v3.26.1
Income taxes
 6 Months Ended
Jun. 30, 2026
Income Tax Disclosure [Abstract]  
Income taxes - Income taxes
For the quarter ended June 30, 2026, the Corporation recorded income tax expense of $45.7 million, a decrease of $2.2 million from $47.9
million in the comparable 2025 period.  The effective tax rate ("ETR") decreased to 14.1% from 18.5%.  For the six-month period ended
June 30, 2026, income tax expense was $92.7 million, consistent with the $92.9 million reported for the same period in 2025.  The ETR
decreased to 15.0% from 19.3% for the first six months of 2025.  The lower ETR for both the quarter and six month periods were driven by
higher exempt income and other tax benefits, including the vesting of stock awards, the purchase of tax credits, and income subject to
preferential income tax rates.  The Puerto Rico statutory tax rate is 37.5% for both periods.
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 at June 30, 2026, and
December 31, 2025, were as follows:
June 30, 2026
(In thousands)
PR
US
Total
Deferred tax assets:
Tax credits available for carryforward
$7,318
$61,577
$68,895
Net operating loss and other carryforward available
67,396
542,842
610,238
Postretirement and pension benefits
29,371
-
29,371
Allowance for credit losses
325,466
29,215
354,681
Depreciation
8,528
8,036
16,564
FDIC-assisted transaction
152,665
-
152,665
Lease liability
31,121
18,353
49,474
Unrealized net loss on investment securities
160,070
15,108
175,178
Mortgage Servicing Rights
14,597
-
14,597
Other temporary differences
31,753
7,230
38,983
Total gross deferred tax assets
828,285
682,361
1,510,646
Deferred tax liabilities:
Intangibles
97,484
57,329
154,813
Right of use assets
28,352
16,685
45,037
Deferred loan origination fees/cost
16,568
2,171
18,739
Loans acquired
17,305
-
17,305
Other temporary differences
9,715
429
10,144
Total gross deferred tax liabilities
169,424
76,614
246,038
Valuation allowance
83,979
386,586
470,565
Net deferred tax asset
$574,882
$219,161
$794,043
December 31, 2025
(In thousands)
PR
US
Total
Deferred tax assets:
Tax credits available for carryforward
$7,318
$46,632
$53,950
Net operating loss and other carryforward available
59,578
568,156
627,734
Postretirement and pension benefits
29,453
-
29,453
Allowance for credit losses
255,017
28,465
283,482
Deferred loan origination fees/cost
7,205
(2,474)
4,731
Depreciation
8,422
7,899
16,321
FDIC-assisted transaction
152,665
-
152,665
Lease liability
27,382
17,758
45,140
Unrealized net loss on investment securities
160,809
12,850
173,659
Difference in outside basis from pass-through entities
54,457
-
54,457
Mortgage Servicing Rights
15,375
-
15,375
Other temporary differences
26,347
7,586
33,933
Total gross deferred tax assets
804,028
686,872
1,490,900
Deferred tax liabilities:
Intangibles
92,797
55,760
148,557
Right of use assets
24,846
15,875
40,721
Loans acquired
17,053
-
17,053
Other temporary differences
7,082
429
7,511
Total gross deferred tax liabilities
141,778
72,064
213,842
Valuation allowance
78,153
386,587
464,740
Net deferred tax asset
$584,097
$228,221
$812,318
The net deferred tax assets shown in the table above at June 30, 2026, is reflected in the Consolidated Statements of Financial Condition
as $794.7 million in net deferred tax assets in the “Other assets" caption (December 31, 2025 - $814.2 million) and $649 thousand in
deferred tax liabilities in the “Other liabilities" caption (December 31, 2025 - $1.9 million), reflecting the aggregate deferred tax assets or
liabilities of individual tax-paying subsidiaries of the Corporation in their respective tax jurisdiction, Puerto Rico or the United States.
At June 30, 2026, the net deferred tax assets of the U.S. operations, before valuation allowance, amounted to $605.8 million.  After
considering the valuation allowance of $386.6 million, the total net deferred tax assets amounted to $219.2 million.  The U.S. Operations
have generated taxable income each of the last three years. The financial results for the six-months period of 2026 continue to show an
upward trend similar to 2024 and 2025. These financial results are objectively verifiable positive evidence. Additionally, the Corporation
considered as negative evidence inconsistency in performance trends, including lower than anticipated results in recent periods. Also,
management considered the uncertainty in predicting future taxable income, given the impact of external factors such as changes in
macroeconomic conditions, geopolitical issues, and shifts in monetary policy. In addition, management evaluated the expiration period of the
NOLs carried forward which begin to expire in 2028.  Since the Corporation evaluates the realization of the deferred tax assets by taxing
jurisdiction on a quarterly basis, as additional information becomes available and performance indicators evolve, the weight assigned to
factors considered in the assessment could change.
At June 30, 2026, after weighting all positive and negative evidence, the Corporation concluded that it is more likely than not that $219.2
million of the deferred tax assets from the U.S. operations, comprised mainly of net operating losses, will be realized. The Corporation
based this determination on its estimated taxable income available to realize the deferred tax assets for the remaining carryforward periods,
together with the historical level of book income adjusted by permanent differences and taxable income. Management will continue to
monitor and review the U.S. operation’s results, including recent earnings trends, pre-tax earnings forecasts, new tax initiatives, and
performance indicators, such as net income versus forecast, targeted loan growth, net interest income margin, changes in deposit costs,
allowance for credit losses, charge-offs, NPLs inflows, and NPA balances. Significant changes, or a combination of changes, could
positively or negatively impact the amount of deferred tax assets to be realized in the future.
At June 30, 2026, the Corporation’s net deferred tax assets related to its Puerto Rico operations amounted to $658.9 million. The
Corporation’s Puerto Rico Banking operation has a historical record of profitability. This is considered as strong objectively verifiable positive
evidence that outweighs any negative evidence considered by management in the evaluation of the realization of the deferred tax assets.
Based on this evidence and management’s estimate of future taxable income, the Corporation has concluded that it is more likely than not
that such net deferred tax assets of the Puerto Rico Banking operations will be realized.
The Holding Company operation has been in a cumulative loss position. Management expects these losses will be a trend in future years.
This objectively verifiable negative evidence is considered by Management strong negative evidence that suggests that income in future
years will be insufficient to support the realization of all deferred tax assets. After weighting of all positive and negative evidence
Management concluded, as of the reporting date, that it is more likely than not that the Holding Company will not be able to realize any
portion of the deferred tax assets. Accordingly, the Corporation has maintained a valuation allowance on the deferred tax assets of $84.0
million as of June 30, 2026.
The Corporation and its subsidiaries file income tax returns in Puerto Rico, the U.S. federal jurisdiction, various U.S. states and political
subdivisions, and foreign jurisdictions. At June 30, 2026, the following years remain subject to examination in the U.S. Federal jurisdiction,
2022 and thereafter; and in the Puerto Rico jurisdiction, 2019 and thereafter.