019
 
remain open
 
to examination.
 
For Puerto
 
Rico tax
 
purposes, all
 
tax years
 
subsequent to
 
2018 remain
open to examination.