Income Taxes

The income tax provision (benefit) for the years ended December 31 is as follows:



	2013		2012		2011
	(dollars in thousands)
Current tax provision for income exclusive of securities transactions:
Federal	$	2,509	$	12,035	$	651
State	68		72		161
Total current tax provision	2,577		12,107		812
Deferred tax provision (benefit)	12,704		2,551		(1,192		)
Total tax provision (benefit)	$	15,281	$	14,658	$	(380	)

The statutory to effective tax rate reconciliation for the years ended December 31 is as follows:



	2013					2012					2011
	Amount			% of Pretax Income		Amount			% of Pretax Income		Amount			% of Pretax Income
	(dollars in thousands)
Tax at statutory rate	$	19,867		35	%	$	19,814		35	%	$	5,213		35	%
Increase (decrease) resulting from:
Income from bank owned life insurance	(1,939		)	(3	)	(2,048		)	(4	)	(1,959		)	(13	)
Tax-exempt interest income, net	(2,600		)	(5	)	(2,789		)	(5	)	(3,453		)	(23	)
Tax credits	(144		)	—		(267		)	—		(270		)	(2	)
Other	97			—		(52		)	—		89			—
Total tax provision (benefit)	$	15,281		27	%	$	14,658		26	%	$	(380	)	(3	)%

The total tax provision for financial reporting differs from the amount computed by applying the statutory federal income tax rate to income before taxes. First Commonwealth ordinarily generates an annual effective tax rate that is less than the statutory rate of 35% due to benefits resulting from tax-exempt interest, income from bank owned life insurance and tax benefits associated with low income housing tax credits. The consistent level of tax benefits that reduce First Commonwealth’s tax rate below the 35% statutory rate produced an annual effective tax rate of 27% and 26% for the years ended December 31, 2013 and 2012, respectively. The relatively low level of annual pretax income produced a tax benefit for the year ended December 31, 2011.

The tax effects of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities that represent significant portions of the deferred tax assets and liabilities at December 31 are presented below:



	2013			2012
	(dollars in thousands)
Deferred tax assets:
Allowance for credit losses	$	18,979		$	23,515
Postretirement benefits other than pensions	726			769
Alternative minimum tax credit carryforward	13,896			13,026
Unrealized loss on securities available for sale	11,235			—
Writedown of other real estate owned	207			3,647
Deferred compensation	2,118			2,203
Accrued interest on nonaccrual loans	1,481			3,887
Other-than-temporary impairment of securities	9,693			15,233
Depreciation of assets	1,546			952
Accrued incentives	1,153			—
Unfunded loan commitment allowance	1,106			836
Deferred rent	653			—
Other	2,462			2,795
Total deferred tax assets	65,255			66,863
Deferred tax liabilities:
Basis difference in assets acquired	(518		)	(808		)
Loan origination fees and costs	(637		)	(606		)
Income from unconsolidated subsidiary	(590		)	(575		)
Unrealized gain on securities available for sale	—			(592		)
Other	(332		)	(150		)
Total deferred tax liabilities	(2,077		)	(2,731		)
Net deferred tax asset	$	63,178		$	64,132

The net deferred tax asset of $63.2 million as of December 31, 2013 includes a $13.9 million alternative minimum tax credit carryforward with an indefinite life. There is also a $9.7 million deferred tax asset for other-than-temporary impairment of securities, of which $0.4 million are potential capital losses that can only be utilized if capital gains are realized.

Management assesses all available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize the existing deferred tax assets. In evaluating deferred tax assets, future taxable income forecasted over the next three years was considered. The amount of future taxable income used in management’s valuation is based upon management approved forecasts, evaluation of historical earnings levels, proven ability to raise capital to support growth or during times of economic stress and consideration of prudent and feasible potential tax strategies. If future events differ from our current forecasts, a valuation allowance may be required, which could have a material impact on our financial condition and results of operations. Based on our evaluation, including the consideration of the weighting of positive and negative evidence, as of December 31, 2013, management has determined that no valuation allowance is necessary for the deferred tax assets because it is more likely than not that these assets will be realized through future reversals of existing temporary differences and through future taxable income.

First Commonwealth adopted new authoritative accounting guidance issued under FASB ASC Topic 740-10, “Accounting for Uncertainty in Income Taxes” as of January 1, 2007, and had no material unrecognized tax benefits or accrued interest and penalties as of December 31, 2013. We do not expect the total amount of unrecognized tax benefits to significantly increase in the next twelve months and will record interest and penalties as a component of noninterest expense.

First Commonwealth is subject to routine audits of our tax returns by the Internal Revenue Service as well as all states in which we conduct business. Federal and state income tax years 2010 through 2012 are open for examination as of December 31, 2013.