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, 2013.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 $2.11 million, $3.64 million and $7.11 million in 2013, 2012 and 2011. The Corporation contributed $0.58 million, $1.44 million and $1.56 million to the ESOP in 2013, 2012 and 2011. There was a contribution of $629 thousand to the ESOP for employees no longer participating in the defined benefit plan.

The Corporation uses a measurement date of December 31, 2013.

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



(Dollar amounts in thousands)	2013			2012			2011
Service cost - benefits earned	$	2,238		$	4,872		$	3,542
Interest cost on projected benefit obligation	3,383			3,667			3,688
Expected return on plan assets	(3,309		)	(3,258		)	(4,003		)
Net amortization and deferral	2,075			2,434			1,152
Net periodic pension cost	4,387			7,715			4,379
Net loss (gain) during the period	(14,697		)	3,842			17,868
Curtailment gain	—			(5,700		)	—
Amortization of prior service cost	16			(166		)	(166		)
Amortization of unrecognized gain (loss)	(2,091		)	(2,270		)	(986		)
Total recognized in other comprehensive income (loss)	(16,772		)	(4,294		)	16,716
Total recognized net periodic pension cost and other comprehensive income	$	(12,385	)	$	3,421		$	21,095

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 $749 thousand and $(9) 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)	2013			2012
Change in benefit obligation:
Benefit obligation at January 1	$	86,807		$	84,908
Service cost	2,238			4,872
Interest cost	3,383			3,667
Actuarial (gain) loss	(7,098		)	(4,747		)
Benefits paid	(3,861		)	(1,893		)
Benefit obligation at December 31	81,469			86,807
Reconciliation of fair value of plan assets:
Fair value of plan assets at January 1	57,491			53,935
Actual return on plan assets	10,909			371
Employer contributions	2,694			5,078
Benefits paid	(3,861		)	(1,893		)
Fair value of plan assets at December 31	67,233			57,491
Funded status at December 31 (plan assets less benefit obligation)	$	(14,236	)	$	(29,316	)

Amounts recognized in accumulated other comprehensive income at December 31, 2013 and 2012 consist of:



(Dollar amounts in thousands)	2013			2012
Net loss (gain)	$	(14,697	)	$	3,842
Prior service cost (credit)	16			(166		)
	$	(14,681	)	$	3,676

The accumulated benefit obligation for the defined benefit pension plan was $75.7 million and $79.9 million at year-end

2013 and 2012.



Principal assumptions used to determine pension benefit obligation at year end:	2013		2012
Discount rate	4.95	%	4.05	%
Rate of increase in compensation levels	3.50		3.50



Principal assumptions used to determine net periodic pension cost:	2013		2012
Discount rate	4.05	%	4.40	%
Rate of increase in compensation levels	3.50		3.50
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 2013 and 2012 by asset category are as follows:



	Pension Plan Target Allocation	ESOP Target Allocation	Pension Pecentage of Plan Assets at December 31,				ESOP Pecentage of Plan Assets at December 31,
ASSET CATEGORY	2013	2013	2013		2012		2013		2012
Equity securities	40-65%	95-99%	64	%	55	%	99	%	98	%
Debt securities	35-60%	0-0%	34	%	33	%	—	%	—	%
Other	0-10%	0-5%	2	%	12	%	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, 2013 and 2012, by asset category, is as follows:



			Fair Value Measurments at December 31, 2013 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	$	53,112	$	53,112	$	—	$	—
Debt securities	12,015		—		12,015		—
Investment Funds	2,106		2,106		—		—
Total plan assets	$	67,233	$	55,218	$	12,015	$	—



			Fair Value Measurments at December 31, 2012 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	$	43,393	$	43,393	$	—	$	—
Debt securities	10,597		—		10,597		—
Investment Funds	3,501		3,501		—		—
Total plan assets	$	57,491	$	46,894	$	10,597	$	—

The investment objective for the retirement program is to maximize total return without exposure to undue risk. Asset allocation favors equities, with a target allocation of approximately 88%. This target includes the Corporation's ESOP, which is 100% 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 $31.4 million (47 percent of total plan assets) and $27.2 million (49 percent of total plan assets) at December 31, 2013 and 2012, respectively. In addition the ESOP for non plan participants holds $670 thousand of First Financial Corporation stock. Other equity securities are predominantly stocks in large cap U.S. companies.

Contributions — The Corporation expects to contribute $3.2 million to its pension plan and $1.2 million to its ESOP in 2014.

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



PENSION BENEFITS
(Dollar amounts in thousands)
2014	$	4,010
2015	4,235
2016	4,489
2017	4,628
2018	4,752
2019-2023	27,005

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 $341 thousand in 2013 and $163 thousand in 2012. 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)	2013			2012			2011
Net loss (gain) during the period	$	(333	)	$	442		$	486
Amortization of prior service cost	—			—			(74		)
Amortization of unrecognized gain (loss)	(68		)	(79		)	39
Total recognized in other comprehensive income (loss)	$	(401	)	$	363		$	451

The Corporation has $2.4 million and $2.5 million recognized in the balance sheet as a liability at December 31, 2013 and 2012. Amounts in accumulated other comprehensive income consist of $316 thousand net loss at December 31, 2013 and $718 thousand net loss at December 31, 2012. 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 $7 thousand.

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



(Dollar amounts on thousands)
2013	$	—
2014	234
2015	231
2016	227
2017	224
2018-2022	869

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, 2013 and 2012 are as follows:



	December 31,
(Dollar amounts in thousands)	2013			2012
Change in benefit obligation:
Benefit obligation at January 1	$	4,395		$	4,057
Service cost	68			60
Interest cost	173			173
Plan participants' contributions	37			62
Actuarial (gain) loss	(338		)	311
Benefits paid	(247		)	(268		)
Benefit obligation at December 31	$	4,088		$	4,395
Funded status at December 31	$	4,088		$	4,395

Amounts recognized in accumulated other comprehensive income consist of a net loss of $63 thousand December 31, 2013 and $402 thousand net loss and $59 thousand in transition obligation at December 31, 2012. The post-retirement benefits paid in 2013 and 2012 of $247 thousand and $268 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,
	2013		2012
Discount rate	4.95	%	4.05	%
Initial weighted health care cost trend rate	7.50		7.50
Ultimate health care cost trend rate	5.00		5.00
Year that the rate is assumed to stabilize and remain unchanged	2015		2015

Post-retirement health benefit expense included the following components:



	Years Ended December 31,
(Dollar amounts in thousands)	2013			2012			2011
Service cost	$	68		$	60		$	59
Interest cost	173			173			194
Amortization of transition obligation	60			60			60
Recognized actuarial loss	—			—			—
Net periodic benefit cost	$	301		$	293		$	313
Net loss (gain) during the period	$	(338	)	$	311		$	(469	)
Amortization of prior service cost	(59		)	(60		)	(60		)
Total recognized in other comprehensive income (loss)	$	(397	)	$	251		$	(529	)
Total recognized net periodic benefit cost and other comprehensive income	$	(96	)	$	544		$	(216	)

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	$	3	$	2
Effect on post-retirement benefit obligation	56		50

Contributions — The Corporation expects to contribute $248 thousand to its other post-retirement benefit plan in 2014.

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



(Dollar amounts in thousands)
2014	$	248
2015	262
2016	275
2017	277
2018	276
2019-2023	1,396