OFG BANCORPOFG
OFG BANCORP Income Taxes Disclosure
INCOME TAXES
(1) Income taxes paid includes purchased transferable tax credits of $61.7 million in 2025 and $20.0 million in 2024.
OFG is subject to the provisions of the PR Code. The PR Code imposes a maximum statutory corporate tax rate of 37.5%. OFG has operations in the mainland United States through its wholly owned subsidiaries OFG Ventures and OFG USA, which is a direct subsidiary of the Bank, and has two branches in the USVI. The United States subsidiaries are subject to federal income taxes at the corporate level, while the USVI branches are subject to federal income taxes under a mirror system and a 10% surtax included in the maximum tax rate. OFG USA is subject to North Carolina state taxes, and current investments in OFG Ventures are subject to state taxes in Missouri. In addition, OFG’s wholly owned subsidiary, OFG Reinsurance, is tax exempt in Grand Cayman.
Under the PR Code, all companies are treated as separate taxable entities and are not entitled to file consolidated tax returns. OFG and its subsidiaries organized under the laws of Puerto Rico are generally subject to Puerto Rico regular income tax or the AMT on income earned from all sources. OFG’s subsidiaries organized outside of Puerto Rico are taxed in Puerto Rico only with respect to income from Puerto Rico sources or effectively connected to a Puerto Rico trade or business. The AMT is payable if it exceeds regular income tax. The excess of AMT over regular income tax paid in any one year may be used to offset regular income tax in future years, subject to certain limitations.
In January 2025, OFG adopted ASU 2023-09, which enhances income tax disclosures by requiring a tabular ETR reconciliation with specified categories and detailed breakdowns for significant reconciling items, as well as disaggregated reporting of income taxes paid by federal, state, and foreign jurisdictions.
Income before income tax expense for 2025, 2024, and 2023 were as follows:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Domestic - Puerto Rico | $ | 218,105 | $ | 236,129 | $ | 255,697 | |||||||||||
| Foreign - US and USVI | 16,012 | 17,619 | 9,551 | ||||||||||||||
| Total income before income taxes | $ | 234,117 | $ | 253,748 | $ | 265,248 | |||||||||||
The components of income tax expense for 2025, 2024, and 2023 were as follows:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
| Current income tax expense: | |||||||||||||||||
| Domestic - Puerto Rico | $ | 168,041 | $ | 16,914 | $ | 3,271 | |||||||||||
| Foreign - US and USVI | 14,646 | 17,103 | 12,756 | ||||||||||||||
| Total current income tax expense | 182,687 | 34,017 | 16,027 | ||||||||||||||
| Deferred income tax (benefit) expense: | |||||||||||||||||
| Domestic - Puerto Rico | (151,659) | 23,020 | 68,429 | ||||||||||||||
| Foreign - US and USVI | (2,014) | (1,459) | (1,080) | ||||||||||||||
| Total deferred income tax (benefit) expense | (153,673) | 21,561 | 67,349 | ||||||||||||||
| Total income tax expense: | |||||||||||||||||
| Domestic - Puerto Rico | 16,382 | 39,934 | 71,700 | ||||||||||||||
| Foreign - US and USVI | 12,632 | 15,644 | 11,676 | ||||||||||||||
| $ | 29,014 | $ | 55,578 | $ | 83,376 | ||||||||||||
In relation to the exempt income level, the Bank’s investment securities portfolio and loan portfolio generated net tax-exempt interest income of $25.2 million, $29.5 million and $28.6 million during 2025, 2024, and 2023, respectively. OIB generated exempt income of $10.6 million, $9.1 million and $3.9 million for 2025, 2024, and 2023, respectively.
OFG maintained an ETR lower than the statutory rate for 2025, primarily attributable to investments subject to preferential tax treatment under Puerto Rico law, the release of valuation allowance at the holding company level, a discrete benefit arising from the expiration of a tax closing agreement, and the purchase of tax credits at a discount, among other discrete tax benefits.
OFG’s income tax (benefit) expense differs from amounts computed by applying the applicable statutory rate to income before income taxes as follows:
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
| Amount | Rate | Amount | Rate | Amount | Rate | ||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||
| Income tax expense at statutory rates | $ | 87,794 | 37.50 | % | $ | 95,156 | 37.50 | % | $ | 99,468 | 37.50 | % | |||||||||||||||||||||||
| Domestic - Puerto Rico | |||||||||||||||||||||||||||||||||||
| Tax credits | |||||||||||||||||||||||||||||||||||
| Purchased tax credits | (3,876) | (1.66) | % | (1,667) | (0.66) | % | — | — | % | ||||||||||||||||||||||||||
| Foreign tax credit | (8,125) | (3.47) | % | (11,924) | (4.70) | % | (10,020) | (3.78) | % | ||||||||||||||||||||||||||
| Nontaxable or nondeductible items | |||||||||||||||||||||||||||||||||||
| Tax of exempt income, net | (13,462) | (5.75) | % | (14,485) | (5.71) | % | (12,201) | (4.60) | % | ||||||||||||||||||||||||||
| Disallowed expense and net operating loss carryover | 186 | 0.08 | % | 232 | 0.09 | % | (353) | (0.13) | % | ||||||||||||||||||||||||||
| Change in valuation allowance | (4,853) | (2.07) | % | (2,168) | (0.85) | % | (1,554) | (0.59) | % | ||||||||||||||||||||||||||
| Unrecognized tax benefits, net | (1,005) | (0.43) | % | 69 | 0.03 | % | 69 | 0.03 | % | ||||||||||||||||||||||||||
Effect of income subject to preferential rate (1) | (13,166) | (5.62) | % | 5 | — | % | 472 | 0.18 | % | ||||||||||||||||||||||||||
| Tax rate difference (ordinary vs capital) | — | — | % | 23 | 0.01 | % | (817) | (0.31) | % | ||||||||||||||||||||||||||
| Preferential tax treatment on qualified investment activities | (22,822) | (9.75) | % | (16,021) | (6.31) | % | — | — | % | ||||||||||||||||||||||||||
| Return to provision adjustments | 470 | 0.20 | % | (2,091) | (0.82) | % | (721) | (0.27) | % | ||||||||||||||||||||||||||
| Stock-based compensation windfall | (674) | (0.29) | % | (1,205) | (0.48) | % | — | — | % | ||||||||||||||||||||||||||
| Other items, net | 186 | 0.07 | % | (324) | (0.13) | % | (27) | (0.02) | % | ||||||||||||||||||||||||||
| Foreign Tax Effects | |||||||||||||||||||||||||||||||||||
| US | |||||||||||||||||||||||||||||||||||
| Difference in tax rates due to multiple jurisdictions | (2,142) | (0.91) | % | (1,929) | (0.76) | % | (963) | (0.36) | % | ||||||||||||||||||||||||||
| Withholding tax | 10,407 | 4.45 | % | 11,295 | 4.45 | % | 9,922 | 3.74 | % | ||||||||||||||||||||||||||
| Disallowed expense and net operating loss carryover | 4 | — | % | 2 | — | % | 3 | — | % | ||||||||||||||||||||||||||
| Return to provision adjustment | — | — | % | 8 | — | % | — | — | % | ||||||||||||||||||||||||||
| Stock-based compensation windfall | (23) | (0.01) | % | (27) | (0.01) | % | — | — | % | ||||||||||||||||||||||||||
| Other items, net | 52 | 0.02 | % | — | — | % | — | — | % | ||||||||||||||||||||||||||
| USVI | 63 | 0.03 | % | 629 | 0.25 | % | 98 | 0.04 | % | ||||||||||||||||||||||||||
| Income tax expense | $ | 29,014 | 12.39 | % | $ | 55,578 | 21.90 | % | $ | 83,376 | 31.43 | % | |||||||||||||||||||||||
(1) 2025 includes the impact of the expiration of a tax agreement from the 2019 acquisition of Scotiabank’s PR and USVI operations. | |||||||||||||||||||||||||||||||||||
OFG’s ETR for 2025, 2024 and 2023 was 12.4%, 21.9% and 31.4%, respectively.
Income taxes paid, net of refunds for 2025, 2024, and 2023 were as follows:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
Domestic - Puerto Rico (1) | $ | 64,276 | $ | 26,433 | $ | 967 | |||||||||||
| Foreign - US and USVI | |||||||||||||||||
US – Federal | 15,857 | 13,095 | 13,400 | ||||||||||||||
| Other | 1,399 | 543 | 640 | ||||||||||||||
| Total income taxes paid, net of refunds | $ | 81,532 | $ | 40,071 | $ | 15,007 | |||||||||||
(1) Income taxes paid includes purchased transferable tax credits of $61.7 million in 2025 and $20.0 million in 2024.
OFG classifies unrecognized tax benefits in other liabilities. These gross unrecognized tax benefits would affect the ETR if realized. At December 31, 2025, the amount of unrecognized tax benefits was zero (December 31, 2024 - $1.0 million).
The following table presents a reconciliation of unrecognized tax benefits:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (In thousands) | |||||||||||||||||
Balance at beginning of year | $ | 1,005 | $ | 936 | $ | 867 | |||||||||||
| Additions for tax positions of prior years | — | 69 | 69 | ||||||||||||||
| Reduction for tax positions as a result of lapse of statute of limitations or new information resulting in a change in assessment | (1,005) | — | — | ||||||||||||||
Balance at end of year | $ | — | $ | 1,005 | $ | 936 | |||||||||||
OFG follows a two-step approach for recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals of litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The amount of unrecognized tax benefits may increase or decrease in the future due to new or current tax year positions, expiration of open income tax returns, changes in management’s judgment about the level of uncertainty, status of examinations, litigation and legislative activity. During 2025, there was a net decrease in unrecognized tax benefit of $1.0 million as a result of the expiration of the statute of limitations during the first quarter of 2025.
The statute of limitations under the PR Code is four years and the statute of limitations under the US Code is three years, after a tax return is due or filed, whichever is later. OFG is potentially subject to income tax audits in the Commonwealth of Puerto Rico for taxable years 2021 to 2024, until the applicable statute of limitations expires. In addition, OFG’s US subsidiaries are potentially subject to income tax audits by the IRS for taxable years 2022 to 2024. Tax audits by their nature are often complex and can require several years to complete.
The determination of the deferred tax expense or benefit is generally based on changes in the carrying amounts of assets and liabilities that generate temporary differences. The carrying value of OFG’s net deferred tax assets assumes that OFG will be able to generate sufficient future taxable income based on estimates and assumptions. If these estimates and related assumptions change in the future, OFG may be required to record valuation allowances against its deferred tax assets resulting in additional income tax expense in the consolidated statements of operations. Significant components of OFG’s deferred tax assets and liabilities as of December 31, 2025, and 2024 were as follows:
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (In thousands) | |||||||||||
| Deferred tax assets: | |||||||||||
| Allowance for credit losses and other reserves | $ | 71,514 | $ | 62,913 | |||||||
| Loans and other real estate valuation adjustment | 1,205 | 1,211 | |||||||||
| Deferred loan charge-offs | — | 4,523 | |||||||||
| Net operating loss carry forwards | 19 | 4,878 | |||||||||
| Alternative minimum tax | 193 | 13,822 | |||||||||
| Unrealized net loss on available-for-sale securities | 1,536 | 16,125 | |||||||||
| Acquired loans tax basis | 27,368 | — | |||||||||
| Acquired portfolio | 21,754 | 29,620 | |||||||||
| Other assets allowances | 1,424 | 2,022 | |||||||||
| Other deferred tax assets | 27,465 | 21,470 | |||||||||
| Total gross deferred tax asset | 152,478 | 156,584 | |||||||||
| Less: valuation allowance | (568) | (5,421) | |||||||||
| Net gross deferred tax assets | 151,910 | 151,163 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Acquired loans tax basis | — | (137,022) | |||||||||
| Servicing asset | (21,821) | (23,359) | |||||||||
| Building valuation adjustment | (5,232) | (5,668) | |||||||||
| FDIC-assisted Eurobank acquisition, net | (2,996) | (5,062) | |||||||||
| Customer deposit and customer relationship intangibles | (1,426) | (2,981) | |||||||||
| Goodwill | (6,079) | (3,167) | |||||||||
| Scotiabank PR acquisition discount | (1,843) | (980) | |||||||||
| Other deferred tax liabilities | (8,154) | (7,394) | |||||||||
| Total gross deferred tax liabilities | (47,551) | (185,633) | |||||||||
| Net deferred tax asset (liability) | $ | 104,359 | $ | (34,470) | |||||||
As of December 31, 2025, OFG's net deferred tax asset, net of a valuation allowance of $568 thousand amounted to $104.4 million. The net deferred tax liability shown in the table above at December 31, 2024 is reflected in the consolidated balance sheet as $6.2 million in deferred tax assets, net of a valuation allowance of $4.7 million, and $40.7 million in the deferred tax liabilities, net with a valuation allowance of $694 thousand, reflecting the aggregate deferred tax assets or liabilities of individual tax-paying subsidiaries of OFG.
The decrease in valuation allowance of $4.9 million is mainly related to a release in valuation allowance of deferred tax assets at the holding company level, primarily associated with NOLs, following the execution of a change in the tax classification of certain subsidiaries. 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 December 31, 2025. 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.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 25, 2026 | Showing above |
| 2024 | Feb 27, 2025 | |
| 2023 | Feb 26, 2024 | |
| 2022 | Feb 24, 2023 | |
| 2021 | Feb 25, 2022 | |
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.