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INCOME TAXES
 3 Months Ended
Mar. 31, 2022
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXESOriental is subject to the dispositions of the PR Code. For 2022, the PR Code imposed a maximum statutory corporate tax rate of 37.5%. OFG has operations in the U.S. through its wholly owned subsidiary OPC, a retirement plan administration based in Florida. In October 2017, OFG expanded its operations in the United States through the Bank’s wholly owned
subsidiary, OFG USA. In March 2019, OFG incorporated in Delaware OFG Ventures, a limited liability company, which will hold new investments; and, on December 31, 2019, OFG established new branches in USVI acquired as a result of the Scotiabank Acquisition. The United States subsidiaries are subject to federal income taxes at the corporate level, while the USVI branches are subject to the federal income taxes under a mirror system and a 10% surtax included in the maximum tax rate. OPC is subject to Florida state taxes, OFG USA is subject to North Carolina state taxes, and current investments in OFG Ventures are subject to state taxes in Missouri. In addition, during 2021, OFG incorporated in Grand Cayman, as a foreign wholly owned subsidiary, OFG Reinsurance. OFG Reinsurance is tax exempt in Grand Cayman.
As of March 31, 2022 and December 31, 2021, OFG’s net deferred tax asset, net of a valuation allowance of $10.1 million and $9.6 million, respectively, amounted to $87.6 million and $99.1 million, respectively. The increase in valuation allowance of $420 thousand was mainly related to OFG holding company's operations. In assessing the realizability of the deferred tax asset, management considers whether it is more likely than not that some portion or the entire deferred tax asset will not be realized. The ultimate realization of the deferred tax asset is dependent upon the generation of future income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future income, and tax planning strategies in making this assessment. Based upon the assessment of positive and negative evidence, the level of historical taxable income, projections for future taxable income over the periods in which the deferred tax asset are deductible, and provisions of certain closing agreements, management believes it is more likely than not that OFG will realize the benefits of these deductible differences, net of the existing valuation allowances, at March 31, 2022. The amount of the deferred tax asset that is considered realizable could be reduced in the near term if there are changes in estimates of future taxable income.

OFG maintained an effective tax rate lower than the statutory rate for the quarters ended March 31, 2022 and 2021 of 30.60% and 31.90%, respectively; the decrease is mainly related to discrete tax windfall on stock options recognized during the quarter ended March 31, 2022. The expected effective tax rate for the year 2022 is 32.40%.
OFG classifies unrecognized tax benefits in other liabilities. These gross unrecognized tax benefits would affect the effective tax rate if realized. At March 31, 2022, the amount of unrecognized tax benefits was $815 thousand (December 31, 2021 - $798 thousand).
Income tax expense for the quarters ended March 31, 2022 and 2021 was $16.6 million and $14.2 million, respectively.