Internal control weaknesses are behind Hope Bancorp Inc.'s decision to terminate its merger agreement with U & I Financial Corp.

But due to changing deal metrics, some analysts, along with Hope President and CEO Kevin Kim, say nixing the deal isn't the worst case scenario. Others call the situation a "missed opportunity."

"Deal metrics have changed since we signed the agreement back in January of this year," Kim said in an interview. "At that time, the stock valuation was very high, and it was on the rise. Now, the financial institution's stock valuation is pretty low."

"The currency that we had at that time does not have the same value as the currency that we have today," he added.

Los Angeles-based Hope and Lynnwood, Wash.-based U & I Financial announced their mutual termination agreement Sept. 15. The deal was initially valued at about $48.8 million, with a third-quarter closing date.

But then Hope delayed finalizing its 2016 audit and Form 10-K filing. It then delayed filing of its first-quarter Form 10-Q.

The company identified material weaknesses in its internal control over financial reporting, specifically flagging the existence of loans acquired in its 2016 deal with Wilshire Bancorp Inc., and its monitoring of their credit risk ratings.

Hope also cited staffing concerns related to the merger, and the bank's ability to handle an increase in financial reporting requirements.

Despite "significant progress" in remediating the weaknesses, the company said the issue would prevent the granting of merger-related regulatory approvals before the Sept. 23 merger termination deadline.

"We have remediated most of the deficiencies identified," Kim said. "Remediation is one thing, but it should be validated by third parties, including our outside auditors and in some cases, regulators. Although the remediation is in place, it will take time for the validation to be completed."

He said the company is on track to complete its 2017 audit and file its annual report by early March 2018. Although the company won't be able to complete a deal before then, he said deal-making takes time, and the company is "continuously looking for opportunities."

He said the company has been in "growth mode" for the past several years, and will continue to grow strategically and organically.

"Fortunately, the deal was less attractive to HOPE anyway, based on its current share price relative to the time the deal was announced and ongoing run-off at UNIF," Piper Jaffray's Matthew Clark and Nathan Race wrote, noting Hope's pricing is down 24% from the time of announcement.

When the deal was announced in January, U & I Financial was expected to bring $255 million in total assets, total loans of $184.2 million and total deposits of $217.2 million. Hope expected to pay $9.50 per U & I common share in a deal valued at 127.1% of book and tangible book and 9.9x earnings on a per-share basis.

Clark and Race expect M&A at Hope to "remain on hold" as the company continues to remediate internal weaknesses. The two said they are trimming their 2018 and 2019 EPS estimates by 2% to 3%, and assuming slower third-quarter loan growth from the company based on discussions with management.

Analyst Timothy Coffey of FIG Partners lowered the company's rating to "market perform" following the news, and lowered his 2018 EPS to $1.32 from $1.35.

Coffey said in an interview that he "definitely was surprised" to see the deal terminated. He had viewed Hope's internal controls matter as one that the company had its arms wrapped around and could efficiently remedy.

"But I think now this raises questions of just how serious the internal controls issue is," he said.

He also noted that Los Angeles-based Hope earlier this month announced that its finance chief, Douglas Goddard, would retire in early October and be replaced by Alex Ko, who is currently CFO of subsidiary Bank of Hope.

That change comes on top of the banking company's earlier announcement that, effective in May, it had dismissed BDO LLP as its independent auditor and appointed Crowe Horwath LLP to that role for 2017, Coffey further noted.

Coffey said that, prior to the deal termination, those changes did not appear major. But now, he said, "you have to ask if or how all of these things are related."

Coffey also called the loss of the U & I Financial deal "a missed opportunity." It would have "really given Hope a nice chance to solidify its presence" in the Pacific Northwest, he said.

The deal was expected to make Hope the only Korean-American bank in the region.