REGULATORY AND CAPITAL REQUIREMENTS (Note 16)

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, 2013, Valley exceeded all capital adequacy requirements to which it was subject.

At December 31, 2013, 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.

On July 2, 2013, the Federal Reserve Board and the FDIC issued final rules implementing the Basel III regulatory capital framework and related Dodd-Frank Act changes. The rules revise minimum capital requirements and adjust prompt corrective action thresholds. Under the final rules, minimum requirements will increase for both the quantity and quality of capital held by Valley and the Bank. The rules include a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5 percent and a common equity Tier 1 capital conservation buffer of 2.5 percent of risk-weighted assets. The final rules also raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0 percent to 6.0 percent and require a minimum leverage ratio of 4.0 percent. The final rule will become effective January 1, 2015, subject to a transition period.

The actual capital positions and ratios for Valley and Valley National Bank as of December 31, 2013 and 2012 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, 2013
Total Risk-based Capital
Valley	$	1,403,836		11.9	%	$	946,448		8.0	%	$	N/A		N/A	%
Valley National Bank		1,376,695		11.6			945,854		8.0			1,182,317		10.0
Tier 1 Risk-based Capital
Valley		1,141,526		9.7			473,224		4.0			N/A		N/A
Valley National Bank		1,239,510		10.5			472,927		4.0			709,390		6.0
Tier 1 Leverage Capital
Valley		1,141,526		7.3			628,256		4.0			N/A		N/A
Valley National Bank		1,239,510		7.9			627,333		4.0			784,167		5.0
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

Based upon the new final regulatory guidance, our Tier 1 capital treatment of the trust preferred securities issued by Valley’s capital trusts (currently allowable under the Dodd-Frank Act) will be 75 percent disallowed starting on January 1, 2015 and fully phased out of Tier 1 capital on January 1, 2016. Valley’s Tier 1 capital position included $44.0 million and $186.3 of its outstanding trust preferred securities issued by capital trusts as of December 31, 2013 and 2012, respectively. The decrease was attributable to Valley’s redemption of the entire $142.3 million principal face value of its trust preferred securities issued by VNB Capital Trust I in 2013.