RETIREMENT PLANS:

Employees of the Corporation are covered by a retirement program that consists of a defined benefit plan and an employee stock ownership plan (ESOP). Plan assets consist primarily of the Corporation's stock and obligations of U.S. Government agencies. Benefits under the defined benefit plan are actuarially determined based on an employee's service and compensation, as defined, and funded as necessary. This plan was frozen for the majority of employees as of December 31, 2012.Those employees will be eligible to participate in a 401K plan that the Corporation can contribute a discretionary match of the pay contributed by the employee. In addition the ESOP plan will continue in place for all employees.

Assets in the ESOP are considered in calculating the funding to the defined benefit plan required to provide such benefits. Any shortfall of benefits under the ESOP are to be provided by the defined benefit plan. The ESOP may provide benefits beyond those determined under the defined benefit plan. Contributions to the ESOP are determined by the Corporation's Board of Directors. The Corporation made contributions to the defined benefit plan of $2.26 million, $2.55 million and $2.70 million in 2018, 2017 and 2016. The Corporation contributed $1.09 million, $1.06 million and $1.36 million to the ESOP in 2018, 2017 and 2016. There were contributions of $735 thousand, $676 thousand and $872 thousand to the ESOP for employees no longer participating in the defined benefit plan in 2018, 2017 and 2016 respectively.

The Corporation uses a measurement date of December 31.

Net periodic benefit cost and other amounts recognized in other comprehensive income included the following components:



(Dollar amounts in thousands)	2018			2017			2016
Service cost - benefits earned	$	1,388		$	1,432		$	1,882
Interest cost on projected benefit obligation	3,194			3,621			3,729
Expected return on plan assets	(3,962		)	(3,940		)	(3,429		)
Net amortization and deferral	1,448			1,205			1,936
Net periodic pension cost	2,068			2,318			4,118
Net loss (gain) during the period	(1,192		)	5,366			(6,150		)
Amortization of prior service cost	(1		)	(1		)	(1		)
Amortization of unrecognized gain (loss)	(1,447		)	(1,204		)	(1,935		)
Total recognized in other comprehensive (income) loss	(2,640		)	4,161			(8,086		)
Total recognized net periodic pension cost and other comprehensive income	$	(572	)	$	6,479		$	(3,968	)

The estimated net loss and prior service costs (credits) for the defined benefit pension plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $1.6 million and $1 thousand.

The information below sets forth the change in projected benefit obligation, reconciliation of plan assets, and the funded status of the Corporation's retirement program. Actuarial present value of benefits is based on service to date and present pay levels.



(Dollar amounts in thousands)	2018			2017
Change in benefit obligation:
Benefit obligation at January 1	$	98,096		$	93,233
Service cost	1,388			1,432
Interest cost	3,194			3,621
Actuarial (gain) loss	(10,618		)	5,305
Benefits paid	(4,264		)	(5,495		)
Benefit obligation at December 31	87,796			98,096
Reconciliation of fair value of plan assets:
Fair value of plan assets at January 1	71,449			70,132
Actual return on plan assets	(5,464		)	3,879
Employer contributions	2,614			2,933
Benefits paid	(4,264		)	(5,495		)
Fair value of plan assets at December 31	64,335			71,449
Funded status at December 31 (plan assets less benefit obligation)	$	(23,461	)	$	(26,647	)

Amounts recognized in accumulated other comprehensive income at December 31, 2018 and 2017 consist of:



(Dollar amounts in thousands)	2018		2017
Net loss (gain)	$	22,982	$	25,621
Prior service cost (credit)	2		3
	$	22,984	$	25,624

The accumulated benefit obligation for the defined benefit pension plan was $83.9 million and $93.3 million at year-end

2018 and 2017.



Principal assumptions used to determine pension benefit obligation at year end:	2018		2017
Discount rate	4.22	%	3.60	%
Rate of increase in compensation levels	3.00		3.00



Principal assumptions used to determine net periodic pension cost:	2018		2017
Discount rate	3.60	%	4.14	%
Rate of increase in compensation levels	3.00		3.00
Expected long-term rate of return on plan assets	6.00		6.00

The expected long-term rate of return was estimated using market benchmarks for equities and bonds applied to the plan's target asset allocation. Management estimated the rate by which plan assets would perform based on historical experience as adjusted for changes in asset allocations and expectations for future return on equities as compared to past periods.

Plan Assets — The Corporation's pension plan weighted-average asset allocation for the years 2018 and 2017 by asset category are as follows:



	Pension Plan Target Allocation	ESOP Target Allocation	Pension Percentage of Plan Assets at December 31,				ESOP Percentage of Plan Assets at December 31,
ASSET CATEGORY	2018	2018	2018		2017		2018		2017
Equity securities	25-75%	95-99%	65	%	72	%	99	%	98	%
Debt securities	0-50%	0-0%	31	%	25	%	—	%	—	%
Other	0-20%	0-5%	4	%	3	%	1	%	2	%
TOTAL			100	%	100	%	100	%	100	%

Fair Value of Plan Assets — Fair value is the exchange price that would be received for an asset in the principal or most advantageous market for the asset in an orderly transaction between market participants on the measurement date. It also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The Corporation used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:

Equity, Debt, Investment Funds and Other Securities — The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).

The fair value of the plan assets at December 31, 2018 and 2017, by asset category, is as follows:



			Fair Value Measurements at December 31, 2018 Using:
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Observable Inputs
(Dollar amounts in thousands)	Total		(Level 1)		(Level 2)		(Level 3)
Plan assets
Equity securities	$	43,931	$	43,931	$	—	$	—
Debt securities	10,652		—		10,652		—
Investment Funds	9,752		9,752		—		—
Total plan assets	$	64,335	$	53,683	$	10,652	$	—



			Fair Value Measurements at December 31, 2017 Using:
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Observable Inputs
(Dollar amounts in thousands)	Total		(Level 1)		(Level 2)		(Level 3)
Plan assets
Equity securities	$	48,152	$	48,152	$	—	$	—
Debt securities	10,717		—		10,717		—
Investment Funds	12,580		12,580		—		—
Total plan assets	$	71,449	$	60,732	$	10,717	$	—

The investment objective for the retirement program is to maximize total return without exposure to undue risk. Asset allocation favors equities. This target includes the Corporation's ESOP, which is fully invested in corporate stock. Other investment allocations include fixed income securities and cash.

The plan is prohibited from investing in the following: private placement equity and debt transactions; letter stock and uncovered options; short-sale margin transactions and other specialized investment activity; and fixed income or interest rate futures. All other investments not prohibited by the plan are permitted.

Equity securities in the defined benefit plan include First Financial Corporation common stock in the amount of $18.0 million (28 percent of total plan assets) and $21.4 million (30 percent of total plan assets) at December 31, 2018 and 2017, respectively. In addition the ESOP for non plan participants holds an estimated $3.8 million and $3.8 million of First Financial Corporation stock at December 31, 2018 and December 31, 2017 respectively. Other equity securities are predominantly stocks in large cap U.S. companies.

Contributions — The Corporation expects to contribute $1.8 million to its pension plan and $814 thousand to its ESOP in 2019.

Estimated Future Payments — The following benefit payments, which reflect expected future service, are expected:



PENSION BENEFITS
(Dollar amounts in thousands)
2019	$	4,692
2020	4,843
2021	5,034
2022	5,221
2023	5,391
2024-2028	28,701

Supplemental Executive Retirement Plan — The Corporation has established a Supplemental Executive Retirement Plan (SERP) for certain executive officers. The provisions of the SERP allow the Plan's participants who are also participants in the Corporation's defined benefit pension plan to receive supplemental retirement benefits to help recompense for benefits lost due to the imposition of IRS limitations on benefits under the Corporation's tax qualified defined benefit pension plan. Expenses related to the plan were $411 thousand in 2018 and $321 thousand in 2017 and $418 thousand in 2016.The plan is unfunded and has a measurement date of December 31. The amounts recognized in other comprehensive income in the current year are as follows:



(Dollar amounts in thousands)	2018			2017		2016
Net loss (gain) during the period	$	260		$	527	$	(511	)
Amortization of prior service cost	—			—		—
Amortization of unrecognized gain (loss)	(51		)	—		(57		)
Total recognized in other comprehensive (income) loss	$	209		$	527	$	(568	)

The Corporation has $5.0 million and $4.4 million recognized in the balance sheet as a liability at December 31, 2018 and 2017. Amounts in accumulated other comprehensive income consist of $1.1 million net loss at December 31, 2018 and $859 thousand net loss at December 31, 2017. The estimated loss for the SERP that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $75 thousand.

Estimated Future Payments — The following benefit payments, which reflect expected future service, are expected:



(Dollar amounts on thousands)
2019	$	—
2020	199
2021	388
2022	379
2023	368
2024-2028	1,994

Post-retirement medical benefits — The Corporation also provides medical benefits to certain employees subsequent to their retirement. The Corporation uses a measurement date of December 31. Accrued post-retirement benefits as of December 31, 2018 and 2017 are as follows:



	December 31,
(Dollar amounts in thousands)	2018			2017
Change in benefit obligation:
Benefit obligation at January 1	$	4,361		$	4,276
Service cost	42			53
Interest cost	131			172
Plan participants' contributions	83			75
Actuarial (gain) loss	(872		)	83
Benefits paid	(325		)	(298		)
Benefit obligation at December 31	$	3,420		$	4,361
Funded status at December 31	$	3,420		$	4,361

Amounts recognized in accumulated other comprehensive income consist of a net gain of $615 thousand at December 31, 2018 and $257 thousand net loss at December 31, 2017. The post-retirement benefits paid in 2018 and 2017 of $325 thousand and $298 thousand, respectively, were fully funded by company and participant contributions.

There is no estimated transition obligation for the post-retirement benefit plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year.

Weighted average assumptions at December 31:



	December 31,
	2018		2017
Discount rate	4.22	%	3.60	%
Initial weighted health care cost trend rate	5.00	%	5.00	%
Ultimate health care cost trend rate	5.00		5.00
Year that the rate is assumed to stabilize and remain unchanged	2019		2018

Post-retirement health benefit expense included the following components:



	Years Ended December 31,
(Dollar amounts in thousands)	2018			2017		2016
Service cost	$	42		$	53	$	55
Interest cost	131			172		186
Net periodic benefit cost	173			225		241
Net loss (gain) during the period	(872		)	83		(144		)
Total recognized in other comprehensive income (loss)	(872		)	83		(144		)
Total recognized net periodic benefit cost and other comprehensive income	$	(699	)	$	308	$	97

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in the assumed health care cost trend rates would have the following effects:



	1% Point		1% Point
(Dollar amounts in thousands)	Increase		Decrease
Effect on total of service and interest cost components	$	1	$	1
Effect on post-retirement benefit obligation	16		15

Contributions — The Corporation expects to contribute $233 thousand to its other post-retirement benefit plan in 2019.

Estimated Future Payments — The following benefit payments, which reflect expected future service, are expected:



(Dollar amounts in thousands)
2019	$	233
2020	233
2021	228
2022	228
2023	230
2024-2028	1,119