XML 35 R24.htm IDEA: XBRL DOCUMENT v3.24.3
INCOME TAXES
 9 Months Ended
Sep. 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
 
third
 
quarter
 
and
 
first nine
 
months
 
of 2024,
 
the
 
Corporation
 
recorded
 
an
 
income tax
 
expense
 
of $
22.7
 
million
 
and
 
$
72.2
million, respectively,
 
compared to $
27.0
 
million and $
89.2
 
million, respectively,
 
for the same periods of 2023. The decrease in income
tax expense
 
for the
 
third quarter
 
of 2024
 
was mainly
 
due to
 
lower pre-tax
 
income and,
 
to a
 
lesser extent,
 
a lower
 
estimated effective
tax rate due
 
to increased business
 
activities with preferential
 
tax treatment under
 
the PR Tax
 
Code and a
 
$
0.4
 
million tax contingency
accrual release
 
in connection with
 
the expiration
 
of the statute
 
of limitation on
 
some uncertain tax
 
positions. Meanwhile,
 
the decrease
in income
 
tax expense
 
for the first
 
nine months
 
of 2024
 
was driven
 
by a lower
 
estimated effective
 
tax rate due
 
to the
 
aforementioned
increased
 
business
 
activities
 
with
 
preferential
 
tax
 
treatment
 
and,
 
to
 
a
 
lesser
 
extent,
 
lower
 
pre-tax
 
income.
 
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
23.7
%
for the first nine months of 2024, compared to
28.2
% 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
 
nine-month
 
period
 
ended
 
September
 
30,
 
2024,
 
FirstBank
incurred
 
current
 
income
 
tax
 
expense
 
of
 
approximately
 
$
2.8
 
million
 
and
 
$
7.7
 
million,
 
respectively,
 
related
 
to
 
its
 
U.S.
 
operations,
compared to $
2.8
 
million and $
6.8
 
million, respectively, for the comparable
 
periods in 2023.
As of
 
September 30,
 
2024, the
 
Corporation had
 
a net
 
deferred tax
 
asset of
 
$
137.5
 
million, net
 
of a
 
valuation allowance
 
of $
121.6
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 $
137.5
million
 
as
 
of
 
September
 
30,
 
2024,
 
net
 
of
 
a
 
valuation
 
allowance
 
of
 
$
93.4
 
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 decrease 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
 
September 30,
 
2024, the
Corporation
 
had
 
$
0.4
 
million
 
in
 
uncertain
 
tax
 
positions
 
acquired
 
from
 
BSPR,
 
which
 
includes
 
$
0.1
 
million
 
of
 
accrued
 
interest
 
and
penalties,
 
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
 
2020
 
remain
 
open
 
to
 
examination.
 
For
 
Puerto
 
Rico
 
tax
 
purposes,
 
all
 
tax
 
years
 
subsequent
 
to
 
2018
 
remain
 
open
 
to
examination.