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INCOME TAXES
 3 Months Ended
Mar. 31, 2025
INCOME TAXES [Abstract]  
INCOME TAXES
NOTE 14 –
 
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
 
first quarter
 
of 2025,
 
the Corporation
 
recorded an
 
income tax
 
expense of
 
$
23.2
 
million, compared
 
to $
23.9
 
million for
 
the
same period
 
in 2024.
 
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
 
quarter of
 
2025, compared
 
to
24.3
% for
 
the same
 
period in
2024.
 
The decrease in effective tax rate was due to a higher proportion of
 
exempt to taxable income.
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
 
first quarter
 
of 2025,
 
FirstBank incurred
 
current income
 
tax expense
 
of
approximately $
2.6
 
million related to its U.S. operations, compared to $
2.2
 
million for the comparable period in 2024.
As
 
of
 
March
 
31,
 
2025,
 
the
 
Corporation
 
had
 
a
 
net
 
deferred
 
tax
 
asset
 
of
 
$
134.3
 
million,
 
net
 
of
 
a
 
valuation
 
allowance
 
of
 
$
108.7
million against
 
the deferred
 
tax asset,
 
compared to
 
a net
 
deferred tax
 
asset of
 
$
136.4
 
million, net
 
of a
 
valuation allowance
 
of $
119.1
million, as of
 
December 31, 2024.
 
The net deferred
 
tax asset of
 
the Corporation’s
 
banking subsidiary,
 
FirstBank, amounted
 
to $
134.3
million as of March 31, 2025, net of a valuation allowance of $
88.2
 
million, compared to a net deferred tax asset of $
136.4
 
million, net
of a
 
valuation allowance
 
of $
98.5
 
million, as
 
of December
 
31, 2024.
 
The decrease
 
in the
 
net deferred
 
tax asset
 
was mainly
 
related to
the usage of
 
alternative minimum
 
tax credits. 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 20
 
– “Income Taxes,”
 
to the audited
 
consolidated financial statements
 
included in the
 
2024 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
 
March
 
31,
 
2025,
 
the
Corporation had
 
$
0.4
 
million in
 
uncertain tax
 
positions, which
 
includes $
0.1
 
million of
 
accrued interest
 
and penalties,
 
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
2020 remain open to examination. For Puerto Rico tax purposes, all tax
 
years subsequent to 2019 remain open to examination.