PUBLIC DISCLOSURE. July 7, 2008 COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION. 135 North Robles Avenue Pasadena, California 91101

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1 PUBLIC DISCLOSURE July 7, 2008 COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION East West Bank RSSD # North Robles Avenue Pasadena, California Federal Reserve Bank of San Francisco 101 Market Street San Francisco, California NOTE: This document is an evaluation of this institution s record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with safe and sound operation of the institution. This evaluation is not, nor should it be construed as, an assessment of the financial condition of this institution. The rating assigned to this institution does not represent an analysis, conclusion or opinion of the federal financial supervisory agency concerning the safety and soundness of this financial institution.

2 TABLE OF CONTENTS INSTITUTION RATING... 1 Institution s CRA Rating... 1 INSTITUTION... 2 Description of Institution... 2 Scope of Examination... 3 Conclusions with Respect to Performance Tests... 3 LENDING TEST... 4 INVESTMENT TEST... 6 SERVICE TEST... 6 FAIR LENDING OR OTHER ILLEGAL PRACTICES REVIEW... 7 CALIFORNIA... 8 CRA Rating for California... 8 Scope of Examination... 8 Description of Operations in California... 8 Conclusions with Respect to Performance Tests in California Southern California Assessment Area DESCRIPTION OF OPERATIONS IN SOUTHERN CALIFORNIA CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS IN SOUTHERN CALIFORNIA Northern California Assessment Area DESCRIPTION OF OPERATIONS IN NORTHERN CALIFORNIA CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS IN NORTHERN CALIFORNIA TEXAS CRA Rating for Texas Scope of Examination Description of Operations in Texas Conclusions with Respect to Performance Tests in Texas APPENDICES Appendix A: Scope of the Examination Appendix B: Summary of Ratings Appendix C: Glossary of Terms Appendix D: CRA Core Tables

3 INSTITUTION RATING Institution s CRA Rating East West Bank is rated "SATISFACTORY" The following table shows the performance level of East West Bank with respect to the lending, investment, and service tests. PERFORMANCE LEVELS LENDING TEST* PERFORMANCE TESTS INVESTMENT TEST SERVICE TEST OUTSTANDING HIGH SATISFACTORY X X X LOW SATISFACTORY NEEDS TO IMPROVE SUBSTANTIAL NONCOMPLIANCE *The lending test is weighted more heavily than the investment and service tests in determining the overall rating. The major factors supporting the institution s rating include: Good small business and home mortgage lending record; o Lending levels are good and a substantial majority of all loans are within designated assessment areas. o Geographic and borrower distribution of loans are good, primarily in California assessment areas. Significant levels of qualified community development loans and investments that were responsive to the needs of the assessment areas, particularly the need for affordable housing; A significant level of community development services which supported low- and moderate-income residents and small businesses; and Retail banking services, including alternative delivery systems, which are reasonably accessible within the bank s assessment areas

4 INSTITUTION Description of Institution East West Bank (EWB), with $11.8 billion in total assets as of December 31, 2007, is a whollyowned, subsidiary of East West Bancorp. Both institutions are headquartered in Pasadena, California. EWB began operations as a savings institution in the Chinatown section of Los Angeles in June The bank converted to a state-chartered commercial bank in July 1995 and became a member of the Federal Reserve System in September Since formation, EWB has expanded through a combination of organic growth and a series of mergers and acquisitions. The most recent acquisition was in August 2007 with the purchase of Desert Community Bank located in Victorville, California. With this acquisition, EWB gained ten branches in San Bernardino County, thereby operating a total of 72 full service branches and four loan production offices in the states of California and Texas. EWB also operates a full service branch in Hong Kong, a representative office in Beijing, China, and has received approval to open another representative office in Shanghai, China. EWB provides a wide range of retail and commercial banking products. The primary focus is commercial real estate lending, including those secured by multi-family residential properties. In addition, the bank extends SBA and working capital loans. Consumer purpose products include home purchase and refinance loans - many of which are sold on the secondary market, home equity lines of credit, and auto loans. The table below presents loan data as of December 31, 2007, and reflects the bank s commercial real estate focus, notwithstanding the fact that many residential real estate loans have been sold and are not reflected in the figures below. EXHIBIT 1 LOAN TYPE DOLLAR AMOUNT PERCENT ( 000S) OF VALUE Commercial/Industrial & Non-Farm Non-Residential Real Estate $5,352, % Construction & Land Development $2,181, % All Other $689, % Secured by 1-4 Family Residential Real Estate $554, % Consumer Loans & Credit Cards $30, % Leases $35, % Total (Gross) $8,843, % EWB has delineated three assessment areas: Southern California, Northern California and Harris County, Texas. The Northern and Southern California areas have expanded since the previous CRA examination while the Texas delineation remains the same. They currently consist of the following: - 2 -

5 Southern California - whole counties of Los Angeles, Orange, and San Bernardino. Northern California - whole counties of Alameda, Santa Clara, San Francisco, and San Mateo. Texas - Harris County in its entirety. The bank s primary market remains the Southern California assessment area, which contains 62 of the bank s 72 branches and a loan production office. The Northern California assessment area contains nine branches and three loan production offices. Only one branch is located in Harris County, Texas. EWB received a satisfactory performance rating at its May 15, 2006, CRA examination. During the review period for this examination, there were no legal or financial impediments inhibiting the bank s ability to meet the credit needs of its communities, consistent with its business strategy, size and resources, and local economic conditions. Scope of Examination EWB s CRA performance was evaluated in accordance with the Interagency Large Institution CRA Examination Procedures. As such, performance was assessed under the lending, investment, and service tests. The evaluation period for the lending test was January 1, 2006, through December 31, 2007, while the review period for the investment and service tests was May 13, 2006, through March 31, All three of the bank s assessment areas received full-scope reviews, with the Southern California assessment area carrying the greatest weight due to the relative number of branches as well as the loan volume and percentage of deposits. Although the bank s presence and loan/deposit activity in the Texas assessment area is limited, a full scope review was conducted to determine the overall rating for the state. The lending test is weighted more heavily than either the investment or the service test. The evaluation of the bank s performance under the lending test was weighted according to the lending activity and relative opportunities in each assessment area. Home purchase, home refinance and small business loans received the most weight in this evaluation due to their relative transaction and dollar volume. Since most of the home purchase and home refinance loans were processed under the bank s low-doc and no-doc programs, and borrower income information is not available, they were assessed for their geographic distribution only. The low level of home improvement lending was insufficient to draw meaningful conclusions and was excluded from the scope of the examination. The scope of the evaluation is consistent throughout the evaluation unless otherwise noted. Conclusions with Respect to Performance Tests The overall conclusions are based on performance within the respective assessment areas and the relevant contextual information of each. The supporting facts and data are presented within the separate assessment area analyses

6 LENDING TEST EWB s overall performance under the lending test is high satisfactory. Lending levels are good given the opportunities and competition within the various assessment areas. A substantial majority of loans were made within the bank s assessment areas. Overall geographic and borrower distributions are good, with strong penetration in low- and moderate-income census tracts. Also, the overall distribution of lending to businesses of different sizes is good. Community development lending is strong, particularly so in the Southern California assessment area, demonstrating notable responsiveness to the need for affordable housing. Separately, lending activity in the Texas assessment area is insufficient to support an assessment of geographic and borrower distribution. Moreover, community development lending in Texas is limited. Accordingly, the overall conclusion under the lending test largely reflects the bank s stronger lending performance in the California assessment areas contrasted against the weaker performance in Texas. Lending Activity Overall lending levels are good. The bank faces strong competition from large and regional banks as well as nonbank lenders, yet both transaction and dollar volumes reflect active lending. As shown in Table 1 in Appendix D, overall loan volumes in the bank s assessment areas compare reasonably with the bank s share of deposits in the respective market. 1 As illustrated in Exhibit 2 below, the bank s loans used to assess CRA performance are almost evenly split between small business and mortgage-related loans. EXHIBIT 2 SUMMARY OF LENDING ACTIVITY EVALUATION PERIOD: JANUARY 1, 2006 TO DECEMBER 31, 2007 Loan Type # % $ ('000s) % HMDA Home Purchase 1, , HMDA Refinance 1, , HMDA Home Improvement , Total HMDA-Related 2, ,650, Small Business 2, , Total Business-Related 2, , TOTAL LOANS 4, ,604, Assessment Area Concentration A substantial majority of loans, both by number of transactions as well as dollar volume, were made within the assessment areas. The following exhibit shows the number and dollar volume of loans extended within the designated assessment areas during the review period. The tables in Appendix D contain additional information regarding assessment area specific lending. 1 All CRA tables referenced in this section of the evaluation are located in Appendix D

7 LOAN TYPE EXHIBIT 3 LENDING INSIDE AND OUTSIDE THE ASSESSMENT AREAS EVALUATION PERIOD: JANUARY 1, 2006 TO DECEMBER 31, 2007 Inside # % $ ( 000s) % # % Outside $ ( 000s) HMDA Home Purchase 1, , , HMDA Refinance 1, , , HMDA Home Improvement , , Total HMDA-Related 2, ,489, , Small Business 2, , , Total Business-Related 2, , , TOTAL LOANS 4, ,353, , Geographic and Borrower Distribution Overall, EWB demonstrated a good record of lending in different geographic areas and to businesses of different sizes. Loans were generally distributed throughout the assessment areas with no conspicuous gaps in the lending patterns. The bank s good responsiveness to credit needs within low- and moderate-income geographies is a strength in the overall performance. As noted above, these overall conclusions are based on a variety of performance context issues. Individual conclusions for the different assessment areas vary, and the facts and data supporting those assessments are presented within the separate assessment area analyses. Community Development Lending EWB demonstrated excellent responsiveness to community credit needs through its origination of community development loans. Specifically, as shown in Tables 1 and 8, the bank extended 685 loans totaling $776 million. A majority of the community development loans supported the construction, permanent financing, or refinancing of multi-family rental property serving lowand moderate-income individuals, addressing the significant need for affordable housing. The bank also offers credit enhancements, via letters of credit, for various bonds issued to finance affordable housing projects. For this review period, the bank extended or participated in eight credit enhancements totaling $124 million. As noted above, the majority of overall activity was in the Southern California assessment area, followed by Northern California; a limited number of community development loans were extended in the Texas assessment area. As shown in Tables 1 and 8, 49 of the loans totaling $88.4 million served a broader statewide or regional area including the bank s assessment areas. Of these credits, 45 were affordable housing loans that were designed to create over 700 affordable housing units. % - 5 -

8 INVESTMENT TEST EWB s performance under the investment test is high satisfactory. The bank made a noteworthy level of investments, again primarily aimed at the critical need for affordable housing. As seen in Tables 6 and 12, the bank has total community development investments of $144.8 million, which includes $19.4 million in prior period investments remaining on the bank s books, $128.9 million in new investments during this review period and unfunded commitments totaling $17.5 million. The majority of the investments were made within individual assessment areas with only $1.6 million of the total benefiting a broader statewide or regional area. Specific activities benefiting individual assessment areas are addressed under their respective portions of the evaluation. Nevertheless, the focus on affordable housing investments is as follows: Mortgage-backed securities (MBS) secured by mortgages to individuals in low- and moderate-income geographies. During this review period, the bank made investments in MBS totaling $58 million, many of these individual securities are backed by loans extended in several different counties in the bank s Southern California, Northern California and Texas assessment areas. EWB continues to hold $5.8 million in MBS from prior periods. Low Income Housing Tax Credit (LIHTC) investments totaling $26.6 million, which supported projects designed to provide over 900 affordable housing units in the bank s assessment areas. They continue to hold $13.6 million in LIHTC from prior periods which were used to fund over 2,400 affordable housing units. Municipal bonds totaling $24 million that also support affordable housing. A $495,000 deposit in a minority-owned financial institution also supported that institution s lending efforts, including home mortgage lending. SERVICE TEST Overall performance under the service test is high satisfactory. Retail Banking Services Delivery systems provide sufficient access to the bank s products and services. Since the previous examination, the bank added 15 branches and now has a network of 72 branches. Of these 72 branches, 20 are located in low- and moderate-income geographies. Detailed information on the location of the branches can be found in Tables 7 and 13. Branch hours of operation provide sufficient access to banking services and do not vary in a way that inconveniences low- and moderate-income persons in the assessment areas. A full range of products and services are offered at all branches, including nine in-store branches, and many branches are open on Saturday. EWB also offers on-line banking and other alternative delivery - 6 -

9 systems such as telephone banking, ATMs, and courier services which further enhance accessibility. The bank also operates four loan production offices. Community Development Services Overall, EWB provided a relatively high level of community development services. The strongest performance was noted in the Southern California assessment area, where the bank provided a relatively high level of qualified services that met identified needs. The level and impact of community development services in Northern California was adequate and only a limited amount of community development services were provided in the Texas assessment area. During the review period, 294 employees performed 75 different qualifying community development services totaling over 1,800 hours, with a substantial majority of these services concentrated in the Southern California assessment area. The largest number of service hours provided financial and first-time homebuyer education services to low- and moderate-income individuals and seminars for small business owners. Activities benefiting specific assessment areas are addressed under their respective portions of the evaluation. FAIR LENDING OR OTHER ILLEGAL PRACTICES REVIEW The bank is in compliance with the substantive provisions of the anti-discrimination laws and regulations. The fair lending review conducted concurrently with this examination did not reveal evidence of discriminatory lending practices and there were no other regulatory violations that would negatively affect the bank s CRA performance assessment

10 CALIFORNIA CRA Rating for California Performance in California is rated SATISFACTORY The lending test is rated: The investment test is rated: The service test is rated: High Satisfactory High Satisfactory High Satisfactory The major factors supporting the institution s rating include: Good small business and home mortgage lending record; o Lending levels are good. o Geographic and borrower distribution of loans are good, primarily in California assessment areas. Significant levels of qualified community development loans and investments that were responsive to the needs of the assessment areas, particularly the need for affordable housing; A significant level of community development services which supported low- and moderate-income residents and small businesses; and Retail banking services, including alternative delivery systems, which are reasonably accessible within the bank s assessment areas. Scope of Examination The scope of the examination for the state of California is consistent with the overall scope of the CRA examination. As previously noted, EWB has two assessment areas in California: Southern California and Northern California. Each assessment area received a full-scope review. The Southern California assessment area, however, carried greater weight in the state due to its larger loan volumes, higher share of deposits, and more extensive branch presence. Description of Operations in California California is EWB s predominant market and the bank s two assessment areas in California contain 71 of its 72 branch offices, all four loan production offices, and the bank s corporate and administrative headquarters. Also, nearly all of the bank s deposits and 99 percent of all loan originations were in the California assessment areas. California is a highly competitive market for financial services, with a strong presence of national banks, regional banks, and nonbank lenders. As of June 30, 2007, there were 231FDICinsured depository institutions operating 3,716 branch offices in the bank s California assessment areas with combined deposits totaling $513.1 billion. EWB ranked 13th in total deposits with 1.38 percent market share. Of note, the bank s presence in California has - 8 -

11 increased slightly as a result of its acquisition of Desert Community Bank (DCB) in August As of June 30, 2007, DCB ranked 66 th with.10 percent deposit market share. 2 California s diverse economy is driven by a variety of industries including agriculture, aerospace, entertainment, finance, garment manufacturing, international trade, light manufacturing, and tourism. Government also is a large employer and plays a major role in the state s economy. Although the state enjoyed a relatively robust 2006, California s economic growth in 2007 was the slowest since 2003, and slower than the national average. 3 National growth was 1.0 percent, making 2007 the first time since 2003 that employment grew faster nationally than it did in California. 4 At the same time, California s unemployment rate rose to 6.1 percent in December 2007 from 4.8 percent in December 2006, a jump of 1.3 percentage points, whereas national unemployment rose to 5.0 percent from 4.4 percent, an increase of only 0.6 percentage points. 5 In the construction, finance and insurance sectors, job growth in California was well behind the national average. These sectors fortunes are tied to the housing market, whose troubles have hurt California more than the nation overall. 6 Additionally, California has been impacted more than any other state by the national rise in home foreclosures. 7 Small businesses play a major role in California s economy. In 2006, there were 1.1 million employer firms of which 99.2 percent employed less than 500 employees. 8 According to the Small Business Administration, Office of Advocacy, small business establishment has a larger impact than any other factor on gross state product, state personal income, and total state employment. As such, small businesses are important components to the health of the state s economy. 9 In addition, access to credit is vital for small business survival. 10 Business and economic data, as well as feedback from community contacts, indicate small dollar loans and startup capital as well as technical assistance were most needed. During the review period, potential homebuyers faced unusual challenges with respect to affordability. In one respect, decreases in the median home prices and declining mortgage rates during the fourth quarter of 2007 lessened previous obstacles to homeownership in the state. At $483,730, the statewide median home price fell by a record margin of 14.9 percent or $84,400 2 FDIC Deposit Market Share Report; 3 The California Economy: Employment in 2007, Public Policy Institute of California, January 2008, (accessed July 31, 2008) at (ppic.org). 4 Ibid. 5 Ibid. 6 Ibid. 7 Governor Launches Program to Help Communities Hard-Hit by Foreclosures State of California, Department of Housing and Community Development, July 21, 2008 (accessed July 31, 2008); available from 8 Small Business Administration, Office of Advocacy, Small Business Profile: California 2007, (accessed February 19, 2008), available from 9 Small Business Administration, Office of Advocacy, Small Business and State Growth: An Econometric Investigation, February 2007, (accessed November 5, 2008) available from 10 SBA, Office of Advocacy, Small Business and Micro Business Lending in the United States, for Data Years , (accessed March 3, 2008), available from

12 compared to the third quarter 2007 median of $568, The median price was nearly $80,000 lower than the median of $561,430 from the fourth quarter of 2006, corresponding to a 13.8 percent year-to-year decrease. Offsetting these significant reductions were a simultaneous tightening of credit standards and a rise in unemployment in the latter part of 2007 that reduced the pool of qualified buyers who could obtain a mortgage loan. In the fourth quarter of 2007, only one in three households could afford the entry-level home in California. 12 Conclusions with Respect to Performance Tests in California Conclusions regarding EWB s performance in California with respect to the lending, investment, and service tests are the same as the overall conclusions for the bank as a whole. With 99.0 percent of the bank s lending and nearly all deposit activities within the California assessment areas, the overall CRA conclusions starting on page 4 of this report are the same for the California market. The following sections contain specific conclusions regarding individual assessment areas within the state of California, noting some deviations in performance among the individual areas. 11 Housing Affordability Improves as Prices and Rates Decline, February 2008, California Association of Realtors, -, Volume 29, Number 2, February Ibid

13 Southern California Assessment Area For each assessment area where a full-scope review was performed using the examination procedures. DESCRIPTION OF OPERATIONS IN SOUTHERN CALIFORNIA The Southern California assessment area includes three of the five counties in the Los Angeles- Long Beach-Riverside Combined Statistical Area. The three counties are Los Angeles, Orange, and San Bernardino. Los Angeles County also is known as the Los Angeles-Long Beach- Glendale Metropolitan Division (MD), and has the largest population of the three counties, followed by Orange County, and then San Bernardino County. According to current estimates, Los Angeles County is home to more than 10.3 million people and is the most populous county in the nation. 13 Orange County, which also is known as the Santa Ana-Anaheim-Irvine MD, follows with a population of close to 3.1 million, making it the third most populous county in California. 14 These two counties make-up the Los Angeles-Long Beach-Santa Ana Metropolitan Statistical Area. San Bernardino County is one of two counties making up the Riverside-San Bernardino-Ontario MSA. Although it is the largest county in the nation (square miles), about 90 percent of San Bernardino County is desert with the remainder consisting of the San Bernardino Mountains and the San Bernardino Valley. 15 San Bernardino County became part of the bank s assessment area in the latter part of 2007 with the acquisition of Desert Community Bank. Competition for bank services and products in Southern California is robust, particularly in Los Angeles County. As of June 30, 2007, there were 183 Federal Deposit Insurance Corporation (FDIC) insured financial institutions operating 2,652 branch offices in the assessment area; of these offices, 65 percent or 1,717 branch offices operated in Los Angeles County. EWB s presence in the Southern California assessment area is most notable in Los Angeles County where its 44 full service branches garnered 2.6 percent of deposit market share and ranked the bank tenth out of 144 FDIC insured deposit taking institutions in the area. In contrast, EWB s presence in Orange County is relatively limited. As of June 30, 2007, EWB s six branch offices collected less than one percent of deposit market share and ranked the bank 28 th out of 105 FDIC insured institutions operating 684 branch offices in the area. Finally, with ten recently acquired branches, EWB s presence in San Bernardino County is more conspicuous yet still relatively new. Prior to the acquisition of DCB, EWB s presence in San Bernardino County was limited to two branch offices (opened in June 2006 and July 2007, respectively) holding the smallest portion of deposit market share in the area. 16 In 2007, EWB s market share of mortgage loans reported under the Home Mortgage Disclosure Act (HMDA) was less than one percent; in comparison, the top mortgage lender in 2007 captured 13.0 percent of the market 13 California Employment Development Department, Los Angeles County Snapshot (accessed June 25, 2008); available from 14 California Employment Development Department, Orange County Snapshot (accessed June 25, 2008); available from 15 California Employment Development Department, San Bernardino County Snapshot (accessed June 25, 2008); available from 16 Statistics for deposit market share were obtained from the Federal Deposit Insurance Corporation, Summary of Deposits June 30, 2007 (accessed 6/20/08) available from

14 share. 17 According to 2007 CRA aggregate data on small business loans, there were 234 lenders 18 extending nearly one million CRA-reportable small business loans in the market; of these lenders, EWB ranked 29th with less than one percent market share. Given the large number of institutions operating in the market, competition for lending and deposit opportunities as well as community development lending, investment and service opportunities is significant. The following exhibit presents key demographic and business information based on the 2000 U.S. Census and 2007 Dun & Bradstreet data used to help develop a performance context for the assessment area. 17 Based upon the number of institutions reporting HMDA data within the bank's assessment area. 18 Based upon the number of large institutions reporting CRA data within the bank's assessment area

15 Income Categories EXHIBIT 4 ASSESSMENT AREA DEMOGRAPHICS Tract Distribution SOUTHERN CALIFORNIA Families by Tract Income Families < Poverty Level as % of Families by Tract Families by Family Income # % # % # % # % Low-income , , , Moderate-income , , , Middle-income ,044, , , Upper-income ,114, , ,346, Tract not reported Total AA 2, ,235, , ,235, Housing Housing Types by Tract Income Categories Units by Owner-occupied Rental Vacant Tract # % % # % # % Low-income 289,278 41, , , Moderate-income 1,284, , , , Middle-income 1,569, , , , Upper-income 1,698,625 1,135, , , Tract not reported Total AA 4,841,762 2,414, ,182, , Businesses by Tract & Revenue Size Income Categories Total Businesses by Tract Less Than or Equal to $1 Million Greater than $1 Million Revenue Not Reported # % # % # % # % Low-income 39, , , , Moderate-income 145, , , , Middle-income 183, , , , Upper-income 221, , , , Tract not reported 4, , Total AA 593, , , , Percentage of Total Businesses: Median Family Income Los Angeles County Orange County San Bernardino County 2007 HUD Adjusted Median Family Income Los Angeles County Orange County San Bernardino County $46,452 $64,611 $47,400 $56,500 $78,700 $59,200 Nov 2007 Median Housing Value 19 Los Angeles County Orange County San Bernardino County 2007 Unemployment Rates 20 Los Angeles County Orange County San Bernardino County $497,000 $593,000 $330, % 3.9% 5.3% Although the local economy thrived in previous years, key data for the Southern California assessment area points to a shifting economy. The assessment area was generally healthy during 2006; however, the latter half of 2007 revealed the beginnings of economic disruptions that were caused, in part, by rising home mortgage delinquencies, falling housing prices, and 19 California Association of Realtors, Trends in California Real Estate, Volume 28- Number 12, December Bureau of Labor Statistic (Haver Analytics) created March 3,

16 corresponding credit market instability. While not characteristic of the entire review period and not yet critical in nominal terms, it provides perspective for the resulting data during the period. Employment data painted a mixed picture for the review period. In 2007, the annual unemployment rate in Los Angeles County was 5.0 percent, up from a somewhat low 4.7 percent in Similarly, the Orange County and San Bernardino County unemployment rates increased to 3.9 percent and 5.3 percent in 2007 from 3.4 percent and 4.7 percent in 2006, respectively. 21 The leading industry sectors were education and health services as well as government, leisure and hospitality which accounted for the majority of jobs created. Conversely, trade, transportation, utilities and construction saw payrolls shrink during the review period. 22 Nonetheless, companies with gross annual revenues of $1 million or less comprise a substantial majority of all businesses in the assessment area and are an important source of employment. In fact, according to Dun & Bradstreet data, as shown in Exhibit 4 above, approximately 87.4 percent of all businesses are small businesses. As the cost of doing business in California is among the highest in the country, small business owners face unique financial challenges during times of economic instability. 23 Despite favorable trends in housing costs, the overall affordability landscape did not materially improve during the review period. Although the rate of growth in housing prices slowed in 2006 (eventually falling in 2007), the Housing Affordability Index (HAI) revealed that these indices remained largely unchanged during the year-over-year period. According to the HAI (a ratio that calculates the percentage of households in a given area that can afford to purchase a median priced home) the percentage of households that could afford a median priced home in the area was 20, 24, and 39 percent for Los Angeles, Orange, and San Bernardino Counties, respectively. 24 The aforementioned rises in unemployment offset the benefits of price reductions and, in late 2007, the California Association of Realtors (CAR) estimated 20 months of unsold inventory of detached houses in Los Angeles County; second only to Orange County. 25 Furthermore, in Los Angeles County, permits for multi- and single-family construction declined from 24,026 in 2006 to 18,339 in 2007 which provides perspective on the portion of the review period that included the first quarter of Community contacts highlighted the importance of affordable housing and indicated that the creation and rehabilitation of affordable housing are needed to address this issue. Credit and foreclosure counseling services are also needed in the markets served by the bank. Furthermore, community contacts indicated that many growing small businesses need loan products that fill 21 Bureau of Labor Statistic (Haver Analytics) created 3/3/ Los Angeles-Long Beach-Glendale Metropolitan Division, State of California, Employment Development Department, October 17, 2008, available at (accessed November 5, 2008). 23 Community Investments Online, State Summaries: California, volume 17, number 1, (accessed September 9, 2005); page vii, available from 24 California Association of Realtors, Trends in California Real Estate, Volume28- Number12, December Moody s Economy.com Inc., Precis METRO: Los Angeles, December California Labor Market Information (accessed July 3, 2008); available from

17 temporary cash flow needs to remain profitable. Micro-loans also were identified as the type of financing needed to support the preponderance of small businesses within the assessment area. CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS IN SOUTHERN CALIFORNIA Lending Test EWB s performance under the lending test in the Southern California assessment area is good. The bank demonstrated good responsiveness to community credit needs and the geographic distribution of loans reflected good penetration throughout all geographies, including low- and moderate-income areas. Also, the overall distribution of lending to businesses of different sizes is adequate. Last, the level and impact of community development lending demonstrated excellent responsiveness to the need for affordable housing. Lending Activity Lending activity is good. As indicated in Table 1 in Appendix D, the percentage of loans made within the Southern California assessment area was slightly less than the percentage of deposits taken. However, the presence of varied and large banks along with nonbank lenders makes this a very competitive lending environment. Nonetheless, the bank s lending data evidenced active efforts to meet area credit needs. Lending Distribution by Geography Overall lending distribution by geography in the Southern California assessment area is good. The three loan products under review were distributed throughout all geographies with no conspicuous gaps in the lending patterns. Small Business Loans The distribution of small business loans is good; loans were generally distributed in the areas surrounding branch locations. As seen in Table 2, the bank s small business lending in low- and moderate-income geographies, in most cases, exceeded both the percentage of businesses and aggregate lending in the respective areas. Lending in middle-income geographies also compared favorably in Los Angeles and San Bernardino Counties, while distributions in upper-income areas were somewhat below these comparables. Moreover, the bank s market share in low- and moderate-income geographies exceeded the bank s overall market share of small business lending in each county. Home Mortgage Loans The distribution of home purchase and refinance loans is excellent. As shown in Tables 3 and 4, the bank s lending in low- and moderate-income geographies was significantly higher than the percentage of owner-occupied housing units in each county and was above that of aggregate lending in all but San Bernardino County (i.e., home purchase loans in moderate income geographies). Notably, the bank s mortgage lending in the low-income geographies was at least

18 double the aggregate lending and more than five times the percentage of owner occupied housing units in Los Angeles and Orange Counties. In addition, the bank s market share in the lowincome tracts was greater than its market share overall. Lending Distribution by Business Revenue Small Business Loans The distribution of loans to small businesses is adequate. As shown in Table 5, over one-third of small business loans made in the assessment area were extended to businesses with gross annual revenues of $1 million or less. Distributions in Los Angeles and San Bernardino Counties were slightly above this percentage while Orange County was somewhat below this rate. Performance in all counties, while less than aggregate lenders, still evidenced a reasonable number of loans to small businesses. In addition, almost 20 percent the small business loans were in small dollar amounts which met a stated credit need in the assessment area. Community Development Lending EWB s level of community development lending in the Southern California assessment area is excellent. As shown in Table 1, the bank s community development lending is concentrated in the Los Angeles portion of the assessment area. During this review period, the bank made 600 community development loans totaling $661.9 million. The majority of these community development loans were directed to fund the development or rehabilitation of multi-family housing projects targeted for low- and moderate-income individuals and families. These projects were designed to assist in the creation or rehabilitation of over 7,000 affordable housing units, thereby addressing a critical community development need. Other community development loans had an economic development purpose and helped promote efforts that supported the goals of the Los Angeles Empowerment Zone and Los Angeles Central City Revitalization plans. The bank also provided credit enhancements for a bond issued to finance the renovation and conversion of a hotel into an apartment building (450 plus units) in a low-income area in Los Angeles. All of the units have been reserved for individuals and families earning less than 60 percent of the area median income. This performance is particularly strong given the significant need for affordable housing and the number of banks in the assessment area competing for the same community development lending opportunities. Investment Test EWB s performance under the investment test in this assessment area is excellent based on the significant level and responsiveness of the bank s investments in relation to assessment area needs. As seen in Table 6, in Southern California the bank has total community development investments of $78.6 million which includes $7.1 million in prior period investments remaining on the bank s books and $71.4 million in new investments. Unfunded commitments totaled $11 million. These consisted of donations to local community development service providers totaling $332,999, LIHTC investments for $20.1 million, municipal bond investments supporting

19 affordable housing for $24 million, and investments in targeted mortgage-backed securities for $26.5 million. Specific examples of community development investments include: Low-Income Housing Tax Credits - EWB invested $3 million in a LIHTC fund that is designed to assist in the development of 100 units of affordable housing for low- and moderate-income residents with mental illness in Los Angeles County. The bank also had three prior period investments totaling $7.1 million which helped create over 160 units of affordable housing using LIHTCs and seven unfunded commitments for $11 million; Targeted Bond Investments - Two municipal bonds, each for $7 million, to construct affordable rental housing projects with 84 units and 61 units, respectively, for low- and moderate-income people; Qualified Deposits - A $495,000 deposit in a Latino-owned business bank serving Los Angeles County; and Community Development Entities - $100,000 in donations to support non-profit organizations engaged in providing Individual Development Accounts to help lowincome families in Los Angeles County improve money management skills and build assets. Service Test EWB s performance under the service test in this assessment area is good. Retail banking services are accessible to essentially all portions of this assessment area. Community development services provided during this review included the creation and implementation of several new community services, including one-on-one tax preparation support for low- and moderate-income individuals to ensure they receive the federal Earned Income Tax Credit, if eligible. Retail Banking Services EWB s delivery systems are sufficiently accessible to essentially all portions of the assessment area. As seen in Table 7, a majority (71 percent) of Southern California branches are located in Los Angeles County and 25 percent (11) of these 44 branches are located in either low- or moderate-income geographies. Additionally, two of the six branches in Orange County and four of the 12 San Bernardino branches are in low- or moderate-income geographies. Branch locations generally follow a population pattern whereby a majority of the population resides in middle- and upper-income geographies. This was consistent for all three counties in the assessment area. A full range of products and services are offered at all branches, including nine in-store branches. The bank also uses alternative delivery systems, such as telephone banking, ATMs, internet

20 banking, and courier services, to meet customer needs and to provide access to banking services after normal branch business hours. The bank had a net increase of nine branches in the assessment area during the period. A total of 14 branches were added and five branches were closed, bringing the total number in the assessment area to 62. Of these additional branches, ten were acquired in connection with the acquisition of Desert Community Bank in August 2007, two were opened in San Bernardino County, one in Los Angeles County and one in Orange County. Five branches were consolidated into existing nearby branches or relocated within the same neighborhood during the period. Community Development Services EWB provided a relatively high level of community development services during the period. Over 240 employees provided 56 community development services totaling 1,499 hours. These qualified services met various community development needs by promoting affordable housing and serving the targeted needs of low- and moderate-income families and individuals as well as small businesses. Highlights of the bank s community development services include planning and conducting several programs specifically targeted to small businesses and low- moderateincome individuals, such as: Partnering with a Los Angeles-based non-profit organization to provide 12 basic banking seminars covering topics such as saving money, opening an account, using an ATM/ 24-hour banking and establishing good credit. Conducting ten seminars for potential first-time homebuyers. The seminars were specifically marketed to low- and moderate-income families and individuals. These events were held at EWB branches and community centers in low- and moderate-income geographies in the bank s assessment area. Providing 224 hours of management and technical assistance to small businesses owners through a program at a local university. The program includes topics such as planning, marketing, and how to obtain funding for business operations and expansion. Conducting three small business seminars focusing on business banking products such as commercial real estate loans, cash management services, investment services, SBA loans, and remote deposit processing

21 Northern California Assessment Area DESCRIPTION OF OPERATIONS IN NORTHERN CALIFORNIA The Northern California assessment area consists of four counties: Alameda, San Francisco, San Mateo, and Santa Clara. San Francisco and San Mateo counties are two of three counties making-up the San Francisco-San Mateo-Redwood City MD. Alameda County is one of two counties forming the Oakland-Fremont-Hayward MD. The aforementioned counties are all part of the San Francisco-Oakland-Fremont MSA. Santa Clara County is one of two counties forming the San Jose-Sunnyvale-Santa Clara MSA. The bank s nine branches in Northern California are located within one of the state s busiest urban centers, the San Francisco Bay Area. With four full service branches, EWB has the most branches (Northern California) in Santa Clara County, which is the largest county in the San Francisco Bay Area, measuring approximately 1,316 square miles and home to more than 1.8 million people. Northwestern Santa Clara County is part of an area known as the Silicon Valley, an industrial region centered on the southern shores of the San Francisco Bay. 27 EWB has two branches in San Francisco County, the 12th most populous county in the state, despite its small physical size occupying just 47 square miles of land. 28 In Alameda County, the seventh most populous county in California, EWB has two branches. 29 The bank has one branch in San Mateo County, which spans 531 square miles and significantly contributes to the economy of the San Francisco Bay Area. 30 The bank also operates three loan production offices (LPOs) in the area. Competition for banking products and services in Northern California is robust with many competitors consisting of large national and regional lenders. As such, EWB has a relatively limited presence in this assessment area with its nine branches and three LPOs. As of June 30, 2007, EWB ranked 23 rd out of 94 FDIC insured institutions operating 1,064 branch offices in this area and held 0.3 percent deposit market share; in comparison, the three largest FDIC insured lenders collectively held about 60.0 percent of deposit market share and operated from 425 branch networks. According to 2007 aggregate data, there were 160 lenders in the market reporting small business loans under the requirement of CRA. The top five lenders in the market extended over 80.1 percent of the reported aggregate small business loans. In comparison, EWB ranked 34th amongst the lenders operating in the area and extended less than one percent of the small business loans. In terms of mortgage lending, 690 institutions competed for mortgage loans in 27 California Employment Development Department, Santa Clara County Snapshot (accessed June 25, 2008); available from 28 California Employment Development Department, San Francisco County Snapshot (accessed June 25, 2008); available from 29 California Employment Development Department, Alameda County Snapshot (accessed June 25, 2008); available from 30 California Employment Development Department, San Mateo County Snapshot (accessed June 25, 2008); available from

22 2007 in this assessment area. Over 45.5 percent of the market share was (collectively) with the top five institutions in the area. EWB ranked 139th with 0.03 percent market share. The following exhibit presents key demographic and business information based on the 2000 U.S. Census and 2007 Dun & Bradstreet data used to help develop a performance context for the assessment area. Income Categories EXHIBIT 5 ASSESSMENT AREA DEMOGRAPHICS Tract Distribution NORTHERN CALIFORNIA Families by Tract Income Families < Poverty Level as % of Families by Tract Families by Family Income # % # % # % # % Low-income , , , Moderate-income , , , Middle-income , , , Upper-income , , , Tract not reported Total AA ,061, , ,061, Housing Housing Types by Tract Income Categories Units by Owner-occupied Rental Vacant Tract # % % # % # % Low-income 128,695 20, , , Moderate-income 359, , , , Middle-income 768, , , , Upper-income 470, , , , Tract not reported Total AA 1,726, , , , Businesses by Tract & Revenue Size Income Categories Total Businesses by Tract Less Than or Equal to $1 Million Greater than $1 Million Revenue Not Reported # % # % # % # % Low-income 23, , , Moderate-income 43, , , , Middle-income 79, , , , Upper-income 56, , , , Tract not reported Total AA 203, , , , Percentage of Total Businesses: Median Family Income 2000 San Francisco County Alameda County Santa Clara County San Mateo County 2007 HUD Adjusted Median Family Income San Francisco County Alameda County Santa Clara County San Mateo County $75,219 $68,902 $81,717 $75,219 $86,500 $83,000 $94,500 $86,500 Nov 2007 Median Housing Value 31 San Francisco County Alameda County 32 Santa Clara County San Mateo County 2007 Unemployment Rate 33 San Francisco County Alameda County Santa Clara County San Mateo County $814,500 $500,000 $705,000 $770, % 4.7% 4.7% 3.8% 31 California Association of Realtors, Trends in California Real Estate, Volume28- Number 12, December California Association of Realtors, Trends in California Real Estate, Volume29- Number 2, February Bureau of Labor Statistic (Haver Analytics) created March 3,