Income Taxes

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



	2015		2014		2013
	(dollars in thousands)
Current tax provision for income exclusive of securities transactions:
Federal	$	8,610	$	12,661	$	2,509
State	68		157		68
Total current tax provision	8,678		12,818		2,577
Deferred tax provision	12,158		4,862		12,704
Total tax provision	$	20,836	$	17,680	$	15,281

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



	2015					2014					2013
	Amount			% of Pretax Income		Amount			% of Pretax Income		Amount			% of Pretax Income
	(dollars in thousands)
Tax at statutory rate	$	24,843		35	%	$	21,747		35	%	$	19,867		35	%
Increase (decrease) resulting from:
Income from bank owned life insurance	(1,894		)	(3	)	(1,926		)	(3	)	(1,939		)	(3	)
Tax-exempt interest income, net	(2,232		)	(3	)	(2,133		)	(4	)	(2,600		)	(5	)
Tax credits	(61		)	—		(134		)	—		(144		)	—
Other	180			—		126			—		97			—
Total tax provision	$	20,836		29	%	$	17,680		28	%	$	15,281		27	%

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 29%, 28% and 27% for the years ended December 31, 2015, 2014 and 2013, 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:



	2015			2014
	(dollars in thousands)
Deferred tax assets:
Allowance for credit losses	$	17,784		$	18,218
Postretirement benefits other than pensions	641			679
Alternative minimum tax credit carryforward	5,065			8,627
Litigation reserve	0			3,000
Unrealized loss on securities available for sale	1,291			2,463
Writedown of other real estate owned	1,087			603
Deferred compensation	2,113			2,246
Accrued interest on nonaccrual loans	1,452			1,059
Other-than-temporary impairment of securities	89			9,239
Depreciation of assets	879			1,127
Accrued incentives	1,629			1,594
Unfunded loan commitment allowance	1,557			1,078
Accrued severance	808			160
Basis difference in assets acquired	417			—
Loan origination fees and costs	141			—
Deferred rent	1,258			969
Other	1,105			1,194
Total deferred tax assets	37,316			52,256
Deferred tax liabilities:
Basis difference in assets acquired	—			(344		)
Loan origination fees and costs	—			(1,337		)
Income from unconsolidated subsidiary	(619		)	(603		)
Other	(337		)	(318		)
Total deferred tax liabilities	(956		)	(2,602		)
Net deferred tax asset	$	36,360		$	49,654

The net deferred tax asset of $36.4 million as of December 31, 2015 includes a $5.1 million alternative minimum tax credit carryforward with an indefinite life. The significant decrease in the deferred tax asset for other-than-temporary impairment of securities is due to previously recorded impairment charges on trust preferred debt securities being deducted on the 2014 federal tax return based on newly issued IRS guidance.

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, 2015, 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, 2015. 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. During 2015, the IRS completed an examination of our 2013 federal tax return. The examination was closed with no adjustments. Federal and state income tax years 2012 through 2014 are open for examination as of December 31, 2015.