BENEFIT PLANS (Note 13)

Pension Plan

The Bank has a non-contributory defined benefit plan ("qualified plan") covering most of its employees. Effective July 1, 2011, the Bank closed the qualified plan to new employees hired on or after such date. The Plan will continue to operate and accrue normal benefits for existing participants. In conjunction with the eligibility change for the qualified plan, the Bank amended its 401(k) plan to increase the Bank's matching percentage of employee contributions for non-pension participants, within certain statutory limits.

The qualified plan benefits are based upon years of credited service and the employee's highest average compensation as defined. It is the Bank's funding policy to contribute annually an amount that can be deducted for federal income tax purposes. Additionally, the Bank has a supplemental non-qualified, non-funded retirement plan ("non-qualified plan") which is designed to supplement the pension plan for key officers.

The following table sets forth the change in projected benefit obligation, the change in fair value of plan assets and the funded status and amounts recognized in Valley's consolidated financial statements for the qualified and non-qualified plans at December 31, 2011 and 2010:


	2011			2010
	(in thousands)
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	108,146		$	97,532
Service cost		5,951			5,544
Interest cost		6,147			5,709
Plan amendments		338			13
Actuarial loss		16,678			2,243
Benefits paid		(3,464	)		(2,895	)

Projected benefit obligation at end of year	$	133,796		$	108,146

Change in fair value of plan assets:
Fair value of plan assets at beginning of year	$	83,937		$	74,005
Actual return on plan assets		2,168			7,731
Employer contributions		13,105			5,096
Benefits paid		(3,464	)		(2,895	)

Fair value of plan assets at end of year*	$	95,746		$	83,937

Funded status of the plan	$	(38,050	)	$	(24,209	)
Liability recognized	$	(38,050	)	$	(24,209	)
Accumulated benefit obligation	$	120,564		$	96,360

*	Includes accrued interest receivable of $309 thousand and $299 thousand as of December 31, 2011 and 2010, respectively.

Amounts recognized as a component of accumulated other comprehensive loss as of year-end that have not been recognized as a component of the net periodic pension expense for Valley's qualified and non-qualified plans are presented in the following table. Valley expects to recognize approximately $2.3 million of the net actuarial loss and $707 thousand of prior service cost reported in the following table as of December 31, 2011 as a component of net periodic pension expense during 2012.


	2011			2010
	(in thousands)
Net actuarial loss	$	45,487		$	25,805
Prior service cost		1,982			2,351
Deferred tax benefit		(19,903	)		(11,812	)

Total	$	27,566		$	16,344

The Bank's non-qualified plan had a projected benefit obligation, accumulated benefit obligation, and fair value of plan assets as follows:


	2011		2010
	(in thousands)
Projected benefit obligation	$	12,731	$	9,851
Accumulated benefit obligation		12,337		9,583
Fair value of plan assets		—		—

In determining discount rate assumptions, management looks to current rates on fixed-income corporate debt securities that receive a rating of Aa3 or higher from Moody's with durations equal to the expected benefit payments streams required of each plan. The weighted average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of benefit obligations for the qualified and non-qualified plans as of December 31, 2011 and 2010 were as follows:


	2011			2010
Discount rate		4.87	%		5.75	%
Future compensation increase rate		2.75			3.25

The net periodic pension expense included the following components for the years ended December 31, 2011, 2010, and 2009:


	2011			2010			2009
	(in thousands)
Service cost	$	5,951		$	5,544		$	5,216
Interest cost		6,147			5,709			5,059
Expected return on plan assets		(6,698	)		(6,214	)		(6,040	)
Amortization of prior service cost		707			643			640
Amortization of actuarial loss		1,525			1,098			858

Total net periodic pension expense	$	7,632		$	6,780		$	5,733

Other changes in plan assets and benefit obligations recognized in other comprehensive income or loss for the years ended December 31, 2011 and 2010 were as follows:


	2011			2010
	(in thousands)
Net loss	$	21,208		$	726
Prior service cost		338			13
Amortization of prior service cost		(707	)		(643	)
Amortization of actuarial loss		(1,525	)		(1,098	)

Total recognized in other comprehensive income or loss	$	19,314		$	(1,002	)

Total recognized in net periodic pension expense and other comprehensive income or loss (before tax)	$	26,946		$	5,778

The benefit payments, which reflect expected future service, as appropriate, expected to be paid in future years are presented in the following table:


Year	Amount
	(in thousands)
2012	$	5,208
2013		5,455
2014		6,088
2015		6,420
2016		6,742
2017 to 2021		39,836

The weighted average discount rate, expected long-term rate of return on assets and rate of compensation increase used in determining Valley's pension expense for the years ended December 31, 2011, 2010, and 2009 were as follows:


	2011			2010			2009
Discount rate		5.75	%		6.00	%		5.75	%
Expected long-term return on plan assets		8.00			8.00			8.00
Rate of compensation increase		3.25			3.50			3.50

The expected rate of return on plan assets assumption is based on the concept that it is a long-term assumption independent of the current economic environment and changes would be made in the expected return only when long-term inflation expectations change, asset allocations change or when asset class returns are expected to change for the long-term. The expected return was reduced to 7.5 percent on January 1, 2012 due to the prolonged economic recovery and expectations regarding the level of future market rates.

Valley's qualified plan weighted-average asset allocations at December 31, 2011 and 2010, by asset category were as follows:


	2011			2010
Equity securities		49	%		49	%
U.S. Treasury securities		17			17
Corporate bonds		12			14
Mutual funds		11			11
Cash and money market funds		7			3
U.S. government agency securities		2			4
Trust preferred securities		2			2

Total investments		100	%		100	%

In accordance with Section 402 (c) of ERISA, the qualified plan's investment managers are granted full discretion to buy, sell, invest and reinvest the portions of the portfolio assigned to them consistent with the Bank's Pension Committee's policy and guidelines. The target asset allocation set for the qualified plan are equity securities ranging from 25 percent to 65 percent and fixed income securities ranging from 35 percent to 75 percent. The absolute investment objective for the equity portion is to earn at least 7 percent cumulative annual real return, after adjustment by the Consumer Price Index (CPI), over rolling five-year periods, while the relative objective is to earn returns above the S&P 500 Index over rolling three-year periods. For the fixed income portion, the absolute objective is to earn at least a 3 percent cumulative annual real return, after adjustment by the CPI over rolling five-year periods with a relative objective of earning returns above the Merrill Lynch Intermediate Government/Corporate Index over rolling three-year periods. Cash equivalents will be invested in money market funds or in other high quality instruments approved by the Trustees of the qualified plan.

In general, the plan assets of the qualified plan are investment securities that are well-diversified in terms of industry, capitalization and asset class. The plan assets are a conservative mix of various types of domestic and foreign common equity securities, U.S. Treasury securities, high quality corporate bonds, mutual funds primarily indexed to the performance of Fortune 500 U.S. companies, cash and U.S. Treasury based money market funds, U.S. government agency securities, and trust preferred securities (mainly issued by VNB Capital Trust I – see Note 12).

The qualified plan's exposure to a concentration of credit risk is limited by the Bank's Pension Committee's diversification of the investments into various investment options with multiple asset managers. The Pension Committee engages an investment management advisory firm that regularly monitors the performance of the asset managers and ensures they are within compliance of the policies adopted by the Trustees. If the risk profile and overall return of assets managed are not in line with the risk objectives or expected return benchmarks for the qualified plan, the advisory firm may recommend the termination of an asset manager to the Pension Committee.

The following table presents the qualified plan assets that are measured at fair value on a recurring basis by level within the fair value hierarchy under ASC Topic 820. Financial assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. See Note 3 for further details regarding the fair value hierarchy.


			Fair Value Measurements at Reporting Date Using:
	December 31, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Investments:
Equity securities	$	46,446	$	46,446	$	—	$	—
U.S. Treasury securities		16,418		16,418		—		—
Corporate bonds		11,743		—		11,743		—
Mutual funds		10,360		10,360		—		—
Cash and money market funds		6,354		6,354		—		—
U.S. government agency securities		2,421		—		2,421		—
Trust preferred securities		1,695		1,695		—		—

Total investments	$	95,437	$	81,273	$	14,164	$	—


			Fair Value Measurements at Reporting Date Using:
	December 31, 2010		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Investments:
Equity securities	$	41,326	$	41,326	$	—	$	—
U.S. Treasury securities		14,488		14,488		—		—
Corporate bonds		11,340		—		11,340		—
Mutual funds		9,491		9,491		—		—
Cash and money market funds		2,153		2,153		—		—
U.S. government agency securities		2,958		—		2,958		—
Trust preferred securities		1,882		1,882		—		—

Total investments	$	83,638	$	69,340	$	14,298	$	—

Equity securities, U.S. Treasury securities, cash and money market funds, and trust preferred securities are valued at fair value in the table above utilizing exchange quoted prices in active markets for identical instruments (Level 1 inputs). Mutual funds are measured at their respective net asset values, which represents fair values of the securities held in the funds based on exchange quoted prices available in active markets (Level 1 inputs).

Corporate bonds and U.S. government agency securities are reported at fair value utilizing Level 2 inputs. The prices for these investments are derived from market quotations and matrix pricing obtained through an independent pricing service. Such fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond's terms and conditions, among other things.

The qualified plan held 62,752 shares of VNB Capital Trust I preferred securities at December 31, 2011 and 2010. These shares had fair values of approximately $1.6 million at December 31, 2011 and 2010. Dividends received on Valley trust preferred shares were $122 thousand for each of the years ended December 31, 2011 and 2010.

During January 2012, Valley contributed $25.0 million to the qualified plan based upon actuarial estimates. Valley does not expect to make any additional contributions to the qualified plan for the remainder of 2012.

Director Plans

Valley maintains a non-qualified, non-funded directors' retirement plan. The projected benefit obligation and discount rate used to compute the obligation were $1.9 million and 4.87 percent, respectively, at December 31, 2011, and $1.8 million and 5.75 percent, respectively, at December 31, 2010. As of December 31, 2011 and 2010, the entire obligation was included in other liabilities and $468 thousand (net of a $252 thousand tax benefit) and $419 thousand (net of a $226 thousand tax benefit), respectively, were recorded in accumulated other comprehensive loss. Net periodic pension expense of $232 thousand, $228 thousand and $250 thousand was recognized for the directors' retirement plan in the years ended December 31, 2011, 2010 and 2009, respectively.

Valley also maintains non-qualified plans for former directors of banks acquired, as well as a non-qualified plan for former senior management of Merchants Bank of New York acquired in January of 2001. Valley did not merge these plans into its existing non-qualified plans. Collectively, at December 31, 2011 and 2010, the remaining obligations under these plans were $6.6 million and $7.5 million, respectively, of which $4.0 million and $4.7 million, respectively, were funded by Valley. As of December 31, 2011 and 2010, the entire obligations were included in other liabilities and $1.5 million (net of a $1.1 million tax benefit) and $1.6 million (net of a $1.2 million tax benefit), respectively, were recorded in accumulated other comprehensive loss. The $1.5 million in accumulated other comprehensive loss will be reclassified to expense on a straight-line basis over the remaining benefit periods of these non-qualified plans.

Bonus Plan

Valley National Bank and its subsidiaries may award incentive and merit bonuses to its officers and employees based upon a percentage of the covered employees' compensation as determined by the achievement of certain performance objectives. Amounts charged to salary expense were $4.0 million, $6.6 million and $2.4 million during 2011, 2010 and 2009, respectively.

Savings and Investment Plan

Valley National Bank maintains a KSOP defined as a 401(k) plan with an employee stock ownership feature. This plan covers eligible employees of the Bank and its subsidiaries and allows employees to contribute a percentage of their salary, with the Bank matching a certain percentage of the employee contribution in cash and invested in accordance with each participant's investment elections. The Bank recorded $2.0 million, $1.9 million and $1.4 million in expense for contributions to the plan for the years ended December 31, 2011, 2010, and 2009, respectively.

Stock-Based Compensation

Valley currently has one active employee stock option plan, the 2009 Long-Term Stock Incentive Plan (the "Employee Stock Incentive Plan"), adopted by Valley's Board of Directors on November 17, 2008 and approved by its shareholders on April 14, 2009. The Employee Stock Incentive Plan is administered by the Compensation and Human Resources Committee (the "Committee") appointed by Valley's Board of Directors. The Committee can grant awards to officers and key employees of Valley. The purpose of the Employee Stock Incentive Plan is to provide additional incentive to officers and key employees of Valley and its subsidiaries, whose substantial contributions are essential to the continued growth and success of Valley, and to attract and retain competent and dedicated officers and other key employees whose efforts will result in the continued and long-term growth of Valley's business.

Under the Employee Stock Incentive Plan, Valley may award shares to its employees for up to 7.1 million shares of common stock in the form of incentive stock options, non-qualified stock options, stock appreciation rights and restricted stock awards. The essential features of each award are described in the award agreement relating to that award. The grant, exercise, vesting, settlement or payment of an award may be based upon the fair value of Valley's common stock on the last sale price reported for Valley's common stock on such date or the last sale price reported preceding such date. An incentive stock option's maximum term to exercise is ten years from the date of grant and is subject to a vesting schedule.

Valley recorded stock-based compensation expense for incentive stock options and restricted stock awards of $3.3 million, $4.8 million and $5.0 million for the years ended December 31, 2011, 2010 and 2009, respectively. These expenses included $1.3 million and $599 thousand in 2010 and 2009, respectively, which was immediately recognized and related to stock awards granted to retirement eligible employees. The fair values of all other stock awards are expensed over the vesting period. As of December 31, 2011, the unrecognized amortization expense for all stock-based compensation totaled approximately $2.0 million and will be recognized over an average remaining vesting period of approximately 2 years.

Stock Options. The fair value of each option granted on the date of grant is estimated using a binomial option pricing model. The fair values are estimated using assumptions for dividend yield based on the annual dividend rate; stock volatility, based on Valley's historical and implied stock price volatility; risk free interest rates, based on the U.S. Treasury constant maturity bonds, in effect on the actual grant dates, with a remaining term approximating the expected term of the options; and expected exercise term calculated based on Valley's historical exercise experience.

Stock-based employee compensation cost under the fair value method was measured using the following weighted-average assumptions for stock options granted in 2010 and 2009 (there were no stock options granted in 2011):


	2010			2009
Risk-free interest rate		0.29 - 2.92	%		1.1 - 4.0	%
Dividend yield		5.5	%		4.5	%
Volatility		35.0	%		24.0	%
Expected term (in years)		4.4			6.7

A summary of stock options as of December 31, 2011, 2010 and 2009 and changes during the years then ended is presented below:


	2011					2010					2009
Stock Options	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding at beginning of year		3,343,974		$	18		3,486,912		$	18		3,697,018		$	17
Granted		—			—		135,183			12		8,352			11
Exercised		—			—		(24,829	)		11		(5,513	)		11
Forfeited or expired		(486,445	)		16		(253,292	)		14		(212,945	)		15

Outstanding at end of year		2,857,529			18		3,343,974			18		3,486,912			18

Exercisable at year-end		2,607,442			19		2,859,749			18		2,838,014			18

Weighted-average fair value of options granted during the year		N/A				$	2.13				$	2.38

The total intrinsic values of options exercised during the years ended December 31, 2010 and 2009 were immaterial. As of December 31, 2011, there was $169 thousand of total unrecognized compensation cost related to non-vested stock options to be amortized over an average remaining vesting period of approximately one year. Cash received from stock options exercised during the years ended December 31, 2010 and 2009 was $290 thousand and $61 thousand, respectively. Common shares were reissued from Treasury Stock for stock options exercised during 2010 and 2009.

The following table summarizes information about stock options outstanding at December 31, 2011:


	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number of Options Outstanding		Weighted Average Remaining Contractual Life in Years		Weighted Average Exercise Price		Number of Options Exercisable		Weighted Average Exercise Price
$10 - 15		234,651		8.1	$	13		94,934	$	14
15 - 16		371,110		6.0		16		271,367		16
16 - 18		409,277		0.9		17		408,010		17
18 - 19		500,365		3.9		18		500,365		18
19 - 21		1,342,126		3.3		20		1,332,766		20

		2,857,529		3.8		18		2,607,442		19

The aggregate intrinsic value of options outstanding and exercisable was immaterial at December 31, 2011.

Restricted Stock. Restricted stock is awarded to key employees providing for the immediate award of our common stock subject to certain vesting and restrictions under the Employee Stock Incentive Plan. Compensation expense is measured based on the grant-date fair value of the shares and is amortized into salary expense on a straight-line basis over the vesting period.

The following table sets forth the changes in restricted stock awards outstanding for the years ended December 31, 2011, 2010 and 2009:


	Restricted Stock Awards Outstanding
	2011			2010			2009
Outstanding at beginning of year		512,050			528,915			569,727
Granted		14,158			206,687			174,641
Vested		(221,213	)		(219,768	)		(203,467	)
Forfeited		(3,578	)		(3,784	)		(11,986	)

Outstanding at end of year		301,417			512,050			528,915

The amount of compensation costs related to restricted stock awards included in salary expense amounted to $2.9 million for the year ended December 31, 2011, and $3.9 million for each of the years ended December 31, 2010 and 2009. As of December 31, 2011, there was $1.6 million of total unrecognized compensation cost related to non-vested restricted shares to be amortized over the weighted average remaining vesting period of approximately 1.6 years.

The Director Restricted Stock Plan provides the non-employee members of the Board of Directors with the opportunity to forego some of or their entire annual cash retainer and meeting fees in exchange for shares of Valley restricted stock.

The following table sets forth the changes in director's restricted stock awards outstanding for the years ended December 31, 2011, 2010 and 2009:


	Restricted Stock Awards Outstanding
	2011			2010			2009
Outstanding at beginning of year		99,662			113,754			99,106
Granted		23,435			17,516			22,578
Vested		(21,225	)		(31,608	)		(7,593	)
Forfeited		(402	)		—			(337	)

Outstanding at end of year		101,470			99,662			113,754