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INCOME TAXES
 9 Months Ended
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.