$128.35
$222.12
bear $128.35
base $193.78
bull $222.12
margin of safety $120.00
market price* $126.88
East West Bancorp is a Pasadena, California bank holding company. Its bank, East West Bank, serves businesses and households mainly in California and other U.S. metro areas with large Asian-American communities, with a niche in commercial banking and trade finance between the United States and Greater China. It also has a small banking subsidiary in mainland China and a Hong Kong branch; these are a small part of the company but tie some of the business to U.S.-China relations. It earns money like any bank: the gap between what it earns on loans and securities and what it pays on deposits, plus fees, less loan losses and operating costs. At June 30, 2026 it had $84.8 billion of assets, $59.0 billion of loans, $70.1 billion of deposits and $9.2 billion of shareholders' equity, of which about $0.47 billion is goodwill. How we measure earnings. For a bank, operating cash flow overstates what owners earn, so we make two corrections. East West invests every year in affordable-housing, clean-energy and community tax-credit partnerships ($229 million in 2023, $378 million in 2024, $352 million in 2025). The tax credits lower its tax bill and the write-down is added back in operating cash flow, but the cash spent to buy them sits in the investing section, so we count that spending as a recurring cost. Operating cash flow also adds back the loan-loss provision, so we subtract the loans that actually went bad instead ($139 million in 2024, $60 million in 2025). Stock compensation is deducted as a real cost. On this basis owner earnings track reported net income closely, as they should for a bank. Earnings history. Owner earnings per share were $3.06 in 2016, $4.51 in 2019, $4.52 in 2020, $5.79 in 2021, $8.27 in 2022, $7.99 in 2023, $7.22 in 2024 and $9.06 in 2025. The 2024 dip came from business-loan charge-offs. We take normal earning power as the median of 2021 to 2025, $7.99 per share. That window covers near-zero rates, the high-rate years, the 2023 regional-bank deposit scare, the 2024-2025 rate cuts and one bad credit year; earlier years describe a much smaller bank. The near-term path. Owner earnings rose 25.5% in 2025, mostly a rebound from 2024's charge-offs. Our base case starts year one at $9.40 per share, 3.8% above 2025 and well below that trailing rate. Two facts support starting above the five-year median: the bank already earned $9.06 in 2025 after the rate cuts, and first-half 2026 net income was $721 million against $601 million a year earlier, with diluted earnings per share of $5.21 against $4.32, on a provision that fell from $94 million to $69 million. Growth we credit. From 2016 to 2025 total assets grew about 10% a year and deposits about 9%, funded from retained earnings and continuing through the 2020 pandemic and the 2023 deposit scare. More recently growth has slowed: deposits grew 6% in 2025 and loans about 6% from June 2025 to June 2026. The base case credits 6% a year for five years, tapering to 3% by year ten. A bank can only grow its loans if it adds capital alongside them, so each year we hold back the share of earnings needed to keep capital steady (growth divided by the return on equity) and count only the rest as cash to owners. We gave no credit to wider margins, a bigger China business or a return to the faster growth of the last decade, because none is in hand. After year ten the base case holds earnings flat and pays them out. The named driver is the deposit and client franchise built since 1973, which renews itself each year. About 70% of the base value comes from after year ten, which is normal for a bank but means the estimate depends on that franchise lasting. Debt. For a bank, deposits and borrowings are the raw material of the business, and their interest is already deducted from the earnings above. So in every case we value earnings after all interest and subtract no borrowings; leverage risk is carried in the bear case. The risks are concrete: commercial real estate loans of roughly $21 billion, more than twice shareholders' equity; about 45% of domestic deposits uninsured at year-end 2025; and $4.5 billion of emergency short-term borrowing drawn during the 2023 deposit scare and repaid in 2024. Bear case, about $128 per share. A full credit cycle of the 2008-2010 kind, when East West itself took heavy losses on construction and commercial real estate loans. Net charge-offs run about 1% of loans in year one, 2% in year two and 1.3% in year three, roughly $2.9 billion over four years, or about a third of today's equity, with reserves built up front and released later. Pre-provision earnings also slip from about $1.85 billion to $1.70 billion as lower rates squeeze a balance sheet whose loan yields reset faster than its deposit costs. Owner earnings fall to about $4.75 per share and then $1.41, recover to about $8.10 by year four, and grow only 2% a year afterward while capital is rebuilt at a 12% return on equity. The bank never loses money in any year of this case, and its starting capital, roughly 15% common equity tier 1 against a 7% regulatory floor with buffers, absorbs the losses without issuing shares at the bottom. The business is worth about $128 per share, nothing further is owed beyond the funding costs already charged, so the shares are worth about $128. That is about double tangible book value of roughly $64 per share. We think that is justified because the bank has earned 13-16% on its equity across low rates, high rates and the 2023 deposit scare, and even this case leaves the deposit franchise intact. Base case, about $194 per share. Credit costs stay near their 2023-2025 average, margins hold near 2025 levels, and the bank grows 6% tapering to 3% at a 15% return on equity. The business is worth about $194 per share with nothing further owed, so about $194. Bull case, about $222 per share. Year one reaches $10.00 per share, in line with the first-half 2026 pace. Growth runs at 8% tapering to 4%, still below the roughly 10% of the past decade, at a 16% return on equity, close to recent levels. The business is worth about $222 per share with nothing further owed, so about $222. Compared with our analysis about two weeks ago (bear $125, base $193, bull $227), the figures are close. The bear case is now built more explicitly from a 2008-2010-style loss cycle and comes out slightly higher because the bank never runs at a loss; the bull case is slightly lower because we held its growth to the same five-year span as the base. Margin-of-safety price. We are fairly sure of the earnings level: on our measure owner earnings have stayed between $7.22 and $9.06 per share for four years, through very different rate conditions, and they follow reported profit closely. The worst plausible outcome is a commercial real estate bust combined with a run on uninsured deposits, or U.S.-China measures that cut off the cross-border business. The bank's high capital and its record of getting through the 2023 deposit scare suggest it would survive the first, though a 2009-style episode cost shareholders heavily. If we are wrong about loan losses (twice our bear case), deposit costs or growth, the shares could be worth something near $100. During the holding period the bank pays $3.20 a year in dividends, about 2.7% at $120, and buys back some stock. At $120 the price is covered by the bear case and carries a dividend, and the base case implies the shares reaching about $194 within three years, roughly 20% a year including dividends. Above about $120 the bear case leaves little room for the errors a leveraged lender can make. The margin-of-safety price is $120. What would make this wrong. Commercial real estate or business-loan losses well beyond 2% of loans or lasting longer than two years; deposit outflows forcing expensive borrowing; U.S.-China actions that cut off the cross-border business. On the other side, a return to the decade's roughly 10% growth would put value above the bull case. One item we could not reconcile from the filings: purchases of premises and equipment were $112.5 million in the first half of 2026, compared with $4.6 million a year earlier. We treated this as a one-time outlay and left it out of the earnings level.