ALLOWANCE FOR LOAN AND LEASE LOSSES

Loans and leases. For each reporting period, management maintains the ALLL at a level that it considers sufficient to absorb probable incurred loan and lease losses inherent in the portfolio. Management determines the adequacy of the allowance based on historical loss experience as well as other significant factors such as composition of the portfolio, economic conditions, geographic footprint, the results of periodic internal and external evaluations of delinquent, nonaccrual and classified loans and any other adverse situations that may affect a specific borrower's ability to repay, including the timing of future payments. This evaluation is inherently subjective as it requires utilizing material estimates that may be susceptible to significant change.

The allowance is increased by provision expense and decreased by charge-offs, net of recoveries of amounts previously charged-off. First Financial's policy is to charge-off all or a portion of a loan when, in management's opinion, it is unlikely to collect the principal amount owed in full either through payments from the borrower or from the liquidation of collateral.

In the third quarter of 2015, First Financial closed its merger with Oak Street. Loans acquired in this transaction were recorded at estimated fair value at the acquisition date with no carryover of the related ALLL. See Note 15 - Business Combinations for further detail.

Covered/formerly covered loans. The majority of covered/formerly covered loans are purchased impaired loans, whereby First Financial is required to periodically re-estimate the expected cash flows on the loans. First Financial updated the valuations related to covered/formerly covered loans during the first quarter of 2016. First Financial recognized negative provision expense, or impairment recapture, of $0.1 million and net charge-offs of $0.8 million during the first quarter of 2016, resulting in an ending allowance of $9.4 million at March 31, 2016. For the first quarter of 2015, First Financial recognized negative provision expense on covered loans of $0.3 million and net recoveries of $0.5 million, resulting in an ending allowance of $10.3 million at March 31, 2015.

Changes in the allowance for loan and lease losses were as follows:



	Three months ended
	March 31,
(Dollars in thousands)	2016			2015
Changes in the allowance for loan and lease losses on total loans
Balance at beginning of period	$	53,398		$	52,858
Provision for loan and lease losses	1,655			2,060
Loans charged-off	(2,442		)	(5,044		)
Recoveries	1,121			3,202
Balance at end of period	$	53,732		$	53,076

Year-to-date changes in the allowance for loan and lease losses by loan category were as follows:



	Three months ended March 31, 2016
			Real Estate
(Dollars in thousands)	Comm		Constr			Comm			Resid			Home Equity		Install			Other		Total
Allowance for loan and lease losses:
Balance at beginning of period	$	16,995	$	1,810		$	23,656		$	4,014		$	3,943	$	386		$	2,594	$	53,398
Provision for loan and lease losses	1,432		439			(420		)	8			185		(58		)	69		1,655
Gross charge-offs	479		3			1,262			45			340		73			240		2,442
Recoveries	222		26			442			63			188		99			81		1,121
Total net charge-offs	257		(23		)	820			(18		)	152		(26		)	159		1,321
Ending allowance for loan and lease losses	$	18,170	$	2,272		$	22,416		$	4,040		$	3,976	$	354		$	2,504	$	53,732

Ending allowance balance attributable to loans
Individually evaluated for impairment	$	400	$	0		$	763		$	236		$	2	$	0		$	0	$	1,401
Collectively evaluated for impairment	17,770		2,272			21,653			3,804			3,974		354			2,504		52,331
Ending allowance for loan and lease losses	$	18,170	$	2,272		$	22,416		$	4,040		$	3,976	$	354		$	2,504	$	53,732

Loans
Loans individually evaluated for impairment	$	14,485	$	0		$	22,977		$	8,663		$	5,669	$	219		$	121	$	52,134
Loans collectively evaluated for impairment	1,730,247		341,453			2,238,880			499,849			460,341		41,408			140,297		5,452,475
Total loans	$	1,744,732	$	341,453		$	2,261,857		$	508,512		$	466,010	$	41,627		$	140,418	$	5,504,609



	Three months ended March 31, 2015
				Real Estate
(Dollars in thousands)	Comm			Constr			Comm		Resid		Home Equity		Install		Other		Total
Allowance for loan and lease losses:
Balance at beginning of period	$	13,870		$	1,045		$	27,086	$	3,753	$	4,260	$	407	$	2,437	$	52,858
Provision for loan and lease losses	1,059			147			112		70		472		61		139		2,060
Gross charge-offs	1,568			0			1,870		404		741		167		294		5,044
Recoveries	2,183			45			491		64		288		86		45		3,202
Total net charge-offs	(615		)	(45		)	1,379		340		453		81		249		1,842
Ending allowance for loan and lease losses	$	15,544		$	1,237		$	25,819	$	3,483	$	4,279	$	387	$	2,327	$	53,076

	December 31, 2015
				Real Estate
(Dollars in thousands)	Comm			Constr			Comm		Resid		Home Equity		Install		Other		Total
Ending allowance balance attributable to loans
Individually evaluated for impairment	$	357		$	0		$	979	$	235	$	2	$	0	$	0	$	1,573
Collectively evaluated for impairment	16,638			1,810			22,677		3,779		3,941		386		2,594		51,825
Ending allowance for loan and lease losses	$	16,995		$	1,810		$	23,656	$	4,014	$	3,943	$	386	$	2,594	$	53,398

Loans
Loans individually evaluated for impairment	$	17,411		$	0		$	24,652	$	8,994	$	5,441	$	253	$	122	$	56,873
Loans collectively evaluated for impairment	1,645,691			311,712			2,233,645		503,317		461,188		41,253		135,081		5,331,887
Total loans	$	1,663,102		$	311,712		$	2,258,297	$	512,311	$	466,629	$	41,506	$	135,203	$	5,388,760