FIRST FINANCIAL CORP /IN/ (Form: 10-Q, Received: 05/09/2011 13:30:15)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended March 31, 2011

Commission File Number 0-16759

FIRST FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

INDIANA		35-1546989
(State or other jurisdiction		(I.R.S. Employer
incorporation or organization)		Identification No.)

One First Financial Plaza, Terre Haute, IN		47807
(Address of principal executive office)		(Zip Code)

(812)238-6000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o .

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o .

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer x

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x .

As of May 5, 2011, the registrant had outstanding 13,151,630 shares of common stock, without par value.

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FIRST FINANCIAL CORPORATION

FORM 10-Q

INDEX

		Page No.
PART I. Financial Information

Item 1.	Financial Statements:

	Consolidated Balance Sheets	3

	Consolidated Statements of Income	4

	Consolidated Statements of Shareholders’ Equity	5

	Consolidated Statements of Cash Flows	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	21

Item 4.	Controls and Procedures	24

PART II.	Other Information:

Item 1.	Legal Proceedings	25

Item 1A.	Risk Factors	25

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25

Item 3.	Defaults upon Senior Securities	25

Item 4.	(Removed and Reserved)	25

Item 5.	Other Information	25

Item 6.	Exhibits	26

	Signatures	27

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Part I — Financial Information

Item 1. Financial Statements

FIRST FINANCIAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands, except per share data)

	March 31,			December 31,
	2011			2010
	(unaudited)
ASSETS
Cash and due from banks	$	45,579		$	58,511
Federal funds sold and short-term investments	56,816			5,104
Securities available-for-sale	601,213			560,846
Loans:
Commercial	882,769			896,107
Residential	431,650			437,576
Consumer	297,296			307,403
	1,611,715			1,641,086
Less:
Unearned Income	(861		)	(940		)
Allowance for loan losses	(22,142		)	(22,336		)
	1,588,712			1,617,810

Restricted Stock	25,308			25,308
Accrued interest receivable	10,506			11,208
Premises and equipment, net	34,251			34,691
Bank-owned life insurance	66,570			66,112
Goodwill	7,102			7,102
Other intangible assets	3,813			4,148
Other real estate owned	6,136			6,325
FDIC Indemnification asset	3,991			3,977
Other assets	46,167			49,953
TOTAL ASSETS	$	2,496,164		$	2,451,095
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing	$	333,947		$	304,101
Interest-bearing:
Certificates of deposit of $100 or more	209,359			215,501
Other interest-bearing deposits	1,400,218			1,383,441
	1,943,524			1,903,043
Short-term borrowings	30,789			34,106
Other borrowings	125,793			125,793
Other liabilities	61,426			66,436
TOTAL LIABILITIES	2,161,532			2,129,378
Shareholders’ equity
Common stock, $.125 stated value per share; Authorized shares-40,000,000 Issued shares-14,450,966 Outstanding shares-13,151,630 in 2011 and 2010	1,806			1,806
Additional paid-in capital	68,944			68,944
Retained earnings	302,122			293,319
Accumulated other comprehensive income (loss)	(5,257		)	(9,369		)
Treasury shares at cost-1,299,336 in 2011 and 2010	(32,983		)	(32,983		)
TOTAL SHAREHOLDERS’ EQUITY	334,632			321,717
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	2,496,164		$	2,451,095

See accompanying notes.

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FIRST FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Dollar amounts in thousands, except per share data)

	Three Months Ended
	March 31,
	2011		2010
	(unaudited)		(unaudited)
INTEREST INCOME:
Loans, including related fees	$	22,956	$	24,021
Securities:
Taxable	4,195		5,008
Tax-exempt	1,664		1,627
Other	476		536
TOTAL INTEREST INCOME	29,291		31,192

INTEREST EXPENSE:
Deposits	3,283		4,398
Short-term borrowings	54		90
Other borrowings	1,199		3,423
TOTAL INTEREST EXPENSE	4,536		7,911

NET INTEREST INCOME	24,755		23,281

Provision for loan losses	1,182		2,430

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	23,573		20,851

NON-INTEREST INCOME:
Trust and financial services	1,337		1,259
Service charges and fees on deposit accounts	2,149		2,402
Other service charges and fees	1,989		1,821
Securities gains/(losses), net	3		245
Total impairment loss	—		(6,295		)
Loss recognized in other comprehensive income	—		3,196
Net impairment loss recognized in earnings	—		(3,099		)
Insurance commissions	1,720		1,670
Gain on sales of mortgage loans	337		272
Other	767		444
TOTAL NON-INTEREST INCOME	8,302		5,014

NON-INTEREST EXPENSE:
Salaries and employee benefits	11,438		10,830
Occupancy expense	1,250		1,251
Equipment expense	1,134		1,216
FDIC Insurance	743		702
Other	4,385		4,282
TOTAL NON-INTEREST EXPENSE	18,950		18,281
INCOME BEFORE INCOME TAXES	12,925		7,584

Provision for income taxes	4,122		1,898
NET INCOME	$	8,803	$	5,686

PER SHARE DATA
Basic and Diluted Earnings per Share	$	0.67	$	0.43

Weighted average number of shares outstanding (in thousands)	13,152		13,120

See accompanying notes.

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FIRST FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

Three Months Ended

March 31, 2011, and 2010

(Dollar amounts in thousands, except per share data)

(Unaudited)

							Accoumulated
							Other
	Common		Additional		Retained		Comprehensive			Treasury
	Stock		Capital		Earnings		Income/(Loss)			Stock			Total

Balance, January 1, 2010	$	1,806	$	68,739	$	277,357	$	(7,904	)	$	(33,515	)	$	306,483

Comprehensive income:
Net income	—		—		5,686		—			—			5,686
Change in net unrealized gains/(losses) on securities available for-sale	—		—		—		4,200			—			4,200
Change in funded status of retirement plans	—		—		—		178			—			178
Total comprehensive income/(loss)													10,064

Treasury stock purchase (17,000 shares)	—		—		—		—			(451		)	(451		)

Balance, March 31, 2010	$	1,806	$	68,739	$	283,043	$	(3,526	)	$	(33,966	)	$	316,096

Balance, January 1, 2011	$	1,806	$	68,944	$	293,319	$	(9,369	)	$	(32,983	)	$	321,717

Comprehensive income:
Net income	—		—		8,803		—			—			8,803
Change in net unrealized gains/(losses) on securities available for-sale	—		—		—		3,809			—			3,809
Change in funded status of retirement plans	—		—		—		303			—			303
Total comprehensive income/(loss)													12,915

Balance, March 31, 2011	$	1,806	$	68,944	$	302,122	$	(5,257	)	$	(32,983	)	$	334,632

See accompanying notes.

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FIRST FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar amounts in thousands, except per share data)

	Three Months Ended
	March 31,
	2011			2010
	(Unaudited)			(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:

Net Income	$	8,803		$	5,686
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization (accretion) of premiums and discounts on investments	(68		)	(325		)
Provision for loan losses	1,182			2,430
Securities (gains) losses	(3		)	(245		)
Securities impairment loss	—			3,099
(Gain) loss on sale of other real estate	7			(16		)
Depreciation and amortization	1,091			1,187
Other, net	2,820			(347		)
NET CASH FROM OPERATING ACTIVITIES	13,832			11,469

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from sales of securities available-for-sale	25			7,250
Calls, maturities and principal reductions on securities available-for-sale	41,092			39,281
Purchases of securities available-for-sale	(75,065		)	(33,179		)
Loans made to customers, net of repayment	26,995			8,359
Proceeds from sales of other real estate owned	1,125			729
Net change in federal funds sold	(51,712		)	8,931
Additions to premises and equipment	(316		)	(696		)
NET CASH FROM INVESTING ACTIVITIES	(57,856		)	30,675

CASH FLOWS FROM FINANCING ACTIVITIES:

Net change in deposits	40,459			16,796
Net change in short-term borrowings	(3,317		)	8,250
Dividends paid	(6,050		)	(5,908		)
Purchase of treasury stock	—			(451		)
Repayments on other borrowings	—			(80,000		)
NET CASH FROM FINANCING ACTIVITIES	31,092			(61,313		)

NET CHANGE IN CASH AND CASH EQUIVALENTS	(12,932		)	(19,169		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	58,511			84,371

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	45,579		$	65,202

See accompanying notes.

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FIRST FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accompanying March 31, 2011 and 2010 consolidated financial statements are unaudited. The December 31, 2010 consolidated financial statements are as reported in the First Financial Corporation (the “Corporation”) 2010 annual report. The information presented does not include all information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. The following notes should be read together with notes to the consolidated financial statements included in the 2010 annual report filed with the Securities and Exchange Commission as an exhibit to Form 10-K filed for the fiscal year ended December 31, 2010.

1. Significant Accounting Policies

The significant accounting policies followed by the Corporation and its subsidiaries for interim financial reporting are consistent with the accounting policies followed for annual financial reporting. All adjustments which are, in the opinion of management, necessary for a fair statement of the results for the periods reported have been included in the accompanying consolidated financial statements and are of a normal recurring nature. The Corporation reports financial information for only one segment, banking. Some items in the prior year financials were reclassified to conform to the current presentation.

2. Allowance for Loan Losses

The activity in the Corporation’s allowance for loan losses is shown in the following analysis:

	March 31,
(Dollar amounts in thousands)	2011			2010
Balance at beginning of quarter	$	22,336		$	19,437
Provision for loan losses *	1,364			2,430
Recoveries of loans previously charged off	634			851
Loans charged off	(2,192		)	(3,340		)
Balance at end of quarter	$	22,142		$	19,378

* Provision before decrease of $182 thousand in 2011 for increase in FDIC indemnification asset

The following table presents the activity of the allowance for loan losses by portfolio segment at March 31, 2011.

Allowance for Loan Losses:

	March 31, 2011
(Dollar amounts in thousands)	Commercial			Residential			Consumer			Unallocated		Total
Beginning balance	$	12,809		$	2,873		$	4,551		$	2,103	$	22,336
Provision for loan losses*	689			687			(210		)	198		1,364
Loans charged -off	(1,061		)	(363		)	(768		)	—		(2,192		)
Recoveries	99			54			481			—		634
Ending Balance	$	12,536		$	3,251		$	4,054		$	2,301	$	22,142

* Provision before decrease of $182 thousand in 2011 for increase in FDIC indemnification asset

The following table presents the allocation of the allowance for loan losses and the recorded investment in loans by portfolio segment and based on the impairment method at March 31, 2011 and December 31, 2010.

Ending Balance Attributable to Loans:

	March 31, 2011
(Dollar amounts in thousands)	Commercial		Residential		Consumer		Unallocated		Total
Individually evaluated for impairment	4,388		863		—		—		5,251
Collectively evaluated for impairment	7,166		2,035		4,054		2,301		15,556
Acquired with deteriorated credit quality	982		353		—		—		1,335
Ending Balance	$	12,536	$	3,251	$	4,054	$	2,301	$	22,142

Loans:

	March 31, 2011
(Dollar amounts in thousands)	Commercial		Residential		Consumer		Total
Individually evaluated for impairment	28,454		2,548		—		31,002
Collectively evaluated for impairment	850,665		429,473		298,667		1,578,805
Acquired with deteriorated credit quality	8,237		1,128		14		9,379
Ending Balance	$	887,356	$	433,149	$	298,681	$	1,619,186

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Allowance for Loan Losses:

	December 31, 2010
(Dollar amounts in thousands)	Commercial		Residential		Consumer		Unallocated		Total
Individually evaluated for impairment	3,893		625		—		—		4,518
Collectively evaluated for impairment	7,788		1,897		4,551		2,103		16,339
Acquired with deteriorated credit quality	1,128		351		—		—		1,479
Ending Balance	$	12,809	$	2,873	$	4,551	$	2,103	$	22,336

Loans

	December 31, 2010
(Dollar amounts in thousands)	Commercial		Residential		Consumer		Total
Individually evaluated for impairment	27,717		2,770		—		30,487
Collectively evaluated for impairment	863,790		435,231		308,903		1,607,924
Acquired with deteriorated credit quality	9,938		1,113		15		11,066
Ending Balance	$	901,445	$	439,114	$	308,918	$	1,649,477

A loan is considered to be impaired when, based upon current information and events, it is probable that the Corporation will be unable to collect all amounts due according to the contractual terms of the loan. Large groups of smaller balance homogeneous loans, such as consumer, residential real estate and smaller commercial loans are collectively evaluated for impairment and, accordingly, they are not separately identified for impairment disclosures. Also included in impaired loans are loans acquired in the First National Bank of Danville acquisition. See Note 9 for further discussion of these loans. Impairment is primarily measured based on the fair value of the loan’s collateral. The following table summarizes impaired loan information:

	March 31,		December 31,
(Dollar amounts in thousands)	2011		2010
Year-end loans with no allocated allowance for loan losses	$	3,606	$	11,890
Year-end loans with allocated allowance for loan losses	34,471		25,629
TOTAL	$	38,077	$	37,519

Amount of the allowance for loan losses allocated	$	6,479	$	5,867

Interest payments on impaired loans are typically applied to principal unless collection of the principal amount is deemed to be fully assured, in which case interest is recognized on a cash basis.

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The following tables present loans individually evaluated for impairment by class of loans.

	March 31, 2011
					Allowance
	Unpaid				for Loan		Average		Interest		Cash Basis
	Principal		Recorded		Losses		Recorded		Income		Interest
(Dollar amounts in thousands)	Balance		Investment		Allocated		Investment		Recognized		Recognized
With no related allowance recorded:
Commercial
Commercial & Industrial	$	648	$	651	$	—	$	4,822	$	9	$	—
Farmland	—		—		—		—		—		—
Non Farm, Non Residential	2,958		2,958		—		2,957		—		—
Agriculture	—		—		—		—		—		—
All Other Commercial	—		—		—		—		—		—
Residential
First Liens	—		—		—		—		—		—
Home Equity	—		—		—		—		—		—
Junior Liens	—		—		—		—		—		—
Multifamily	—		—		—		—		—		—
All Other Residential	—		—		—		—		—		—
Consumer
Motor Vehicle	—		—		—		—		—		—
All Other Consumer	—		—		—		—		—		—
With an allowance recorded:
Commercial
Commercial & Industrial	18,628		18,649		1,813		14,823		109		1
Farmland	—		—		—		—		—		—
Non Farm, Non Residential	10,536		10,536		3,354		9,989		—		—
Agriculture	—		—		—		—		—		—
All Other Commercial	1,855		1,855		100		1,716		—		—
Residential
First Liens	1,910		1,910		836		1,910		—		—
Home Equity	—		—		—		—		—		—
Junior Liens	904		904		349		1,017		—		—
Multifamily	638		638		27		638		—		—
All Other Residential	—		—		—		—		—		—
Consumer
Motor Vehicle	—		—		—		—		—		—
All Other Consumer	—		—		—		—		—		—
TOTAL	$	38,077	$	38,101	$	6,479	$	37,872	$	118	$	1

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	December 31, 2010
					Allowance
	Unpaid				for Loan
	Principal		Recorded		Losses
(Dollar amounts in thousands)	Balance		Investment		Allocated
With no related allowance recorded:
Commercial
Commercial & Industrial	$	8,935	$	8,993	$	—
Farmland	—		—		—
Non Farm, Non Residential	2,955		2,955		—
Agriculture	—		—		—
All Other Commercial	—		—		—
Residential
First Liens	—		—		—
Home Equity	—		—		—
Junior Liens	—		—		—
Multifamily	—		—		—
All Other Residential	—		—		—
Consumer
Motor Vehicle	—		—		—
All Other Consumer	—		—		—
With an allowance recorded:
Commercial
Commercial & Industrial	10,933		10,996		1,508
Farmland	—		—		—
Non Farm, Non Residential	9,442		9,442		3,255
Agriculture	—		—		—
All Other Commercial	1,577		1,577		128
Residential
First Liens	1,910		1,910		533
Home Equity	—		—		—
Junior Liens	1,129		1,129		443
Multifamily	638		638		—
All Other Residential	—		—		—
Consumer
Motor Vehicle	—		—		—
All Other Consumer	—		—		—
TOTAL	$	37,519	$	37,640	$	5,867

(Dollar amounts in thousands)	December 31, 2010
Average of impaired loans during the year	$	27,772
Interest income recognized during impairment	660
Cash-basis interest income recognized	57

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The Table below presents non-performing loans.

	March 31, 2011
	Loans Past
	Due Over
	90 Day Still
(Dollar amounts in thousands)	Accruing		Restructured		Nonaccrual
Commercial
Commercial & Industrial	$	451	$	13,523	$	15,866
Farmland	351		—		89
Non Farm, Non Residential	426		—		14,731
Agriculture	—		—		271
All Other Commercial	152		—		2,237
Residential
First Liens	1,364		2,974		6,242
Home Equity	27		—		—
Junior Liens	112		924		1,138
Multifamily	—		—		992
All Other Residential	—		43		146
Consumer
Motor Vehicle	45		—		257
All Other Consumer	17		—		1,662
TOTAL	$	2,945	$	17,464	$	43,631

	December 31, 2010
	Loans Past
	Due Over
	90 Day Still
(Dollar amounts in thousands)	Accruing		Restructured		Nonaccrual
Commercial
Commercial & Industrial	$	1,462	$	13,671	$	11,677
Farmland	—		—		68
Non Farm, Non Residential	506		—		13,808
Agriculture	—		—		284
All Other Commercial	158		—		2,011
Residential
First Liens	971		2,605		6,141
Home Equity	45		—		—
Junior Liens	66		928		1,454
Multifamily	—		—		990
All Other Residential	—		—		150
Consumer
Motor Vehicle	91		—		259
All Other Consumer	4		—		1,675
TOTAL	$	3,303	$	17,204	$	38,517

Covered loans included in loans past due over 90 days still on accrual are $662 thousand at March 31, 2011 and $377 thousand at December 31, 2010. Covered loans included in non-accrual loans are $8.4 million at March 31, 2011 and $8.7 million at December 31, 2010. Covered loans of $7.1 million at March 31, 2011 and $7.2 million at December 31, 2010 are deemed impaired and have allowance for loan loss allocated to them of $1.2 million and $1.3 million, respectively for March 31, 2011 and December 31, 2010. Non-performing loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

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The following table presents the aging of the recorded investment in loans by past due category and class of loans.

	March 31, 2011
					Greater
	30-59 Days		60-89 Days		than 90 days		Total
(Dollar amounts in thousands)	Past Due		Past Due		Past Due		Past Due		Current		Total
Commercial
Commercial & Industrial	$	2,029	$	1,577	$	3,137	$	6,743	$	407,630	$	414,373
Farmland	—		290		351		641		73,216		73,857
Non Farm, Non Residential	2,324		952		9,566		12,842		241,653		254,495
Agriculture	19		4		115		138		75,286		75,424
All Other Commercial	300		—		229		529		68,677		69,206
Residential
First Liens	3,105		469		4,682		8,256		310,696		318,952
Home Equity	72		20		27		119		37,810		37,929
Junior Liens	160		73		175		408		32,195		32,603
Multifamily	66		—		992		1,058		32,305		33,363
All Other Residential	—		—		—		—		10,303		10,303
Consumer
Motor Vehicle	1,661		179		70		1,910		272,020		273,930
All Other Consumer	175		40		17		232		24,519		24,751
TOTAL	$	9,911	$	3,604	$	19,361	$	32,876	$	1,586,310	$	1,619,186

	December 31, 2010
					Greater
	30-59 Days		60-89 Days		than 90 days		Total
(Dollar amounts in thousands)	Past Due		Past Due		Past Due		Past Due		Current		Total
Commercial
Commercial & Industrial	$	2,619	$	882	$	3,868	$	7,369	$	405,319	$	412,688
Farmland	63		198		—		261		71,672		71,933
Non Farm, Non Residential	761		1,763		4,366		6,890		260,685		267,575
Agriculture	55		—		284		339		85,275		85,614
All Other Commercial	—		135		283		418		63,217		63,635
Residential
First Liens	5,405		1,649		3,793		10,847		310,722		321,569
Home Equity	78		11		45		134		38,638		38,772
Junior Liens	287		165		175		627		33,394		34,021
Multifamily	706		—		352		1,058		32,605		33,663
All Other Residential	144		—		—		144		10,945		11,089
Consumer
Motor Vehicle	2,994		378		91		3,463		279,029		282,492
All Other Consumer	138		23		6		167		26,259		26,426
TOTAL	$	13,250	$	5,204	$	13,263	$	31,717	$	1,617,760	$	1,649,477

The Corporation has allocated $1.1 million and $657 thousand of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of March 31, 2011 and December 31, 2010. The Corporation has not committed to lend additional amounts as of March 31, 2011 and December 31, 2010 to customers with outstanding loans that are classified as troubled debt restructurings.

Credit Quality Indicators:

The Corporation categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Corporation analyzes loans individually by classifying the loans as to credit risk. This analysis includes non-homogeneous loans, such as commercial loans, with an outstanding balance greater than $50 thousand. Any consumer loans outstanding to a borrower who had commercial loans analyzed will be similarly risk rated. This analysis is performed on a quarterly basis. The Corporation uses the following definitions for risk ratings:

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Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and debt service capacity of the borrower or of any pledged collateral. These loans have a well-defined weakness or weaknesses which have clearly jeopardized repayment of principal and interest as originally intended. They are characterized by the distinct possibility that the institution will sustain some future loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those graded substandard, with the added characteristic that the severity of the weaknesses makes collection or liquidation in full highly questionable or improbable based upon currently existing facts, conditions, and values.

Furthermore, non-homogeneous loans which were not individually analyzed, but are 90+ days past due or on non-accrual are classified as substandard. Loans included in homogeneous pools, such as residential or consumer, may be classified as substandard due to 90+ days delinquency, non-accrual status, bankruptcy, or loan restructuring.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Loans listed as not rated are either less than $50 thousand or are included in groups of homogeneous loans. As of March 31, 2011 and December 31, 2010, and based on the most recent analysis performed, the risk category of loans by class of loans are as follows:

	March 31, 2011
			Special
(Dollar amounts in thousands)	Pass		Mention		Substandard		Doubtful		Not Rated		Total
Commercial
Commercial & Industrial	$	325,108	$	20,750	$	59,538	$	1,590	$	6,188	$	413,174
Farmland	69,318		572		2,563		89		108		72,650
Non Farm, Non Residential	199,423		26,545		26,115		1,351		270		253,704
Agriculture	72,463		567		891		271		133		74,325
All Other Commercial	58,030		6,241		3,730		373		542		68,916
Residential
First Liens	95,162		5,034		9,117		2,736		205,692		317,741
Home Equity	8,061		4,617		442		22		24,754		37,896
Junior Liens	4,688		380		1,274		116		26,023		32,481
Multifamily	28,088		2,768		1,310		992		111		33,269
All Other Residential	1,157		—		25		—		9,081		10,263
Consumer
Motor Vehicle	12,353		383		546		27		259,408		272,717
All Other Consumer	3,674		97		129		41		20,638		24,579
TOTAL	$	877,525	$	67,954	$	105,680	$	7,608	$	552,948	$	1,611,715

	December 31, 2010
			Special
(Dollar amounts in thousands)	Pass		Mention		Substandard		Doubtful		Not Rated		Total
Commercial
Commercial & Industrial	$	311,258	$	26,956	$	63,334	$	2,910	$	6,977	$	411,435
Farmland	66,920		1,535		1,691		68		109		70,323
Non Farm, Non Residential	208,847		29,399		24,579		3,364		544		266,733
Agriculture	82,275		602		1,008		284		154		84,323
All Other Commercial	52,704		6,188		2,799		468		1,134		63,293
Residential
First Liens	93,887		6,201		7,495		2,944		209,804		320,331
Home Equity	8,641		4,447		427		23		25,200		38,738
Junior Liens	4,796		107		1,733		167		27,090		33,893
Multifamily	22,678		8,516		1,255		990		127		33,566
All Other Residential	1,349		—		26		—		9,673		11,048
Consumer
Motor Vehicle	12,902		331		492		29		267,424		281,178
All Other Consumer	3,945		64		174		42		22,000		26,225
TOTAL	$	870,202	$	84,346	$	105,013	$	11,289	$	570,236	$	1,641,086

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3. Securities

The amortized cost and fair value of the Corporation’s investments are shown below. All securities are classified as available-for-sale.

	(000’s)
	March 31, 2011
	Amortized		Unrealized
(Dollar amounts in thousands)	Cost		Gains		Losses			Fair Value
U.S. Government sponsored entities and entity mortgage-backed securities	$	2,021	$	35	$	0		$	2,056
Mortgage Backed Securities-residential	321,574		13,222		(566		)	334,230
Mortgage Backed Securities-commercial	129		4		0			133
Collateralized mortgage obligations	95,008		2,256		(295		)	96,969
State and municipal	153,047		6,888		(83		)	159,852
Collateralized debt obligations	14,908		—		(9,242		)	5,666
Equities	1,706		601		0			2,307
TOTAL	$	588,393	$	23,006	$	(10,186	)	$	601,213

	December 31, 2010
	Amortized		Unrealized
(Dollar amounts in thousands)	Cost		Gains		Losses			Fair Value
U.S. Government sponsored entities and entity mortgage-backed securities	$	2,027	$	46	$	0		$	2,073
Mortgage Backed Securities-residential	289,962		13,166		(705		)	302,423
Mortgage Backed Securities-commercial	136		3		0			139
Collateralized mortgage obligations	92,803		2,248		(594		)	94,457
State and municipal	152,633		5,318		(411		)	157,540
Collateralized debt obligations	15,084		—		(12,894		)	2,190
Equities	1,729		295		—			2,024
TOTAL	$	554,374	$	21,076	$	(14,604	)	$	560,846

Contractual maturities of debt securities at March 31, 2011 were as follows. Securities not due at a single maturity or with no maturity date, primarily mortgage-backed and equity securities are shown separately.

	Available-for-Sale
	Amortized		Fair
(Dollar amounts in thousands)	Cost		Value
Due in one year or less	$	8,310	$	8,452
Due after one but within five years	35,752		37,685
Due after five but within ten years	48,666		51,348
Due after ten years	172,256		167,058
	264,984		264,543
Mortgage-backed securities and equities	323,409		336,670
TOTAL	$	588,393	$	601,213

There were $3 thousand in gains and no losses realized by the Corporation on investment sales for the three months ended March 31, 2011. There were $320 thousand in gains and $75 thousand in losses realized by the Corporation on investment sales for the three months ended March 31, 2010.

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The following tables show the securities’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position, at March 31, 2011 and December 31, 2010.

	March 31, 2011
	Less Than 12 Months					More Than 12 Months							Total
			Unrealized					Unrealized					Unrealized
(Dollar amounts in thousands)	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Mortgage Backed Securities - Residential	$	—	$	—		$	46,832	$	(566	)	$	46,832	$	(566	)
Collateralized mortgage obligations	—		—			19,230		(295		)	19,230		(295		)
State and municipal obligations	511		(41		)	2,779		(42		)	3,290		(83		)
Collateralized Debt Obligations	—		—			5,665		(9,242		)	5,665		(9,242		)
Total temporarily impaired securities	$	511	$	(41	)	$	74,506	$	(10,145	)	$	75,017	$	(10,186	)

	December 31, 2010
	Less Than 12 Months					More Than 12 Months							Total
			Unrealized					Unrealized					Unrealized
(Dollar amounts in thousands)	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
Mortgage Backed Securities - Residential	$	35,024	$	(705	)	$	—	$	—		$	35,024	$	(705	)
Collateralized Mortgage Obligations	25,338		(594		)	—		—			25,338		(594		)
State and municipal obligations	19,372		(411		)	—		—			19,372		(411		)
Collateralized Debt Obligations	—		—			2,190		(12,894		)	2,190		(12,894		)
Total temporarily impaired securities	$	79,734	$	(1,710	)	$	2,190	$	(12,894	)	$	81,924	$	(14,604	)

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. The investment securities portfolio is evaluated for OTTI by segregating the portfolio into two general segments and applying the appropriate OTTI model. Investment securities are generally evaluated for OTTI under FASB ASC 320, Investments - Debt and Equity Securities . However, certain purchased beneficial interests, including non-agency mortgage-backed securities, asset-backed securities, and collateralized debt obligations, that had credit ratings at the time of purchase of below AA are evaluated using the model outlined in FASB ASC 325-40, Beneficial Interests in Securitized Financial Assets.

In determining OTTI under the FASB ASC 320 model, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the security or more likely than not will be required to sell the security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

The second segment of the portfolio uses the OTTI guidance provided by FASB ASC 325 that is specific to purchased beneficial interests that, on the purchase date, were rated below AA. Under the FASB ASC 325 model, the Company compares the present value of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows. An OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.

When OTTI occurs under either model, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss. If an entity intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the OTTI shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

Gross unrealized losses on investment securities were $10.2 million as of March 31, 2011 and $14.6 million as of December 31, 2010. A majority of these losses represent negative adjustments to market value relative to the illiquidity in the markets on the securities and not losses related to the creditworthiness of the issuer. Based upon our review of the issuers, we do not believe these investments to be other than temporarily impaired. Management does not intend to sell these securities and it is not more likely than not that we will be required to sell them before their anticipated recovery.

A significant portion of the total unrealized loss in investment securities relates to collateralized debt obligations that were separately evaluated under FASB ASC 325-40, Beneficial Interests in Securitized Financial Assets. Based upon qualitative considerations, such as a down grade in credit rating or further defaults of underlying issuers during the quarter, and an analysis of

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expected cash flows, we have determined that four of the CDO’s included in collateralized debt obligations were other-than-temporarily impaired, though no impairment was identified during the first quarter of 2011. Those four CDO’s have a contractual balance of $28.3 million at March 31, 2011 which has been reduced to $4.3 million by $0.3 million of interest payments received, $15.1 million of cumulative OTTI charges recorded through earnings to date, and $8.6 million recorded in other comprehensive income. The severity of the OTTI recorded varies by security, based on the analysis described below, and ranges at March 31, 2011 from 28% to 87%. The OTTI recorded in other comprehensive income represents OTTI due to factors other than credit loss, mainly current market illiquidity. The issuers in these securities are primarily banks, but some of the pools do include a limited number of insurance companies. The market for these securities has become very illiquid, there are very few new issuances of trust preferred securities and the credit spreads implied by current prices have increased dramatically and remain very high, resulting in significant non-credit related impairment. The Company uses the OTTI evaluation model to compare the present value of expected cash flows to the previous estimate to ensure there are no adverse changes in cash flows during the quarter. The OTTI model considers the structure and term of the CDO and the financial condition of the underlying issuers. Specifically, the model details interest rates, principal balances of note classes and underlying issuers, the timing and amount of interest and principal payments of the underlying issuers, and the allocation of the payments to the note classes. Cash flows are projected using a forward rate LIBOR curve, as these CDOs are variable rate instruments. An average rate is then computed using this same forward rate curve to determine an appropriate discount rate (3 month LIBOR plus margin ranging from 160 to 180 basis points). The current estimate of expected cash flows is based on the most recent trustee reports and any other relevant market information including announcements of interest payment deferrals or defaults of underlying trust preferred securities. Assumptions used in the model include expected future default rates and prepayments. We assume no recoveries on defaults and treat all interest payment deferrals as defaults. In addition we use the model to “stress” each CDO, or make assumptions more severe than expected activity, to determine the degree to which assumptions could deteriorate before the CDO could no longer fully support repayment of the Company’s note class.

Collateralized debt obligations include an investment in a CDO consisting of pooled trust preferred securities in which the issuers are primarily banks. This CDO with an amortized cost of $2.0 million and a fair value of $1.4 million is rated BAA3 and is the senior tranche, is not in the scope of FASB ASC 325, as it was rated high investment grade at purchase, and is not considered to be other-than-temporarily impaired based on its credit quality. Its fair value is negatively impacted by the factors described above.

Management has consistently used Standard & Poors pricing to value these investments. There are a number of other pricing sources available to determine fair value for these investments. These sources utilize a variety of methods to determine fair value. The result is a wide range of estimates of fair value for these securities. The Standard & Poors pricing ranges from 11.03 to 30.65 while Moody Investor Service pricing ranges from 1.31 to 90.08, with others falling somewhere in between. We recognize that the Standard & Poors pricing utilized is likely a conservative estimate, but have been consistent in using this source and its estimate of fair value.

The table below presents a rollforward of the credit losses recognized in earnings for the three month periods ended March 31, 2011 and 2010:

	Three Months Ended March 31,
(Dollar amounts in thousands)	2011		2010
Beginning balance	$	15,070	$	11,359
Increases to the amount related to the credit loss for which other-than-temporary was previously recognized	—		3,099

Ending balance	$	15,070	$	14,458

4. Fair Value

FASB ASC No. 820-10 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 standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) of identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level I prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The fair value of securities available for sale is determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

For those securities that cannot be priced using quoted market prices or observable inputs a Level 3 valuation is determined. These securities are primarily trust preferred securities, which are priced using Level 3 due to current market illiquidity and certain investments in bank equities. The fair value of the trust preferred securities is computed based upon discounted cash flows

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estimated using interest rates, principal balances of note classes and underlying issuers, the timing and amount of interest and principal payments of the underlying issuers, and the allocation to the note classes. Current estimates of expected cash flows is based on the most recent trustee reports and any other relevant market information, including announcements of interest payment deferrals or defaults of underlying issuers. The payment, default and recovery assumptions are believed to reflect the assumptions of market participants. Cash flows are discounted at appropriate market rates, including consideration of credit spreads and illiquidity discounts. The fair value of investments in bank equities is based on the prices of recent stock trades and is considered Level 3 because these stocks are not publicly traded.

The fair value of derivatives is based on valuation models using observable market data as of the measurement date (Level 2 inputs).

	March 31, 2011
	Fair Value Measurements Using Significant
	Unobservable Inputs (Level 3)
(Dollar amounts in thousands)	Level 1		Level 2			Level 3		Carrying Value
U.S. Government sponsored entities and entity mortgage-backed securities	$	0	$	2,056		$	0	$	2,056
Mortgage Backed Securities-residential	—		334,230			—		334,230
Mortgage Backed Securities-commercial	—		$	133		—		133
Collateralized mortgage obligations	—		96,969			—		96,969
State and municipal	—		159,852			—		159,852
Collateralized debt obligations	—		—			5,666		5,666
Equities	463		—			1,844		2,307
TOTAL	$	463	$	593,240		$	7,510	$	601,213
Derivitive Assets			947
Derivitive Liabilities			(947		)

	December 31, 2010
	Fair Value Measurements Using Significant
	Unobservable Inputs (Level 3)
(Dollar amounts in thousands)	Level 1		Level 2			Level 3		Carrying Value
U.S. Government sponsored entities and entity mortgage-backed securities	$	—	$	2,073		$	—	$	2,073
Mortgage Backed Securities-residential	—		302,423			—		302,423
Mortgage Backed Securities-commercial	—		$	139		—		139
Collateralized mortgage obligations	—		94,457			—		94,457
State and municipal	—		157,540			—		157,540
Collateralized debt obligations	—		—			2,190		2,190
Equities	506		—			1,518		2,024
TOTAL	$	506	$	556,632		$	3,708	$	560,846
Derivitive Assets			1,311
Derivitive Liabilities			(1,311		)

The table below presents a reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2011 and 2010.

	Fair Value Measurements Using Significant
	Unobservable Inputs (Level 3)
	March 31,		March 31
(Dollar amounts in thousands)	2011		2010
Beginning Balance	$	3,708	$	4,777
Total realized/unrealized gains or losses
Included in earnings	—		(3,099		)
Included in other comprehensive income	3,802		3,908
Settlements	—		(102		)
Transfers into Level 3	—		—
Ending Balance	$	7,510	$	5,484

All impaired loans disclosed in footnote 2 are valued at Level 3 and are carried at a fair value of $31.6 million, net of a valuation allowance of $6.5 million at March 31, 2011. At December 31, 2010 impaired loans valued at Level 3 were carried at a

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fair value of $31.6 million, net of a valuation allowance of $5.9 million. The impact to the provision for loan losses was $(394) thousand for the three months ended March 31, 2011, and was $750 thousand for the year ended December 31, 2010. Fair value is measured based on the value of the collateral securing those loans, and is determined using several methods. Generally the fair value of real estate is determined based on appraisals by qualified licensed appraisers. If an appraisal is not available, the fair value may be determined by using a cash flow analysis, a broker’s opinion of value, the net present value of future cash flows, or an observable market price from an active market. Fair value on non real estate loans is determined using similar methods.

The following tables presents loans identified as impaired by class of loans as of March 31, 2011 and December 31, 2010.

	March 31, 2011
(Dollar amounts in thousands)	Unpaid Principal Balance		Allowance for Loan Losses Allocated		Fair Value
Commercial
Commercial & Industrial	$	19,276	$	1,813	$	17,463
Farmland	—				—
Non Farm, Non Residential	13,494		3,354		10,140
Agriculture	—
All Other Commercial	1,855		100		1,755
Residential
First Liens	1,910		836		1,074
Home Equity	—		—		—
Junior Liens	904		349		555
Multifamily	638		27		611
All Other Residential	—				—
Consumer
Motor Vehicle	—				—
All Other Consumer	—				—
TOTAL	$	38,077	$	6,479	$	31,598

	December 31, 2010
(Dollar amounts in thousands)	Unpaid Principal Balance		Allowance for Loan Losses Allocated		Fair Value
Commercial
Commercial & Industrial	$	19,868	$	1,508	$	18,360
Farmland	—				—
Non Farm, Non Residential	12,397		3,255		9,142
Agriculture	—
All Other Commercial	1,577		128		1,449
Residential
First Liens	1,910		533		1,377
Home Equity	—		—		—
Junior Liens	1,129		443		686
Multifamily	638		—		638
All Other Residential	—				—
Consumer
Motor Vehicle	—				—
All Other Consumer	—				—
TOTAL	$	37,519	$	5,867	$	31,652

The carrying amounts and estimated fair value of financial instruments at March 31, 2011 and December 31, 2010, are shown below. Carrying amount is the estimated fair value for cash and due from banks, federal funds sold, short-term borrowings, accrued interest receivable and payable, demand deposits, short-term debt and variable-rate loans or deposits that reprice frequently and fully. Security fair values were described previously. For fixed-rate loans or deposits, variable rate loans or deposits with infrequent repricing or repricing limits, and for longer-term borrowings, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair values of loans held for sale are based on market bids on the loans or similar loans. It was not practicable to determine the fair value of Federal Home Loan Bank stock due to restrictions placed on its transferability. For the FDIC indemnification asset the carrying value is the estimated fair value as it represents amounts to be received from the

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FDIC in the near term. Fair value of debt is based on current rates for similar financing. The fair value of off-balance sheet items is not considered material.

The carrying amount and estimated fair value of financial instruments are presented in the table below and were determined based on the above assumptions:

	March 31, 2011				December 31, 2010
	Carrying		Fair		Carrying		Fair
(Dollar amounts in thousands)	Value		Value		Value		Value

Cash and due from banks	45,579		45,579		58,511		58,511
Federal funds sold	56,816		56,816		5,104		5,104
Securities available—for—sale	601,213		601,213		560,846		560,846
Federal Home Loan Bank Stock	23,654		n/a		23,654		n/a
Loans, net	1,588,712		1,574,402		1,617,810		1,607,895
FDIC Indemnification Asset	3,991		3,991		3,977		3,977
Accrued interest receivable	10,506		10,506		11,208		11,208
Deposits	(1,943,524	)	(1,950,160	)	(1,903,043	)	(1,909,874	)
Short—term borrowings	(30,789	)	(30,789	)	(34,106	)	(34,106	)
Federal Home Loan Bank advances	(125,793	)	(128,868	)	(125,793	)	(128,881	)
Accrued interest payable	(1,699	)	(1,699	)	(2,041	)	(2,041	)

5. Short-Term Borrowings

Period—end short-term borrowings were comprised of the following:

	(000’s)
	March 31,		December 31,
	2011		2010

Federal Funds Purchased	$	2,150	$	3,310
Repurchase Agreements	26,853		28,936
Note Payable - U.S. Government	1,786		1,860
	$	30,789	$	34,106

6. Other Borrowings

Other borrowings at period-end are summarized as follows:

	(000’s)
	March 31,		December 31,
	2011		2010

FHLB Advances	$	125,793	$	125,793

7. Components of Net Periodic Benefit Cost

	Three Months ended March 31,
	(000’s)
							Post-Retirement
	Pension Benefits						Health Benefits
	2011			2010			2011		2010
Service cost	$	775		$	773		$	27	$	16
Interest cost	824			828			60		55
Expected return on plan assets	(964		)	(850		)	—		—
Amortization of transition obligation	—			—			15		15
Net amortization of prior service cost	(4		)	(4		)	—		—
Net amortization of net (gain) loss	161			245			—		3
Net Periodic Benefit Cost	$	792		$	992		$	102	$	89

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Employer Contributions

First Financial Corporation previously disclosed in its financial statements for the year ended December 31, 2010 that it expected to contribute $4.9 and $1.4 million respectively to its Pension Plan and ESOP and $210,000 to the Post Retirement Health Benefits Plan in 2011. Contributions of $51 thousand have been made through the first three months of 2011 for the Post Retirement Health Benefits plan.

8. New accounting standards

In January 2011, the FASB issued ASU No. 2011-01, “Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20.” The provisions of ASU No. 2010-20 required the disclosure of more granular information on the nature and extent of troubled debt restructurings and their effect on the allowance for loan and lease losses effective for the Company’s reporting period ended March 31, 2011. The amendments in ASU No. 2011-01 defer the effective date related to these disclosures, enabling creditors to provide such disclosures after the FASB completes their project clarifying the guidance for determining what constitutes a troubled debt restructuring. As the provisions of this ASU only defer the effective date of disclosure requirements related to troubled debt restructurings, the adoption of this ASU will have no impact on the Corporation’s statements of income and condition.

In April 2011, the FASB issued ASU No. 2011-02, “A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring.” The provisions of ASU No. 2011-02 provide additional guidance related to determining whether a creditor has granted a concession, include factors and examples for creditors to consider in evaluating whether a restructuring results in a delay in payment that is insignificant, prohibit creditors from using the borrower’s effective rate test to evaluate whether a concession has been granted to the borrower, and add factors for creditors to use in determining whether a borrower is experiencing financial difficulties. A provision in ASU No. 2011-02 also ends the FASB’s deferral of the additional disclosures about troubled debt restructurings as required by ASU No. 2010-20. The provisions of ASU No. 2011-02 are effective for the Corporation’s reporting period ending September 30, 2011. The adoption of ASU No. 2011-02 is not expected to have a material impact on the Corporation’s statements of income and condition.

9. Acquisitions and FDIC Indemnification Asset

On July 2, 2009, the Bank entered into a purchase and assumption agreement with the Federal Deposit Insurance Corporation (“FDIC”) to assume all of the deposits (excluding brokered deposits) and certain assets of The First National Bank of Danville, a full-service commercial bank headquartered in Danville, Illinois, that had failed and been placed in receivership with the FDIC. The acquisition consisted of assets worth a fair value of approximately $151.8 million, including $77.5 million of loans, $24.2 million of investment securities, $31.0 million of cash and cash equivalents and $146.3 million of liabilities, including $145.7 million of deposits. A customer related core deposit intangible asset of $4.6 million was also recorded. In addition to the excess of liabilities over assets, the Bank received approximately$14.6 million in cash from the FDIC. Based upon the acquisition date fair values of the net assets acquired, no goodwill was recorded. The transaction resulted in a gain of $5.1 million, which is included in non-interest income in the December 31, 2009 Consolidated Statement of Operations Under the loss-sharing agreement (“LSA”), the Bank will share in the losses on assets covered under the agreement (referred to as covered assets). On losses up to $29 million, the FDIC has agreed to reimburse the Bank for 80 percent of the losses. On losses exceeding $29 million, the FDIC has agreed to reimburse the Bank for 95 percent of the losses. The loss-sharing agreement is subject to following servicing procedures as specified in the agreement with the FDIC. Loans acquired that are subject to the loss-sharing agreement with the FDIC are referred to as covered loans for disclosure purposes. Since the acquisition date the Bank has been reimbursed $13.5 million for losses and carrying expenses and currently carries a balance of $4.0 million. Included in the current balance is the estimate of $1.2 million for 80% of the loans subject to the loss-sharing agreement identified in the allowance for loan loss evaluation as future potential losses.

FASB ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, applies to a loan with evidence of deterioration of credit quality since origination, acquired by completion of a transfer for which it is probable, at acquisition, that the investor will be unable to collect all contractually required payments receivable. FASB ASC 310-30 prohibits carrying over or creating an allowance for loan losses upon initial recognition. The carrying amount of covered assets at March 31, 2011 and December 31, 2010, consisted of loans accounted for in accordance with FASB ASC 310-30, loans not subject to FASB ASC 310-30 and other assets as shown in the following table:

	March 31, 2011
	ASC 310-30		Non ASC 310-30
(Dollar amounts in thousands)	Loans		Loans		Other		Total
Loans	$	9,346	$	33,494	$	—	$	42,840
Foreclosed Assets	—		—		2,278		2,278
Total Covered Assets	$	9,346	$	33,494	$	2,278	$	45,118

	December 31, 2010
	ASC 310-30		Non ASC 310-30
	Loans		Loans		Other		Total
Loans	$	10,948	$	35,485	$	—	$	46,433
Foreclosed Assets	—		—		2,586		2,586
Total Covered Assets	$	10,948	$	35,485	$	2,586	$	49,019

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The rollforward of the FDIC Indemnification asset is as follows:

	Quarter Ended			Year Ended
	March 31,			December 31,
(Dollar amounts in thousands)	2011			2010
Beginning balance	$	3,977		$	12,124
Accretion	38			339
Net changes in losses and expenses added	415			4,570
Reimbursements from the FDIC	(439		)	(13,056		)
TOTAL	$	3,991		$	3,977

On the acquisition date, the preliminary estimate of the contractually required payments receivable for all FASB ASC310-30 loans acquired in the acquisition were $31.6 million, the cash flows expected to be collected were $18.4 million including interest, and the estimated fair value of the loans was $16.7 million. These amounts were determined based upon the estimated remaining life of the underlying loans, which include the effects of estimated prepayments. At March 31, 2011, a majority of these loans were valued based on the liquidation value of the underlying collateral, because the expected cash flows are primarily based on the liquidation of underlying collateral and the timing and amount of the cash flows could not be reasonably estimated. There was a $1.3 million allowance for credit losses related to these loans at March 31, 2011. On the acquisition date, the preliminary estimate of the contractually required payments receivable for all non FASB ASC310-30 loans acquired in the acquisition was $58.4 million and the estimated fair value of the loans was $60.7 million. The impact to the Corporation from the amortization and accretion of premiums and discounts was immaterial.

ITEMS 2. and 3. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk

The purpose of this discussion is to point out key factors in the Corporation’s recent performance compared with earlier periods. The discussion should be read in conjunction with the financial statements beginning on page three of this report. All figures are for the consolidated entities. It is presumed the readers of these financial statements and of the following narrative have previously read the Corporation’s annual report for 2010 filed as an exhibit to the Corporation’s 10-K filed for the fiscal year ended December 31, 2010.

This Quarterly Report on Form 10-Q contains forward-looking statements. Forward-looking statements provide current expectations or forecasts of future events and are not guarantees of future performance, nor should they be relied upon as representing management’s views as of any subsequent date. The forward-looking statements are based on management’s expectations and are subject to a number of risks and uncertainties. Although management believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from those expressed or implied in such statements. Risks and uncertainties that could cause actual results to differ materially include, without limitation, the Corporation’s ability to effectively execute its business plans; changes in general economic and financial market conditions; changes in interest rates; changes in the competitive environment; continuing consolidation in the financial services industry; new litigation or changes in existing litigation; losses, customer bankruptcy, claims and assessments; changes in banking regulations or other regulatory or legislative requirements affecting the Corporation’s business; and changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or other regulatory agencies. Additional information concerning factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements is available in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2010, and subsequent filings with the United States Securities and Exchange Commission (SEC). Copies of these filings are available at no cost on the SEC’s Web site at www.sec.gov or on the Corporation’s Web site at www.first-online.com. Management may elect to update forward-looking statements at some future point; however, it specifically disclaims any obligation to do so.

Critical Accounting Policies

Certain of the Corporation’s accounting policies are important to the portrayal of the Corporation’s financial condition and results of operations, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances which could affect these judgments include, without limitation, changes in interest rates, in the performance of the economy or in the financial condition of borrowers. Management believes that its critical accounting policies include determining the allowance for loan losses and the valuation of goodwill and valuing investment securities. See further discussion of these critical accounting policies in the 2010 Annual Report on Form 10-K.

Summary of Operating Results

Net income for the three months ended March 31, 2011 was $8.8 million compared to $5.7 million for the same period of 2010. Basic earnings per share increased to $0.67 for the first quarter of 2011 compared to $0.43 for same period of 2010. Return on Assets and Return on Equity were 1.42% and 10.76% respectively for the three months ended March 31, 2011, compared to 0.92%and 7.29% for the three months ended March 31, 2010.

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The primary components of income and expense affecting net income are discussed in the following analysis.

Net Interest Income

The Corporation’s primary source of earnings is net interest income, which is the difference between the interest earned on loans and other investments and the interest paid for deposits and other sources of funds. Net interest income increased $1.5 million in the three months ended March 31, 2011 to $24.8 million from $23.3 million in the same period in 2010. The net interest margin for the first three months of 2011 is 4.51% compared to 4.29% for the same period of 2010, a 5.9% increase, driven by a greater decrease in funding costs than the decline in the rates of return on earning assets.

Non-Interest Income

Non-interest income for the three months ended March 31, 2011 was $8.3 million compared to the $5.0 million for the same period of 2010. Non-interest income was reduced by the other than temporary impairment loss on securities of $3.0 million for the three month period ending March 31, 2010. Further discussion on OTTI is included in Note 3. Insurance income accounted for most of the remaining increase in non-interest income.

Non-Interest Expenses

The Corporation’s non-interest expense for the quarter ended March 31, 2011 increased by $0.7 million compared to the same periods in 2010. Salaries and fringe benefits increased $608 thousand to account for most of this increase.

Allowance for Loan Losses

The Corporation’s provision for loan losses decreased $1.1 million for the first quarter of 2011 compared to the same period of 2010. The net charge-offs decreased $931 thousand for the three months ended March 31, 2011 compared to the same period of 2010. The allowance for loan losses has remained virtually the same at 1.37% of gross loans, or $22.3 million at March 31, 2011 compared to 1.36% of gross loans, or $22.1 million at December 31, 2010. Based on management’s analysis of the current portfolio, an evaluation that includes consideration of historical loss experience, non-performing loans trends, and probable incurred losses on identified problem loans, management believes the allowance is adequate.

Non-performing Loans

Non-performing loans consist of (1) non-accrual loans on which the ultimate collectability of the full amount of interest is uncertain, (2) loans which have been renegotiated to provide for a reduction or deferral of interest or principal because of a deterioration in the financial position of the borrower, and (3) loans past due ninety days or more as to principal or interest. A summary of non-performing loans at March 31, 2011 and December 31, 2010 follows:

	(000’s)
	March 31,			December 31,
	2011			2010
Non-accrual loans	$	43,631		$	38,517
Restructured loans	17,051			17,094
Accruing loans past due over 90 days	2,779			3,185
	$	63,461		$	58,796

Ratio of the allowance for loan losses as a percentage of non-performing loans	35		%	38		%

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The following loan categories comprise significant components of the nonperforming loans:

	(000’s)
	March 31,		December 31,
	2011		2010
Non-accrual loans
Commercial loans	$	33,194	$	27,848
Residential loans	8,518		8,735
Consumer loans	1,919		1,934
	$	43,631	$	38,517

Past due 90 days or more
Commercial loans	$	1,315	$	2,041
Residential loans	1,404		1,052
Consumer loans	60		92
	$	2,779	$	3,185

The following table is information on the non-accrual loans at March 31, 2011 and December 31, 2010 that were from the acquisition of assets from The First National Bank of Danville

	(000’s)		(000’s)
	March 31,		December 31,
	2011		2010
Non-accrual loans
Commercial loans	$	7,172	$	7,353
Residential loans	1,244		1,394
Consumer loans	—		—
	$	8,416	$	8,747

Interest Rate Sensitivity and Liquidity

First Financial Corporation has established risk measures, limits and policy guidelines for managing interest rate risk and liquidity. Responsibility for management of these functions resides with the Asset Liability Committee. The primary goal of the Asset Liability Committee is to maximize net interest income within the interest rate risk limits approved by the Board of Directors.

Interest Rate Risk

Management considers interest rate risk to be the Corporation’s most significant market risk. Interest rate risk is the exposure to changes in net interest income as a result of changes in interest rates. Consistency in the Corporation’s net interest income is largely dependent on the effective management of this risk.

The Asset Liability position is measured using sophisticated risk management tools, including earning simulation and market value of equity sensitivity analysis. These tools allow management to quantify and monitor both short-term and long-term exposure to interest rate risk. Simulation modeling measures the effects of changes in interest rates, changes in the shape of the yield curve and the effects of embedded options on net interest income. This measure projects earnings in the various environments over the next three years. It is important to note that measures of interest rate risk have limitations and are dependent on various assumptions. These assumptions are inherently uncertain and, as a result, the model cannot precisely predict the impact of interest rate fluctuations on net interest income. Actual results will differ from simulated results due to timing, frequency and amount of interest rate changes as well as overall market conditions. The Committee has performed a thorough analysis of these assumptions and believes them to be valid and theoretically sound. These assumptions are continuously monitored for behavioral changes.

The Corporation from time to time utilizes derivatives to manage interest rate risk. Management continuously evaluates the merits of such interest rate risk products but does not anticipate the use of such products to become a major part of the Corporation’s risk management strategy.

The table below shows the Corporation’s estimated sensitivity profile as of March 31, 2011. The change in interest rates assumes a parallel shift in interest rates of 100 and 200 basis points. Given a 100 basis point increase in rates, net interest income would increase 1.89% over the next 12 months and increase 3.58% over the following 12 months. Given a 100 basis point decrease in rates, net interest income would decrease 0.80% over the next 12 months and decrease 2.21% over the following 12 months. These estimates assume all rate changes occur overnight and management takes no action as a result of this change.

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Basis Point	Percentage Change in Net Interest Income
Interest Rate Change	12 months		24 months		36 months
Down 200	-2.07	%	-5.14	%	-7.59	%
Down 100	-0.80		-2.21		-3.47
Up 100	1.89		3.58		6.32
Up 200	2.67		5.60		11.02

Typical rate shock analysis does not reflect management’s ability to react and thereby reduce the effect of rate changes, and represents a worst-case scenario.

Liquidity Risk

Liquidity represents an institution’s ability to provide funds to satisfy demands from depositors, borrowers, and other creditors by either converting assets into cash or accessing new or existing sources of incremental funds. Generally the Corporation relies on deposits, loan repayments and repayments of investment securities as its primary sources of funds. The Corporation has $8.3 million of investments that mature throughout the next 12 months. The Corporation also anticipates $88.3 million of principal payments from mortgage-backed securities. Given the current rate environment, the Corporation anticipates $10.4 million in securities to be called within the next 12 months. The Corporation also has unused borrowing capacity available with the Federal Home Loan Bank of Indianapolis, several Correspondent Banks and the Federal Reserve Bank of Chicago. With these many sources of funds, the Corporation currently anticipates adequate liquidity to meet the expected obligations of its customers.

Financial Condition

Comparing the first quarter of 2011 to the same period in 2010, loans net of unearned discount are down 0.6% or $9.8 million. Deposits are up $137.0 million at March 31, 2011, a 7.6% increase from the balances at the same time in 2010. Shareholders’ equity increased $18.5 million from March 31, 2010. This financial performance increased book value per share 5.6% to $25.44 at March 31, 2011 from $24.10 at March 31, 2010. Book value per share is calculated by dividing the total shareholders’ equity by the number of shares outstanding.

Capital Adequacy

As of March 31, 2011, the most recent notification from the respective regulatory agencies categorized the subsidiary banks as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the banks must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the bank’s category. Below are the capital ratios for the Corporation and lead bank.

	March 31, 2011		December 31, 2010		To Be Well Capitalized

Total risk-based capital
Corporation	18.47	%	17.82	%	N/A
First Financial Bank	17.89	%	17.29	%	10.00	%

Tier I risk-based capital
Corporation	17.30	%	16.66	%	N/A
First Financial Bank	16.87	%	16.26	%	6.00	%

Tier I leverage capital
Corporation	13.29	%	12.68	%	N/A
First Financial Bank	12.88	%	12.37	%	5.00	%

ITEM 4. Controls and Procedures

First Financial Corporation’s management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. As of March 31, 2011, an evaluation was performed under the supervision and with the participation of management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures. Based on that evaluation, management, including the principal executive officer and principal financial officer, concluded that the Corporation’s disclosure controls and procedures as of March 31, 2011 were effective in ensuring material information required to be disclosed in this Quarterly Report on Form 10-Q was recorded, processed, summarized, and reported on a timely basis. Additionally, there was no change in the Corporation’s internal control over financial reporting that occurred during the quarter ended March 31, 2011 that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

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PART II — Other Information

ITEM 1. Legal Proceedings.

There are no material pending legal proceedings, other than routine litigation incidental to the business of the Corporation or its subsidiaries, to which the Corporation or any of the subsidiaries is a party or of which any of their respective property is subject. Further, there is no material legal proceeding in which any director, officer, principal shareholder, or affiliate of the Corporation or any of its subsidiaries, or any associate of such director, officer, principal shareholder or affiliate is a party, or has a material interest, adverse to the Corporation or any of its subsidiaries.

ITEM 1 A. Risk Factors.

There have been no material changes in the risk factors from those disclosed in the Corporation’s 2010 Annual Report on Form 10-K.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(a) None.

(b) Not applicable.

The Corporation periodically acquires shares of its common stock directly from shareholders in individually negotiated transactions. The Corporation has not adopted a formal policy or adopted a formal program for repurchases of shares of its common stock. There were no shares purchased by the Corporation during the quarter covered by this report.

ITEM 3. Defaults upon Senior Securities.

Not applicable.

ITEM 4. (Removed and Reserved)

ITEM 5. Other Information.

Not applicable.

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ITEM 6. Exhibits.

Exhibit No.:		Description of Exhibit:

3.1		Amended and Restated Articles of Incorporation of First Financial Corporation, incorporated by reference to Exhibit 3(i) of the Corporation’s Form 10-Q filed for the quarter ended September 30, 2002.

3.2		Code of By-Laws of First Financial Corporation, incorporated by reference to Exhibit 3(ii) of the Corporation’s Form 8-K filed on July 27, 2009.

10.1		Employment Agreement for Norman L. Lowery, dated and effective December 1, 2010 included as exhibit 10.1 of the Corporation’s Form 10-K filed for the fiscal year ended December 31, 2010.

10.2		2001 Long-Term Incentive Plan of First Financial Corporation, incorporated by reference to Exhibit 10.3 of the Corporation’s Form 10-Q filed for the quarter ended September 30, 2002.

10.3		2011 Schedule of Director Compensation, incorporated by reference to Exhibit 10.3 of the Corporation’s Form 10-K filed for the fiscal year ended December 31, 2010.

10.4		2011 Schedule of Named Executive Officer Compensation, incorporated by reference to the Corporation’s Form 10-K filed for the fiscal year ended December 31, 2010.

10.5		2005 Long-Term Incentive Plan of First Financial Corporation, incorporated by reference to Exhibit 10.7 of the Corporation’s Form 8-K filed September 4, 2007.

10.6		2005 Executives Deferred Compensation Plan, incorporated by reference to Exhibit 10.5 of the Corporation’s Form 8-K filed September 4, 2007.

10.7		2005 Executives Supplemental Retirement Plan, incorporated by reference to Exhibit 10.6 of the Corporation’s Form 8-K filed September 4, 2007.

10.8		First Financial Corporation 2010 Short-Term Incentive Compensation Plan incorporated by reference to exhibit 10.8 of the Corporation’s Form 10-K filed for the fiscal year ended December 31, 2010.

10.9		First Financial Corporation 2010 Long-Term Incentive Compensation Plan incorporated by reference to exhibit 10.9 of the Corporation’s Form 10-K filed for the fiscal year ended December 31, 2010.

10.10		First Financial Corporation 2011 Long-Term Incentive Compensation Plan incorporated by reference to exhibit 10.10 of the Corporation’s Form 10-K filed for the fiscal year ended December 31, 2010.

10.11		First Financial Corporation 2011 Omnibus Equity Incentive Plan.

31.1		Sarbanes-Oxley Act 302 Certification for Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 by Principal Executive Officer, dated May 6, 2011

31.2		Sarbanes-Oxley Act 302 Certification for Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 by Principal Financial Officer, dated May 6, 2011.

32.1		Certification, dated May 6, 2011, of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2005 on Form 10-Q for the quarter ended March 31, 2011.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	FIRST FINANCIAL CORPORATION
	(Registrant)


Date: May 6, 2011	By	/s/ Donald E. Smith
	Donald E. Smith, Chairman


Date: May 6, 2011	By	/s/ Norman L. Lowery
	Norman L. Lowery, Vice Chairman and CEO
	(Principal Executive Officer)


Date: May 6, 2011	By	/s/ Rodger A. McHargue
	Rodger A. McHargue, Treasurer and CFO
	(Principal Financial Officer)

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Exhibit Index

Exhibit No.:		Description of Exhibit:

3.1		Amended and Restated Articles of Incorporation of First Financial Corporation, incorporated by reference to Exhibit 3(i) of the Corporation’s Form 10-Q filed for the quarter ended September 30, 2002.

3.2		Code of By-Laws of First Financial Corporation, incorporated by reference to Exhibit 3(ii) of the Corporation’s Form 8-K filed on July 27, 2009.

10.1		Employment Agreement for Norman L. Lowery, dated and effective December 1, 2010 included as exhibit 10.1 of the Corporation’s Form 10-K filed for the fiscal year ended December 31, 2010.

10.2		2001 Long-Term Incentive Plan of First Financial Corporation, incorporated by reference to Exhibit 10.3 of the Corporation’s Form 10-Q filed for the quarter ended September 30, 2002.

10.3		2011 Schedule of Director Compensation, incorporated by reference to Exhibit 10.3 of the Corporation’s Form 10-K filed for the fiscal year ended December 31, 2010.

10.4		2011 Schedule of Named Executive Officer Compensation, incorporated by reference to the Corporation’s Form 10-K filed for the fiscal year ended December 31, 2010.

10.5		2005 Long-Term Incentive Plan of First Financial Corporation, incorporated by reference to Exhibit 10.7 of the Corporation’s Form 8-K filed September 4, 2007.

10.6		2005 Executives Deferred Compensation Plan, incorporated by reference to Exhibit 10.5 of the Corporation’s Form 8-K filed September 4, 2007.

10.7		2005 Executives Supplemental Retirement Plan, incorporated by reference to Exhibit 10.6 of the Corporation’s Form 8-K filed September 4, 2007.

10.8		First Financial Corporation 2010 Short-Term Incentive Compensation Plan incorporated by reference to exhibit 10.8 of the Corporation’s Form 10-K filed for the fiscal year ended December 31, 2010.

10.9		First Financial Corporation 2010 Long-Term Incentive Compensation Plan incorporated by reference to exhibit 10.9 of the Corporation’s Form 10-K filed for the fiscal year ended December 31, 2010.

10.10		First Financial Corporation 2011 Long-Term Incentive Compensation Plan incorporated by reference to exhibit 10.10 of the Corporation’s Form 10-K filed for the fiscal year ended December 31, 2010.

10.11		First Financial Corporation 2011 Omnibus Equity Incentive Plan.

31.1		Sarbanes-Oxley Act 302 Certification for Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 by Principal Executive Officer, dated May 6, 2011

31.2		Sarbanes-Oxley Act 302 Certification for Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 by Principal Financial Officer, dated May 6, 2011.

32.1		Certification, dated May 6, 2011, of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2005 on Form 10-Q for the quarter ended March 31, 2011.

Exhibit 10.11

FIRST FINANCIAL CORPORATION
2011 OMNIBUS EQUITY INCENTIVE PLAN

ARTICLE 1

ESTABLISHMENT, PURPOSES AND DEFINITIONS

1.1 Establishment of the Plan . First Financial Corporation, an Indiana corporation, hereby establishes an equity-based incentive compensation plan to be known as the “First Financial Corporation 2011 Omnibus Equity Incentive Plan,” set forth in this document. This Plan permits the grant of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units and Incentive Awards. This Plan and the grant of Awards hereunder are expressly conditioned upon the Plan’s approval by the shareholders of the Company. The Plan is adopted effective as of January 1, 2011; however, no Options may be exercised and no other Award may be exercised or otherwise paid, vested or earned under this Plan until the Plan has been approved by a majority of the Shares of the Company represented at the shareholder’s meeting at which approval of the Plan is considered, as specified in Section 12.2.

1.2 Purposes of the Plan . The purposes of this Plan are to further the growth and financial success of the Company and its Affiliates by aligning the interests of the Participants, through the ownership of Shares and through other incentives, with the interests of the Company’s shareholders; to provide Participants with an incentive for excellence in individual performance; and to promote teamwork among Participants. The Plan is further intended to provide flexibility to the Company in its ability to motivate, attract and retain the services of officers and employees who make significant contributions to the Company’s success and to allow the Company’s officers to share in the success of the Company.

1.3 Definitions . Whenever the initial letter of the following words or phrases is capitalized in the Plan, including any Supplements, they will have the respective meanings set forth below unless otherwise defined herein:

(a) “1934 Act” means the Securities Exchange Act of 1934, as amended. Reference to a specific section of the 1934 Act or regulation thereunder includes such section or regulation, any valid regulation promulgated under such section and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.

(b) “Affiliate” means any corporation or any other entity (including, but not limited to, partnerships, limited liability companies, joint ventures and Subsidiaries) controlling, controlled by or under common control with the Company.

(c) “Award” means, individually or collectively, a grant under this Plan of Nonqualified Stock Options, Incentive Stock Options, SARs, Restricted Stock, Restricted Stock Units or Incentive Awards.

A-1

(d) “Award Agreement” means the written agreement which sets forth the terms and provisions applicable to each Award granted under this Plan.

(e) “Award Rate” means, for purposes of making Incentive Awards pursuant to Article 9, the amount of cash awarded to a Participant, expressed as a percentage of a Participant’s Base Salary as determined by the Committee.

(f) “Base Salary” means the regular base salary and board of director retainer, committee and meeting fees paid by the Company or a Subsidiary to an employee while such employee is a Participant during a calendar year, exclusive of additional forms of compensation such as bonuses, other incentive payments, automobile allowances, tax gross-ups and other fringe benefits. Base Salary will include also salary deferral contributions made pursuant to Code Sections 401(k) and 125 and deferral contributions made to the First Financial Corporation 2005 Executives’ Deferred Compensation Plan.

(g) “Beneficiary” means the person or persons designated by a Participant to receive the benefits under this Plan, if any, which become payable as a result of the Participant’s death.

(h) “Bank” means First Financial Bank, N.A.

(i) “Board” means the Board of Directors of the Company serving at the time that this Plan is approved by the shareholders of the Company or thereafter.

(j) “Cashless Exercise” means, if there is a public market for the Shares, the payment of the Exercise Price of Options (a) through a “same day sale” commitment from the Participant and an NASD Dealer whereby the Participant irrevocably elects to exercise the Option and to sell a portion of the Shares so purchased in order to pay the Exercise Price, and whereby the NASD Dealer irrevocably commits upon receipt of such stock to forward the Exercise Price directly to the Company, or (b) through a “margin” commitment from the Participant and an NASD Dealer whereby the Participant irrevocably elects to exercise the Option and to pledge the Shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the Exercise Price and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to forward the Exercise Price directly to the Company.

(k) “Cause” means:

(i) An intentional act of fraud, embezzlement, theft or personal dishonesty; willful misconduct, or breach of fiduciary duty involving personal profit by the Participant in the course of his employment. No act or failure to act shall be deemed to have been intentional or willful if it was due primarily to an error in judgment or negligence. An act or failure to act shall be considered intentional or willful if it is not in good faith and if it is without a reasonable belief that the action or failure to act is in the best interest of the Company or a Subsidiary;

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(ii) Intentional wrongful damage by the Participant to the business or property of the Company or a Subsidiary, causing material harm to the Company or a Subsidiary;

(iii) Breach by the Participant of any confidentiality or nondisclosure agreement in effect from time to time with the Company or a Subsidiary;

(iv) Gross negligence or insubordination by the Participant in the performance of his duties; or

(v) Removal or permanent prohibition of the Participant from participating in the conduct of Company’s or a Subsidiary’s affairs by an order issued under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 USC 1818(e)(4) and (g)(1).

(l) “Change in Control” will have the meaning assigned to such term in Section 10.2.

(m) “Code” means the Internal Revenue Code of 1986, as amended.

(n) “Committee” means the Compensation Committee of the Board serving on the date this Plan is approved by the shareholders or thereafter.

(o) “Company” means, unless otherwise stated, First Financial Corporation, organized and existing under the laws of the State of Indiana, or any successor (by merger, consolidation, purchase or otherwise) to such corporation which assumes the obligations of such corporation under the Plan.

(p) “Covered Employee” means an Eligible Employee who, on the last day of the taxable year, is (i) the chief executive officer of the Company or is acting in such a capacity, or (ii) among the four highest compensated officers (other than the chief executive officer) for the taxable year.

(q) “Director” means any individual who is a member of the Board.

(r) “Disability” a disability as determined under a long-term disability insurance policy sponsored by the Company or a Subsidiary. Notwithstanding the foregoing, the term “Disability” for purposes of Section 5.9 will mean the inability to engage in any substantial gainful activity by reason of any medically determinable physical and mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.

(s) “Effective Date” means January 1, 2011.

(t) “Eligible Employee” means all employees of the Company or an Affiliate, whether such employees are employed on the date that this Plan is adopted by the Board or become employed subsequent to such approval, who are included in Tier

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I, Tier II or Tier III, or who are otherwise deemed by the Committee to be an “Eligible Employee.” For purposes of the Plan, “Tier 1” means employment as the Company’s Chief Executive Officer or President. “Tier 2” means employment as the Bank’s Chief Financial Officer, Chief Credit Officer or Chief Operating Officer. “Tier 3” means employment as the Bank’s Head of Branch Administration and Head of Wealth Management.

(u) “Exercise Period” means the period during which a SAR will be exercisable in accordance with the applicable Award Agreement and Article 6.

(v) “Exercise Price” means the price at which a Share may be purchased by a Participant pursuant to the exercise of an Option.

(w) “Fair Market Value” means the mean between the highest and lowest quoted selling prices of the common stock of the Company as reported on NASDAQ as of the day the applicable Award is granted to a Participant. The Company’s common stock was not traded on such date, then on the day prior to such date or on the next preceding day on which the Company’s common stock was traded;

(x) “Good Reason” means the occurrence of any of the following events, which has not been consented to in advance by the Participant in writing:

(i) The requirement that the Participant move his personal residence;

(ii) A reduction of ten percent or more in the Participant’s Base Salary, unless part of an institution-wide reduction and similar to the reduction in the base salary of all other similarly situated officers of the Company or the Bank;

(iii) The removal of the Participant from participation in any incentive compensation (including, but not limited to, the Plan) or performance-based compensation plans or bonus plans unless the Company terminates participation in the plan or plans with respect to all other similarly situated officers of the Company or the Bank;

(iv) The assignment to the Participant of duties and responsibilities materially different from those normally associated with his position; or

(v) A material diminution or reduction in the Participant’s responsibilities or authority (including reporting responsibilities) in connection with his employment with the Company or a Subsidiary.

(y) “Grant Date” means, with respect to any Award granted under this Plan, the date on which the Award was granted by the Committee, regardless if the Award Agreement to which the Award relates is executed subsequent to such date.

(z) Incentive Award” means a cash-based Award granted to a Participant pursuant to Article 9.

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(aa) “Incentive Stock Option” means an Option granted under this Plan to purchase Shares which is designated as an Incentive Stock Option and is intended to meet the requirements of Code Section 422.

(bb) “NASD Dealer” means a broker-dealer who is a member of the National Association of Securities Dealers, Inc.

(cc) “Nonqualified Stock Option” means an Option granted under this Plan to purchase Shares which is not an Incentive Stock Option.

(dd) “Option” means an Incentive Stock Option or a Nonqualified Stock Option.

(ee) “Option Period” means the period during which an Option will be exercisable in accordance with the applicable Award Agreement and Article 5.

(ff) “Participant” means an Eligible Employee who has been determined by the Committee to be eligible to participate in the Plan.

(gg) “Performance Goals” means the goals which must be attained, as determined by the Committee in its sole discretion utilizing the United States Treasury Department final “Guidance on Sound Incentive Compensation Policies” and any subsequent guidance hereafter provided by applicable statute, rule or regulation, for a Participant to earn an Award. As determined by the Committee in its sole discretion, the Performance Goals applicable to each Award granted under the Plan will provide for a targeted level or levels of financial achievement with respect to one or more of the following business criteria: (a) return on assets; (b) earnings before interest, taxes, depreciation and amortization (EBITDA); (c) net income; (d) total shareholder return; (e) return on equity; (f) Affiliate or division operating income; (g) pre- or after-tax income; (h) cash flow; (i) cash flow per share; (j) earnings per share (basic or diluted); (k) return on invested capital; (l) economic value added (or an equivalent metric); (m) share price performance; (n) improvement in or attainment of expense levels; (o) loan growth; (p) asset quality; (q) loan spread; (r) deposit growth; and (s) improvement in or attainment of working capital levels. The Performance Goals may differ from Participant to Participant and from Award to Award.

(hh) “Performance Period” means the period of time during which Performance Goals must be achieved with respect to an Award, as determined by the Committee in its sole discretion.

(ii) “Period of Restriction” means the period during which Shares of Restricted Stock or Restricted Stock Units are subject to transfer restrictions and, therefore, the Shares or Units are subject to a substantial risk of forfeiture.

(jj) “Plan” means the First Financial Corporation 2011 Omnibus Equity Incentive Plan, as set forth in this document and as hereafter amended from time to time.

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(kk) “Restricted Stock” means an Award granted to a Participant pursuant to Article 7.

(ll) “Restricted Stock Unit” means an Award granted to a Participant pursuant to Article 8.

(mm) “Retirement” or “Retires” means a Participant’s Termination of Service on or after attaining age 65 for reasons other than Cause, Good Reason, death or Disability.

(nn) “Rule 16b-3” means Rule 16b-3 promulgated under the 1934 Act, and any future rule or regulation amending, supplementing or superseding such rule.

(oo) “Section 16 Person” means a person subject to potential liability under Section 16(b) of the 1934 Act with respect to transactions which involve equity securities of the Company.

(pp) “Shares” means the whole shares of issued and outstanding regular voting common stock, no par value, of the Company, whether presently or hereafter issued and outstanding, and any other stock or securities resulting from adjustment of Shares as provided in Section 4.7, or the stock of any successor to the Company which is so designated for the purposes of the Plan.

(qq) “Stock Appreciation Right” or “SAR” means an Award granted to a Participant pursuant to Article 6.

(rr) “Subsidiary” means a corporation, partnership or limited liability company, a majority of the outstanding voting stock, general partnership interests or membership interests, as the case may be, of which is owned or controlled, directly or indirectly, by the Company or by one or more other Subsidiaries of the Company. A Subsidiary includes any Subsidiary of the Company as of the Effective Date and each entity that becomes a Subsidiary of the Company after the Effective Date.

(ss) “Termination of Service” or “Termination” means the occurrence of any act or event or any failure to act, whether pursuant to an employment agreement or otherwise, that actually or effectively causes or results in a Participant ceasing, for whatever reason, to be an employee of the Company or an Affiliate, including, but not limited to, death, Disability, Retirement, termination by the Company or an Affiliate of the Participant’s employment with the Company or an Affiliate (whether with or without Cause) and voluntary resignation or termination by the Participant of his or her employment with the Company or an Affiliate (whether with or without Good Reason). A Termination of Service will also occur with respect to an Eligible Employee who is employed by an Affiliate if the Affiliate ceases to be an Affiliate of the Company and the Participant does not immediately thereafter become an Eligible Employee of the Company or another Affiliate. For purposes of this Plan, transfers or changes of employment of a Participant

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between the Company and an Affiliate (or between Affiliates) will not be deemed a Termination of Service.

ARTICLE 2

ADMINISTRATION

2.1 The Committee . This Plan will be administered by the Committee. The decision or action of a majority of the actual number of members of the Committee will constitute the decision or action of the Committee. The Committee will consist of not less than three Directors. The members of the Committee will be appointed from time to time by, and will serve at the pleasure of, the Board. The Committee will be comprised solely of Directors who are (a) “nonemployee directors” under Rule 16b-3, (b) “outside directors” as described in Treasury Regulation Section 1.162-27(e)(3), and (c) independent under the director independence requirements of the NASDAQ Stock Market or, if it changes, the principal securities exchange or market on which the Shares are then traded or listed. Failure of the Committee to be so comprised will not result in the cancellation, termination, expiration or lapse of any Award.

2.2 Authority of the Committee . Except as limited by law or by the Articles of Incorporation or By-Laws of the Company, and subject to the provisions of this Plan, the Committee will have full power and discretion to: (a) select Eligible Employees who will participate in the Plan; (b) determine the sizes and types of Awards; (c) determine the terms and conditions of Awards in a manner consistent with this Plan; (d) construe and interpret this Plan, all Award Agreements and any other agreements or instruments entered into under this Plan; (e) establish, amend or waive rules and regulations for the Plan’s administration; and (f) amend the terms and conditions of any outstanding Award and applicable Award Agreement to the extent such terms and conditions are within the discretion of the Committee as provided in this Plan; provided however, the Committee may only accelerate the exercisability or vesting of an Award in connection with a Participant’s death, Disability, Retirement, in connection with a Change in Control, or to the extent such actions involve an aggregate number of Shares not in excess of five percent of the number of Shares initially available for Awards under Section 4.1. Further, the Committee will make all other determinations which may be necessary or advisable for the administration of this Plan. All determinations and decisions made by the Committee, the Board and any delegate of the Committee will be final, conclusive and binding on all persons, including the Company and Participants. No such determinations will be subject to de novo review if challenged in court.

2.3 Delegation by the Committee . The Committee, in its sole discretion and on such terms and conditions as it may provide, may delegate all or any part of its authority and powers under this Plan to one or more Directors or officers of the Company; provided, however, that the Committee may not delegate its authority and powers (a) with respect to grants to Section 16 Persons, or (b) in any way which would jeopardize this Plan’s qualification under Code Section 162(m) or (c) adversely impact Awards under Rule 16b-3.

2.4 Notice to Committee . Any notice or document required to be given to or filed with the Committee will be properly given or filed if hand delivered (and a delivery receipt is received) or mailed by certified mail, return receipt requested, postage paid, to the Compensation

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Committee, First Financial Corporation Board of Directors, at P.O. Box 540, Terre Haute, Indiana, 47808.

2.5 Considerations in Establishing Performance Goals . In determining appropriate Performance Goals and the relative weight accorded each Performance Goal, the Committee must:

(a) Balance risk and financial results in a manner that does not encourage Participants to expose the Company and its Subsidiaries to imprudent risks;

(b) Make such determination in a manner designed to ensure that Participant’ overall compensation is balanced and that the Awards are consistent with the policies and procedures of the Company and its Subsidiaries regarding such compensation arrangements; and

(c) Monitor the success of the Performance Goals and weighting established in prior years, alone and in combination with other incentive compensation awarded to the same Participants, and make appropriate adjustments in future calendar years as needed so that payments appropriately incentivize Participants and appropriately reflect risk.

2.6 Communication of Award Opportunity Level and Awards . Not later than 90 days following the beginning of each Performance Period, as applicable, the Performance Goals (and their respective weightings) and any other requirements, criteria, attributes, terms and conditions for Awards for such Performance Period shall be communicated in writing by the Committee to the Participants eligible for such Awards in an Award Agreement.

2.7 Code Section 162(m) Performance Requirements . Notwithstanding any other provision of the Plan to the contrary, for purposes of qualifying Awards to Covered Employees as “performance-based compensation” under Code Section 162(m), the Committee will establish the specific targets under the Performance Goals applicable to the Awards. Such targets under the Performance Goals will be set by the Committee on or before the latest date permissible to enable the Awards, to qualify as “performance-based compensation” under Code Section 162(m). In granting Awards intended to qualify under Code Section 162(m), the Committee will follow any procedures determined by it from time to time to be necessary or appropriate in its sole discretion to ensure qualification of the Awards under Code Section 162(m), including but not limited to, certifying that the Performance Goals and other material terms were in fact satisfied.

ARTICLE 3

ELIGIBILITY

3.1 Eligibility . Except as herein provided, the individuals who are eligible to participate in this Plan and be granted Awards are those individuals who are Eligible Employees. The Committee may, from time to time and in its sole discretion, select Eligible Employees to be granted Awards and will determine the terms and conditions with respect thereto. In making any such selection and in determining the form of the Award, the Committee may give consideration

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to the functions and responsibilities of the Eligible Employee to the Company or its Affiliates, the value of the Eligible Employee’s services (past, present and future) to the Company or its Affiliates and such other factors deemed relevant by the Committee in its sole discretion. An Eligible Employee will become a Participant in this Plan as of the date specified by the Committee. A Participant can be removed as an active Participant by the Committee effective as of any date; provided, however, that no such removal will adversely affect any Award previously granted to the Participant.

3.2 No Contract of Employment . Neither this Plan nor any Award Agreement executed hereunder will constitute a contract of employment between an Eligible Employee and the Company or an Affiliate, and participation in this Plan will not give an Employee the right to be rehired by or retained in the employment of the Company or an Affiliate.

ARTICLE 4

SHARES SUBJECT TO THIS PLAN

4.1 Number of Shares .

(a) Maximum Number . Subject to adjustment as provided in Section 4.7, the maximum number of Shares cumulatively available for issuance under this Plan pursuant to the: (a) exercise of Options; (b) grant of SARs; (c) grant of Shares of Restricted Stock; and (d) payment of Restricted Stock Units, will not exceed Seven Hundred Thousand (700,000) Shares, plus (i) Shares tendered (actually or by attestation) to the Company in connection with the exercise of Options; (ii) Shares purchased by the Company in the open market or otherwise using the cash proceeds upon the exercise of Options; (iii) Shares settled hereunder in cash; and (iv) Shares withheld pursuant to Article 11.

(b) Limits on Awards . In calculating the number of Shares available for issuance under this Plan, each year no more than One Hundred Twenty-Five Thousand (125,000) Shares will be available in the aggregate for the grant of Awards under the Plan and no more than One Hundred Twenty-Five Thousand (125,000) Shares will be available as an Award to any Participant. Shares issued under this Plan may be (i) authorized but unissued Shares, treasury Shares, (ii) reacquired Shares (including Shares purchased in the open market), or (iii) any combination thereof, as the Committee may from time to time determine in its sole discretion.

(c) Forfeited and Unpurchased Shares . Shares covered by an Award that are forfeited or that remain unpurchased or undistributed upon termination or expiration of the Award may be made the subject of further Awards to the same or other Participants. If the exercise price of any Option is satisfied by tendering Shares (by either actual delivery or attestation), only the number of Shares actually issued, net of the Shares tendered, will be deemed issued for purposes of determining the number of Shares available for Awards under this Plan. Additionally, if Shares are withheld pursuant to Section 11.2, only the number of Shares actually issued, net of the Shares withheld, will be deemed issued for

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purposes of determining the number of Shares available for Awards under this Plan.

4.2 Release of Shares . Subject to the limitations set forth in this Plan, the Committee will have full authority to determine the number of Shares available for Awards and, in its sole discretion, may include (without limitation) as available for distribution: (a) any Shares that have ceased to be subject to an Award; (b) any Shares subject to an Award that have been previously forfeited; (c) any Shares under an Award that otherwise terminates without the issuance of Shares being made to a Participant; (d) any Shares that are received by the Company in connection with the exercise of an Award, including the satisfaction of any tax liability or tax withholding obligation; or (e) any Shares repurchased by the Company in the open market or otherwise, having an aggregate repurchase price no greater than the amount of cash proceeds received by the Company from the exercise of Options granted under this Plan. Any Shares that are available immediately prior to the termination of the Plan, or any Shares returned to the Company for any reason subsequent to the termination of the Plan, may be transferred to a successor plan.

4.3 Restrictions on Shares . Shares issued upon exercise of an Award will be subject to the terms and conditions specified herein and to such other terms, conditions and restrictions as the Committee in its sole discretion may determine and provide in the Award Agreement. The Company will not be required to issue or deliver any certificates for Shares, cash or other property prior to the (a) listing of such Shares on any stock exchange (or other public market) on which the Shares may then be listed (or regularly traded), and (b) completion of any registration or qualification of such shares under federal, state, local or other law, or any ruling or regulation of any government body which the Committee determines to be necessary or advisable. The Company may cause any certificate for any Shares to be delivered hereunder to be properly marked with a legend or other notation reflecting the limitations on transfer of such Shares as provided in this Plan or as the Committee may otherwise require. Participants, or any other persons entitled to benefits under this Plan, must furnish to the Committee such documents, evidence, data or other information as the Committee considers necessary or desirable for the purpose of administering this Plan. The benefits under this Plan for each Participant, and each other person who is entitled to benefits hereunder, are to be provided on the condition that he furnish full, true and complete data, evidence or other information, and that he promptly signs any document reasonably related to the administration of this Plan requested by the Committee. No fractional Shares will be issued under this Plan; rather, fractional shares will be aggregated and then rounded to the next lower whole Share.

4.4 Book-Entry Securities . The Company shall have the right to maintain all Awards in book - entry form in the name of the Participant until such time as such Awards shall have been vested and the requirements of Section 4.3 have been met.

4.5 Shareholder Rights . Except with respect to Restricted Stock as provided in Article 7 and dividend rights as provided in Section 4.6, no person will have any rights of a shareholder (including, but not limited to, voting rights) as to Shares subject to an Award until, after proper exercise or vesting of the Award or other action as may be required by the Committee in its sole discretion, such Shares have been recorded on the Company’s official shareholder records (or the records of its transfer agents) as having been issued and transferred to

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the Participant. Upon exercise of the Award or any portion thereof, the Company will have a reasonable period in which to issue and transfer the Shares to the Participant, and the Participant will not be treated as a shareholder for any purpose whatsoever prior to such issuance and transfer. No payment or adjustment will be made for rights for which the record date is prior to the date such Shares are recorded as issued and transferred in the Company’s official shareholder records (or the records of its transfer agents or registrars), except as otherwise provided herein or in an Award Agreement.

4.6 Dividends and Dividend Equivalents . The Committee may provide that Awards denominated in Shares earn dividends or dividend equivalents. Such dividends and dividend equivalents may be paid currently in cash or Shares or may be credited to an account established by the Committee in the Participant’s name. In addition, dividends or dividend equivalents paid on outstanding Awards or issued Shares may be credited to such account rather than paid currently. Any crediting of dividends or dividend equivalents may be subject to such restrictions and conditions as the Committee may establish, including reinvestment in additional Shares or Share equivalents. Notwithstanding the foregoing, dividends or dividend equivalents on unvested portions of Awards whose vesting is subject to the achievement of specified Performance Goals will be subject to the same restrictions as the underlying Shares or units to which such dividends or dividend equivalents relate.

4.7 Changes in Stock .

(a) Substitution of Stock and Assumption of Plan . In the event of any change in the Shares by virtue of any stock dividends, stock splits, recapitalizations or reclassifications or in the event that other stock is substituted for the Shares as the result of any merger, consolidation, share exchange, reorganization or any similar transaction which does not constitute a Change in Control of the Company, the Committee will correspondingly adjust the (i) number, kind and class of Shares which may be delivered under this Plan, (ii) number, kind, class and price of Shares subject to outstanding Awards (except for mergers or other combinations in which the Company is the surviving entity), and (iii) numerical limits of Sections 4.1 and 5.1, all in such manner as the Committee in its sole discretion determines to be advisable or appropriate to prevent the dilution or diminution of such Awards; provided, however, in no event will the One Hundred Thousand Dollar ($100,000) limit on Incentive Stock Options contained in Section 5.1 be affected by an adjustment under this subsection. The Committee’s determinations under this subsection will be final and conclusive.

(b) Conversion of Shares . In the event the Company is a party to a merger, consolidation, share exchange, stock or asset purchase or other reorganization (“Acquisition Transaction”) that would constitute a Change in Control of the Company, the agreement under which such Acquisition Transaction is effected (“Merger Agreement”) may provide for any one or more of the following (subject to the provisions of Section 10.1), which shall apply on a consistent basis to all similarly situated outstanding Awards (but may be applied differently for different types of Awards or Awards having differing characteristics), in all cases without the consent of any Participant:

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(i) The assumption of (or substitution of equivalent awards for) outstanding Options, SARs, Restricted Stock and Restricted Stock Units by the surviving corporation or its parent (or for their continuation by the Company if the Company is a surviving corporation), in which case each Award shall be adjusted consistent with the consideration received for Shares under the Merger Agreement in accordance with the principles set forth in subsection 4.7(a);

(ii) The cancellation of outstanding Options and SARs upon payment of a cash amount for each Share or Share equivalent under the Award (whether or not vested, earned or exercisable prior to the effective time of such Acquisition Transaction) equal to the positive difference (or if there is no positive difference, cancellation without payment) between (A) the cash amount or Fair Market Value of the other consideration to be paid for each Share under the Merger Agreement and (B) the Exercise Price of any Option or SAR;

(iii) The cancellation, without consideration, of outstanding Options and SARs not exercised prior to the effective time of such Acquisition Transaction; provided that Participants are given reasonable notice in advance of the effective time of such Acquisition Transaction that such Options or SARs are fully vested, may be exercised prior to such Acquisition Transaction, and will expire if not so exercised; and/or

(iv) The cancellation of outstanding Restricted Stock and Restricted Stock Units upon payment or delivery of the consideration under the Merger Agreement for each Share or Share equivalent under the Award (whether or not vested prior to the effective time of such Acquisition Transaction).

Shares issued in connection with the Awards that are assumed, converted or substituted under this subsection will not reduce the number of Shares reserved for issuance under Section 4.1.

ARTICLE 5

STOCK OPTIONS

5.1 Grant of Options . Subject to the terms and provisions of this Plan, the Committee, at any time and from time to time, may grant Options to any Participant in such amounts as the Committee, in its sole discretion, may determine. The Committee may grant Incentive Stock Options, Nonqualified Stock Options or any combination thereof. Subject to the terms and provisions of this Plan, the Committee, in its sole discretion, will determine the number of Shares subject to each Option; provided, however, no Participant may be granted Incentive Stock Options under this Plan which would result in Shares with an aggregate Fair Market Value (measured on the Grant Date(s)) of more than One Hundred Thousand Dollars ($100,000) first becoming exercisable in any one calendar year.

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5.2 Option Award Agreement . Each Award of an Option will be evidenced by an Award Agreement that will specify the Exercise Price, the number of Shares to which the Option pertains, the Option Period, any conditions to exercise of the Option and such other terms and conditions as the Committee, in its sole discretion, determines. The Award Agreement will also specify whether the Option is intended to be an Incentive Stock Option or a Nonqualified Stock Option. All grants of Options intended to constitute Incentive Stock Options will be made in accordance, and all Award Agreements pursuant to which Incentive Stock Options are granted will comply, with the requirements of Code Section 422.

5.3 Exercise Price . The Exercise Price for each Option will be determined by the Committee under this Section; provided, however, except in connection with a corporate transaction involving the Company (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of shares), the terms of outstanding Awards may not be amended to reduce the Exercise Price of outstanding Options or cancel outstanding Options in exchange for cash, other Awards or Options with an Exercise Price that is less than the Exercise Price of the original Options without shareholder approval.

(a) Nonqualified Stock Options . In the case of a Nonqualified Stock Option, the Exercise Price per Share will be determined by the Committee; provided, however, in no event will the Exercise Price be less than 100 percent of the Fair Market Value of the Shares to which the Nonqualified Stock Option relates, determined as of the Grant Date.

(b) Incentive Stock Options . In the case of an Incentive Stock Option, the Exercise Price will be not less than 100 percent of the Fair Market Value of the Shares to which the Incentive Stock Option relates determined as of the Grant Date; provided, however, that if, on the Grant Date, the Participant (together with persons whose stock ownership is attributed to the Participant pursuant to Code Section 424(d)) owns securities possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or any of its Subsidiaries, the Exercise Price will be not less than 110 percent of the Fair Market Value of the Shares to which the Incentive Stock Option relates, determined as of the Grant Date.

(c) Substitute Options . Notwithstanding the provisions of Sections 5.3(a) and 5.3(b), in the event that the Company or an Affiliate consummates a transaction described in Code Section 424(a) (e.g., the acquisition of property or stock from an unrelated corporation), individuals who become Eligible Employees on account of such transaction may be granted Options in substitution for options granted by such former employer. If such substitute Options are granted, the Committee, in its sole discretion and consistent with Code Section 424(a), shall determine the Exercise Price of such substitute Options. In carrying out the provisions of this subsection, the Committee will apply the principles contained in Section 4.7.

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5.4 Duration of Options . Subject to the terms and provisions of Articles 10 and 12, the Option Period with respect to each Option will commence and expire at such times as the Committee provides in the Award Agreement, provided that:

(a) Incentive and Nonqualified Stock Options will not be exercisable later than the tenth anniversary of their respective Grant Dates;

(b) Incentive Stock Options granted to an Eligible Employee who possesses more than ten percent of the total combined voting power of all classes of Shares of the Company, taking into account the attribution rules of Code Section 422(d), will not be exercisable later than the fifth anniversary of their Grant Date(s); and

(c) Subject to Section 5.8, the Committee may, in its sole discretion, after an Option is granted, extend the maximum term of the Option to a date not later than the earlier of (i) the end of the Option Period of the Options or (ii) the tenth anniversary of the Grant Date. Any such extension of an Option pursuant to this subsection will comply with the requirements of Code Section 409A.

5.5 Exercisability of Options . Subject to the provisions of this Article and Article 10, all Options granted under this Plan will be exercisable at such times, under such terms and subject to such restrictions and conditions as the Committee determines in its sole discretion and as specified in the Award Agreements to which the Options relate. After an Option is granted, the Committee, in its sole discretion, may accelerate the exercisability of the Option.

5.6 Method of Exercise . Subject to the provisions of this Article and the applicable Award Agreement, a Participant may exercise an Option, in whole or in part, at any time during the Option Period to which the Option relates by giving written notice to the Company of exercise on a form provided by the Committee. Such notice will specify the number of Shares subject to the Option to be purchased and will be accompanied by payment in full of the total Exercise Price by cash or check or such other form of payment as the Company may accept. If permitted by the applicable Award Agreement, payment in full or in part may also be made by:

(a) Delivering Shares already owned by the Participant that have a total Fair Market Value on the date of such delivery equal to the total Exercise Price;

(b) The delivery of cash by a broker-dealer as a Cashless Exercise; or

(c) Reducing the number of Shares issued upon the exercise by the largest number of whole Shares that has a Fair Market Value that does not exceed the aggregate exercise price for the Shares exercised under this method. Shares will no longer be outstanding under an Option (and will therefore not thereafter be exercisable) following the exercise of such Option to the extent of (i) Shares used to pay the exercise price of an Option under the ‘net exercise,’ (ii) Shares actually delivered to the Participant as a result of such exercise and (iii) any Shares withheld for purposes of tax withholding; or

(d) Any combination of the foregoing.

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No Shares will be issued until the Exercise Price has been paid in full. A Participant will have all of the rights of a shareholder of the Company holding the class of Shares subject to the Option (including, if applicable, the right to vote the Shares) when the Participant has given written notice of exercise, paid the Exercise Price in full, and such Shares have been recorded on the Company’s official shareholder records (or the records of its transfer agents or registrars) as having been issued and transferred to the Participant.

5.7 Restrictions on Share Transferability . In addition to the restrictions imposed by Section 14.9, the Committee may impose such restrictions on any Shares acquired pursuant to the exercise of an Option as it may deem advisable or appropriate in its sole discretion, including, but not limited to, restrictions related to applicable Federal and state securities laws and the requirements of the NASDAQ Stock Market or any other national securities exchange or market on which Shares are then listed or traded.

5.8 Termination of Service . Unless otherwise provided in the Award Agreement or determined by the Committee in its sole discretion, if a Participant incurs a Termination of Service prior to the end of the Option Period, the following provisions apply:

(a) If the Termination of Service is due to death, Disability or Retirement, any unexpired and unexercised Options held by such Participant will thereafter be exercisable until the expiration of the Option Period.

(b) If the Termination of Service is involuntary on the part of the Participant (but is not due to death or Disability and is not with Cause) or is voluntary on the part of the Participant, including a Good Reason termination by the Participant, (but is not due to Retirement), any Options held by such Participant will terminate on the Termination of Service, except that such Options, to the extent exercisable at the time of Termination of Service, may be exercised until the expiration of the shorter of the following two periods: (i) the 30 consecutive-day period commencing on the date of Termination of Service, or (ii) the date on which the Option Period expires.

(c) If the Termination of Service is with Cause, all of his Options, whether or not exercisable, will terminate immediately as of the date of such Termination of Service.

5.9 Special Provision for Incentive Stock Options . Notwithstanding any other provision of this Plan to the contrary, an Incentive Stock Option will not be exercisable more than (a) three months after the Participant’s Termination of Service for any reason other than Disability, or (b) one year after the Participant’s Termination of Service by reason of Disability.

ARTICLE 6

STOCK APPRECIATION RIGHTS

6.1 Grant of SARs . Subject to the terms and conditions of this Plan, the Committee, at any time and from time to time, may grant SARs to any Participant in such amounts as the Committee, in its sole discretion, determines.

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(a) Number of SARs . Subject to the limitations of Section 4, the Committee will have complete discretion to determine the number of SARs granted to any Participant.

(b) Fair Market Value at Grant Date and Other Terms . The Committee, subject to the provisions of this Plan, will have complete discretion to determine the terms and conditions of SARs granted under this Plan; provided, however, the value of Shares underlying SARs on the Grant Date will be not less than 100 percent of the Fair Market Value of a Share on the Grant Date.

6.2 SAR Award Agreement . Each Award of SARs will be evidenced by an Award Agreement that specifies the Fair Market Value of a Share on the Grant Date, the Exercise Period, the number of SARs and any conditions on the exercise of the SAR and such other terms and conditions as the Committee, in its sole discretion, determines.

6.3 Duration of SARs . Each SAR granted under this Plan may be exercised until the expiration of the Exercise Period determined by the Committee, in its sole discretion, as set forth in the applicable Award Agreement; provided, however, that no SAR will be exercisable later than the tenth anniversary of its Grant Date.

6.4 Exercise of SARs . Stock Appreciation Rights will be exercisable on such terms and conditions as the Committee, in its sole discretion, specifies in the applicable Award Agreement. A Participant may exercise a SAR at any time during the Exercise Period to which the SAR relates by giving written notice to the Committee of exercise on a form provided by the Committee. Such notice will specify the number of SARs being exercised.

6.5 Payment of SAR Amount . Upon exercise of a SAR, a Participant will be entitled to receive payment from the Company in an amount determined by multiplying:

(a) The positive difference between the Fair Market Value of a Share on the Grant Date and the Fair Market Value of a Share on the date of exercise; by

(b) The number of Shares with respect to which the SAR is exercised.

At the sole discretion of the Committee, the payment may be in cash, in Shares which have a Fair Market Value equal to the cash payment calculated under this Section, or in a combination of cash and Shares.

6.6 Termination of Service . Unless otherwise provided in the Award Agreement or determined by the Committee in its sole discretion, if a Participant incurs a Termination of Service prior to the end of the Exercise Period, the following provisions apply:

(a) If the Termination of Service is due to death, Disability or Retirement, any unexpired and unexercised SARs held by such Participant will thereafter be exercisable until the expiration of the Exercise Period.

(b) If the Termination of Service is involuntary on the part of the Participant (but is not due to death or Disability and is not with Cause) or is voluntary on the part of

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the Participant, including a Good Reason termination by the Participant (but is not due to Retirement), any SARs held by such Participant will terminate on the date of the Termination of Service, except that such SARs, to the extent exercisable at the time of Termination of Service, may be exercised until the expiration of the shorter of the following two periods: (i) the 30 consecutive-day period commencing on the date of Termination of Service, or (ii) the expiration of the Exercise Period.

(c) If the Termination of Service is with Cause, all of his SARs, whether or not exercisable, will terminate immediately as of the date of such Termination of Service.

6.7 Termination of SAR . A SAR will terminate, if not exercised, upon the expiration of the Exercise Period and at such other time as provided in the applicable Award Agreement.

ARTICLE 7

RESTRICTED STOCK

7.1 Grant of Restricted Stock . Subject to the terms and provisions of this Plan, the Committee, at any time and from time to time, may grant Shares of Restricted Stock to any Participant in such amounts as the Committee, in its sole discretion, determines. Subject to the limitations of Article 4, the Committee, in its sole discretion, will determine the number of Shares of Restricted Stock to be granted to each Participant.

7.2 Restricted Stock Award Agreement . Each Award of Restricted Stock will be evidenced by an Award Agreement that specifies the number of Shares granted, the applicable Performance Goals, the Performance Period, the Period of Restriction and such other terms and conditions as the Committee, in its sole discretion, determines. Unless the Committee in its sole discretion determines otherwise, Shares of Restricted Stock will be held by the Company, and will not be delivered to any Participant until the end of the applicable Period of Restriction.

7.3 Transferability . Except as provided in this Article, Shares of Restricted Stock may not be sold, transferred, assigned, margined, encumbered, gifted, bequeathed, alienated, hypothecated, pledged or otherwise disposed of, whether by operation of law, whether voluntarily or involuntarily or otherwise, until the earlier of the end of the applicable Period of Restriction or the date they otherwise become vested.

7.4 Earning of Restricted Stock . The Participant will earn the Restricted Stock to the extent to which the applicable threshold, target or maximum Performance Goals have been achieved only if the Participant is still employed by the Company or a Subsidiary on the last day of the Performance Period. In order to determine the actual number of Restricted Stock Units a Participant has earned, interpolation will be used between threshold, target and maximum levels. If a Participant incurs a Termination of Service before the end of the Performance Period, he will not earn any portion of his Restricted Stock Award unless his Termination of Service was for one of the following reasons:

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(a) The Participant died.

(b) The Participant incurred a Disability.

(d) The Participant terminated employment for Good Reason.

(e) The Participant’s employment was terminated without Cause.

If at least the threshold Performance Goals are met but the Termination of Service was due to one or more of the circumstances described in subsections 7.4(a) through 7.4(e), he will earn a pro rata portion of the Award that he would otherwise be entitled to for the Performance Period. The Award will be calculated at the level attained based on the ratio that the number of days during the Performance Period in which he was actually employed bears to the actual number of days in the Performance Period. Additionally, except in the case of Performance Goals applicable to Shares of Restricted Stock granted to Covered Employees which are intended to qualify as “performance-based compensation” under Code Section 162(m) (which cannot be reduced or waived except as provided in Section 10.1), after the grant of Shares of Restricted Stock, the Committee, in its sole discretion, may reduce or waive any Performance Goals or related business criteria applicable to such Shares of Restricted Stock.

7.5 Vesting of Restricted Stock . Restricted Stock which has been earned under Section 7.4, will become vested as set forth in the Award Agreement. In the event a Participant incurs a Termination of Service before the end of the Period of Restriction, he will forfeit his Restricted Stock Award unless he incurred a Termination of Service for one of the following reasons, in which case he will become 100 percent vested:

(a) The Participant died.

(b) The Participant incurred a Disability.

(d) The Participant terminated employment for Good Reason.

(e) The Participant’s employment was terminated without Cause.

Notwithstanding any other provision of this Article to the contrary, in the case of Awards of Restricted Stock to Covered Employees that the Committee intends to qualify as performance-based compensation” under Code Section 162(m) (the vesting of which cannot be accelerated except as provided in Section 10.1), no Restricted Stock Shares will become vested unless the applicable Performance Goals have been met and the Participant is either employed on the last day of the Period of Restriction or incurred an event listed in subsections 7.5(a) through 7.5(e); provided, further, that the Committee will not waive any restrictions with respect to such Restricted Stock. If the vesting of shares of Restricted Stock is accelerated after the applicable Performance Goals have been met, the amount of Restricted Stock distributed will be discounted

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by the Committee to reasonably reflect the time value of money in connection with such early vesting.

7.6 Time and Form of Payment of Restricted Stock . Payment of vested Restricted Stock will be made no later than the March 15th following the end of the year in which the Restricted Stock became vested unless (a) a Participant timely defers payment of the Award pursuant to Section 14.2, or (b) another time of payment is otherwise provided in the Award Agreement.

7.7 Voting Rights . During the Period of Restriction, Participants holding Shares of Restricted Stock granted hereunder may exercise full voting rights with respect to those Shares, unless the applicable Award Agreement provides otherwise.

7.8 Section 83(b) Election . The Committee may, in its sole discretion, provide in an Award Agreement that a Participant to whom an Award of Restricted Stock has been made is permitted to make or is prohibited from making an election with respect to such Restricted Stock under Code Section 83(b). If a Participant to whom an Award of Restricted Stock has been made is permitted to make an election under Code Section 83(b), then the Participant shall provide a copy of such election to the Company within 30 days following the date of communication of the Award to the Participant.

ARTICLE 8

RESTRICTED STOCK UNITS

8.1 Grant of Restricted Stock Units . Subject to the terms and provisions of this Plan, the Committee, at any time and from time to time, may grant Restricted Stock Units to any Participant in such amounts as the Committee, in its sole discretion, determines. Subject to the limitations of Section 4, the Committee will have complete discretion in determining the number of Restricted Stock Units granted to each Participant.

8.2 Restricted Stock Unit Award Agreement . Each Award of Restricted Stock Units will be evidenced by an Award Agreement that specifies the Period of Restriction, the number of Restricted Stock Units granted, the applicable Performance Goals, the Performance Period and such other terms and conditions as the Committee, in its sole discretion, determines.

8.3 Value of Restricted Stock Units . Each Restricted Stock Unit will have an initial value equal to the Fair Market Value of a Share on the Grant Date.

8.4 Earning of Restricted Stock Units . The Participant will earn the Restricted Stock Units to the extent to which the applicable threshold, target or maximum Performance Goals have been achieved only if the Participant is still employed by the Company or a Subsidiary on the last day of the Performance Period. In order to determine the actual number of Restricted Stock Units a Participant has earned, interpolation will be used between threshold, target and maximum levels. If a Participant incurs a Termination of Service before the end of the Performance Period, he will not earn any portion of his Restricted Stock Award unless his Termination of Service was for one of the following reasons:

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(a) The Participant died.

(b) The Participant incurred a Disability.

(d) The Participant terminated employment for Good Reason.

(e) The Participant’s employment was terminated without Cause.

If at least the threshold Performance Goals are met but the Participant had a Termination of Service due to one or more of the circumstances described in subsections 8.4(a) through 8.4(e), he will earn a pro rata portion of the Award that he would otherwise be entitled to for the Performance Period. The Award will be calculated at the level attained based on the ratio that the number of days during the Performance Period in which he was actually employed bears to actual number of days in the Performance Period. Additionally, except in the case of Performance Goals applicable to Restricted Stock Units granted to Covered Employees which are intended to qualify as “performance-based compensation” under Code Section 162(m) (which cannot be reduced or waived except as provided in Section 10.1), after the grant of a Restricted Stock Unit, the Committee, in its sole discretion, may reduce or waive any Performance Goals or related business criteria applicable to such Restricted Stock Unit.

8.5 Vesting of Restricted Stock Units . Restricted Stock Units which have been earned under Section 8.4, will become vested as provided in the Award Agreement. In the event a Participant incurs a Termination of Service before the end of the Period of Restriction, he will forfeit his Restricted Stock Unit Award unless he incurred the Termination of Service for one of the following reasons, in which case he will become 100 percent vested:

(a) The Participant died.

(b) The Participant incurred a Disability.

(d) The Participant terminated employment for Good Reason.

(e) The Participant’s employment was terminated without Cause.

Notwithstanding any other provision of this Article to the contrary, in the case of Awards of Restricted Stock Units to Covered Employees that the Committee intends to qualify as performance-based compensation” under Code Section 162(m) (the vesting of which cannot be accelerated except as provided in Section 10.1), no Restricted Stock Units will become vested unless the applicable Performance Goals have been met and the Participant is either employed on the last day of the Period of Restriction or incurred an event listed in subsections 8.5(a) through 8.5(e); provided, further, that the Committee will not waive any restrictions with respect to such Restricted Stock Units.

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8.6 Time and Form of Payment of Restricted Stock Units . Payment of vested Restricted Stock Units will be made no later than the March 15th following the end of the year in which the Restricted Stock Units became vested unless (a) a Participant timely defers payment of the Award pursuant to Section 14.2, or (b) another time of payment is otherwise provided in the Award Agreement. The Committee, in its sole discretion, may pay vested Restricted Stock Units in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the value of the earned Restricted Stock Units determined as of the last day of the applicable Performance Period) or a combination thereof.

ARTICLE 9

INCENTIVE AWARDS

9.1 Grant of Incentive Awards . Subject to the terms and provisions of this Plan, each year the Committee may, in its sole discretion, grant Incentive Awards to any Eligible Employees.

9.2 Incentive Award Agreement . Each Incentive Award will be evidenced by an Award Agreement that specifies the applicable Performance Period, Performance Goals, the relative weight accorded each Performance Goal, the threshold, target and maximum Award Rates and such other terms and conditions as the Committee, in its sole discretion, determines.

9.3 Performance Goals and Other Terms . The Committee will set Performance Goals in its sole discretion which, depending on the extent to which they are met, will determine the size of the Incentive Award that will be paid to the Participant. The calculation of earned Incentive Awards will be made by interpolating within the interval between the threshold Award Rate and the target Award Rate and between the target Award Rate and the maximum Award Rate, and rounding to the nearest dollar.

9.4 Earning of Incentive Awards .

(a) An Incentive Award will be treated as earned and to the extent:

(i) the threshold, target or maximum Performance Goals are met; and

(ii) the Participant is employed on the last day of the Performance Period.

(b) In the event a Participant has a Termination of Service before the end of the Performance Period, he will not earn any portion of his Award unless he incurs a Termination of Service for one of the following reasons:

(i) The Participant died.

(ii) The Participant incurred a Disability.

(iii) The Participant Retired.

(iv) The Participant terminated employment for Good Reason.

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(v) The Participant’s employment was terminated without Cause.

If at least the threshold Performance Goals are met but the Participant has a Termination of Service due to one or more of the circumstances described in subsections 9.4(b)(i) through 9.4(b)(v), he will earn a pro rata portion of the Award that he would otherwise be entitled to for the Performance Period. The Award will be calculated at the level attained based on the ratio that the number of days during the calendar year in which he was actually employed bears to total number of days in the Performance Period.

(c) Additionally, except in the case of Performance Goals applicable to Incentive Awards granted to Covered Employees which are intended to qualify as “performance-based compensation” under Code Section 162(m) (which cannot be reduced or waived except as provided in Section 10.1), after the grant of an Incentive Award, the Committee, in its sole discretion, may reduce or waive any Performance Goals or related business criteria applicable to such Incentive Award.

9.5 Vesting of Earned Incentive Awards .

(a) Except as set forth in subsection 9.5(b), a Participant will become vested in his or her earned Incentive Awards as provided in an Award Agreement.

(b) Notwithstanding subsection 9.5(a), in the event:

(i) The Participant died;

(ii) The Participant incurred a Disability;

(iii) The Participant Retired;

(iv) The Participant terminated employment for Good Reason; or

(v) The Participant’s employment was terminated without Cause,

he will not forfeit his earned Award. In such cases, a Participant will be 100 percent vested in his earned Award and payment will made within the earlier of (A) 75 days after the end of the Performance Period, or (B) 30 days after the Termination of Service.

(c) Notwithstanding any other provision of this Article to the contrary, in the case of Incentive Awards to Covered Employees that the Committee intends to qualify as “performance-based compensation” under Code Section 162(m) (the vesting of which cannot be accelerated, except as provided in Section 10.1), no Incentive Award will become vested unless the applicable Performance Goals have first been met; provided, further, that the Committee will not waive any restrictions with respect to such Incentive Awards.

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9.6 Time and Form of Payment of Vested Incentive Awards . Except as otherwise provided in Section 9.5, vested Incentive Awards will be paid in a single sum in cash as provided in an Award Agreement unless a Participant timely defers payment of the Incentive Award pursuant to Section 14.2.

ARTICLE 10

CHANGE IN CONTROL

10.1 Change in Control . Notwithstanding any other provision of this Plan to the contrary, in the event of a Change in Control of the Company, unless and until any successor to the Company or any person or persons acquiring control of the Company agrees to be bound by the terms of this Plan and all outstanding Award Agreements, and agrees to assume and perform all the obligations of the Company hereunder, all Awards granted under this Plan that then are outstanding and that either are not then exercisable or are subject to any restrictions or Performance Goals will, unless otherwise provided for in the Award Agreements applicable thereto, become immediately exercisable, vested or earned at the target earning rate and all restrictions and Performance Goals will be removed, as of the first date that the Change in Control has been deemed to have occurred, and will remain removed for the remaining life of the Award as provided herein and within the provisions of the related Award Agreements.

10.2 Definition . For purposes of Section 10.1 a “Change in Control” of the Company will be deemed to have occurred if the conditions or events set forth in any one or more of the following subsections occur:

(a) Change in Ownership . A change in the ownership of the Company occurs on the date, subsequent to the Effective Date, that any person, or group of persons, as defined in subparagraph (b), acquires ownership of stock of the Company that, together with stock held by the person or group, constitutes more than 50 percent of the total Fair Market Value or total voting power of the outstanding voting stock of the Company. However, if any person or group is considered to own more than 50 percent of the total Fair Market Value or total voting power of the stock, the acquisition of additional stock by the same person or group is not considered to cause a change in the ownership of the Company. An increase in the percentage of stock owned by any person or group, as a result of a transaction in which the Company acquires its stock in exchange for property will be treated as an acquisition of stock.

For purposes of this Section, persons will not be considered to be acting as a group solely because they purchase or own stock of the Company at the same time, or as a result of the same public offering. However, persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock or similar business transaction with the Company. If a person, including an entity, owns stock in both corporations that enter into a merger, consolidation, purchase or acquisition of stock or similar transaction, such shareholder is considered to be acting as a group with other shareholders in a corporation prior to the transaction giving rise

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to the change and not with respect to the ownership interest in the other corporation.

(b) Change in the Effective Control . A change in the effective control of the Company will occur when: (i) any person or group acquires, subsequent to the Effective Date, or has acquired during the twelve-month period ending on the date of the most recent acquisition by such person(s), ownership of stock of the Company possessing 30 percent or more of the total voting power; or (ii) a majority of members of the Board is replaced during any twelve-month period by directors whose appointment or election is not endorsed by a majority of the members of the Company’s Board prior to the date of the appointment or election. However, if any person or group is considered to effectively control the Company, the acquisition of additional control of the Company by the same person(s) is not considered to cause a change in the effective control.

(c) Change in the Ownership of a Substantial Portion of the Company’s Assets . A change in the ownership of a substantial portion of the Company’s assets occurs on the date that any person or group acquires, or has acquired during the 12-month period ending on the date of the most recent acquisition by such person(s), assets from the Company that have a total gross fair market value equal to or more than 40 percent of the total gross fair market value of all of the assets immediately prior to such acquisition(s). Gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.

However, there is no Change in Control under this subparagraph when there is a transfer to an entity that is controlled by the shareholders of the transferring corporation immediately after the transfer. A transfer of assets by the Company is not treated as a change in the ownership of such assets if the assets are transferred to: (i) a shareholder of the Company (immediately before the asset transfer) in exchange for or with respect to its stock; (ii) an entity, 50 percent or more of the total value or voting power of which is owned, directly or indirectly, by the Company; (iii) a person, or group of persons, that owns, directly or indirectly, 50 percent or more of the total value or voting power of all the outstanding stock of the Company or (iv) an entity, at least 50 percent of the total value or voting power of which is owned, directly or indirectly, by a person described in (iii). For purposes of this subparagraph and except as otherwise provided, a person’s status is determined immediately after the transfer of the assets. For example, a transfer to a corporation in which the transferor corporation has no ownership interest before the transaction, but which is a majority-owned subsidiary of the transferor corporation after the transaction is not treated as a change in the ownership of the assets of the transferor corporation.

For purposes of the Plan, a Change in Control will not include any acquisition of Shares by the First Financial Corporation Employee Stock Ownership Plan or any other employee benefit plan, Affiliate or Subsidiary of the Company.

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ARTICLE 11

TAX WITHHOLDING

11.1 Withholding Requirements . Prior to the delivery of any Shares or cash pursuant to the payment or exercise of an Award, the Company will have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy all Federal, state and local income and employment taxes required by applicable law to be withheld with respect to the payment or exercise of such Award. In no event will any amount withheld be in an amount that would require the Company to incur accounting charges.

11.2 Withholding Arrangements . The Committee, in its sole discretion and pursuant to such procedures as it may specify from time to time, may permit a Participant to satisfy a tax withholding obligation, in whole or in part, by (a) electing to have the Company withhold otherwise deliverable Shares (except in the case of exercises of Incentive Stock Options), or (b) delivering to the Company Shares then owned by the Participant having a Fair Market Value equal to the amount required to be withheld. The amount of the withholding requirement will be deemed to include any amount that the Committee agrees may be withheld at the time any such election is made, not to exceed, in the case of income tax withholding, the amount determined, based upon minimum statutory requirements, by using the maximum federal, state or local marginal income tax rates applicable to the Participant with respect to the Award on the date the amount of income tax to be withheld is determined. The Fair Market Value of the Shares to be withheld or delivered will be determined as of the date that the taxes are required to be withheld.

ARTICLE 12

AMENDMENT, TERMINATION, AND DURATION

12.1 Amendment, Suspension, or Termination . The Board may supplement, amend, alter or discontinue this Plan in its sole discretion at any time and from time to time, but no supplement, amendment, alteration or discontinuation will be made which would impair the rights of a Participant under an Award without the Participant’s consent, except that any supplement, amendment, alteration or discontinuation may be made to (a) avoid a material charge or expense to the Company or an Affiliate, (b) cause this Plan to comply with applicable law, or (c) permit the Company or an Affiliate to claim a tax deduction under applicable law. In addition, subject to the provisions of this Section, the Board, in its sole discretion at any time and from time to time, may supplement, amend, alter or discontinue this Plan without the approval of the Company’s shareholders (i) to the extent such approval is not required by applicable law or the terms of a written agreement, and (ii) so long as any such amendment or alteration does not increase the number of Shares subject to this Plan (other than pursuant to Section 4.7) or increase the maximum number of Options, SARs, Shares of Restricted Stock or Restricted Stock Units that the Committee may award to an individual Participant under this Plan. The Committee may supplement, amend, alter or discontinue the terms of any Award theretofore granted, prospectively or retroactively, on the same conditions and limitations (and exceptions to limitations) as apply to the Board under the foregoing provisions of this Section, and further subject to any approval or limitations the Board may impose.

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12.2 Duration of This Plan and Shareholder Approval . This Plan will be effective on the Effective Date and, subject to Section 12.1 (regarding the Board’s right to supplement, amend, alter or discontinue this Plan), will remain in effect until the tenth anniversary thereof. No Option will be exercised and no other Award will be exercised or otherwise paid under this Plan until the Plan has been approved by the holders of at least a majority of the outstanding Shares represented at a meeting at which approval of this Plan is considered; and provided further, no Incentive Stock Option may be granted under this Plan after the tenth anniversary of the Effective Date.

ARTICLE 13

LEGAL CONSTRUCTION

13.1 Gender and Number . Except where otherwise indicated by the context, any masculine term used herein also includes the feminine, the plural includes the singular, and the singular includes the plural.

13.2 Severability . In the event any provision of this Plan is held illegal or invalid for any reason, the illegality or invalidity will not affect the remaining parts of this Plan, and this Plan will be construed and enforced as if the illegal or invalid provision had never been included herein.

13.3 Requirements of Law . The grant of Awards and the issuance of Shares under this Plan will be subject to all applicable statutes, laws, rules and regulations and to such approvals and requirements as may be required from time to time by any governmental authorities or any securities exchange or market on which the Shares are then listed or traded.

13.4 Governing Law . Except to the extent preempted by the Federal laws of the United States of America, this Plan and all Award Agreements will be construed in accordance with and governed by the laws of the State of Indiana without giving effect to any choice or conflict of law provisions, principles or rules (whether of the State of Indiana or any other jurisdiction) that would cause the application of any laws of any jurisdiction other than the State of Indiana. The Plan and all Award Agreements are intended to comply, and shall be construed by the Committee in a manner which complies, with Code Section 162(m), Code Section 409A and all other applicable laws. To the extent there is any conflict between a provision of the Plan or an Award Agreement and a provision of Code Section 162(m), Code Section 409A or any other applicable law, the application of Code Section 162(m), Code Section 409A or any other applicable law, as the case may be, shall control.

13.5 Code Section 162(m) Requirements and Bifurcation of the Plan . It is the intent of the Company that the Plan and Awards satisfy and be interpreted in a manner that, in the case of Participants who are Covered Employees, satisfy any applicable requirements as “performance-based compensation.” Any provision, application or interpretation of the Plan which is inconsistent with this intent to satisfy the standards in Code Section 162(m) shall be disregarded. Notwithstanding anything to the contrary in the Plan or any Award Agreement, the provisions of the Plan may at any time be bifurcated by the Committee in any manner so that certain provisions of the Plan or Award specified by the Committee which are necessary to

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satisfy the requirements of Code Section 162(m) are only applicable to persons who are Covered Employees.

13.6 Headings . The descriptive headings and sections of this Plan are provided herein for convenience of reference only and will not serve as a basis for interpretation or construction of this Plan.

13.7 Mistake of Fact . Any mistake of fact or misstatement of facts will be corrected when it becomes known by a proper adjustment to an Award or Award Agreement.

13.8 Evidence . Evidence required of anyone under the Plan may be by certificate, affidavit, document or other information which the person relying thereon considers pertinent and reliable, and signed, made or presented by the proper party or parties.

ARTICLE 14

MISCELLANEOUS

14.1 Clawback of Awards . In the event the Company is required to prepare an accounting restatement due to the Company’s material noncompliance with any financial reporting requirement under securities laws, and the Company paid an Award to a Participant which was based on the erroneous data within three years preceding the date of the accounting restatement, then the Participant is required to repay the Company the excess amount of which would not have been paid to the Participant under the accounting restatement.

14.2 Deferral of Certain Awards . To the extent permitted in an Award Agreement, a Participant may defer his receipt of vested Shares of Restricted Stock, Restricted Stock Units and Incentive Awards under the First Financial Corporation 2005 Executive’s Deferred Compensation Plan (the “Deferral Plan”) provided he timely files a deferral election under the Deferral Plan and otherwise complies with the requirements of the Deferral Plan and Code Section 409A.

14.3 No Effect on Employment or Service . Neither this Plan nor the grant of any Awards or the execution of any Award Agreement will confer upon any Participant any right to continued employment by the Company or an Affiliate, retention on or nomination to the Board or will interfere with or limit in any way the right of the Company or an Affiliate to terminate any employee’s employment or service at any time, with or without Cause, or removal from the Board. Employment with the Company and its Affiliates is on an at-will basis only, unless otherwise provided by a written employment or severance agreement, if any, between the employee and the Company or an Affiliate, as the case may be. If there is any conflict between the provisions of this Plan and an employment or severance agreement between a Participant and the Company or an Affiliate, the provisions of such employment or severance agreement will control, including, but not limited to, the vesting and forfeiture of any Awards.

14.4 Company Obligation . Unless required by applicable law, the Company, an Affiliate, the Board and the Committee will not have any duty or obligation to affirmatively disclose material information to a record or beneficial holder of Shares or an Award, and such holder will have no right to be advised of any material information regarding the Company or

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any Affiliate at any time prior to, upon or in connection with the receipt, exercise or distribution of an Award. In addition, the Company, an Affiliate, the Board, the Committee and any attorneys, accountants, advisors or agents for any of the foregoing will not provide any advice, counsel or recommendation to any Participant with respect to, without limitation, any Award, any exercise of an Option or any tax consequences relating to an Award.

14.5 Participation . No employee will have the right to be selected to receive an Award under this Plan or, having been selected, to be selected to receive a future Award. Participation in the Plan will not give any Participant any right or claim to any benefit under this Plan, unless such right or claim has specifically accrued under the terms of this Plan.

14.6 Liability and Indemnification . No member of the Board, the Committee or any officer or employee of the Company or any Affiliate will be personally liable for any action, failure to act, decision or determination made in good faith in connection with this Plan. By participating in this Plan, each Participant agrees to release and hold harmless the Company and its Affiliates (and their respective directors, officers and employees) and the Committee from and against any tax liability, including, but not limited to, interest and penalties, incurred by the Participant in connection with his receipt of Awards under this Plan and the deferral, payment and exercise thereof and further agrees that receipt of Shares or cash payment is conditioned upon prior execution of a release by the Participants. Each person who is or was a member of the Committee, or of the Board, or was an officer or employee, will be indemnified and held harmless by the Company against and from (a) any loss, cost, liability or expense (including, but not limited to, attorneys’ fees) that may be imposed upon or reasonably incurred by him in connection with or resulting from any claim, action, suit or proceeding to which he may be a party or in which he may be involved by reason of any action taken or failure to act under this Plan or any Award Agreement; and (b) any and all amounts paid by him in settlement thereof, with the Company’s prior written approval, or paid by him in satisfaction of any judgment in any such claim, action, suit or proceeding against him; provided, however, that he will give the Company an opportunity, at the Company’s expense, to handle and defend such claim, action, suit or proceeding before he undertakes to handle and defend the same on his own behalf. The foregoing right of indemnification is exclusive of any other rights of indemnification to which such persons may be entitled under the Company’s Articles of Incorporation or By-Laws, by contract, as a matter of law or otherwise, or under any power that the Company may have to indemnify them or hold them harmless.

14.7 Successors . All obligations of the Company under this Plan, with respect to Awards granted hereunder, are binding on any successor to the Company, whether or not the existence of such successor is the result of a Change in Control of the Company. The Company will not, and will not permit its Affiliates to, recommend, facilitate or agree or consent to a transaction or series of transactions which would result in a Change in Control of the Company unless and until the person or persons or entity or entities acquiring control of the Company as a result of such Change in Control agree(s) to be bound by the terms of this Plan insofar as it pertains to Awards theretofore granted and agrees to assume and perform the obligations of the Company and its successor hereunder.

14.8 Beneficiary Designations . Any Participant may designate, on such forms as may be provided by the Committee for such purpose, a Beneficiary to whom any vested but unpaid

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Award will be paid in the event of the Participant’s death. Each such designation will revoke all prior designations by the Participant and will be effective only if given in a form and manner acceptable to the Committee. In the absence of any such designation, any vested benefits remaining unpaid at the Participant’s death will be paid to the Participant’s spouse, if any, and then to the Participant’s estate and, subject to the terms of this Plan and of the applicable Award Agreement, any unexercised vested Award may be exercised by the spouse (if any) and if not by the administrator or executor of the Participant’s estate.

14.9 Nontransferability of Awards . Except as provided in subsections 14.9(a) and 14.9(b), no Award under this Plan can be sold, transferred, assigned, margined, encumbered, bequeathed, gifted, alienated, hypothecated, pledged or otherwise disposed of, whether by operation of law, whether voluntarily or involuntarily or otherwise, other than by will or by the laws of descent and distribution. In addition, no Award under this Plan will be subject to execution, attachment or similar process. Any attempted or purported transfer of an Award in contravention of this Plan or an Award Agreement will be null and void ab initio and of no force or effect whatsoever. All rights with respect to an Award granted to a Participant will be exercisable during his lifetime only by the Participant.

(a) Limited Transfers of Nonqualified Stock Options . Notwithstanding the foregoing, the Committee may, in its sole discretion, permit the transfer of Nonqualified Stock Options by a Participant to (i) the Participant’s spouse, any children or lineal descendants of the Participant or the Participant’s spouse, or the spouse(s) of any such children or lineal descendants (“Immediate Family Members”), (ii) a trust or trusts for the exclusive benefit of Immediate Family Members, or (iii) a partnership or limited liability company in which the Participant and/or the Immediate Family Members are the only equity owners, (collectively, “Eligible Transferees”); provided, however, in the event the Committee permits the transferability of Nonqualified Stock Options granted to the Participant, the Committee may subsequently, in its sole discretion, amend, modify, revoke or restrict, without the prior consent, authorization or agreement of the Eligible Transferee, the ability of the Participant to transfer Nonqualified Stock Options that have not been already transferred to an Eligible Transferee. An Option that is transferred to an Immediate Family Member will not be transferable by such Immediate Family Member, except for any transfer by such Immediate Family Member’s will or by the laws of descent and distribution upon the death of such Immediate Family Member. Incentive Stock Options granted under this Plan are not transferable pursuant to this Section.

(b) Exercise by Eligible Transferees . In the event that the Committee, in its sole discretion, permits the transfer of Nonqualified Stock Options by a Participant to an Eligible Transferee under subsection 14.9(a), the Options transferred to the Eligible Transferee must be exercised by such Eligible Transferee and, in the event of the death of such Eligible Transferee, by such Eligible Transferee’s executor or administrator only in the same manner, to the same extent and under the same circumstances (including, but not limited to, the time period within which the Options must be exercised) as the Participant could have exercised such Options. The Participant, or in the event of his death, the Participant’s estate, will

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remain liable for all federal, state, local and other taxes applicable upon the exercise of a Nonqualified Stock Option by an Eligible Transferee.

14.10 No Rights as Shareholder . Except to the limited extent provided in Sections 4.6 and 7.7, no Participant (or any Beneficiary) will have any of the rights or privileges of a shareholder of the Company with respect to any Shares issuable pursuant to an Award (or the exercise thereof), unless and until certificates representing such Shares have been recorded on the Company’s official shareholder records (or the records of its transfer agents or registrars) as having been issued and transferred to the Participant (or his or her Beneficiary).

14.11 Mitigation of Excise Tax . To the extent payments received under the Plan in connection with a Change in Control, or within 12 months after a Change in Control would be considered “excess parachute payments” pursuant to the Code Section 280G, the parachute payments to the Participant under this Plan, when combined with all other parachute payments to the Participant, shall be the greater of:

(a) the Participant’s benefit under the Plan reduced to the maximum amount payable to the Participant such that when it is aggregated with payments and benefits under all other plans and arrangements it will not result in an “excess parachute payment;” or

(b) the Participant’s benefit under the Plan after taking into account the amount of the excise tax imposed on the Participant under Code Section 280G due to the benefit payment.

The determination of whether any reduction in the rights or payments under this Plan is to apply will be made by the Committee in good faith after consultation with the Participant, and such determination will be conclusive and binding on the Participant. The Participant will cooperate in good faith with the Committee in making such determination and providing the necessary information for this purpose.

14.12 Funding . Benefits payable under this Plan to any person will be paid by the Company from its general assets. Shares to be issued hereunder will be issued directly by the Company from its authorized but unissued Shares, treasury Shares, Shares acquired by the Company on the open market, or a combination thereof. Neither the Company nor any of its Affiliates will be required to segregate on its books or otherwise establish any funding procedure for any amount to be used for the payment of benefits under this Plan. The Company or any of its Affiliates may, however, in its sole discretion, set funds aside in investments to meet any anticipated obligations under this Plan. Any such action or set-aside will not be deemed to create a trust of any kind between the Company and any of its Affiliates and any Participant or other person entitled to benefits under the Plan or to constitute the funding of any Plan benefits. Consequently, any person entitled to a payment under the Plan will have no rights greater than the rights of any other unsecured general creditor of the Company or its Affiliates.

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Exhibit 31.1

Sarbanes-Oxley Act of 2002, Section 302

Certification of Principal Executive Officer

I, Norman L. Lowery, certify that:

1 I have reviewed this quarterly report on Form 10-Q of First Financial Corporation;

2 Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3 Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4 The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and l5d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purpose in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5 The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: May 6, 2011

	By	/s/ Norman L. Lowery
	Norman L. Lowery,
	Vice Chairman and CEO
	(Principal Executive Officer)

Exhibit 31.2

Sarbanes-Oxley Act of 2002, Section 302

Certification of Principal Financial Officer

I, Rodger A. McHargue, certify that:

1. I have reviewed this quarterly report on Form 10-Q of First Financial Corporation;

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: May 6, 2011

	By	/s/ Rodger A. McHargue
	Rodger A. McHargue,
	Treasurer and CFO
	(Principal Financial Officer)

Exhibit 32.1

Sarbanes-Oxley Act of 2002, Section 906

Certification of Principal Executive and Principal Financial Officers

In connection with the Quarterly Report on Form 10-Q of First Financial Corporation (the “Company”) for the Quarterly period ended March 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Norman L. Lowery , as the Chief Executive Officer of the Company, and Rodger A. McHargue, as the Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:

1. This Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

May 6, 2011	By	/s/ Norman L. Lowery
	Norman L. Lowery, Vice Chairman & CEO
	(Principal Executive Officer)


May 6, 2011	By	/s/ Rodger A. McHargue
	Rodger A. McHargue, Treasurer & CFO
	(Principal Financial Officer)