Income Taxes

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



	2014		2013		2012
	(dollars in thousands)
Current tax provision for income exclusive of securities transactions:
Federal	$	12,661	$	2,509	$	12,035
State	157		68		72
Total current tax provision	12,818		2,577		12,107
Deferred tax provision	4,862		12,704		2,551
Total tax provision	$	17,680	$	15,281	$	14,658

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



	2014					2013					2012
	Amount			% of Pretax Income		Amount			% of Pretax Income		Amount			% of Pretax Income
	(dollars in thousands)
Tax at statutory rate	$	21,747		35	%	$	19,867		35	%	$	19,814		35	%
Increase (decrease) resulting from:
Income from bank owned life insurance	(1,926		)	(3	)	(1,939		)	(3	)	(2,048		)	(4	)
Tax-exempt interest income, net	(2,133		)	(4	)	(2,600		)	(5	)	(2,789		)	(5	)
Tax credits	(134		)	—		(144		)	—		(267		)	—
Other	126			—		97			—		(52		)	—
Total tax provision	$	17,680		28	%	$	15,281		27	%	$	14,658		26	%

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 28%, 27% and 26% for the years ended December 31, 2014, 2013 and 2012, respectively.

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:



	2014			2013
	(dollars in thousands)
Deferred tax assets:
Allowance for credit losses	$	18,218		$	18,979
Postretirement benefits other than pensions	679			726
Alternative minimum tax credit carryforward	8,627			13,896
Litigation reserve	3,000			—
Unrealized loss on securities available for sale	2,463			11,235
Writedown of other real estate owned	603			207
Deferred compensation	2,246			2,118
Accrued interest on nonaccrual loans	1,059			1,481
Other-than-temporary impairment of securities	9,239			9,693
Depreciation of assets	1,127			1,546
Accrued incentives	1,594			1,153
Unfunded loan commitment allowance	1,078			1,106
Deferred rent	969			653
Other	1,354			2,462
Total deferred tax assets	52,256			65,255
Deferred tax liabilities:
Basis difference in assets acquired	(344		)	(518		)
Loan origination fees and costs	(1,337		)	(637		)
Income from unconsolidated subsidiary	(603		)	(590		)
Other	(318		)	(332		)
Total deferred tax liabilities	(2,602		)	(2,077		)
Net deferred tax asset	$	49,654		$	63,178

The net deferred tax asset of $49.7 million as of December 31, 2014 includes a $8.6 million alternative minimum tax credit carryforward with an indefinite life. There is also a $9.2 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, 2014, 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.

In accordance with FASB ASC Topic 740-10, “Accounting for Uncertainty in Income Taxes,” the Company has no material unrecognized tax benefits or accrued interest and penalties as of December 31, 2014. 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 2011 through 2013 are open for examination as of December 31, 2014.