Regulatory Matters

Under the Basel III rules, the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer is being phased in from 0.0% for 2015 to 2.50% by 2019. Management believes as of December 31, 2018 and 2017, the Bank met all capital adequacy requirements to which they are subject to. Based on recent changes to the Federal Reserve’s definition of a “Small Bank Holding Company” that increased the threshold to $3 billion in assets, the Company is not currently subject to separate minimum capital measurements. At such time as the Company reaches the $3 billion asset level, it will again be subject to capital measurements independent of the Bank. For comparison purposes, the Company’s ratios are included in following discussion as well, all of which would have exceeded the “well-capitalized” level had the Company been subject to separate capital minimums. The Company and the Bank’s capital conservation buffer was 9.31% and 9.21%, respectively, as of December 31, 2018, and 5.20% and 5.12%, respectively, as of December 31, 2017. Unrealized gain or loss on securities available-for-sale is not included in computing regulatory capital. The following table presents the regulatory capital amounts and ratios for the Company and the Bank as of dates indicated:



	Actual				Minimum Capital Requirement				To Be Well Capitalized Under Prompt Corrective Provisions
($ in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2018
Pacific City Financial Corporation
Common tier 1 capital (to risk-weighted assets)	$	210,871	16.28	%	$	58,273	4.5	%	N/A		N/A
Total capital (to risk-weighted assets)	224,178		17.31	%	103,596		8.0	%	N/A		N/A
Tier 1 capital (to risk-weighted assets)	210,871		16.28	%	77,697		6.0	%	N/A		N/A
Tier 1 capital (to average assets)	210,871		12.60	%	66,930		4.0	%	N/A		N/A
Pacific City Bank
Common tier 1 capital (to risk-weighted assets)	$	209,587	16.19	%	$	58,272	4.5	%	$	84,171	6.5	%
Total capital (to risk-weighted assets)	222,894		17.21	%	103,594		8.0	%	129,493		10.0	%
Tier 1 capital (to risk-weighted assets)	209,587		16.19	%	77,696		6.0	%	103,594		8.0	%
Tier 1 capital (to average assets)	209,587		12.53	%	66,929		4.0	%	83,661		5.0	%
December 31, 2017
Pacific City Financial Corporation
Common tier 1 capital (to risk-weighted assets)	$	142,370	12.15	%	$	52,730	4.5	%	N/A		N/A
Total capital (to risk-weighted assets)	154,715		13.20	%	93,766		8.0	%	N/A		N/A
Tier 1 capital (to risk-weighted assets)	142,370		12.15	%	70,306		6.0	%	N/A		N/A
Tier 1 capital (to average assets)	142,370		10.01	%	56,891		4.0	%	N/A		N/A
Pacific City Bank
Common tier 1 capital (to risk-weighted assets)	$	141,361	12.06	%	$	52,747	4.5	%	$	76,189	6.5	%
Total capital (to risk-weighted assets)	153,705		13.12	%	93,723		8.0	%	117,153		10.0	%
Tier 1 capital (to risk-weighted assets)	141,361		12.06	%	70,329		6.0	%	93,772		8.0	%
Tier 1 capital (to average assets)	141,361		9.94	%	56,886		4.0	%	71,107		5.0	%

The California Financial Code provides that a bank may not make a cash distribution to its shareholders in excess of the lesser of the bank’s undivided profits or the bank’s net income for its last three fiscal years less the amount of any distribution made to the bank’s shareholder during the same period. As a California corporation, the Company is subject to the limitations of California law, which allows a corporation to distribute cash or property to shareholders, including a dividend or repurchase or redemption of shares, if the corporation meets either a retained earnings test or a “balance sheet” test. Under the retained earnings test, the Company may make a distribution from retained earnings to the extent that its retained earnings exceed the sum of (a) the amount of the distribution plus (b) the amount, if any, of dividends in arrears on shares with preferential dividend rights. The Company may also make a distribution if, immediately after the distribution, the value of its assets equals or exceeds the sum of (a) its total liabilities plus (b) the liquidation preference of any shares which have a preference upon dissolution over the rights of shareholders receiving the distribution. Indebtedness is not considered a liability if the terms of such indebtedness provide that payment of principal and interest thereon are to be made only if, and to the extent that, a distribution to shareholders could be made under the balance sheet test.