INCOME TAXES	9 Months Ended
Sep. 30, 2020
Income Tax Disclosure [Abstract]
INCOME TAXES	NOTE 22 - INCOME TAXES Income tax expense includes Puerto Rico and USVI income taxes, as well as applicable U.S. federal and state taxes. The Corporation is subject to Puerto Rico income tax on its income from all sources. As a Puerto Rico corporation, First BanCorp is treated as a foreign corporation for U.S. and USVI income tax purposes and, accordingly, 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. Any 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. Under the Puerto Rico Internal Revenue Code of 2011, as amended (the “2011 PR Code”), the Corporation and its subsidiaries are treated as separate taxable entities and are not entitled to file consolidated tax returns and, thus, the Corporation is generally not entitled to utilize losses from one subsidiary to offset gains in another subsidiary. Accordingly, in order to obtain a tax benefit from a net operating loss (“NOL”), a particular subsidiary must be able to demonstrate sufficient taxable income within the applicable NOL carry-forward period. Pursuant to the 2011 PR Code, the carry-forward period for NOLs incurred during taxable years that commenced after December 31, 2004 and ended before January 1, 2013 is 12 years; for NOLs incurred during taxable years commencing after December 31, 2012, the carryover period is 10 years. The 2011 PR 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. The Corporation has maintained an effective tax rate lower than the maximum statutory rate of 37.5% mainly by investing in government obligations and MBS exempt from U.S. and Puerto Rico income taxes and by doing business through an International Banking Entity (“IBE”) unit of the Bank, and through the Bank’s subsidiary, FirstBank Overseas Corporation, whose interest income and gains on sales is exempt from Puerto Rico income taxation. The IBE unit and FirstBank Overseas Corporation were created under the International Banking Entity Act of Puerto Rico, which provides for total Puerto Rico tax exemption on net income derived by IBEs operating in Puerto Rico on the specific activities identified in the IBE Act. An IBE that operates as a unit of a bank pays income taxes at the corporate standard rates to the extent that the IBE’s net income exceeds 20% of the bank’s total net taxable income. The CARES Act of 2020 includes several provisions to stimulate the U.S. economy in the midst of the COVID-19 pandemic. The CARES Act of 2020 includes tax provisions that temporarily modified the taxable income limitations for NOL usage to offset future taxable income, NOL carryback provisions and other related income and non-income based tax laws. The Corporation has evaluated such provisions and determined that the impact of the CARES Act of 2020 on the income tax provision and deferred tax assets as of September 30, 2020 was not significant. For the third quarter and first nine months of 2020, the Corporation recorded a net income tax benefit of $4.4 million and $1.3 million, respectively, compared to income tax expense of $19.2 million and $54.9 million, respectively, for the comparable periods in 2019. The variance in the 2020 periods, as compared to 2019, reflects the effect of (i) the $8.0 million partial reversal of the Corporation’s deferred tax asset valuation allowance after considering significant positive evidence on the utilization of net operating losses due to the acquisition of BSPR; (ii) an income tax benefit of approximately $13.0 million in connection with the aforementioned $38.9 million charge to the provision for credit losses related to non-PCD assets acquired in the BSPR acquisition; (iii) an income tax benefit of approximately $39.8 million recorded in the first half of 2020 in connection with higher charges to the provision for credit losses for loans, finance leases and debt securities due to the effect of the COVID-19 pandemic on forecasted economic conditions; and (iv) a lower effective tax rate in 2020 resulting from a decreased taxable income proportionate to pre-tax income. For the quarter and nine-month period ended September 30, 2020, the Corporation calculated the provision for income taxes by applying the estimated annual effective tax rate for the full fiscal year to ordinary income or loss. In the computation of the consolidated worldwide annual estimated effective tax rate, ASC Subtopic 740-270, “Income Taxes” (“ASC Subtopic 740-270”), requires the exclusion of legal entities with pre-tax losses from which a tax benefit cannot be recognized. The Corporation’s estimated annual effective tax rate in the first nine months of 2020, excluding entities from which a tax benefit cannot be recognized and discrete items, decreased to 21%, compared to 29% for the first nine months of 2019, primarily due to a decreased taxable income proportionate to pre-tax income. The estimated annual effective tax rate, including all entities, for 2020 was 17% (23% excluding discrete items), compared to 30% for the first nine months of 2019 (29% excluding discrete items). On January 1, 2020, the Corporation increased its deferred tax assets by $31.3 million in connection with the transitional adjustment resulting from the adoption of the CECL accounting standard. In addition, the BSPR acquisition added $28.9 million of net deferred tax assets as of the acquisition date. The Corporation’s net deferred tax asset amounted to $347.5 million as of September 30, 2020, net of a valuation allowance of $99.6 million, and management concluded, based upon the assessment of all positive and negative evidence, that it was more likely than not that the Corporation will generate sufficient taxable income within the applicable NOL carry-forward periods to realize such amount, and, therefore, reversed $8.0 million of the valuation allowance. Due to the inherent uncertainties related to the extent and duration of the COVID-19 pandemic, there is no evidence that can be objectively verified at this time to affect the Corporation’s assessment about the ability to realize its deferred tax assets. The net deferred tax asset of the Corporation’s banking subsidiary, FirstBank, amounted to $347.2 million as of September 30, 2020, net of a valuation allowance of $62.1 million, compared to a net deferred tax asset of $264.8 million, net of a valuation allowance of $55.6 million, as of December 31, 2019. 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 since any such tax paid in the U.S. or USVI is 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 the third quarter and nine-month period ended September 30, 2020, the Corporation incurred an income tax expense of approximately $1.2 million and $3.4 million, respectively, related to its U.S. operations, compared to $1.2 million and $3.5 million, respectively, for the comparable periods in 2019. The limitation did not impact the USVI operations for the third quarter and nine-month periods ended September 30, 2020 and 2019. As of September 30, 2020, the Corporation had $31 thousand of deferred taxes on interest and penalties related to uncertain tax positions that it acquired from BSPR. The Corporation classifies all interest and penalties related to tax uncertainties as income tax expense. Audit periods remain open for review until the statute of limitations has passed. The statute of limitations under the 2011 PR code is four years; 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. Any such adjustment could be material to the results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. For U.S. and USVI income tax purposes, all tax years subsequent to 2016 remain open to examination. For Puerto Rico tax purposes, all tax years subsequent to 2015 remain open to examination.

INCOME TAXES

9 Months Ended

Sep. 30, 2020

NOTE 22 - INCOME TAXES

Income tax expense includes Puerto Rico and USVI income taxes, as well as applicable U.S. federal and state taxes. The Corporation is subject to Puerto Rico income tax on its income from all sources. As a Puerto Rico corporation, First BanCorp is treated as a foreign corporation for U.S. and USVI income tax purposes and, accordingly, 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. Any 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.

Under the Puerto Rico Internal Revenue Code of 2011, as amended (the “2011 PR Code”), the Corporation and its subsidiaries are treated as separate taxable entities and are not entitled to file consolidated tax returns and, thus, the Corporation is generally not entitled to utilize losses from one subsidiary to offset gains in another subsidiary. Accordingly, in order to obtain a tax benefit from a net operating loss (“NOL”), a particular subsidiary must be able to demonstrate sufficient taxable income within the applicable NOL carry-forward period. Pursuant to the 2011 PR Code, the carry-forward period for NOLs incurred during taxable years that commenced after December 31, 2004 and ended before January 1, 2013 is 12 years; for NOLs incurred during taxable years commencing after December 31, 2012, the carryover period is 10 years. The 2011 PR 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.

The Corporation has maintained an effective tax rate lower than the maximum statutory rate of 37.5% mainly by investing in government obligations and MBS exempt from U.S. and Puerto Rico income taxes and by doing business through an International Banking Entity (“IBE”) unit of the Bank, and through the Bank’s subsidiary, FirstBank Overseas Corporation, whose interest income and gains on sales is exempt from Puerto Rico income taxation. The IBE unit and FirstBank Overseas Corporation were created under the International Banking Entity Act of Puerto Rico, which provides for total Puerto Rico tax exemption on net income derived by IBEs operating in Puerto Rico on the specific activities identified in the IBE Act. An IBE that operates as a unit of a bank pays income taxes at the corporate standard rates to the extent that the IBE’s net income exceeds 20% of the bank’s total net taxable income.

The CARES Act of 2020 includes several provisions to stimulate the U.S. economy in the midst of the COVID-19 pandemic. The CARES Act of 2020 includes tax provisions that temporarily modified the taxable income limitations for NOL usage to offset future taxable income, NOL carryback provisions and other related income and non-income based tax laws. The Corporation has evaluated such provisions and determined that the impact of the CARES Act of 2020 on the income tax provision and deferred tax assets as of September 30, 2020 was not significant.

For the third quarter and first nine months of 2020, the Corporation recorded a net income tax benefit of $4.4 million and $1.3 million, respectively, compared to income tax expense of $19.2 million and $54.9 million, respectively, for the comparable periods in 2019. The variance in the 2020 periods, as compared to 2019, reflects the effect of (i) the $8.0 million partial reversal of the Corporation’s deferred tax asset valuation allowance after considering significant positive evidence on the utilization of net operating losses due to the acquisition of BSPR; (ii) an income tax benefit of approximately $13.0 million in connection with the aforementioned $38.9 million charge to the provision for credit losses related to non-PCD assets acquired in the BSPR acquisition; (iii) an income tax benefit of approximately $39.8 million recorded in the first half of 2020 in connection with higher charges to the provision for credit losses for loans, finance leases and debt securities due to the effect of the COVID-19 pandemic on forecasted economic conditions; and (iv) a lower effective tax rate in 2020 resulting from a decreased taxable income proportionate to pre-tax income.

For the quarter and nine-month period ended September 30, 2020, the Corporation calculated the provision for income taxes by applying the estimated annual effective tax rate for the full fiscal year to ordinary income or loss. In the computation of the consolidated worldwide annual estimated effective tax rate, ASC Subtopic 740-270, “Income Taxes” (“ASC Subtopic 740-270”), requires the exclusion of legal entities with pre-tax losses from which a tax benefit cannot be recognized. The Corporation’s estimated annual effective tax rate in the first nine months of 2020, excluding entities from which a tax benefit cannot be recognized and discrete items, decreased to 21%, compared to 29% for the first nine months of 2019, primarily due to a decreased taxable income proportionate to pre-tax income. The estimated annual effective tax rate, including all entities, for 2020 was 17% (23% excluding discrete items), compared to 30% for the first nine months of 2019 (29% excluding discrete items).

On January 1, 2020, the Corporation increased its deferred tax assets by $31.3 million in connection with the transitional adjustment resulting from the adoption of the CECL accounting standard. In addition, the BSPR acquisition added $28.9 million of net deferred tax assets as of the acquisition date. The Corporation’s net deferred tax asset amounted to $347.5 million as of September 30, 2020, net of a valuation allowance of $99.6 million, and management concluded, based upon the assessment of all positive and negative evidence, that it was more likely than not that the Corporation will generate sufficient taxable income within the applicable NOL carry-forward periods to realize such amount, and, therefore, reversed $8.0 million of the valuation allowance. Due to the inherent uncertainties related to the extent and duration of the COVID-19 pandemic, there is no evidence that can be objectively verified at this time to affect the Corporation’s assessment about the ability to realize its deferred tax assets. The net deferred tax asset of the Corporation’s banking subsidiary, FirstBank, amounted to $347.2 million as of September 30, 2020, net of a valuation allowance of $62.1 million, compared to a net deferred tax asset of $264.8 million, net of a valuation allowance of $55.6 million, as of December 31, 2019.

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 since any such tax paid in the U.S. or USVI is 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 the third quarter and nine-month period ended September 30, 2020, the Corporation incurred an income tax expense of approximately $1.2 million and $3.4 million, respectively, related to its U.S. operations, compared to $1.2 million and $3.5 million, respectively, for the comparable periods in 2019. The limitation did not impact the USVI operations for the third quarter and nine-month periods ended September 30, 2020 and 2019.

As of September 30, 2020, the Corporation had $31 thousand of deferred taxes on interest and penalties related to uncertain tax positions that it acquired from BSPR. The Corporation classifies all interest and penalties related to tax uncertainties as income tax expense. Audit periods remain open for review until the statute of limitations has passed. The statute of limitations under the 2011 PR code is four years; 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. Any such adjustment could be material to the results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. For U.S. and USVI income tax purposes, all tax years subsequent to 2016 remain open to examination. For Puerto Rico tax purposes, all tax years subsequent to 2015 remain open to examination.