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INCOME TAXES | 6 Months Ended
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Jun. 30, 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 entities with special tax treatments, including 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 with certain tax advantages under Act 60 of 2019. For the quarter and six-month period ended June 30, 2025, the Corporation recorded an income tax expense of $ 22.7 million and $ 45.9 million, respectively, compared to an income tax expense of $ 25.5 million and $ 49.5 million, respectively, for the same periods in 2024. The decrease in income tax expense for the second quarter and six-month period ended June 30, 2025 was driven by a lower estimated annual effective tax rate due to a higher proportion of exempt to taxable income and a $ 0.5 million tax contingency accrual release during the second quarter of 2025 in connection with the expiration of the statute of limitation on some uncertain tax positions. 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 22.8 % for the first six months of 2025, compared to 24.1 % for the same period in 2024. 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, 2025, FirstBank incurred current income tax expense of approximately $ 2.8 million and $ 5.4 million, respectively, related to its U.S. operations, compared to $ 2.9 million and $ 5.1 million, respectively, for the comparable periods in 2024. As of June 30, 2025, the Corporation had a net deferred tax asset of $ 134.8 million, net of a valuation allowance of $ 103.3 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 $ 134.8 million as of June 30, 2025, net of a valuation allowance of $ 82.8 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, net operating loss (“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 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 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. 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. On July 17, 2025, the Government of Puerto Rico enacted Act 65-2025 which, among other things, allows domestic LLCs owned by legal entities to be treated as disregarded entities. As this legislation was enacted after the Corporation’s reporting date of June 30, 2025, no adjustments have been made to the financial statements as of that date. However, management is currently evaluating the implications of this new law. As of June 30, 2025, the Corporation maintained a full valuation allowance of $16.8 million against its deferred tax assets related to NOL carryforwards at the holding company level, which based on preliminary analysis, the Corporation anticipates that it could significantly reduce the need for a valuation allowance.

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