Hope Bancorp's Earnings Headwinds Likely To Continue, Analyst Says

Hope Bancorp Inc HOPE, a bank that targets expatriate South Korean communities across the U.S., showed in its April earnings report headwinds that will likely persist, according to DA Davidson.

The Analyst

DA Davidson's Gary Tenner downgraded Hope Bancorp from Buy to Neutral with an unchanged $20 price target.

The Thesis

Hope is the largest bank that targets Korean expatriates with $14.5 billion in total assets, but multiple metrics in its recent earnings report should be of concern to investors, Tenner said in a note. The company's above average deposit beta and 100 percent loan/deposit ratio implies it may have a difficult time in funding incremental growth without a negative impact to net interest margin (NIM).

In addition, Hope's core EPS earnings traction has fallen below expectations since the WIBC acquisition in the middle of 2016, the analyst wrote. At best the company's EPS growth since 2016 is "modest" as 2017's core EPS of $1.21 was flat from the prior year and 2018's EPS estimate of $1.49 is derived from tax reform benefits.

The recently signed bank deregulatory bill is mostly considered to be a positive for smaller banks as a whole, but in Hope's case it may not be enough to realize a "massive benefit," the analyst wrote. Specifically, the company has already built out its risk management abilities so it may not see any significant expense savings as regulators will remain vigilant.

Price Action

Shares of Hope Bancorp were closed higher by 1.9 percent at $18.43.

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