Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

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

	2022		2021		2020
	(dollars in thousands)
Current tax provision:
Federal	$	33,545	$	32,586	$	21,629
State	471		397		329
Total current tax provision	34,016		32,983		21,958
Deferred tax provision (benefit):
Federal	(1,967)		1,501		(5,070)
State	(45)		76		(132)
Total deferred tax provision	(2,012)		1,577		(5,202)
Total tax provision	$	32,004	$	34,560	$	16,756

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

	2022				2021				2020
	Amount		% of Pretax Income		Amount		% of Pretax Income		Amount		% of Pretax Income
	(dollars in thousands)
Tax at statutory rate	$	33,639	21	%	$	36,292	21	%	$	18,943	21	%
Increase (decrease) resulting from:
State income tax, net of federal benefit	361		—		326		—		155		—
Income from bank owned life insurance	(1,146)		(1)		(1,351)		(1)		(1,376)		(1)
Tax-exempt interest income, net	(809)		(1)		(846)		—		(1,117)		(1)
Tax credits	(341)		—		(127)		—		(44)		—
Other	300		1		266		—		195		—
Total tax provision	$	32,004	20	%	$	34,560	20	%	$	16,756	19	%

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 21% 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 statutory rate produced an annual effective tax rate of 20% for each of the years ended December 31, 2022 and 2021 and 19% for the year ended December 31, 2020.

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:

	2022		2021
	(dollars in thousands)
Deferred tax assets:
Lease liability	$	9,581	$	9,489
Allowance for credit losses	21,837		19,597
Postretirement benefits other than pensions	223		235
Unrealized loss on securities available for sale	36,673		2,357
Net operating loss carryforward	37		75
Deferred compensation	1,960		1,969
Accrued interest on nonaccrual loans	935		779
Accrued incentives	3,185		2,591
Unfunded loan commitments & other reserves	2,126		1,363
Other	1,205		988
Total deferred tax assets	77,762		39,443
Deferred tax liabilities:
Loan origination fees and costs	(1,320)		(253)
Right of use asset	(8,646)		(8,589)
Depreciation of assets	(2,139)		(1,725)
Section 197 intangibles	(1,717)		(1,107)
Other	(197)		(308)
Total deferred tax liabilities	(14,019)		(11,982)
Net deferred tax asset	$	63,743	$	27,461

The Company has approximately $0.9 million of Pennsylvania net operating losses which begin to expire in 2034 and the Company expects to fully utilize the losses prior to expiration.

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. Based on our evaluation, as of December 31, 2022, 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 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, 2022. We do not expect the total amount of unrecognized tax benefits to significantly increase in the next twelve months. The Company records interest and penalties on unrecognized tax benefits as a component of noninterest expense.

First Commonwealth is subject to routine audits of our tax returns by the Internal Revenue Service (“IRS”) as well as all states in which we conduct business. Generally, tax years prior to the year ended December 31, 2019 are no longer open to examination by federal and state taxing authorities.