| ALLOWANCE FOR LOAN AND LEASE LOSSES |
ALLOWANCE FOR LOAN AND LEASE LOSSES
Loans and leases. 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 ALLL 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.
The ALLL 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 third quarter of 2016.
Changes in the allowance for loan and lease losses were as follows: | | | | | | | | | | | | | | | | | | | | Three months ended | | Nine months ended | | | September 30, | | September 30, | (Dollars in thousands) | | 2016 | | 2015 | | 2016 | | 2015 | Changes in the allowance for loan and lease losses on loans, excluding covered/formerly covered loans | Balance at beginning of period | | $ | 46,931 |
| | $ | 42,128 |
| | $ | 43,149 |
| | $ | 42,820 |
| Provision for loan and lease losses | | 1,886 |
| | 1,382 |
| | 7,381 |
| | 6,114 |
| Loans charged-off | | (1,131 | ) | | (2,385 | ) | | (4,547 | ) | | (9,200 | ) | Recoveries | | 1,206 |
| | 1,194 |
| | 2,909 |
| | 2,585 |
| Balance at end of period | | $ | 48,892 |
| | $ | 42,319 |
| | $ | 48,892 |
| | $ | 42,319 |
| | | | | | | | | | Changes in the allowance for loan and lease losses on covered/formerly covered loans | Balance at beginning of period | | $ | 9,777 |
| | $ | 10,748 |
| | $ | 10,249 |
| | $ | 10,038 |
| Provision for loan and lease losses | | (199 | ) | | 1,265 |
| | (2 | ) | | 1,663 |
| Loans charged-off | | (1,419 | ) | | (1,577 | ) | | (3,147 | ) | | (5,078 | ) | Recoveries | | 567 |
| | 577 |
| | 1,626 |
| | 4,390 |
| Balance at end of period | | $ | 8,726 |
| | $ | 11,013 |
| | $ | 8,726 |
| | $ | 11,013 |
| | | | | | | | | | Changes in the allowance for loan and lease losses | | | | | | | Balance at beginning of period | | $ | 56,708 |
| | $ | 52,876 |
| | $ | 53,398 |
| | $ | 52,858 |
| Provision for loan and lease losses | | 1,687 |
| | 2,647 |
| | 7,379 |
| | 7,777 |
| Loans charged-off | | (2,550 | ) | | (3,962 | ) | | (7,694 | ) | | (14,278 | ) | Recoveries | | 1,773 |
| | 1,771 |
| | 4,535 |
| | 6,975 |
| Balance at end of period | | $ | 57,618 |
| | $ | 53,332 |
| | $ | 57,618 |
| | $ | 53,332 |
|
Changes in the allowance for loan and lease losses by loan category were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three months ended September 30, 2016 | | | | | Real Estate | | | | | | | | | (Dollars in thousands) | | Commercial and industrial | | Construction | | Commercial | | Residential | | Home Equity | | Installment | | Other | | Total | Allowance for loan and lease losses: | | | | | | | | | | | | | | | | | Balance at beginning of period | | $ | 20,897 |
| | $ | 2,893 |
| | $ | 22,784 |
| | $ | 3,292 |
| | $ | 3,002 |
| | $ | 383 |
| | $ | 3,457 |
| | $ | 56,708 |
| Provision for loan and lease losses | | (720 | ) | | 232 |
| | 2,628 |
| | (13 | ) | | 275 |
| | 168 |
| | (883 | ) | | 1,687 |
| Gross charge-offs | | (296 | ) | | (64 | ) | | (1,135 | ) | | (90 | ) | | (475 | ) | | (223 | ) | | (267 | ) | | (2,550 | ) | Recoveries | | 327 |
| | 6 |
| | 997 |
| | 38 |
| | 257 |
| | 56 |
| | 92 |
| | 1,773 |
| Total net charge-offs | | 31 |
| | (58 | ) | | (138 | ) | | (52 | ) | | (218 | ) | | (167 | ) | | (175 | ) | | (777 | ) | Ending allowance for loan and lease losses | | $ | 20,208 |
| | $ | 3,067 |
| | $ | 25,274 |
| | $ | 3,227 |
| | $ | 3,059 |
| | $ | 384 |
| | $ | 2,399 |
| | $ | 57,618 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three months ended September 30, 2015 | | | | | Real Estate | | | | | | | | | (Dollars in thousands) | | Commercial and industrial | | Construction | | Commercial | | Residential | | Home Equity | | Installment | | Other | | Total | Allowance for loan and lease losses: | | | | | | | | | | | | | | | | | Balance at beginning of period | | $ | 16,775 |
| | $ | 1,385 |
| | $ | 24,357 |
| | $ | 3,214 |
| | $ | 4,386 |
| | $ | 387 |
| | $ | 2,372 |
| | $ | 52,876 |
| Provision for loan and lease losses | | 1,303 |
| | 153 |
| | (339 | ) | | 1,224 |
| | (724 | ) | | 864 |
| | 166 |
| | 2,647 |
| Loans charged off | | (1,808 | ) | | (85 | ) | | (1,082 | ) | | (288 | ) | | (268 | ) | | (155 | ) | | (276 | ) | | (3,962 | ) | Recoveries | | 374 |
| | 87 |
| | 691 |
| | 237 |
| | 236 |
| | 94 |
| | 52 |
| | 1,771 |
| Total net charge-offs | | (1,434 | ) | | 2 |
| | (391 | ) | | (51 | ) | | (32 | ) | | (61 | ) | | (224 | ) | | (2,191 | ) | Ending allowance for loan and lease losses | | $ | 16,644 |
| | $ | 1,540 |
| | $ | 23,627 |
| | $ | 4,387 |
| | $ | 3,630 |
| | $ | 1,190 |
| | $ | 2,314 |
| | $ | 53,332 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Nine months ended September 30, 2016 | | | | | Real Estate | | | | | | | | | (Dollars in thousands) | | Commercial and industrial | | Construction | | Commercial | | Residential | | Home Equity | | Installment | | 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 | | 3,284 |
| | 1,118 |
| | 3,491 |
| | (806 | ) | | (247 | ) | | 107 |
| | 432 |
| | 7,379 |
| Loans charged off | | (1,040 | ) | | (95 | ) | | (3,993 | ) | | (163 | ) | | (1,213 | ) | | (326 | ) | | (864 | ) | | (7,694 | ) | Recoveries | | 969 |
| | 234 |
| | 2,120 |
| | 182 |
| | 576 |
| | 217 |
| | 237 |
| | 4,535 |
| Total net charge-offs | | (71 | ) | | 139 |
| | (1,873 | ) | | 19 |
| | (637 | ) | | (109 | ) | | (627 | ) | | (3,159 | ) | Ending allowance for loan and lease losses | | $ | 20,208 |
| | $ | 3,067 |
| | $ | 25,274 |
| | $ | 3,227 |
| | $ | 3,059 |
| | $ | 384 |
| | $ | 2,399 |
| | $ | 57,618 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | September 30, 2016 | | | | | Real Estate | | | | | | | | | | | Commercial and industrial | | Construction | | Commercial | | Residential | | Home Equity | | Installment | | Other | | Total | Ending allowance balance attributable to loans | | | | | | | | | | | | | | | Individually evaluated for impairment | | $ | 777 |
| | $ | 0 |
| | $ | 1,019 |
| | $ | 179 |
| | $ | 2 |
| | $ | 0 |
| | $ | 0 |
| | $ | 1,977 |
| Collectively evaluated for impairment | | 19,431 |
| | 3,067 |
| | 24,255 |
| | 3,048 |
| | 3,057 |
| | 384 |
| | 2,399 |
| | 55,641 |
| Ending allowance for loan and lease losses | | $ | 20,208 |
| | $ | 3,067 |
| | $ | 25,274 |
| | $ | 3,227 |
| | $ | 3,059 |
| | $ | 384 |
| | $ | 2,399 |
| | $ | 57,618 |
| | | | | | | | | | | | | | | | | | Loans | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| Loans individually evaluated for impairment | | $ | 14,799 |
| | $ | 0 |
| | $ | 21,196 |
| | $ | 9,285 |
| | $ | 4,587 |
| | $ | 384 |
| | $ | 214 |
| | $ | 50,465 |
| Loans collectively evaluated for impairment | | 1,767,983 |
| | 380,349 |
| | 2,446,887 |
| | 498,430 |
| | 459,115 |
| | 47,441 |
| | 138,841 |
| | 5,739,046 |
| Total loans | | $ | 1,782,782 |
| | $ | 380,349 |
| | $ | 2,468,083 |
| | $ | 507,715 |
| | $ | 463,702 |
| | $ | 47,825 |
| | $ | 139,055 |
| | $ | 5,789,511 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Nine months ended September 30, 2015 | | | | | Real Estate | | | | | | | | | (Dollars in thousands) | | Commercial and industrial | | Construction | | Commercial | | Residential | | Home Equity | | Installment | | 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 | | 4,522 |
| | 431 |
| | (78 | ) | | 1,739 |
| | (269 | ) | | 916 |
| | 516 |
| | 7,777 |
| Loans charged off | | (4,631 | ) | | (85 | ) | | (5,668 | ) | | (1,449 | ) | | (1,258 | ) | | (380 | ) | | (807 | ) | | (14,278 | ) | Recoveries | | 2,883 |
| | 149 |
| | 2,287 |
| | 344 |
| | 897 |
| | 247 |
| | 168 |
| | 6,975 |
| Total net charge-offs | | (1,748 | ) | | 64 |
| | (3,381 | ) | | (1,105 | ) | | (361 | ) | | (133 | ) | | (639 | ) | | (7,303 | ) | Ending allowance for loan and lease losses | | $ | 16,644 |
| | $ | 1,540 |
| | $ | 23,627 |
| | $ | 4,387 |
| | $ | 3,630 |
| | $ | 1,190 |
| | $ | 2,314 |
| | $ | 53,332 |
| | | | | | | | | | | | | | | | | | | | December 31, 2015 | | | | | Real Estate | | | | | | | | | (Dollars in thousands) | | Commercial and industrial | | Construction | | Commercial | | Residential | | Home Equity | | Installment | | 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 |
|
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