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 $1.77 million, $2.26 million and $2.55 million in 2019, 2018 and 2017. The Corporation contributed $1.25 million, $1.09 million and $1.06 million to the ESOP in 2019, 2018 and 2017. There were contributions of $926 thousand, $735 thousand and $676 thousand to the ESOP for employees no longer participating in the defined benefit plan in 2019, 2018 and 2017 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)	2019			2018			2017
Service cost - benefits earned	$	1,218		$	1,388		$	1,432
Interest cost on projected benefit obligation	3,465			3,194			3,621
Expected return on plan assets	(3,585		)	(3,962		)	(3,940		)
Net amortization and deferral	1,558			1,448			1,205
Net periodic pension cost	2,656			2,068			2,318
Net loss (gain) during the period	6,362			(1,192		)	5,366
Amortization of prior service cost	(1		)	(1		)	(1		)
Amortization of unrecognized gain (loss)	(1,558		)	(1,447		)	(1,204		)
Total recognized in other comprehensive (income) loss	4,803			(2,640		)	4,161
Total recognized net periodic pension cost and other comprehensive income	$	7,459		$	(572	)	$	6,479

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 $2.0 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)	2019			2018
Change in benefit obligation:
Benefit obligation at January 1	$	87,796		$	98,096
Service cost	1,218			1,388
Interest cost	3,465			3,194
Actuarial (gain) loss	14,233			(10,618		)
Benefits paid	(3,921		)	(4,264		)
Benefit obligation at December 31	102,791			87,796
Reconciliation of fair value of plan assets:
Fair value of plan assets at January 1	64,335			71,449
Actual return on plan assets	11,456			(5,464		)
Employer contributions	2,092			2,614
Benefits paid	(3,921		)	(4,264		)
Fair value of plan assets at December 31	73,962			64,335
Funded status at December 31 (plan assets less benefit obligation)	$	(28,829	)	$	(23,461	)

Amounts recognized in accumulated other comprehensive income at December 31, 2019 and 2018 consist of:



(Dollar amounts in thousands)	2019		2018
Net loss (gain)	$	27,786	$	22,982
Prior service cost (credit)	2		2
	$	27,788	$	22,984

The accumulated benefit obligation for the defined benefit pension plan was $98.4 million and $83.9 million at year-end

2019 and 2018.



Principal assumptions used to determine pension benefit obligation at year end:	2019		2018
Discount rate	3.22	%	4.22	%
Rate of increase in compensation levels	3.00		3.00



Principal assumptions used to determine net periodic pension cost:	2019		2018
Discount rate	4.22	%	3.60	%
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 2019 and 2018 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	2019	2019	2019		2018		2019		2018
Equity securities	25-75%	95-99%	63	%	65	%	98	%	99	%
Debt securities	0-50%	0-0%	33	%	31	%	—	%	—	%
Other	0-20%	0-5%	4	%	4	%	2	%	1	%
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, 2019 and 2018, by asset category, is as follows:



			Fair Value Measurements at December 31, 2019 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	$	51,334	$	51,334	$	—	$	—
Debt securities	13,104		—		13,104		—
Investment Funds	9,524		9,524		—		—
Total plan assets	$	73,962	$	60,858	$	13,104	$	—



			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	$	—

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 $19.8 million (27 percent of total plan assets) and $18.0 million (28 percent of total plan assets) at December 31, 2019 and 2018, respectively. In addition the ESOP for non plan participants holds an estimated $5.1 million and $3.8 million of First Financial Corporation stock at December 31, 2019 and December 31, 2018 respectively. Other equity securities are predominantly stocks in large cap U.S. companies.

Contributions — The Corporation expects to contribute $3.7 million to its pension plan and $736 thousand to its ESOP in 2020.

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



PENSION BENEFITS
(Dollar amounts in thousands)
2020	$	4,709
2021	4,987
2022	5,213
2023	5,409
2024	5,567
2025-2029	29,531

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 $339 thousand in 2019 and $411 thousand in 2018 and $321 thousand in 2017.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)	2019			2018			2017
Net loss (gain) during the period	$	1,357		$	260		$	527
Amortization of prior service cost	—			—			—
Amortization of unrecognized gain (loss)	(75		)	(51		)	—
Total recognized in other comprehensive (income) loss	$	1,282		$	209		$	527

The Corporation has $6.7 million and $5.0 million recognized in the balance sheet as a liability at December 31, 2019 and 2018. Amounts in accumulated other comprehensive income consist of $2.4 million net loss at December 31, 2019 and $1.1 million net loss at December 31, 2018. 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 $247 thousand.

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



(Dollar amounts on thousands)
2020	$	—
2021	203
2022	399
2023	390
2024	380
2025-2029	3,104

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, 2019 and 2018 are as follows:



	December 31,
(Dollar amounts in thousands)	2019			2018
Change in benefit obligation:
Benefit obligation at January 1	$	3,420		$	4,361
Service cost	34			42
Interest cost	145			131
Plan participants' contributions	65			83
Actuarial (gain) loss	626			(872		)
Benefits paid	(315		)	(325		)
Benefit obligation at December 31	$	3,975		$	3,420
Funded status at December 31	$	3,975		$	3,420

Amounts recognized in accumulated other comprehensive income consist of a net loss of $27 thousand at December 31, 2019 and $615 thousand net gain at December 31, 2018. The post-retirement benefits paid in 2019 and 2018 of $315 thousand and $325 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,
	2019		2018
Discount rate	3.22	%	4.22	%
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	2020		2019

Post-retirement health benefit expense included the following components:



	Years Ended December 31,
(Dollar amounts in thousands)	2019			2018			2017
Service cost	$	34		$	42		$	53
Interest cost	146			131			172
Amortization of net actuarial loss (gain)	(16		)	—			—
Net periodic benefit cost	164			173			225
Net loss (gain) during the period	626			(872		)	83
Amortization of prior service cost	16			—			—
Total recognized in other comprehensive income (loss)	642			(872		)	83
Total recognized net periodic benefit cost and other comprehensive income	$	806		$	(699	)	$	308

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	17		16

Contributions — The Corporation expects to contribute $251 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)
2020	$	251
2021	245
2022	246
2023	248
2024	251
2025-2029	1,187