After experiencing increased sales and fewer layoffs in 2010, more California small
business owners report an improved outlook on profits, hiring and capital expenditures
in 2011. However, business owners are balancing their increased optimism with
conservative measures to protect their business, according to Union Bank’s 11th Annual
Small Business Economic Survey released today.

The survey—the largest to date with nearly 3,000 participants statewide—found that a
full 60 percent of small business owners believe 2011 will be a better year in terms
of profitability, a nine percent increase from last year and a 26 percent increase
from 2009. This is the most optimistic owners have been since 2007, when 67 percent
of owners statewide anticipated improved profitability.

“After years of belt-tightening, careful spending and trying to hold the line on
staffing levels, small business owners are growing weary of just ‘hanging on,’ and
they’re ready to return to profitability,” said Executive Vice President Todd
Hollander, head of Union Bank’s Business Banking group. “The profitability point is
the most positive development from our survey, and it proves again why small
businesses are truly the backbone of the U.S. economy – and the specific insight and
feedback we’ve gained from this comprehensive survey has national implications as
California small business owners are a catalyst for the nation’s economic recovery.”

Improving Outlook
The improving profit expectations follow a year of increased sales for business owners,
with 42 percent of respondents reporting greater sales in 2010 compared with 2009, up
14 percent from last year’s survey. The survey data also show that fewer owners (17
percent) incurred layoffs in 2010 than 2009 (24 percent) and 96 percent of owners do
not anticipate layoffs in 2011.

Planned increases in hiring and capital spending add to the optimism. Twenty-four
percent of owners expect to increase staffing levels this year, up three percent from
last year and up nine percent from 2009—when anticipation for job growth was at its
lowest level (15 percent) in the survey’s history. Twenty-seven percent of owners
plan to increase their capital expenditures this year, up six percent from last year
and up 10 percent from 2009. Still, most owners show restrained optimism with 70 percent
expecting to maintain the same staffing levels, 63 percent expecting to keep capital
expenditures similar to last year, and 40 percent anticipating continued vendor
negotiations for lower costs.

“After weathering substantial challenges during the economic downturn of the last few
years, it’s understandable that while small business owners are increasingly hopeful,
most remain conservative in their planned expenditures,” said Hollander. “The good
news is that optimism continues to edge up in terms of profitability, hiring and
capital expenditures. Many small business owners are waiting to see what 2011 brings
before concentrating on growth.”

While the majority of business owners (57 percent) believe that their business or
industry will have experienced a recovery by the end of 2011, one in four business
owners believe they have already experienced an economic recovery, an eight percent
increase from last year. Forty-three percent anticipate a recovery in 2012 and beyond.

Government Assistance
With 54 percent of owners cutting their operating costs last year, 41 percent reducing
their debt and 46 percent negotiating with vendors for lower costs, business owners
are seeking government assistance in the same areas as the previous year. Sixty-one
percent of owners would like to see the government focus more on tax cuts for small
businesses, 37 percent favor temporary tax incentives to encourage small businesses
to invest in jobs and 33 percent would like lower health care costs to ease the
burden for small businesses.

Despite the passage of the Small Business Jobs Act of 2010—legislation providing small
banks with $30 billion to encourage lending to small businesses, $12 billion in tax
incentives, and expanded Small Business Administration (SBA) loan programs—only six
percent of owners were strongly motivated to apply for these loans or credit.

“For many small business owners who have struggled with debt over the past few years
or who think that banks aren’t lending, it will take some time to return to a mindset
of applying for loans,” said Senior Vice President Heather Endresen, manager of Union
Bank’s SBA government lending. “At Union Bank, we have credit available for qualified
candidates, continuing our nearly 150-year legacy of lending to small businesses.
We’re proud to be one of the most active small business lenders in the western U.S.”

According to the survey results, the Jobs Act also had little impact on owners’ plans
for hiring. Eighty-nine percent of owners planning to add staff this year said their
planned increases have nothing to do with the legislation. Only four percent said
their hiring plans are directly attributed to the legislation. Most small business
owners, while remaining somewhat cautious, are tenacious and want to return to hiring
and growing their businesses, according to Aida Alvarez, the former head of the Small
Business Administration during the Clinton Administration and a member of UnionBanCal
Corporation’s board of directors.

Biggest Challenges
Since 2008, California small business owners have continued to identify the state’s
economy as the top challenge in running a business in California. Forty-four percent
of owners list this factor as their primary concern, down 16 percent from last year.
This reflects another part of the survey which found that the majority of business
owners (55 percent) feel that the state’s budget crisis had a moderate or significant
impact on their business.

For the second consecutive year, state and local business taxes remain the second
biggest challenge for California business owners. This is the primary concern for
37 percent of owners. State and local business regulations are the third biggest
challenge as the primary challenge for 29 percent of owners.

This is the first year since 2004 that workers’ compensation costs did not rank among
the top three challenges. Concern about workers’ compensation costs dropped from 29
percent last year to 27 percent this year, ranking it as the fifth biggest challenge
to doing business statewide. The majority of business owners (69 percent) reported no
change in their 2010 workers’ compensation insurance premium from the previous year.
As in last year’s survey, 26 percent of owners reported an increase in their premium.
On average, their premium increased 13 percent.

Other Survey Highlights
•23 percent of business owners applied for a business loan or access to credit in
 2010. Of these business owners, 37 percent were denied a loan or access to credit.
 Of those denied, 74 percent were unable to find alternate financing.
•43 percent do not have a business line of credit, up eight percent from last year.
•44 percent reported no change in their pricing of products or services in 2010.
 Twenty-five percent raised some prices and lowered others in 2010.
•41 percent offer health care coverage to their employees, down four percent from
 the previous year. Apart from a slight rise in 2009, the number of business owners
 offering health care coverage has slowly declined since 2003.
•The top three advantages of doing business in California are: favorable
 climate (50 percent), opportunities for growth (39 percent), and family ties
 (38 percent).
•10 percent said social networking Web sites significantly changed their
 communication with customers or the way they promoted their business.
•10 percent plan to make changes in their ownership structure. Of these,
 21 percent plan to take on a partner and another 21 percent plan on transferring
 all or part of the ownership.
•48 percent offer paid vacation benefits, down 14 percent since 2008.
•42 percent are communicating more with employees and 30 percent are
 offering more flex time and part-time schedules to keep employees motivated during
 these tough financial times.

About the Survey
Union Bank surveyed 2,892 small business owners throughout California from January
10-28, 2011. The businesses, defined for the survey as having $5 million or less in
annual sales, included a mix of bank customers and non-customers. Business owners
surveyed employed an average of 13 people and have been in business an average of
16 years. Based on the sampling size, survey results reflect a +/- 2 percent margin
of error 95 percent of the time.

About UnionBanCal Corporation & Union Bank, N.A.
Headquartered in San Francisco, UnionBanCal Corporation is a financial holding company
with assets of $79.1 billion at December 31, 2010. Its primary subsidiary, Union Bank,
N.A., is a full service commercial bank providing an array of financial services to
individuals, small businesses, middle-market companies, and major corporations. The
bank operated 401 banking offices in California, Washington, Oregon and Texas, as well
as two international offices, on December 31, 2010. UnionBanCal Corporation is a
wholly-owned subsidiary of The Bank of Tokyo-Mitsubishi UFJ, Ltd., which is a subsidiary
of Mitsubishi UFJ Financial Group, Inc. Union Bank is a proud member of the Mitsubishi
UFJ  Financial Group (MUFG, NYSE:MTU), one of the world’s largest financial organizations.
 Visit www.Unionbank.com for more information.