FIRST BANCORP /PR/FBP
FIRST BANCORP /PR/ Income Taxes Disclosure
NOTE 17 – INCOME TAXES
The Corporation is subject to Puerto Rico income tax on its income from all sources. Under 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.
Under the PR Tax Code, a subsidiary may realize a tax benefit from a net operating loss (“NOL”) only if it can generate sufficient
taxable income within the applicable NOL carryforward period. Pursuant to the PR Tax Code, the carryforward period for NOLs
incurred during taxable years commencing after December 31, 2012 is 10 years. The PR Tax Code provides a dividend received
deduction of
100
% on dividends received from “controlled” subsidiaries subject to taxation in Puerto Rico and
85
% on dividends
received from other taxable domestic corporations.
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
primarily associated with 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. In the fourth quarter of 2025, the Corporation also reversed
approximately $
0.5
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 generated from BVI operations is
considered foreign-source income and is not subject to taxation in that jurisdiction.
Pre-tax income is summarized below for the indicated periods:
Year Ended December 31,
2025
2024
2023
(In thousands)
Domestic
(1)
$
364,545
$
331,860
$
347,605
Foreign
(2)
52,189
59,347
49,831
$
416,734
$
391,207
$
397,436
(1)
Attributable to Puerto Rico operations.
(2)
Attributable to U.S., USVI, and BVI operations.
The components of income tax expense are summarized below for the indicated periods:
Year Ended December 31,
2025
2024
2023
(In thousands)
Current income tax expense:
Puerto Rico
$
72,336
$
67,662
$
78,459
U.S. Federal
9,385
8,423
7,863
State and other
2,569
2,267
2,145
84,290
78,352
88,467
Deferred income tax (benefit) expense:
Puerto Rico
(11,270)
12,695
6,406
U.S. Federal
(904)
1,120
(235)
State and other
(248)
316
(66)
(12,422)
14,131
6,105
Total income tax expense
$
71,868
$
92,483
$
94,572
The Corporation maintains an effective tax rate lower than the Puerto Rico maximum statutory tax rate of
37.5
%. The differences
between the income tax expense applicable to income before the provision for income taxes and the amount computed by applying the
statutory tax rate in Puerto Rico were as follows for the indicated periods:
Year Ended December 31,
2025
2024
2023
Amount
% of Pre-tax
Income
Amount
% of Pre-tax
Income
Amount
% of Pre-tax
Income
(Dollars in thousands)
Computed income tax at statutory rate
$
156,275
37.5
%
$
146,702
37.5
%
$
149,038
37.5
%
Federal and state taxes
(1)
11,954
2.9
%
10,690
2.7
%
10,008
2.4
%
Nontaxable or nondeductible items:
(52,989)
(12.7)
%
(37,736)
(9.6)
%
(35,153)
(8.8)
%
(17,617)
(4.3)
%
(22,505)
(5.8)
%
(19,125)
(4.8)
%
(3,736)
(0.9)
%
(4,606)
(1.2)
%
(9,043)
(2.3)
%
Changes in deferred tax valuation allowance
(2)
(17,119)
(4.1)
%
-
-
%
-
-
%
Changes in unrecognized tax benefits
(456)
(0.1)
%
(377)
(0.1)
%
(262)
(0.1)
%
Other adjustments
(4,444)
(1.1)
%
315
0.1
%
(891)
(0.1)
%
$
71,868
17.2
%
$
92,483
23.6
%
$
94,572
23.8
%
(1)
Federal taxes made up the majority (greater than 50%) of the tax effect in this category.
(2)
Includes valuation allowance releases during 2025 of $
17.1
16.6
Income taxes paid for the indicated periods were as follows:
Year Ended December 31,
2025
2024
2023
(In thousands)
Puerto Rico
(1)
$
61,760
$
84,227
$
99,132
U.S. Federal
8,389
7,044
8,000
State and other
2,355
1,960
2,380
Total
$
72,504
$
93,231
$
109,512
(1)
Payments include the purchase of income tax credits that were used against tax liabilities.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and their tax bases. Significant components of the Corporation's deferred tax assets and liabilities
as of December 31, 2025 and 2024 were as follows:
As of December 31,
2025
2024
(In thousands)
Deferred tax asset:
$
34,874
$
36,721
89,716
88,149
25,363
33,220
4,807
4,126
5,824
4,763
3,403
3,121
803
746
10,507
8,007
48,729
76,616
8,044
8,808
$
232,070
$
264,277
Deferred tax liabilities:
7,633
8,282
237
472
163
87
8,033
8,841
Valuation allowance
(75,025)
(119,080)
$
149,012
$
136,356
(1)
The year ended December 31, 2025 includes a $
27.9
securities, which resulted in an equal change in the net deferred tax asset without impacting earnings, and a $
17.1
associated with the aforementioned enactment of Act 65‑2025.
The Corporation assesses deferred tax assets to determine the amount that is more-likely-than-not to be realized. Valuation
allowances are established, when necessary, to reduce deferred tax assets to such amount. Management evaluates valuation allowances
at each reporting date, considering all available positive and negative evidence that can be objectively verified. Consideration must be
given to all sources of taxable income available to realize the deferred tax asset, including, as applicable, the future reversal of existing
temporary differences, future taxable income forecasts exclusive of the reversal of temporary differences and carryforwards, and tax
planning strategies. In estimating taxes, management assesses the relative merits and risks of the appropriate tax treatment of
transactions considering statutory, judicial, and regulatory guidance.
Management’s estimate of future taxable income is based on internal projections that consider historical performance, multiple
internal scenarios and assumptions, as well as external data that management believes is reasonable. The Corporation updates this
analysis when events or circumstances arise that may affect the realizability of deferred tax assets. If actual results differ significantly
from the current estimates of future taxable income, even if caused by adverse macroeconomic conditions, the remaining valuation
allowance may need to be increased.
As of December 31, 2025, the Corporation had a net deferred tax asset of $
149.0
75.0
million, compared to a net deferred tax asset of $
136.4
119.1
2024. The increase in the net deferred tax asset was driven by the aforementioned one-time reversal of approximately $
16.6
valuation allowance primarily associated with NOL carryforwards at the holding company level as a result of the enactment of Act 65-
2025.
The net deferred tax asset of the Corporation’s banking subsidiary, FirstBank, amounted to $
134.8
2025, net of a valuation allowance of $
72.2
136.4
allowance of $
98.5
December 31, 2025 was mainly related to the usage of alternative minimum tax credits. Meanwhile, the decrease in the valuation
allowance for the year ended December 31, 2025 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.
As of December 31, 2025, approximately $
205.3
differences or tax credit carryforwards that have no expiration date, compared to $
233.5
attributable to FirstBank’s deferred tax assets of $
72.2
available-for-sale debt securities, NOLs attributable to the USVI, and capital loss carryforwards. The remaining balance of $
2.8
million of the Corporation’s deferred tax asset valuation allowance non-attributable to FirstBank is mainly related to NOLs in one of
its subsidiaries. The Corporation will continue to provide a valuation allowance against its deferred tax assets in each applicable tax
jurisdiction until the need for a valuation allowance is eliminated. The need for a valuation allowance is eliminated when the
Corporation determines that it is more-likely-than-not the deferred tax assets will be realized. The ability to recognize the remaining
deferred tax assets that continue to be subject to a valuation allowance will be evaluated on a quarterly basis to determine if there were
any significant events that would affect the ability to utilize these deferred tax assets. As of December 31, 2025, deferred tax assets
related to NOL and capital loss carryforwards totaled $
34.9
16.1
13.4
primarily relate to NOLs attributable to Puerto Rico that have expiration dates ranging from year 2026 through year 2035.
In 2017, the Corporation completed a formal ownership change analysis within the meaning of Section 382 of the U.S. Internal
Revenue Code (“Section 382”) covering a comprehensive period and concluded that an ownership change had occurred during such
period. The Section 382 limitation has resulted in higher U.S. and USVI income tax liabilities than we would have incurred in the
absence of such limitation. The Corporation has mitigated to an extent the adverse effects associated with the Section 382 limitation as
any such tax paid in the U.S. or USVI can be creditable against Puerto Rico tax liabilities or taken as a deduction against taxable
income. However, our ability to reduce our Puerto Rico tax liability through such a credit or deduction depends on our tax profile at
each annual taxable period, which is dependent on various factors. For 2025, 2024, and 2023, FirstBank incurred current income tax
expense of approximately $
11.8
10.6
9.9
not impact the USVI operations in 2025, 2024, and 2023.
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.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Feb 28, 2025 | |
| 2023 | Feb 28, 2024 | |
| 2022 | Feb 28, 2023 | |
| 2021 | Mar 1, 2022 | |
| 2020 | Mar 1, 2021 | |
| 2019 | Mar 2, 2020 | |
| 2018 | Mar 1, 2019 | |
| 2017 | Mar 16, 2018 | |
| 2016 | Mar 16, 2017 | |
| 2015 | Mar 14, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.