East West Bancorp (NASDAQ: EWBC) is a full-service commercial bank serving consumers and businesses throughout California. Its bank and other subsidiaries are divided into four operating segments: retail banking, commercial lending, treasury, and residential lending. In the wake of the 2008 financial crisis, East West faces unfamiliar challenges as the credit market remains uncertain and the Dodd-Frank Act changes the financial sector.
In 2010, net income more than doubled to $164.6 million from $76.6 million in 2009. The company increased its loan volume and net interest margin from 2009 to 2010 and increased its profitability during each quarter of 2010.
EWBC's primary source of revenue is its lending practice - like any commercial bank, East West pays customers interest on their deposits so that it can lend out their money at a higher rate. The net interest margin metric acts as proxy for the bank's ability to earn interest on its assets. In the midst of credit market uncertainty following the 2008 financial crisis, EWBC's ability to lend profitably may be reduced and its net interest margin may decrease.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, the government's response to the 2008 Financial crisis, significantly impacts the way the financial sector operates. Its allowance for government support of institutions identified as "too big to fail" may increase the value of identified financial institutions while decreasing the prospects and equity value of smaller financial institutions like East West. In addition, the Act increases financial regulation which may restrict East West's operations and increase back office expenses related to compliance.
EWBC competes with other commercial banks in California including competing regional banks and national competitors:
East West and its competitors increase revenues and income by increasing their deposit and loan volume. The industry is competitive as companies increase their deposit interest rates while decreasing their loan rates and fees to attract customers.