v3.26.1
INCOME TAXES
 3 Months Ended
Mar. 31, 2026
INCOME TAXES [Abstract]  
INCOME TAXES
NOTE 13 –
INCOME TAXES
The Corporation is subject
to Puerto Rico income
tax on its income from
all sources. Under the
Puerto Rico Internal Revenue
Code
of
2011,
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
certain
entities
that
have
special
tax
treatments,
including
doing
business
through
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 that have certain tax advantages under
Act 60 of 2019.
For the first quarter
of 2026, the Corporation
recorded an income tax
expense of $
25.5
million, compared to an
income tax expense
of $
23.2
million for
the same
period in
2025. The
increase in
income tax
expense was
mainly due
to higher
pre-tax income.
For the
year,
the
Corporation’s
annual
effective
tax
rate,
excluding
discrete
items,
was
estimated
at
21.9
%
for
the
first
quarter
of
2026,
compared to
23.9
% for the
comparable period in
2025. The decrease in
the annual effective
tax rate was due
to a higher proportion
of
exempt to taxable income.
Income
tax
expense
attributable
to
Puerto
Rico
is
considered
domestic
for
Puerto
Rico
tax
purposes.
Income
tax
expense
also
includes
U.S.
federal
taxes,
as
well
as
USVI
and
state
income
taxes
in
Florida,
which
are
considered
foreign
for
Puerto
Rico
tax
purposes. 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.
Income
generally
from
BVI
operations
is
considered
foreign-source
income and
is not
subject to
taxation in
that jurisdiction.
For the
first quarter
of 2026,
FirstBank incurred
current income
tax expense of
approximately $
2.8
million related to
its U.S. operations,
compared to
$
2.6
million for the
comparable
period in 2025.
As of March 31, 2026,
the Corporation had a net deferred
tax asset of $
143.6
million, net of a valuation allowance
of $
75.9
million,
compared to
a net
deferred tax
asset of
$
149.0
million, net
of a
valuation allowance
of $
75.0
million, as
of December
31, 2025.
The
net deferred
tax asset
of the
Corporation’s
banking subsidiary,
FirstBank, amounted
to $
130.8
million as
of March
31, 2026,
net of
a
valuation
allowance of
$
73.2
million,
compared
to a
net deferred
tax asset
of $
134.8
million, net
of a
valuation
allowance of
$
72.2
million, as of December 31, 2025.
The decrease in the net deferred tax
asset was mainly related to stock-based
compensation, usage of
alternative
minimum
tax credits,
and
changes in
the ACL.
The Corporation
maintains
a full
valuation
allowance for
its deferred
tax
assets
associated
with
capital
loss
carryforwards,
net
operating
loss
(“NOL”)
carryforwards
corresponding
to
USVI
and
unrealized
losses of available-for-sale debt securities.
See Note 17
– “Income Taxes,”
to the audited
consolidated financial statements
included in the
2025 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.
The
completion of an audit by
the taxing authorities or the
expiration of the statute
of limitations for a given
audit period could result in
an
adjustment to
the Corporation’s
liability for
income taxes.
For U.S.
and USVI
income tax
purposes, all
tax years
subsequent to
2021
remain open to examination. For Puerto Rico tax purposes, all tax years
subsequent to 2020 remain open to examination.