Finds Concern about Economy

A survey released by Union Bank of California, N.A., shows that small business owners have
grown increasingly cautious as the economic climate has become more uncertain. That caution is
impacting respondents’ profit outlooks for the year as well as spending and hiring plans.

California’s economy was the No. 1 challenge facing small business owners surveyed in January,
replacing workers’ compensation costs, which held the top spot since 2004.

The bank’s annual survey, which has been tracking trends among small business owners for the past
eight years, found 52 percent of respondents statewide believe 2008 will be more profitable than 2007,
a 15 percentage-point decline from last year’s results. Half (51 percent) of the respondents reported
greater sales in 2007, a 12 percentage-point drop from the previous year.

Respondents are showing caution with capital expenditures as the economy slows. Only 26 percent
plan to increase spending on equipment and building improvements in 2008, while the majority
(62 percent) plan to spend the same amount.

Another area where the majority of respondents plan to keep expenses the same: staffing levels.
Seventy-one percent expect to maintain their staffing levels in 2008. Only 23 percent plan to add
positions this year, a 7 percentage-point decline versus 2007. In 2006, 36 percent of respondents
expected to add staff.

While most small business owners surveyed are not expecting to hire new employees, the majority
is not planning layoffs, either. Ninety five percent of respondents said they do not anticipate layoffs
in 2008. However, 10 percent of those surveyed in January said they were forced to layoff employees
for economic reasons last year.

“This annual survey is an excellent barometer of issues facing small business owners,” said Union Bank
of California’s President and Chief Executive Officer Masa Tanaka. “While the group surveyed has become
increasingly concerned about California’s economy, a majority still expects an increase in profits in 2008.
That’s good news for California as a whole because small business is a powerful driver of the economy.”

The subprime mortgage crisis does not appear to be having a widespread impact across the state.
Approximately 50 percent of respondents said they have seen no impact from rising foreclosures. However,
for those respondents who have noticed a dip in business, the biggest impact has been felt in Riverside
and San Bernardino counties. In Riverside, 39 percent of respondents said customers are spending more
conservatively. In San Bernardino, 45 percent have seen customers spending less. That compares to 35
percent statewide.

Those figures mirror recent foreclosure data released by real estate tracking firm RealtyTrac that shows
the Riverside-San Bernardino metro area had the fourth highest foreclosure rate among the country’s
largest 100 metro areas in 2007.

While the California economy has become the No. 1 challenge of nearly 50 percent of respondents, up
15 percentage points from 2007, worry about rapidly increasing workers’ compensation costs has declined.
Thirty three percent of respondents surveyed are concerned about workers compensation costs, down from
43 percent in 2007. Small business owners surveyed ranked state and local business taxes as the third
biggest challenge (26 percent).

The workers’ compensation crisis appears to have decreased as a major issue on several fronts. In addition
to moving down on the list of challenges facing small business owners, only 19 percent of respondents said
workers compensation insurance costs increased in 2008 compared to 20 percent in 2007. The majority – 65
percent – said their insurance premium remained the same, while 16 percent said costs declined.

For the third year in a row, a majority (55 percent) of business owners indicated that they do not offer healthcare
coverage to employees, up from 52 percent in 2007. Santa Clara County continued to buck the trend, with 73
percent of its small business employers offering healthcare benefits.

For those employers that offer healthcare benefits, 40 percent said rising healthcare costs have not impacted
their business, while 24 percent said they have shifted a larger portion of healthcare costs to employees or
reduced health benefits.

Retirement benefits and 401(k) plans are scarce among small business owners surveyed. Only 17 percent offer
401(k) plans and 12 percent offer retirement benefits. The most common benefit offered is vacation pay
(62 percent).

In spite of the cautious outlook for 2008, respondents believe opportunities for growth continue to be the No. 1
advantage of doing business in California (28 percent). Family ties ranked No. 2 (22 percent) and climate No. 3
(17 percent).

Like many in the country, the small business owners surveyed are monitoring the presidential election. Forty-eight
percent said they are paying closer attention to this year’s presidential race compared to previous years.

Survey Methodology

The Union Bank of California annual Small Business Survey was conducted through individual interviews of nearly
2,000 small business owners from Jan. 7, 2008 to Jan. 18, 2008 throughout California. For purposes of the survey,
Union Bank defined small businesses as businesses with annual revenue of $15 million or below.

For further information contact:
Katie Pandes 415-765-2617
Katie.pandes@uboc.com