The Bank has a non-contributory defined benefit plan (qualified plan) covering most of its employees. The qualified plan benefits are based upon years of credited service and the employee’s highest average compensation as defined. Additionally, the Bank has a supplemental non-qualified, non-funded retirement plan, which is designed to supplement the pension plan for key officers, and Valley has a non-qualified, non-funded directors’ retirement plan (both of these plans are referred to as the “non-qualified plans” below).

Effective December 31, 2013, the benefits earned under the qualified and non-qualified plans were frozen. As a result, Valley re-measured the projected benefit obligation of the affected plans and the funded status of each plan at June 30, 2013. Consequently, participants in each plan will not accrue further benefits and their pension benefits will be determined based on their compensation and service as of December 31, 2013. Plan benefits will not increase for any compensation or service earned after such date. All participants were immediately vested in their frozen accrued benefits if they were employed by the Bank as of December 31, 2013.

The following table sets forth the change in the 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, 2019 and 2018:



	2019			2018
	(in thousands)
Change in projected benefit obligation:
Projected benefit obligation at beginning of year	$	157,364		$	170,566
Interest cost	6,113			5,542
Actuarial loss (gain)	20,001			(11,540		)
Benefits paid	(8,073		)	(7,204		)
Projected benefit obligation at end of year	$	175,405		$	157,364
Change in fair value of plan assets:
Fair value of plan assets at beginning of year	$	210,508		$	222,124
Actual return (loss) on plan assets	32,835			(5,545		)
Employer contributions	1,351			1,133
Benefits paid	(8,073		)	(7,204		)
Fair value of plan assets at end of year*	$	236,621		$	210,508

Funded status of the plan
Asset recognized	$	61,216		$	53,144
Accumulated benefit obligation	175,405			157,364

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 $952 thousand of the net actuarial loss reported in the following table as of December 31, 2019 as a component of net periodic pension expense during 2020.

In determining discount rate assumptions, management looks to current rates on fixed-income corporate debt securities that receive a rating of AA or higher from either Moody’s or S&P with durations equal to the expected benefit payments streams required of each plan. The weighted average discount rate used in determining the actuarial present value of benefit obligations for the qualified and non-qualified plans was 3.32 percent and 4.30 percent as of December 31, 2019 and 2018, respectively.

The net periodic pension income for the qualified and non-qualified plans reported within other non-interest expense (due to the adoption of ASU No. 2017-07) included the following components for the years ended December 31, 2019, 2018 and 2017:



	2019			2018			2017
	(in thousands)
Interest cost	$	6,113		$	5,542		$	5,713
Expected return on plan assets	(16,453		)	(15,912		)	(15,163		)
Amortization of net loss	264			625			381
Total net periodic pension income	$	(10,076	)	$	(9,745	)	$	(9,069	)

Valley estimated the interest cost component of net periodic pension income (as shown in the table above) using a spot rate approach for the plans by applying the specific spot rates along the yield curve to the relevant projected cash flows. Valley believes this provides a better estimate of interest costs than a single weighted average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the applicable period.



	2019			2018
	(in thousands)
Net loss	$	3,619		$	9,917
Amortization of prior service cost	(35		)	(35		)
Amortization of actuarial loss	(264		)	(625		)
Total recognized in other comprehensive income	$	3,320		$	9,257
Total recognized in net periodic pension income and other comprehensive income/loss (before tax)	$	(6,721	)	$	(453	)



	2019		2018		2017
Discount rate - projected benefit obligation	4.30	%	3.69	%	4.12	%
Discount rate - interest cost	3.99	%	3.31	%	3.61	%
Expected long-term return on plan assets	7.50	%	7.50	%	7.50	%
Rate of compensation increase	N/A		N/A		N/A

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 materially or when asset class returns are expected to change for the long-term.

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 is an approximate equal weighting of 50 percent fixed income securities and 50 percent equity securities. The absolute investment objective for the equity portion is to earn at least 7 percent cumulative annualized 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.

The exposure of the plan assets of the qualified plan 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.

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 following table presents the qualified plan weighted-average asset allocations by asset category 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:
	% of Total Investments		December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	($ in thousands)
Assets:
Investments:
Equity securities	32	%	$	75,633	$	75,633	$	—	$	—
U.S. Treasury securities	22		51,732		51,732		—		—
Corporate bonds	21		51,221		—		51,221		—
Mutual funds	18		42,119		42,119		—		—
Cash and money market funds	4		9,013		9,013		—		—
U.S. government agency securities	3		6,263		—		6,263		—
Total investments	100	%	$	235,981	$	178,497	$	57,484	$	—



					Fair Value Measurements at Reporting Date Using:
	% of Total Investments		December 31, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	($ in thousands)
Assets:
Investments:
Equity securities	28	%	$	59,447	$	59,447	$	—	$	—
U.S. Treasury securities	24		50,838		50,838		—		—
Corporate bonds	24		50,003		—		50,003		—
Mutual funds	18		37,178		37,178		—		—
Cash and money market funds	4		7,429		7,429		—		—
U.S. government agency securities	2		4,952		—		4,952		—
Total investments	100	%	$	209,847	$	154,892	$	54,955	$	—

Equity securities, U.S. Treasury securities and cash and money market funds 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.

Based upon actuarial estimates, Valley does not expect to make any contributions to the qualified plan. Funding requirements for subsequent years are uncertain and will significantly depend on whether the plan’s actuary changes any assumptions used to calculate plan funding levels, the actual return on plan assets, changes in the employee groups covered by the plan, and any legislative or regulatory changes affecting plan funding requirements. For tax planning, financial planning, cash flow management or cost reduction purposes, Valley may increase, accelerate, decrease or delay contributions to the plan to the extent permitted by law.

On December 1, 2019, Valley assumed obligations under Oritani’s Pentegra Defined Benefit Plan for Financial Institutions (“Pentegra DB Plan”). The Pentegra DB Plan's Employer Identification Number is 13-5645888 and the Plan Number is 333. The Pentegra DB Plan is a tax-qualified defined-benefit multiple-employer plan. Under the Pentegra DB Plan, contributions made by a participating employer may be used to provide benefits to participants of other participating employers. The Pentegra DB Plan was frozen as of December 31, 2008. At the acquisition date, Valley determined that it would withdraw from the Pentegra DB Plan and, as a result, recorded an estimated liability of $3.0 million. During 2020, plan participants are expected to receive annuities based on the actuarial estimates of the pension obligation.

Valley maintains separate non-qualified plans for former directors and senior management of Merchants Bank of New York acquired in January of 2001. At December 31, 2019 and 2018, the remaining obligations under these plans were $1.6 million and $1.7 million, respectively, of which $451 thousand and $512 thousand, respectively, were funded by Valley. As of December 31, 2019 and 2018, all of the obligations were included in other liabilities and $803 thousand (net of a $314 thousand tax benefit) and $872 thousand (net of a $345 thousand tax benefit), respectively, were recorded in accumulated other comprehensive loss. The $1.1 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.

Valley also assumed an Executive Group Life Insurance Replacement (“Split-Dollar”) Plan from Oritani. The Split-Dollar plan provides life insurance benefits to certain eligible employees upon death while employed or following termination of employment due to disability, retirement or change in control. Participants in the Split-Dollar plan are entitled to up to two times their base annual salary, as defined by the plan. The remaining accrued liability for the Split-Dollar plan totaled $961 thousand at December 31, 2019.

Valley National Bank and its subsidiaries may award cash 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 $19.1 million, $18.8 million and $10.8 million during 2019, 2018 and 2017, respectively.

Valley National Bank maintains a KSOP, which is 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 invested in accordance with each participant’s investment elections. The Bank recorded $8.6 million, $8.5 million and $7.1 million in expense for contributions to the plan for the years ended December 31, 2019, 2018 and 2017, respectively.

Valley currently has one active employee stock plan, the 2016 Long-Term Stock Incentive Plan (the “2016 Stock Plan”), adopted by Valley’s Board of Directors on January 29, 2016 and approved by its shareholders on April 28, 2016. The 2016 Stock 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 primary purpose of the 2016 Stock 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 2016 Stock Plan, Valley may award shares of common stock in the form of stock appreciation rights, both incentive and non-qualified stock options, restricted stock and restricted stock units (RSUs) to its employees and non-employee directors (for acting in their roles as board members). As of December 31, 2019, 4.3 million shares of common stock were available for issuance under the 2016 Stock Plan. 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, except for performance-based awards with a market condition. The grant date fair values of performance-based awards that vest based on a market condition are determined by a third party specialist using a Monte Carlo valuation model.

Valley recorded total stock-based compensation expense, primarily for restricted stock awards, totaling $15.0 million, $19.5 million and $12.2 million for the years ended December 31, 2019, 2018 and 2017, respectively. The stock-based compensation expense for 2019, 2018 and 2017 included $2.1 million, $4.3 million and $4.3 million, respectively, related to stock awards granted to retirement eligible employees and was immediately recognized. The fair values of all other stock awards are expensed over the shorter of the vesting or required service period. As of December 31, 2019, the unrecognized amortization expense for all stock-based compensation totaled approximately $15.6 million and will be recognized over an average remaining vesting period of approximately 2.0 years.

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 2016 Stock Plan. Compensation expense is measured based on the grant-date fair value of the shares.



	Restricted Stock Awards Outstanding
	2019		2018		2017
Outstanding at beginning of year	1,720,968		1,771,702		2,100,816
Granted	—		1,263,144		608,786
Vested	(547,653	)	(1,128,521	)	(736,575	)
Forfeited	(114,634	)	(185,357	)	(201,325	)
Outstanding at end of year	1,058,681		1,720,968		1,771,702

Valley did not award shares of restricted stock during 2019. Included in the RSAs granted (in the table above) during 2018 and 2017, 60 thousand and 45 thousand shares, respectively, were issued to Valley directors. In 2018 and 2017, each non-management director received $60 thousand and $50 thousand, respectively, of RSAs as part of their annual retainer. The RSAs were granted on the date of the annual shareholders’ meeting with the number of RSAs determined using the closing market price on the date prior to grant. The RSAs vest on the earlier of the next annual shareholders’ meeting or the first anniversary of the grant date, with acceleration upon a change in control, death or disability, but not resignation from the Board of Directors.

Restricted Stock Units (RSUs). Restricted stock units are awarded as (1) performance-based RSUs and (2) time-based RSUs. Performance based RSUs vest based on (i) growth in tangible book value per share plus dividends and (ii) total shareholder return as compared to our peer group. The performance based RSUs "cliff" vest after three years based on the cumulative performance of Valley during that time period. Generally, time-based RSUs vest ratably one-third each year over a three-year vesting period. The RSUs earn dividend equivalents (equal to cash dividends paid on Valley's common share) over the applicable performance or service period. Dividend equivalents, per the terms of the agreements, are accumulated and paid to the grantee at the vesting date, or forfeited if the applicable performance or service conditions are not met. The grant date fair value of the RSUs was $10.43, $12.36 and $11.05 per share for the years ended December 31, 2019, 2018, and 2017, respectively. Compensation



	Restricted Stock Units Outstanding
	2019		2018		2017
Outstanding at beginning of year	1,378,886		1,114,962		744,281
Acquired in business combinations	—		336,379		—
Granted	1,412,941		509,725		370,681
Vested	(500,204	)	(503,879	)	—
Forfeited	(133,368	)	(78,301	)	—
Outstanding at end of year	2,158,255		1,378,886		1,114,962

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; the stock volatility, based on Valley’s historical and implied stock price volatility; the 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.



	2019				2018				2017
			Weighted Average Exercise				Weighted Average Exercise				Weighted Average Exercise
Stock Options	Shares		Price		Shares		Price		Shares		Price
Outstanding at beginning of year	1,051,787		$	7	446,980		$	13	732,489		$	14
Acquired in business combinations	3,130,171		8		1,803,165		5		—		—
Exercised	(716,920	)	7		(975,325	)	5		—		—
Forfeited or expired	(11,522	)	8		(223,033	)	14		(285,509	)	16
Outstanding at end of year	3,453,516		8		1,051,787		7		446,980		13
Exercisable at year-end	3,339,517		8		604,003		7		446,980		13



Options Outstanding and Exercisable
Range of Exercise Prices	Number of Options	Weighted Average Remaining Contractual Life in Years	Weighted Average Exercise Price
$2-$4	124,105	2.5	$	3
4-6	153,317	5.4	5
6-8	2,718,834	1.8	7
8-10	112,000	7.9	10
10-12	231,261	1.8	11
	3,339,517	2.2	8

Director Restricted Stock Plan. The Director Restricted Stock Plan provides the non-employee members of the Board of Directors with the opportunity to forgo some or their entire annual cash retainer and meeting fees in exchange for shares of Valley restricted stock. On January 29, 2014, the Director Restricted Stock Plan was amended to provide that no additional fees may be exchanged for Valley’s restricted stock effective April 1, 2014. The Director Restricted Stock Plan terminated in April 2018 when the remaining restricted stock under the plan vested.