RETIREMENT PLANS

12 Months Ended

Dec. 31, 2022

RETIREMENT PLANS

RETIREMENT PLANS

16.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 $126 thousand, $2.05 million and $4.44 million in 2022, 2021 and 2020. The Corporation contributed $1.45 million, $1.40 million and $1.47 million to the ESOP in 2022, 2021 and 2020. There were contributions of $1.1 million, $1.1 million and $1.2 million to the ESOP for employees no longer participating in the defined benefit plan in 2022, 2021 and 2020 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)	2022		2021		2020
Service cost - benefits earned	$	1,190	$	1,355	$	1,300
Interest cost on projected benefit obligation		2,826		2,632		3,116
Expected return on plan assets		(4,910)		(4,713)		(4,198)
Net amortization and deferral		1,259		2,072		1,968
Net periodic pension cost		365		1,346		2,186
Net loss (gain) during the period		(5,323)		(5,883)		3,188
Amortization of prior service cost		—		(1)		(1)
Amortization of unrecognized (gain) loss		(1,259)		(2,072)		(1,967)
Total recognized in other comprehensive (income) loss		(6,582)		(7,956)		1,220
Total recognized net periodic pension cost and other comprehensive income	$	(6,217)	$	(6,610)	$	3,406

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)	2022		2021
Change in benefit obligation:
Benefit obligation at January 1	$	106,496	$	109,922
Service cost		1,190		1,355
Interest cost		2,826		2,632
Actuarial (gain) loss		(21,350)		(2,943)
Benefits paid		(5,584)		(4,470)
Benefit obligation at December 31		83,578		106,496
Reconciliation of fair value of plan assets:
Fair value of plan assets at January 1		87,979		82,437
Actual return on plan assets		(11,117)		7,654
Employer contributions		456		2,358
Benefits paid		(5,584)		(4,470)
Fair value of plan assets at December 31		71,734		87,979
Funded status at December 31 (plan assets less benefit obligation)	$	(11,844)	$	(18,517)

Amounts recognized in accumulated other comprehensive income at December 31, 2022 and 2021 consist of:

(Dollar amounts in thousands)	2022		2021
Net loss (gain)	$	14,469	$	21,051
Prior service cost (credit)		—		—
	$	14,469	$	21,051

The accumulated benefit obligation for the defined benefit pension plan was $81.5 million and $102.4 million at year-end 2022 and 2021.

Principal assumptions used to determine pension benefit obligation at year end:	2022		2021
Discount rate	5.02	%	2.83	%
Rate of increase in compensation levels	3.00		3.00

Principal assumptions used to determine net periodic pension cost:	2022		2021
Discount rate	2.83	%	2.52	%
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 2022 and 2021 by asset category are as follows:

	Pension Plan		ESOP		Pension				ESOP
	Target		Target		Percentage of Plan				Percentage of Plan
	Allocation		Allocation		Assets at December 31,				Assets at December 31,
ASSET CATEGORY	2022		2022		2022		2021		2022		2021
Equity securities	25-75	%	95-99	%	63	%	63	%	99	%	98	%
Debt securities	0-50	%	0-0	%	34	%	32	%	—	%	—	%
Other	0-20	%	0-5	%	3	%	5	%	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, 2022 and 2021, by asset category, is as follows:

			Fair Value Measurements at
			December 31, 2022 Using:
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Observable
			Identical Assets		Inputs		Inputs
(Dollar amounts in thousands)	Total		(Level 1)		(Level 2)		(Level 3)
Plan assets
Equity securities	$	52,319	$	52,319	$	—	$	—
Debt securities		10,409		—		10,409		—
Investment Funds		9,006		9,006		—		—
Total plan assets	$	71,734	$	61,325	$	10,409	$	—

			Fair Value Measurements at
			December 31, 2021 Using:
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Observable
			Identical Assets		Inputs		Inputs
(Dollar amounts in thousands)	Total		(Level 1)		(Level 2)		(Level 3)
Plan assets
Equity securities	$	62,382	$	62,382	$	—	$	—
Debt securities		10,102		—		10,102		—
Investment Funds		15,495		15,495		—		—
Total plan assets	$	87,979	$	77,877	$	10,102	$	—

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 $17.2 million (24 percent of total plan assets) and $18.1 million (21 percent of total plan assets) at December 31, 2022 and 2021, respectively. In addition the ESOP for non plan participants holds an estimated $7.8 million and $7.2 million of First Financial Corporation stock at December 31, 2022 and December 31, 2021 respectively. Other equity securities are predominantly stocks in large cap U.S. companies.

Contributions — The Corporation expects to contribute zero to its pension plan and $642 thousand to its ESOP in 2023.

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

PENSION BENEFITS
(Dollar amounts in thousands)
2023	$	6,844
2024		7,034
2025		7,175
2026		7,384
2027		7,490
2028-2032		38,028

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 $751 thousand in 2022 and $748 thousand in 2021 and $539 thousand in 2020.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)	2022		2021		2020
Net loss (gain) during the period	$	(1,604)	$	54	$	1,459
Amortization of prior service cost		—		—		—
Amortization of unrecognized (gain) loss		(418)		(441)		(246)
Total recognized in other comprehensive (income) loss	$	(2,022)	$	(387)	$	1,213

The Corporation has $7.5 million and $8.8 million recognized in the balance sheet as a liability at December 31, 2022 and 2021. Amounts n accumulated other comprehensive income consist of $1.2 million net loss at December 31, 2022 and $3.2 million net loss at December 31, 2021.

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

(Dollar amounts on thousands)
2023	$	—
2024		374
2025		731
2026		711
2027		730
2028-2032		3,457

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, 2022 and 2021 are as follows:

	December 31,
(Dollar amounts in thousands)	2022		2021
Change in benefit obligation:
Benefit obligation at January 1	$	4,015	$	4,147
Service cost		34		43
Interest cost		111		103
Plan participants' contributions		74		34
Actuarial (gain)		(758)		(53)
Benefits paid		(301)		(259)
Benefit obligation at December 31	$	3,175	$	4,015
Funded status at December 31	$	3,175	$	4,015

Amounts recognized in accumulated other comprehensive income consist of a net gain of $546 thousand at December 31, 2022 and $212 thousand net loss at December 31, 2021. The post-retirement benefits paid in 2022 and 2021 of $300 thousand and $259 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,
	2022		2021
Discount rate	5.02	%	2.83	%
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	2023		2022

Post-retirement health benefit expense included the following components:

	Years Ended December 31,
(Dollar amounts in thousands)	2022		2021		2020
Service cost	$	34	$	43	$	38
Interest cost		111		103		125
Amortization of net actuarial loss (gain)		—		—		—
Net periodic benefit cost		145		146		163
Net loss (gain) during the period		(758)		(53)		238
Amortization of prior service cost		—		—		—
Total recognized in other comprehensive income (loss)		(758)		(53)		238
Total recognized net periodic benefit cost and other comprehensive income	$	(613)	$	93	$	401

Contributions — The Corporation expects to contribute $245 thousand to its other post-retirement benefit plan in 2023.

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

(Dollar amounts in thousands)
2023	$	245
2024		251
2025		247
2026		244
2027		244
2028-2032		1,171