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INCOME TAXES
 6 Months Ended
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.