ALLOWANCE FOR LOAN AND LEASE LOSSES

Loans, excluding covered loans. For each reporting period, management maintains the allowance for loan and lease losses at a level that it considers sufficient to absorb probable loan and lease losses inherent in the portfolio. There were no material changes to First Financial's accounting policies or methodology related to the allowance for loan and lease losses during the first three months of 2014.

The allowance is increased by provision expense and decreased by actual 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.

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



	Three months ended
	March 31,
(Dollars in thousands)	2014			2013
Balance at beginning of period	$	43,829		$	47,777
Provision for loan and lease losses	1,159			3,041
Loans charged off	(2,424		)	(3,210		)
Recoveries	459			698
Balance at end of period	$	43,023		$	48,306
Allowance for loan and lease losses to total ending loans	1.19		%	1.49		%

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



	Three Months Ended March 31, 2014
			Real Estate
(Dollars in thousands)	Commercial		Construction			Commercial		Residential		Installment			Home Equity		Other			Total
Allowance for loan and lease losses:
Balance at beginning of period	$	10,568	$	824		$	20,478	$	3,379	$	365		$	5,209	$	3,006		$	43,829
Provision for loan and lease losses	349		(11		)	289		137		(11		)	421		(15		)	1,159
Gross charge-offs	656		0			543		257		128			544		296			2,424
Recoveries	39		0			114		27		77			103		99			459
Total net charge-offs	617		0			429		230		51			441		197			1,965
Ending allowance for loan and lease losses	$	10,300	$	813		$	20,338	$	3,286	$	303		$	5,189	$	2,794		$	43,023
Ending allowance on loans individually evaluated for impairment	$	1,383	$	0		$	2,800	$	368	$	0		$	2	$	0		$	4,553
Ending allowance on loans collectively evaluated for impairment	8,917		813			17,538		2,918		303			5,187		2,794			38,470
Ending allowance for loan and lease losses	$	10,300	$	813		$	20,338	$	3,286	$	303		$	5,189	$	2,794		$	43,023
Loans - excluding covered loans
Ending balance of loans individually evaluated for impairment	$	9,159	$	0		$	16,387	$	3,604	$	114		$	645	$	0		$	29,909
Ending balance of loans collectively evaluated for impairment	1,108,898		87,996			1,497,504		357,067		44,797			373,782		114,250			3,584,294
Total loans - excluding covered loans	$	1,118,057	$	87,996		$	1,513,891	$	360,671	$	44,911		$	374,427	$	114,250		$	3,614,203



	Twelve Months Ended December 31, 2013
			Real Estate
(Dollars in thousands)	Commercial		Construction			Commercial		Residential		Installment			Home Equity		Other		Total
Allowance for loan and lease losses:
Balance at beginning of period	$	7,926	$	3,268		$	24,151	$	3,599	$	522		$	5,173	$	3,138	$	47,777
Provision for loan and lease losses	5,385		(3,115		)	2,659		593		(132		)	1,937		1,387		8,714
Gross charge-offs	3,415		1			8,326		1,016		335			2,409		1,781		17,283
Recoveries	672		672			1,994		203		310			508		262		4,621
Total net charge-offs	2,743		(671		)	6,332		813		25			1,901		1,519		12,662
Ending allowance for loan and lease losses	$	10,568	$	824		$	20,478	$	3,379	$	365		$	5,209	$	3,006	$	43,829
Ending allowance on loans individually evaluated for impairment	$	2,080	$	0		$	2,872	$	348	$	0		$	2	$	0	$	5,302
Ending allowance on loans collectively evaluated for impairment	8,488		824			17,606		3,031		365			5,207		3,006		38,527
Ending allowance for loan and lease losses	$	10,568	$	824		$	20,478	$	3,379	$	365		$	5,209	$	3,006	$	43,829
Loans - excluding covered loans
Ending balance of loans individually evaluated for impairment	$	10,391	$	0		$	18,023	$	3,493	$	122		$	648	$	0	$	32,677
Ending balance of loans collectively evaluated for impairment	1,025,277		80,741			1,478,964		349,438		47,011			375,806		115,727		3,472,964
Total loans - excluding covered loans	$	1,035,668	$	80,741		$	1,496,987	$	352,931	$	47,133		$	376,454	$	115,727	$	3,505,641

Covered Loans. The majority of covered loans are accounted for under FASB ASC Topic 310-30, whereby First Financial is required to periodically re-estimate the expected cash flows on the loans. First Financial updated the valuations related to covered loans during the first quarter 2014 and realized net charge-offs of $6.1 million during the quarter. As a result of improved cash flow expectations from the updated valuations as well as net charge-off activity during the period, First Financial recognized negative provision expense, or impairment recapture, of $2.2 million during the first quarter, resulting in an allowance for covered loan losses of $10.6 million as of March 31, 2014. For the first quarter of 2013, First Financial recognized provision expense on covered loans of $9.0 million related to net charge-offs of $8.7 million during the period.

First Financial also recognized loss sharing expenses of $1.6 million and $2.1 million for the first quarter of 2014 and 2013, respectively, primarily related to attorney fees, appraisal costs, delinquent taxes and gains/losses on covered OREO during the periods. The net payable due to the FDIC under loss sharing agreements related to covered loan provision expense, gains/losses on covered OREO and loss sharing expenses of $0.5 million was recognized as negative FDIC loss sharing income and a corresponding decrease to the FDIC indemnification asset during the first quarter of 2014. The net receivable due from the FDIC under loss sharing agreements of $8.9 million for the first quarter of 2013, was recognized as FDIC loss sharing income and a corresponding increase to the FDIC indemnification asset.

The allowance for loan and lease losses on covered loans is presented in the table below:



(Dollars in thousands)	March 31, 2014		December 31, 2013
Commercial	$	5,079	$	9,400
Real estate - commercial	4,564		8,515
Real estate - residential	719		761
Installment	211		225
Total	$	10,573	$	18,901

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



	Three Months Ended
	March 31,
(Dollars in thousands)	2014			2013
Balance at beginning of period	$	18,901		$	45,190
Provision for loan and lease losses	(2,192		)	9,042
Loans charged-off	(7,240		)	(9,684		)
Recoveries	1,104			948
Balance at end of period	$	10,573		$	45,496