Note 22—Income Taxes

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


	2011			2010			2009
	(dollars in thousands)
Current tax provision for income exclusive of securities transactions:
Federal	$	651		$	3,794		$	3,123
State		161			59			164

Total current tax provision		812			3,853			3,287
Deferred tax benefit		(1,192	)		(3,614	)		(29,108	)

Total tax (benefit) provision	$	(380	)	$	239		$	(25,821	)

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


	2011						2010						2009
	Amount			% of Pretax Income			Amount			% of Pretax Income			Amount			% of Pretax Income
	(dollars in thousands)
Tax at statutory rate	$	5,213			35	%	$	8,126			35	%	$	(16,060	)		35	%
Decrease resulting from:
Income from bank owned life insurance		(1,959	)		(13	)		(1,866	)		(8	)		(1,555	)		3
Tax-exempt income, net		(3,453	)		(23	)		(5,688	)		(25	)		(7,537	)		16
Tax credits		(270	)		(2	)		(304	)		(1	)		(447	)		1
Other		89			0			(29	)		0			(222	)		1

Total tax (benefit) provision	$	(380	)		(3	)%	$	239			1	%	$	(25,821	)		56	%

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, coupled with the relatively low level of annual pretax income produced a low tax benefit for the year ended December 31, 2011 and a low tax provision for the year ended December 31, 2010.

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:


	2011			2010
	(dollars in thousands)
Deferred tax assets:
Allowance for credit losses	$	21,432		$	24,930
Postretirement benefits other than pensions		841			933
Alternative minimum tax credit carryforward		15,247			14,764
Net operating loss carryforward		1,626			0
Writedown of other real estate owned		2,876			780
Other tax credit carryforward		1,383			1,034
Deferred compensation		2,215			2,115
Swap credit risk		1,037			254
Loan origination fees and costs		0			110
Accrued interest on nonaccrual loans		3,161			2,543
Low income housing partnership investments		44			204
Other-than-temporary impairment of securities		15,764			16,570
Unrealized loss on securities available for sale		0			1,589
Capitalization of OREO expenses		826			446
Depreciation of assets		0			683
Unfunded loan commitment allowance		536			507
Other		2,778			2,309

Total deferred tax assets		69,766			69,771
Deferred tax liabilities:
Basis difference in assets acquired		(1,213	)		(1,429	)
Loan origination fees and costs		(392	)		0
Unfunded postretirement obligation		(179	)		(269	)
Accumulated accretion of bond discount		(18	)		(49	)
Income from unconsolidated subsidiary		(551	)		(542	)
Unrealized gain on securities available for sale		(898	)		0
Depreciation of assets		(242	)		0
Other		(1	)		(1	)

Total deferred tax liabilities		(3,494	)		(2,290	)

Net deferred tax asset	$	66,272		$	67,481

The net deferred tax asset of $66.3 million as of December 31, 2011 includes a $15.2 million alternative minimum tax credit carryforward with an indefinite life and a $1.4 million tax credit carryforward, of which $0.2 million expires in 2028, $0.5 million expires in 2029, $0.3 million expires in 2030 and $0.4 million expires in 2031. There is also a $15.8 million deferred tax asset for other-than-temporary impairment of securities, of which $0.2 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 of $177.0, 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, 2011, 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, 2011. 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 2008 through 2010 are open for examination as of December 31, 2011.