PUBLIC DISCLOSURE October 25, 2010 COMMUNITY REINVESTMENT ACT PERFORMANCE EVALUATION East West RSSD #197478 135 North Los Robles Avenue Pasadena, California 91101 Federal Reserve of San Francisco 101 Market Street San Francisco, California 94105 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.
East West TABLE OF CONTENTS INSTITUTION RATING... 1 Institution s CRA Rating... 1 INSTITUTION... 3 Description of Institution... 3 Scope of Examination... 5 Conclusions with Respect to Performance Tests... 6 LENDING TEST... 6 INVESTMENT TEST... 9 SERVICE TEST... 11 Fair Lending or Other Illegal Practices Review... 12 STATE OF CALIFORNIA... 13 CRA Rating for California... 13 Scope of Examination... 13 Description of Operations in California... 14 Conclusions with Respect to Performance Tests in California... 16 Southern California Assessment Area... 18 DESCRIPTION OF OPERATIONS IN SOUTHERN CALIFORNIA... 18 CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS IN SOUTHERN CALIFORNIA... 22 Bay Area Assessment Area... 29 DESCRIPTION OF OPERATIONS IN THE BAY AREA... 29 CONCLUSIONS WITH RESPECT TO PERFORMANCE TESTS IN THE BAY AREA... 33 Limited-Scope Assessment Area Conclusions... 41 STATE OF NEW YORK... 42 CRA Rating for New York... 42 Scope of Examination... 42 Description of Operations in New York... 43 Conclusions with Respect to Performance Tests in New York... 47 STATE OF WASHINGTON... 52 CRA Rating for Washington... 52 Scope of Examination... 52 Description of Operations in Washington... 52 Conclusions with Respect to Performance Tests in Washington... 56 STATE OF GEORGIA... 61 CRA Rating for Georgia... 61 Scope of Examination... 61 Description of Operations in Georgia... 61 Conclusions with Respect to Performance Tests in Georgia... 65 STATE OF MASSACHUSETTS... 68 CRA Rating for Massachusetts... 68 Scope of Examination... 68 i
East West Description of Operations in Massachusetts... 68 Conclusions with Respect to Performance Tests in Massachusetts... 72 STATE OF TEXAS... 76 CRA Rating for Texas... 76 Scope of Examination... 76 Description of Operations in Texas... 76 Conclusions with Respect to Performance Tests in Texas... 80 APPENDICES Appendix A: Scope of Examination Appendix B: Ratings Summary Appendix C: Glossary of Terms Appendix D: Limited-Scope Assessment Area Market Profiles Appendix E: CRA Core Tables i
East West INSTITUTION RATING Institution s CRA Rating East West is rated "SATISFACTORY" The following table shows the performance level of East West with respect to the lending, investment, and service tests. PERFORMANCE LEVELS LENDING TEST* PERFORMANCE TESTS INVESTMENT TEST SERVICE TEST OUTSTANDING HIGH SATISFACTORY X X LOW SATISFACTORY X 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: Relatively high levels of community development loans that were particularly responsive to the needs for affordable housing and the revitalization of declining areas. Significant levels of qualified investments that addressed the needs for affordable housing and economic development. Excellent geographic distributions of small business loans in the majority of the bank s assessment areas. Good or better geographic distributions of home mortgage loans. Adequate levels of lending to small businesses. Reasonably accessible retail banking services that do not vary in a way that inconveniences any portion of the assessment areas, including low- or moderate-income geographies. 1
East West Adequate levels of community development services that provided personal financial education to low- and moderate-income individuals, technical assistance to small businesses and assisted low- and moderate-income homebuyers purchase their first home. 2
East West INSTITUTION Description of Institution East West (EWB), with $20.6 billion in total assets as of December 31, 2009, is whollyowned by and the principal subsidiary of East West Bancorp. Both are headquartered in Pasadena, California. EWB began operations as a savings bank in the Chinatown section of Los Angeles in June 1972. It converted to a state-chartered commercial bank in July 1995 and became a member of the Federal Reserve System in September 2004. Since its formation, EWB has grown through a combination of organic growth and a series of mergers and acquisitions. The most recent acquisitions were of two failed banks United Commercial (UCB) based in San Francisco, California on November 6, 2009 and Washington First International (WFIB) based in Seattle, Washington on June 11, 2010 in Federal Deposit Insurance Corporation (FDIC)-assisted transactions. EWB gained 61 branches from the UCB acquisition and four branches from the WFIB acquisition. These two bank purchases expanded EWB s market to include offices in the states of Georgia, Massachusetts, New York, and Washington. EWB now operates a total of 131 branches in six states 107 in California, 8 in New York, 6 in Washington, 5 in Georgia, 3 in Massachusetts, and 2 in Texas. EWB also operates five loan production offices in California two in Los Angeles County, two in San Francisco County, and one in Santa Clara County and four full-service branches in China two in Hong Kong, one in Shanghai, and one in Shantou. Finally, the bank has representative offices in Beijing, Guangzhou, Shanghai and Shenzhen, China and in Taipei, Taiwan. EWB provides a wide range of personal and commercial banking services. Commercial real estate continues to be the bank s primary focus, and the bank s loan portfolio includes a large volume of loans secured by multifamily residential properties and of construction loans, both residential and commercial. The bank also offers commercial and Small Business Administration (SBA) loans for a variety of purposes. Consumer purpose loans include home purchase, home refinance, and home equity loans as well as credit cards and auto loans. The table below presents the loan portfolio as of December 31, 2009 and reflects the bank s commercial lending focus. 3
East West EXHIBIT 1 LOANS AND LEASES AS OF DECEMBER 31, 2009 Loan Type $ ( 000s) % Commercial/Industrial & Non-Farm Non-Residential Real Estate 7,905,754 56.1 Multifamily loans 2,037,893 14.5 Construction & Land Development 1,788,199 12.7 Secured by 1-4 Family Residential Real Estate 1,786,678 12.7 Consumer & Credit Cards 397,879 2.8 All Other 179,241 1.3 Total (Gross) 14,095,644 100.0 EWB added six assessment areas since it previous CRA examination as a result of the UCB and WFIB acquisitions. There are now nine assessment areas in six states with the first four assessment areas in the state of California. A complete listing is as follows: Southern California remains unchanged and is comprised of Los Angeles, Orange, and San Bernardino Counties in their entirety. Bay Area (formerly known as Northern California) remains unchanged and is comprised of San Francisco, San Mateo, Alameda, and Santa Clara Counties in their entirety. Sacramento was added as a result of the UCB acquisition and is comprised of Sacramento County in its entirety. San Joaquin was added as a result of the UCB acquisition and is comprised of San Joaquin County in its entirety. New York was added as a result of the UCB acquisition and is comprised of the five boroughs of New York City: Bronx, Brooklyn, Manhattan, Staten Island, and Queens. Washington was added as a result of the WFIB acquisition and is comprised of King County in its entirety. Georgia was added as a result of the UCB acquisition and is comprised the Atlanta Metropolitan Statistical Area (MSA), which consists of 28 counties in their entirety. 1 Massachusetts was added as a result of the UCB acquisition and is comprised of Middlesex, Norfolk, and Suffolk Counties in their entirety. Texas remains unchanged and is comprised of Harris County in its entirety. The bank s largest presence remains in the Southern California assessment area, where 73 of the 133 branches are located. The UCB acquisition greatly expanded EWB s presence in northern California, where it increased its branch network from nine to 34 branches. All but two of these branches are located in the Bay Area assessment area, which is where EWB has its second largest presence. As noted on the previous page, EWB has a limited branch presence in each of its remaining assessment areas with no more than eight branches in any one assessment area. 1 The counties are Barrow, Bartow, Butts, Carroll, Cherokee, Clayton, Cobb, Coweta, Dawson, DeKalb, Douglas, Fayette, Forsyth, Fulton, Gwinnett, Haralson, Heard, Henry, Jasper, Lamar, Meriwether, Newton, Paulding, Pickens, Pike, Rockdale, Spalding, and Walton. 4
East West EWB received a satisfactory performance rating at its July 7, 2008, CRA examination. During the review period, 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, financial capacity, and local economic conditions. Scope of Examination EWB s 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 is January 1, 2008 to December 31, 2009, while the review period for the investment and service tests is April 1, 2008 to December 31, 2009. All of EWB s assessment areas received full-scope reviews with the exception of Sacramento and San Joaquin Counties, which received limited-scope reviews given the bank s limited presence and level of activity in those areas. Although the bank s presence and activity in Georgia, Massachusetts, New York, Texas, and Washington is also limited, they too received full-scope reviews in order to determine the overall performance rating for the states. Given the predominance of EWB branches and concentration of lending and deposit activity, the Southern California assessment area received the greatest weight followed by the Bay Area assessment area. The Texas assessment area received more weight than the remaining assessment areas, as the other assessment areas were part of EWB for only one month of the review period. Assessment areas are presented throughout this report in descending order based on the number of bank branches and loan volume. That order is California (Southern California followed by the Bay Area), New York, Washington, Georgia, Massachusetts, and Texas. The lending test evaluation is based on small business, home purchase, home refinance, and home improvement loans, loans secured by multifamily residential dwellings, and community development loans. The loans were evaluated, as follows: All loan types were used to evaluate the responsiveness to assessment area credit needs based on the volume of lending. Small business loans were evaluated in all areas, but were accorded no weight in the overall assessment of revenue or geographic distribution for Massachusetts, where lending levels were insufficient to draw meaningful conclusions. Home purchase loans were evaluated in all areas, but were accorded no weight in the overall assessment of borrower distributions in New York and Massachusetts. This is attributable to the bank s origination of mortgage loans under low-doc and no-doc programs for which income information is not collected, which resulted in a lack of income information for a large percentage of the loans. In addition, the loans were also accorded no weight in the assessment of both borrower and geographic distributions for Washington, Georgia, and Texas, because the lending levels were insufficient to draw meaningful conclusions 5
East West Home refinance loans were evaluated in all areas, but were accorded no weight in the overall assessment of borrower or geographic distribution for New York, Washington, Georgia, and Texas, because the levels were insufficient to draw meaningful conclusions. Home improvement loans were evaluated for all markets, but were insufficient in volume to impact the assessment with regard to borrower or geographic distribution for any of the bank s assessment areas. Multifamily loans were evaluated for all areas, but only the California markets had a sufficient volume to impact the assessment of geographic distribution. Borrower income is not provided for multifamily loans. As a result this criterion is not considered in the CRA performance assessment. The data for all loan types are presented in the lending volume tables in Appendix E. 2 The lending test is weighed more heavily than either the investment or service tests. The evaluation of the bank s performance under the lending test was weighed according to the lending activity and opportunities within each assessment area. Small business loans followed by home purchase loans were weighed more heavily than other loans types based on the bank s business strategy, transaction volumes and total dollar amounts. The scope of the review is consistent throughout the performance evaluation unless otherwise noted. Conclusions with Respect to Performance Tests In accordance with Interagency CRA Large examination procedures, one assessment area from each state received a full scope review and each state earned a separate rating. The following sections contain conclusions regarding the bank s overall performance followed by specific conclusions regarding individual states and assessment areas within each of the six states where the bank has full-service branches. The overall state conclusions are based on performance within the respective assessment areas and the relevant contextual information of each. With 90 percent of the bank s lending and deposit activity within the California assessment areas, conclusions regarding EWB s performance for the bank as a whole with respect to the lending, investment, and service tests were heavily influenced by conclusions reached for the state of California. LENDING TEST EWB s overall performance under the lending test is high satisfactory. Lending within the various assessment areas was generally adequate given the severe economic conditions during the review period. Distributions of small business and home purchase loans by geography were excellent in a number of markets, with high levels of lending in low- and moderate-income census tracts that significantly exceeded the representation of businesses, owner-occupied housing units and aggregate lending. In other markets the geographic distributions were good as lending levels reasonably approximated the aforementioned comparative factors. In addition, there were relatively high levels of community development lending that positively impacted the 2 All tables referenced in this document can be found in Appendix E CRA Core Tables. 6
East West bank s markets by addressing the needs for affordable housing and the revitalization of declining areas. Lending Activity Overall, EWB s lending levels demonstrate adequate responsiveness to the credit needs of its assessment areas in light of the adverse economic conditions that existed during the review period, which included, among other factors, a global recession, tightened lending standards and decreased demand for credit. Exhibit 2 and Tables 1, 13, 25, 35, 45 and 55 in Appendix E show that the bank extended a reasonable level of loans overall. Loan volumes in the various assessment areas were also generally comparable with the bank s share of deposits in those markets. EXHIBIT 2 SUMMARY OF LENDING ACTIVITY EVALUATION PERIOD: JANUARY 1, 2008 TO DECEMBER 31, 2009 Loan Type # % $ ('000s) % Small Business 2,028 41.2 795,086 37.6 Total Business/Farm-Related 2,028 41.2 795,086 37.6 HMDA Home Purchase 1,870 38.0 594,313 28.1 HMDA Home Improvement 72 1.5 23,798 1.1 HMDA Refinance 361 7.3 140,893 6.7 Multifamily Housing 588 12.0 561,989 26.6 Total HMDA-Related 2,891 58.8 1,320,993 62.4 Total 4,919 100.0 2,116,079 100.0 Assessment Area Concentration A substantial majority of loans, both by number and dollar volume, were made within the assessment areas. Exhibit 3 on the following page shows the number and dollar volume of loans extended within the designated assessment areas during the review period. The tables in Appendix E contain additional information regarding assessment area specific lending activity. 7
East West EXHIBIT 3 Loan Type LENDING INSIDE AND OUTSIDE THE ASSESSMENT AREAS EVALUATION PERIOD: JANUARY 1, 2008 TO DECEMBER 31, 2009 Inside Outside # % $ ( 000s) % # % $ ( 000s) % Small Business 1,889 93.1 747,189 94.0 139 6.9 47,897 6.0 Total Business-Related 1,889 93.1 747,189 94.0 139 6.9 47,897 6.0 HMDA Home Purchase 1,659 88.7 538,336 90.6 211 11.3 55,977 9.4 HMDA Home Improvement 71 98.6 23,523 98.8 1 1.4 275 1.2 HMDA Refinance 343 95.0 132,435 94.0 18 5.0 8,458 6.0 Multifamily 531 90.3 495,590 88.2 57 9.7 66,399 11.8 Total HMDA-Related 2,604 90.1 1,189,884 90.1 287 9.9 131,109 9.9 Total 4,493 91.3 1,937,073 91.5 426 8.7 179,006 8.5 Geographic and Borrower Distribution Overall, the geographic distributions of loans generally demonstrate excellent penetration throughout each assessment area while borrower distributions are generally adequate. These conclusions are based on a variety of contextual factors that affect the individual conclusions in the separate assessment areas. The facts and data supporting those overall conclusions are presented within the separate assessment area analyses. Generally, EWB s lending demonstrated strong dispersion of small business loans among census tracts of different income levels, with particularly strong performance in low- and moderateincome census tracts. The dispersion of home purchase and home mortgage refinance lending varied, with strong performance in some markets and good performance in others. Lending patterns generally followed the location of the bank s branches and concentrations of local small businesses or owner-occupied housing units and did not demonstrate any unusual lending gaps. Lending distribution by size of businesses was not as strong with somewhat low levels of lending to small businesses, but was mitigated somewhat by community development lending that provided financing to small businesses. For example, to help meet the needs of small and startup businesses, the bank made $69.8 million in SBA 504 loans. These loans not only helped small businesses obtain financing they could not obtain through conventional means, they also brought jobs to a number of declining areas within the bank s assessment areas. The borrower distribution of home purchase loans, on the other hand, was generally poor with comparatively few loans to low- and moderate-income individuals even when considering contextual factors related to the housing market and housing values. 8
East West Community Development Lending EWB made a relatively high level of community development loans that demonstrated excellent responsiveness to community credit needs within its primary assessment areas. Specifically, as shown in Tables 1, 13, 25, 35, 45 and 55 in Appendix E, during the review period, EWB extended 422 community development loans totaling $1.1 billion. Of that number, 51 loans totaling $268.7 million either benefitted broader statewide or regional areas that included one or more of the bank s assessment areas or did not directly benefit an assessment area but were accorded consideration because the bank had adequately met the needs of its assessment areas. Overall, the level of community development lending was generally consistent with the bank s presence in each market. were responsive to the need for affordable housing, financing to small businesses, and revitalization of identified declining areas within the assessment areas. In addition, high levels of multifamily housing loans for properties with below market rents affordable to low- and moderate-income households were made during the review period, as were loans made as credit enhancements to affordable housing bonds. Specific loans are highlighted within each applicable state and assessment area analysis. INVESTMENT TEST EWB s overall performance under the investment test is high satisfactory. EWB made a significant level of investments that demonstrated good responsiveness to community development needs. In total, the bank has almost $162 million in community development investments $118.9 million in prior period investments that remain on its books, $33.1 million in current period investments and $9.8 million in unfunded commitments. Specifically, on a bank-wide basis, 112 investments totaling $33.4 million were made within the assessment areas, with an additional $3.6 million in unfunded commitments. In broader statewide or regional areas that also benefitted the assessment areas, the bank made 43 investments totaling $32.3 million and had unfunded commitments totaling $1.6 million on its books. Tables 11, 23, 33, 43, 53 and 60 show the distribution of investments; the specific investments are highlighted within each assessment section. In addition to the investments reflected in the tables in Appendix E, the bank made 12 investments in nationwide funds or other instruments that benefitted two or more states; these investments amounted to $86.2 million with six additional unfunded commitments totaling $4.6 million. Investments were predominately made in the state of California, where the majority of the bank branches are located. The vast majority of these investments were made during prior periods; most were in low-income housing tax credits that facilitated the development or rehabilitation of affordable housing complexes targeted to the most vulnerable segments of the population. Such investments offer lasting benefits and meet a critical community need. Other investments helped provide funding to start-up businesses that provide quality employment opportunities to low- and moderate-income individuals. Many of these jobs offer health and retirement benefits as well as 9
East West paid vacation time. The bank also invested in securities backed by mortgage loans to low- and moderate-income borrowers, some of which were also located in low- and moderate-income census tracts and thus helped to stabilize those areas. Investments benefitting a broader statewide or regional area that includes one of the bank s assessment areas, along with specific activities benefiting only individual assessment areas, are addressed under their respective portions of the evaluation. Examples of investments benefitting two or more states include, but are not limited to, the following: A $13.9 million investment in a national bond that supported the acquisition of an affordable housing portfolio comprised of 278 properties located in 32 states, the District of Columbia, and Puerto Rico. Of the total, approximately 140 properties offering over 12,500 units were located in the state of California. One hundred percent of the properties in the portfolio were designated for low- and moderate-income residents. A $6 million investment in a low-income housing tax credit fund for the purpose of acquiring limited partnership interests in 17 property partnerships that invested in properties located across eleven states, including California, Massachusetts, New York, Texas, and Washington. During the review period, the partnerships were involved in the construction of a 114-unit apartment in the Texas assessment area and an 80-unit complex in the Bay Area assessment area, as well as the rehabilitation of a 77-unit complex for senior citizens in the Southern California assessment area. All of these developments had 100 percent of the units set aside for low- and moderate-income residents. A $3.9 million prior period investment in a low-income housing tax credit fund that benefitted the states of California and New York. In California, the fund supported the construction of a 37-unit apartment building in the Southern California assessment area. In New York, the fund supported the rehabilitation of a 195-unit high-rise building in a broader statewide area that included the assessment area. Both buildings were 100 percent allocated to low- and moderate-income residents. A $3.7 million prior period investment in a low-income housing tax credit fund that supported the construction or rehabilitation of properties in California, New York, Texas, and Washington. The fund supported the construction of an 80-unit apartment building for seniors in the Bay Area assessment area and a 23-unit building in the King County, Washington assessment area. Both of these are 100 percent allocated for low- and moderate-income individuals. In addition, the fund supported the construction of a 69-unit building and the rehabilitation of a 330-unit building in broader statewide or regional areas that include the New York and Texas assessment areas, respectively. Similarly, all units in these buildings are allocated to low- and moderate income individuals or families. A $1.5 million prior period investment in a low-income housing tax credit fund that supported the construction of affordable housing projects in seven states, including California and Georgia. The fund supported the construction of two properties with 10
East West 251 units of affordable housing in the Sacramento assessment area and the construction of one property with 196 units of affordable housing in the Georgia assessment area. In addition, the fund supported the construction of a 168-unit building in a broader statewide or regional area that includes the Georgia assessment area. All properties are 100 percent allocated to low- and moderate-income individuals and families. SERVICE TEST EWB s performance under the service test is low satisfactory. Retail banking services are reasonably convenient in relation to the needs of the bank s assessment areas. Through its acquisition of two failed institutions, EWB also increased its number of branch locations significantly and now has a much stronger presence in low- and moderate-income geographies. In addition, the bank provided an adequate level of community development services in most of its markets. Retail ing Services Overall, EWB s delivery systems are reasonably accessible to essentially all portions of its assessment areas and do not vary in a way that inconveniences any portion of those areas. The bank s purchase of UCB and WIFB significantly expanded its market and the accessibility of banking services to a number of low- and moderate-income areas. All branches offer the full range of products and services and are open for business Monday through Friday. Many branches also offer Saturday or Sunday hours. Branches located in grocery stores in the California assessment areas offer further extended hours. Delivery systems such as ATMs, telephone banking, drive-up and online banking effectively provide customers access to banking services after normal business hours. In addition, EWB offers a number of other services to further meet the needs of its clientele. These include the following: Branch staff who speak languages that reflect their communities, providing greater access to banking services. Depending on location, languages spoken are: Spanish, Armenian, Vietnamese, Tagalog, Korean, and a variety of Chinese dialects; Internet and online banking websites that offer banking information in English, Cantonese, Mandarin, and Spanish; 24-hour automated telephone banking in four languages: English, Cantonese, Mandarin, and Spanish; Low-cost checking accounts; Low-cost remittances to China and the Philippines; and Foreign currency services. 11
East West Community Development Services EWB provided an adequate level of community development services that were responsive to community development needs in its assessment areas. During the review period, employees provided a total of 2,785 hours of community development services to 154 organizations. The vast majority of service hours provided direct benefit to one of the bank s assessment areas. A small number of hours 132 either benefitted organizations that served broader statewide or regional areas that included one of the bank s assessment areas or did not directly benefit the assessment area but were accorded consideration because the bank had adequately met the needs of its assessment areas. The majority of services involved providing personal financial education to low- and moderateincome individuals in the bank s communities. Significant service hours were also devoted to obtaining Federal Home Loan grants that benefitted low- and moderate-income families as well as providing technical assistance or other financial services to non-profit organizations that serve low- and moderate-income individuals. A good number of services also involved providing technical assistance to small businesses on how to access capital through the SBA. Other activities included participation on boards of directors of community-based organizations. Fair Lending or Other Illegal Practices Review Concurrent with this CRA evaluation, a review of the bank's compliance with consumer protection laws and regulations was conducted. The review resulted in no violations of the substantive provisions of anti-discrimination, fair lending, or other illegal credit practice rules, laws or regulations that were inconsistent with helping to meet community credit needs. 12
East West STATE OF 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 Low Satisfactory The major factors supporting the institution s rating include: Excellent lending distributions by geography with particularly strong performance in low- and moderate-income census tracts. Adequate levels of lending to small businesses. Community development loans that were highly responsive to the community credit needs for affordable housing, revitalization of low- and moderate-income census tracts identified by local governments as declining areas, and the financing of small businesses that created additional jobs in the assessment areas. Significant levels of qualified investments that address various credit and community development needs. Reasonably accessible retail banking services that do not vary in a way that inconveniences any portion of the assessment areas, including low- or moderate-income geographies. Adequate levels of community development services that benefited low- and moderateincome homebuyers and individuals, and small businesses. 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 four assessment areas in California Southern California, Bay Area, Sacramento, and San Joaquin. Both small business and home mortgage loans were evaluated in each of the areas. The bank extended too few home improvement loans to allow for a meaningful analysis. Accordingly, although they were considered, they were given no weight in the overall evaluation. The Southern California and Bay Area assessment areas received full-scope reviews, while the Sacramento and San Joaquin assessment areas received limited-scope reviews. The Southern California assessment area carried the greatest weight because of the higher loan volumes, larger share of deposits, and greater branch presence. 13
East West Description of Operations in California California is EWB s predominant market with 107 of the bank s 131 branches and all five loan production offices located within the four assessments areas in this state. In addition, 90 percent of deposits and 81.4 percent of lending activity occurred in the California assessment areas. California is a highly competitive market for financial services with a strong presence of national, regional, and non-bank lenders. As of June 30, 2010, there were 237 FDIC-insured depository institutions operating 4,096 branch offices in the bank s California assessment areas with combined deposits totaling $619.1 billion. The market is dominated by two large national banks that together hold over 46 percent of deposits. With deposits of $13 billion, EWB has a relatively small presence in California, ranking 9 th in total deposits with a market share of 2.1 percent. California has a diverse economy driven by agriculture, aerospace, entertainment, finance, garment manufacturing, international trade, light manufacturing, and tourism. Top employers include Kaiser Permanente, University of California, The Boeing Company, the U.S. Marine Corps Air Ground Combat Center, and Wells Fargo & Company. 3 Government employs the largest number of employees and plays a major role in the state s economy. In addition, just over 89 percent of the 1.7 million businesses in California were small businesses with gross annual revenues of $1 million or less. These small businesses also play a major role in the California economy. According to the SBA s Office of Advocacy, small employers are an important source of employment throughout the state. In 2006, there were 723,000 employers in California, of those, 99.2 percent were small employers with less than 500 employees. 4 During much of 2008 and 2009, California was in a recession. 5 The state s troubled housing market was a major contributor to the state s economic weaknesses. 6 Weaknesses in the housing market contributed to a sharp downturn in consumer spending and government tax revenues, deepening the recession. The state s fiscal woes impacted components of the state economy that were already hard hit by the recession, including construction and business services. 7 By December 2009, the state faced a $6.3 billion budget shortfall, 8 affecting over 491,000 state workers and countless state vendors and public works projects. By the end of 2009, however, the state was beginning to emerge from the recession led by improvements in manufacturing and trade resulting, in part, from increased demand for California exports. 9 3 Moody s Economy.com, Précis STATE: California, December 2009. 4 Small Business Administration, Office of Advocacy, Small Business Profile: California 2009, (accessed December 28, 2010), available from http://www.sba.gov/sites/default/files/files/state%20economic%20profiles%202009_california.pdf. 5 Moody s Economy.com, Précis STATE: California, April 2008, December 2008, April 2009, August 2009, and December 2009. 6 Moody s Economy.com, Précis STATE: California, April 2008. 7 Moody s Economy.com, Précis STATE: California, December 2008. 8 Moody s Economy.com, Précis STATE: California, December 2009. 9 Ibid. 14
East West During the review period, employment fell by almost one million jobs and the state unemployment rate rose to over 12 percent. 10 Unemployment reached its highest level in 30 years and was among the highest nationwide. 11 Job losses were fairly broad across 10 industries, including mining and logging; construction; manufacturing; trade; transportation and utilities; information; financial activities; professional and business services; leisure and hospitality; other services; and government. Trade, transportation and utilities showed the largest decline on a numerical basis, down by 135,400 jobs, or 4.9 percent, while construction posted the largest decline on a percentage basis, down by 16.1 percent, reflecting a total of 118,200 jobs. 12 Although still recovering from the effects of the nationwide economic recession, the housing market showed some signs of improvement throughout the review period. Statewide sales were strong in December of 2008, with high levels of deeply-discounted distressed sales in many parts of the state. 13 In 2009, the trend continued as the number of preliminary home sales reached 546,690, rising 23.7 percent from the 2008 level of 441,810. 14 While sales activity increased, housing prices fell during the review period. In 2008, the median price of a home declined to $281,100, a 41.5 percent decrease from the 2007 median price of $480,820. In 2009, housing prices continued to decline, but this time by only 21.1 percent. Despite the decrease in home prices, however, California housing affordability trails national figures. With over 53 percent of households paying more than 30 percent of income in housing costs, California is ranked number one in the nation as being the least affordable. 15 In addition, California had one of the highest levels of foreclosure activity in the nation. According to the RealtyTrac U.S. Foreclosure Market Report, there were 632,573 properties with foreclosure filings in 2009. The yearly total represents a 21 percent increase from the total reported for 2008 and is 154 percent higher than the level reported for all of 2007. With one in every 21 housing units receiving a foreclosure filing, California s foreclosure rate ranked fourth highest in the nation for 2009. 16 Based on this data, as well as input from community contacts, affordable housing, particularly for low- and moderate-income families, and foreclosure prevention activities were identified as critical community needs within California. In addition, given local economic conditions, access to credit for working capital and small business expansion as well as technical assistance for credit repair were identified as small business credit needs. 10 Moody s Economy.com, Précis STATE: California, December 2009. 11 Moody s Economy.com, Précis STATE: California, August 2009. 12 Ibid. 13 California Association of Realtors TRENDS In California Real Estate, Volume 30, Number 1, 2008 Housing Market Wrap-Up (January 2009). 14 California Association of Realtors TRENDS In California Real Estate, Volume 31, Number 1, 2009 Housing Market Wrap-Up (January 2010). 15 Housing Costs: Half Your Income?, MSN Money.com, (accessed December 28, 2010); available from http://articles.moneycentral.msn.com/ing/homefinancing/38-percent-burdened-by-housing-costs.aspx. 16 RealtyTrac, Market Reports by State and Metro, California Foreclosure Activity Continues Leading Nation in 2009, January 31, 2010, (accessed March 28, 2011) (hereafter, RealtyTrac); available from http://www.realtytrac.com/content/foreclosure-market-report/by-state/california/california-foreclosure-activitycontinues-leading-nation-in-2009--5520. 15
East West 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 consistent with those reached regarding the Southern California and Bay Area assessment areas. Lending activity in both assessment areas demonstrated good lending levels, excellent geographic distributions, and excellent levels of community development lending and investments that were responsive to assessment area needs. Borrower distributions ranged from adequate to poor. Service test performance demonstrated reasonable responsiveness to the needs of the bank s clientele with regard to retail services and an adequate level of community development services. A good percentage of community development loans and investments and a relatively smaller percentage of community development services either benefitted a broader statewide or regional area that included one of the California assessment areas or were accorded consideration because the bank had adequately met the needs of its assessment areas; examples include the following: A $24.1 million community development loan that served as credit enhancement for the rehabilitation of a 228-unit senior apartment building located in Ventura County, California. The building is 100 percent restricted to tenants earning 60 percent or less of the area median family income. A $9.9 million community development loan that served as credit enhancement for the acquisition and rehabilitation of a 224-unit apartment complex in Contra Costa County, California. The building is located in a moderate-income census tract and serves to stabilize and revitalize the area. Further, the units are 100 percent restricted to tenants earning 60 percent or less or the area median family income. An $8.6 million community development loan for the acquisition and rehabilitation of a commercial property in Riverside County, California. The property is located in a moderate-income census tract in a designated redevelopment area. The proceeds of the loan will be used for purposes that are consistent with the redevelopment plan and will serve to stabilize and revitalize the area. A $4.9 million investment in securities backed by 22 mortgage loans to borrowers residing in San Francisco, San Mateo, Alameda, and Santa Clara Counties. All borrowers had incomes ranging from 31.4 to 76.1 percent of area median income. In addition, five of the properties are located in low- or moderate-income census tracts. A $4.7 million investment in a security backed by 26 mortgages to low- and moderate income families in Los Angeles and Orange Counties. Of the 26 residential mortgage loans, 16 are from Orange County and 10 are from Los Angeles County. In addition, five of the properties are located in low- or moderate-income census tracts. A $2.2 million investment in a low-income housing tax credit fund that supports construction or rehabilitation of six affordable housing projects located in Los Angeles, 16
East West Sacramento, and Oakland, California. These projects resulted in 265 units of housing with below-market rents affordable to low- and moderate-income individuals and families. A $2.1 million prior period investment in a fund that focuses on economic development in the nine county San Francisco Bay Area. The fund actively seeks real estate investment opportunities throughout the area, with a goal of revitalizing underserved neighborhoods and of creating quality jobs and wealth. A $106 thousand prior period investment made in a community development venture capital fund that focuses on high growth companies that provide high quality jobs to lowand moderate-income individuals. The fund benefits a broader statewide or regional area that includes the Northern and Southern California assessment areas. On an aggregate level, social returns for the fund in 2009 include 236 jobs created and 408 hourly employees maintained. For one start-up business located in Los Angeles that was helped by the fund, investments of capital and technical assistance helped to increase the employee base from the two founders to 11employees, three of which are low- or moderate-income and four of which live in a low- or moderate-income census tract. In addition, all employees have access to disability insurance, sick leave, and paid vacation and 86 percent are enrolled in the health insurance plan. Organizing and sponsoring a series of mini-health fairs in collaboration with other organizations in Southern and Northern California. These fairs provide medical services, such as glucose and vision screening and blood pressure testing, to low- and moderateincome individuals. In addition, bank staff uses the fairs as an opportunity to provide information on banking services or other financial education to attendees. Conducting a series of financial literacy classes for students in grades K-12 in Contra Costa County, California. The classes, which targeted students from low- and moderateincome families, were conducted in cooperation with Junior Achievement. The following sections contain specific conclusions regarding individual assessment areas within the state of California. 17
East West 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 Los Angeles, Orange and San Bernardino Counties in their entirety. Los Angeles County comprises the Los Angeles-Long Beach- Glendale Metropolitan Division (Los Angeles MD) and Orange County comprises the Santa Ana-Anaheim-Irvine MD (Santa Ana MD). Together, these two counties make up the Los Angeles-Long Beach-Santa Ana Metropolitan Statistical Area (MSA). San Bernardino County is part of the Riverside-San Bernardino-Ontario MSA (Riverside MSA). Los Angeles is located along the southern coast of California, north of Orange County and south of Ventura County. With a population exceeding 10 million people, Los Angeles County is the most populous county in the nation and home to more than 27 percent of the state s 38 million residents. 17 Orange County, located just south of Los Angeles County, has an estimated population of three million, making it the third most populous county in California, following Los Angeles and San Diego Counties. 18 Encompassing over 20,000 square miles, San Bernardino County is the largest county in the nation by area and comprises the area in between Los Angeles County to the west and the Nevada border to the east. 19 About 90 percent is desert, and the remainder consists of the San Bernardino Mountains and San Bernardino Valley. 20 California s Department of Finance estimated that its population exceeded two million in 2009. EWB operates 73 of its 131 full-service offices, or slightly more than half of its branch network, in this assessment area. Nevertheless, the bank s overall market share is somewhat limited. As of June 30, 2010, EWB s offices within this assessment area held $9.5 billion in deposits, representing 2.8 percent of the market share and ranking the bank 9 th out of 166 FDIC-insured financial institutions operating 2,681 offices. 21 In 2009, there were 204 lenders reporting small business loans pursuant to the reporting requirements of the CRA and 849 lenders reporting home mortgage loans pursuant to the Home Mortgage Disclosure Act (HMDA). Most of these were large regional and national institutions. These lenders, which represent only a portion of the commercial and home mortgage lending market, extended 332,275 small business loans and 510,525 HMDA loans. 22 Accordingly, competition for small business and home mortgage loans is significant. 17 State of California Employment Development Department (California EDD), Labor Market Information Division, Los Angeles County Profile, available at www.labormarketinfo.edd.ca.gov. 18 California EDD, Orange County Profile, (accessed October 14, 2010) available at www.labormarketinfo.edd.ca.gov. 19 California EDD, San Bernardino County Profile, available at www.labormarketinfo.edd.ca.gov. 20 Ibid. 21 Federal Deposit Insurance Corporation, Institution Directory, Summary of Deposits, June 30, 2010; (accessed October 14, 2010) available from http://www4.fdic.gov/sod/. 22 Information based on 2009 aggregate data consisting of institutions required to file annual CRA and HMDA data. 18
East West The following exhibit presents key demographic and business information, based on the 2000 U.S. Census and 2009 Dun and Bradstreet data, used to help develop a performance context for the assessment area. Income Categories EXHIBIT 4 ASSESSMENT AREA DEMOGRAPHICS SOUTHERN CALIFORNIA ASSESSMENT AREA (AA) Tract Distribution Families by Tract Income Families < Poverty Level as % of Families by Tract Families by Family Income # % # % # % # % Low-income 214 7.4 190,836 5.9 72,485 38.0 745,176 23.0 Moderate-income 810 28.2 885,963 27.4 189,430 21.4 547,157 16.9 Middle-income 866 30.1 1,044,112 32.3 105,136 10.1 596,900 18.4 Upper-income 965 33.6 1,114,517 34.4 42,255 3.8 1,346,195 41.6 Tract not reported 20 0.7 0 0.0 0 0.0 0 0.0 Total AA 2,875 100.0 3,235,428 100.0 409,306 12.7 3,235,428 100.0 Income Categories Housing Types by Tract Housing Owner-occupied Rental Vacant Units by % % Tract # # % # % tracts units Low-income 289,278 41,975 1.7 14.5 225,948 78.1 21,355 7.4 Moderate-income 1,284,122 421,717 17.5 32.8 789,763 61.5 72,642 5.7 Middle-income 1,569,710 815,796 33.8 52.0 671,994 42.8 81,920 5.2 Upper-income 1,698,625 1,135,412 47.0 66.8 495,028 29.1 68,185 4.0 Tract not reported 27 1 0.0 3.7 21 77.8 5 18.5 Total AA 4,841,762 2,414,901 100.0 49.9 2,182,754 45.1 244,107 5.0 Income Categories Total Businesses by Tract Less Than or Equal to $1 Million Businesses by Tract & Revenue Size Greater than $1 Million Revenue Not Reported # % # % # % # % Low-income 45,134 6.3 38,923 6.1 3,617 7.5 2,594 7.6 Moderate-income 167,978 23.3 146,246 22.9 12,877 26.8 8,855 26.0 Middle-income 220,901 30.6 195,093 30.5 15,100 31.5 10,708 31.4 Upper-income 281,993 39.1 254,907 39.9 15,641 32.6 11,445 33.5 Tract not reported 4,752 0.7 3,498 0.5 738 1.5 516 1.5 Total AA 720,758 100.0 638,667 100.0 47,973 100.0 34,118 100.0 Percentage of Total Businesses 88.6 6.7 4.7 2009 Median Housing Value: 23 $46,509 Los Angeles County $64,321 Orange County $47,448 San Bernardino County 2004 Median Family Income: Los Angeles County Orange County San Bernardino County 2010 HUD Adjusted Median Family Income: Los Angeles County Orange County San Bernardino County $63,000 $87,200 $65,000 2009 Unemployment Rate: 24 Los Angeles County Orange County San Bernardino County 25 $338,000 $431,750 $153,250 11.6% 9.0% 13.0% 23 California Association of Realtors, 2009 Housing Market Wrap-Up. 24 Bureau of Labor Statistics (Haver Analytics) (accessed on 10/7/2010). 25 California EDD, San Bernardino County Profile. 19