REGULATORY AND CAPITAL REQUIREMENTS (Note 15)

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 total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets, as defined in the regulations. As of December 31, 2012, Valley exceeded all capital adequacy requirements to which it was subject.

At December 31, 2012, all of Valley National Bank’s ratios were above the minimum levels required to be considered “well capitalized,” under the regulatory framework for prompt corrective action, which require Tier 1 capital to risk-weighted assets of at least 6 percent, Total risk-based capital to risk-weighted assets of 10 percent and a minimum Tier 1 leverage ratio of 5 percent. To be categorized as well capitalized under the capital adequacy guidelines set by the federal regulators, Valley and Valley National Bank must maintain minimum Total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below.

In June 2012, the U.S. federal banking agencies issued three notices of proposed rulemaking (NPRs) that would revise and/or replace the current regulatory capital rules outlined above with the Basel III final capital framework for all bank holding companies with over $500 million in assets, all depository institutions, and all savings and loan holding companies. The NPRs and the Basel III final framework would initially require Valley and Valley National Bank to meet the following minimum capital ratios: 4.5 percent Tier 1 capital to risk-weighted assets, 8.0 percent Total capital to risk-weighted assets, and a new capital measure called “Common Equity Tier 1” to risk-weighted assets of 3.5 percent. The banking regulators intended to finalize the NPRs by January 1, 2013. However, on November 9, 2012, the federal agencies that proposed the NPRs announced that they do not expect that any of the proposed rules would become effective on January 1, 2013. Moreover, the announcement did not indicate the likely new effective date for the revised regulatory capital rules.

Valley’s and Valley National Bank’s actual capital positions and ratios as of December 31, 2012 and 2011 are presented in the following table:


	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, 2012
Total Risk-based Capital
Valley	$	1,413,901		12.4	%	$	913,402		8.0	%	$	N/A		N/A	%
Valley National Bank		1,374,059		12.1			912,179		8.0			1,140,224		10.0
Tier 1 Risk-based Capital
Valley		1,241,316		10.9			456,701		4.0			N/A		N/A
Valley National Bank		1,201,499		10.5			456,090		4.0			684,134		6.0
Tier 1 Leverage Capital
Valley		1,241,316		8.1			613,471		4.0			N/A		N/A
Valley National Bank		1,201,499		7.8			612,636		4.0			765,795		5.0
As of December 31, 2011
Total Risk-based Capital
Valley	$	1,301,638		12.6	%	$	824,365		8.0	%	$	N/A		N/A	%
Valley National Bank		1,244,407		12.1			819,942		8.0			1,024,928		10.0
Tier 1 Risk-based Capital
Valley		1,113,422		10.8			412,183		4.0			N/A		N/A
Valley National Bank		1,056,191		10.3			409,971		4.0			614,957		6.0
Tier 1 Leverage Capital
Valley		1,113,422		8.0			557,210		4.0			N/A		N/A
Valley National Bank		1,056,191		7.6			555,785		4.0			694,731		5.0

Valley’s Tier 1 capital position included $186.3 million and $176.3 million of its outstanding trust preferred securities issued by capital trusts as of December 31, 2012 and 2011, respectively. The net increase of $10.0 million was attributable to $20.0 million of trust preferred securities assumed in the State Bancorp acquisition, partially offset by the redemption of $10.0 million of the face value of VNB Capital Trust I trust preferred securities during the first quarter of 2012. Valley does not consolidate its capital trusts based on U.S. GAAP. The junior subordinated debentures issued to the capital trusts were included in Valley’s liabilities. See Note 11 for additional information on the debentures and the trust preferred securities.