REGULATORY AND CAPITAL REQUIREMENTS (Note 17)

Valley’s primary source of cash is dividends from the Bank. Valley National Bank, a national banking association, is subject to certain restrictions on the amount of dividends that it may declare without prior regulatory approval. In addition, the dividends declared cannot be in excess of the amount which would cause the subsidiary bank to fall below the minimum required for capital adequacy purposes.

Valley and Valley National Bank are subject to the regulatory capital requirements administered by the Federal Reserve Bank and the OCC. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct significant impact on Valley’s consolidated financial statements. Under capital adequacy guidelines Valley and Valley National Bank must meet specific capital guidelines that involve quantitative measures of Valley’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require Valley and Valley National Bank to maintain minimum amounts and ratios of common equity Tier 1 capital, total and Tier 1 capital to risk-weighted assets, and Tier 1 capital to average assets, as defined in the regulations. As of December 31, 2015 and 2014, Valley exceeded all capital adequacy requirements to which it was subject (see tables below).

On January 1, 2015, the final rules implementing the Basel Committee on Banking Supervision capital guidelines for banking organizations (Basel III) regulatory capital framework and related Dodd-Frank Act changes became effective for Valley. These rules supersede the federal banking agencies' general risk-based capital rules (Basel I). Full compliance with all of the final rule's requirements is phased in over a multi-year transition period ending on January 1, 2019. Basel III revised minimum capital requirements and adjusted prompt corrective action thresholds. Under the final rules, minimum requirements increased for both the quantity and quality of capital held by Valley and the Bank. The rules included a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5 percent, raised the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0 percent to 6.0 percent, required a minimum ratio of total capital to risk-weighted assets of 8.0 percent, and required a minimum leverage ratio of 4.0 percent. A new capital conservation buffer, comprised of common equity Tier 1 capital, was also established above the regulatory minimum capital requirements. This conservation buffer will be phased in beginning January 1, 2016 at 0.625 percent of risk-weighted assets and increase each subsequent year by an additional 0.625 percent until reaching its final level of 2.5 percent of risk-weighted assets on January 1, 2019. The final rule also revised the definition and calculation of Tier 1 capital, total capital and risk-weighted assets.

The following table presents Valley’s and Valley National Bank’s actual capital positions and ratios under risk-based capital guidelines of Basel III and Basel I at December 31, 2015 and 2014, respectively:



	Actual				Minimum Capital Requirements				To Be Well Capitalized Under Prompt Corrective Action Provision
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	($ in thousands)
As of December 31, 2015*
Total Risk-based Capital
Valley	$	1,910,304	12.0	%	$	1,271,171	8.0	%	N/A		N/A
Valley National Bank	1,826,420		11.5		1,266,942		8.0		$	1,583,677	10.0	%
Common Equity Tier 1 Capital
Valley	1,431,973		9.0		715,034		4.5		N/A		N/A
Valley National Bank	1,618,053		10.2		712,655		4.5		1,029,390		6.5
Tier 1 Risk-based Capital
Valley	1,543,937		9.7		953,378		6.0		N/A		N/A
Valley National Bank	1,618,053		10.2		950,206		6.0		1,266,942		8.0
Tier 1 Leverage Capital
Valley	1,543,937		7.9		781,388		4.0		N/A		N/A
Valley National Bank	1,618,053		8.3		780,831		4.0		976,039		5.0

As of December 31, 2014
Total Risk-based Capital
Valley	$	1,547,753	11.4	%	$	1,084,479	8.0	%	N/A		N/A
Valley National Bank	1,481,184		10.9		1,083,516		8.0		$	1,354,395	10.0	%
Tier 1 Risk-based Capital
Valley	1,318,466		9.7		542,240		4.0		N/A		N/A
Valley National Bank	1,376,897		10.2		541,758		4.0		813,637		6.0
Tier 1 Leverage Capital
Valley	1,318,466		7.5		707,082		4.0		N/A		N/A
Valley National Bank	1,376,897		7.8		706,992		4.0		883,740		5.0

_______

* December 31, 2015 capital positions and ratios were calculated under Basel III rules which became effective January 1, 2015.