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INCOME TAXES | 9 Months Ended
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Sep. 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. On July 17, 2025, the Government of Puerto Rico enacted Act 65-2025 which, among other things, allows domestic limited liability companies owned by legal entities to elect to be treated as disregarded entities for tax purposes. As a result of this change, during the third quarter of 2025, the Corporation reversed approximately $ 16.6 million in valuation allowance related to deferred tax assets primarily associated with net operating loss (“NOL”) carryforwards at the holding company level. This reversal reflects the Corporation’s expectation of realizing these tax benefits under the new election established by the Act. As of September 30, 2025, the remaining valuation allowance related to deferred tax assets associated with NOL carryforwards at the holding company level was approximately $ 1.0 million. For the quarter and nine-month period ended September 30, 2025, the Corporation recorded an income tax expense of $ 5.7 million and $ 51.6 million, respectively, compared to an income tax expense of $ 22.7 million and $ 72.2 million, respectively, for the same periods in 2024. The decrease in income tax expense for the third quarter and nine-month period ended September 30, 2025 was driven by the aforementioned one-time reversal of approximately $ 16.6 million in valuation allowance and a lower estimated annual effective tax rate due to a higher proportion of exempt to taxable income. The Corporation’s estimated annual effective tax rate, excluding discrete items, decreased to 22.2 % for the first nine months of 2025, compared to 24.5 % for the comparable 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 nine-month period ended September 30, 2025, FirstBank incurred current income tax expense of approximately $ 3.2 million and $ 8.6 million, respectively, related to its U.S. operations, compared to $ 2.8 million and $ 7.7 million, respectively, for the comparable periods in 2024. As of September 30, 2025, the Corporation had a net deferred tax asset of $ 146.9 million, net of a valuation allowance of $ 80.8 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 increase in the net deferred tax asset was driven by the aforementioned one-time reversal of approximately $ 16.6 million in valuation allowance. The net deferred tax asset of the Corporation’s banking subsidiary, FirstBank, amounted to $ 133.0 million as of September 30, 2025, net of a valuation allowance of $ 77.0 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 of FirstBank 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 corresponding to USVI 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.

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