HOPE (HOPE) Q3 2025: Net Interest Margin Expands 20bps as Deposit Costs Fall

October 28, 2025 | By EarningsIQ Research

HOPE Bancorp’s third quarter delivered a decisive rebound, marked by expanding net interest margin, broad-based loan growth, and significant asset quality improvement. Leadership’s focus on disciplined deposit pricing and targeted hiring is reshaping the bank’s cost structure and competitive positioning. As the integration of Territorial Bancorp advances and hiring accelerates, investor attention turns to whether these moves can drive sustained positive operating leverage into 2026.

Summary

• Margin Expansion Outpaces Deposit Cost Pressure: Lower funding costs and asset mix shift drove a sharp NIM improvement.
• Asset Quality Recovery Accelerates: Net charge-offs and criticized loans declined materially, easing credit risk concerns.
• Strategic Talent Investment Signals Growth Intent: Senior hires and new teams aim to deepen commercial capabilities and market reach.

Performance Analysis

HOPE Bancorp rebounded from a challenging prior quarter with a substantial improvement in earnings and profitability, as net income swung from a loss to a $31 million profit. Net interest income rose 8% sequentially, propelled by loan growth across all major segments—commercial and industrial (CNI, business lending), commercial real estate (CRE, property-backed loans), and residential mortgages. The net interest margin (NIM) expanded 20 basis points quarter over quarter to 2.89%, the strongest linked-quarter improvement since 2012, aided by both higher asset yields and lower deposit costs.

Deposit dynamics proved resilient, with total deposits down just 1% as brokered deposit reductions were offset by growth in core customer deposits. Non-interest-bearing deposits ticked up, supporting funding stability. Non-interest income benefited from higher service and international banking fees, though gains on SBA loan sales moderated with lower volumes. On the expense side, investment in talent and integration of the Territorial acquisition drove higher compensation costs, but revenue growth outpaced expenses, yielding improved operating leverage and a lower efficiency ratio. Asset quality recovery was a standout, with net charge-offs down 57% and criticized loans falling 10%.

• Margin Expansion Driven by Funding Cost Decline: Deposit costs fell eight basis points, while asset yields climbed, creating a favorable spread.
• Loan Growth Broad-Based: All major lending segments contributed, with annualized growth of 5% and pipeline momentum into Q4.
• Positive Operating Leverage Restored: Revenue outpaced expense growth, and the efficiency ratio improved to 67.5%.

HOPE’s capital ratios remain well above regulatory thresholds, supporting further growth and strategic flexibility. The dividend was maintained, underscoring confidence in earnings durability.

Executive Commentary

Strategic Positioning

1. Deposit Franchise Optimization

HOPE’s focus on deposit mix optimization is evident in its reduction of brokered deposits and growth in core customer balances. Non-interest-bearing deposits increased, supporting lower funding costs. Management highlighted that renewals of certificates of deposit (CDs) at lower rates and a Fed Funds rate cut provided additional relief, with spot deposit rates at 2.82% for total deposits at quarter end. The bank’s loan-to-deposit ratio in the low 90% range offers flexibility to manage pricing as competition evolves.

2. Talent Acquisition as a Growth Lever

Strategic hiring accelerated in Q3, with senior commercial banking teams and relationship managers added across targeted segments such as lower middle market, project finance, and entertainment. This investment aims to expand HOPE’s corporate banking capabilities and deepen market penetration. Leadership signaled further hiring into Q4 and 2026, positioning the bank for organic expansion and improved client coverage.

3. Integration of Territorial Bancorp

The Territorial Bancorp acquisition is progressing, with branch staffing and product rollout ongoing. While cost synergies are emerging incrementally, management emphasized that the main focus remains on operational stability and platform alignment. The addition strengthens HOPE’s deposit base and supports its ability to be more selective on pricing, especially as market rates adjust.

4. Asset Quality Discipline

Credit quality metrics improved sharply, with criticized loans down 10% and net charge-offs cut by more than half. The bank’s allowance coverage held steady, and management expressed confidence in resolving remaining commercial real estate (CRE) non-performing loans, which remain a small portion of the portfolio. Disciplined underwriting and proactive credit management are central to HOPE’s risk posture as it pursues growth.

5. Non-Interest Income Diversification

Growth in service fees, international banking, and wire transfer revenue is helping to offset volatility in SBA loan sale gains. While the government shutdown temporarily halted new SBA loan applications, HOPE’s pipeline remains robust, and management expects minimal impact to overall non-interest income in the near term.

Key Considerations

This quarter marks a strategic inflection for HOPE Bancorp, as management balances cost discipline, growth ambitions, and risk management in a shifting rate environment.

Key Considerations:

• Deposit Cost Tailwind: Renewals and lower market rates are reducing funding costs, but competitive pressures may reemerge if rates stabilize or rise.
• Expense Growth Linked to Talent Investment: Higher compensation costs are a deliberate tradeoff to fuel revenue expansion and deepen client relationships.
• Loan Growth Sustainability: Recent growth benefited from lower payoffs; ongoing pipeline strength and new hires will be tested against potential seasonal slowdowns.
• Asset Quality Vigilance: While criticized loans and charge-offs improved, CRE non-accruals require ongoing monitoring given sector headwinds.
• Integration Execution Risk: Territorial Bancorp’s full operational alignment is still underway; cost synergies and client retention will be key to realizing deal value.

Risks

HOPE faces several potential headwinds, including competitive deposit pricing, residual credit risk in CRE, and integration risks from the Territorial acquisition. The temporary halt in SBA loan processing during the government shutdown is a minor near-term risk, but a prolonged shutdown could impact non-interest income. Expense growth from ongoing hiring must be matched by sustained revenue gains to maintain positive operating leverage.

Forward Outlook

For Q4 2025, HOPE guided to:

• Sequential positive operating leverage with further improvement in the efficiency ratio
• Continued loan growth supported by a strong pipeline and new commercial hires

For full-year 2025, management updated guidance:

• High single-digit loan growth
• Approximately 10% net interest income growth
• Approximately 30% non-interest income growth (excluding Q2 securities loss)
• Non-interest expense up ~15% (excluding notable items), reflecting integration and talent costs

Management highlighted several factors that underpin the outlook:

• Loan pipeline strength and broad-based segment growth
• Deposit cost reduction momentum from CD renewals and market rate trends

Takeaways

HOPE’s Q3 2025 results signal a return to profitable growth, with margin expansion, improved credit quality, and a proactive growth strategy.

• Margin and Credit Recovery: The bank’s ability to expand NIM and reduce charge-offs highlights effective balance sheet management and credit discipline.
• Strategic Hiring Drives Growth Platform: Investments in talent and commercial capabilities are intended to deliver organic expansion and offset integration costs.
• Watch for Operating Leverage and Integration Execution: Investors should monitor whether revenue growth continues to outpace expense increases, and how quickly Territorial Bancorp integration yields cost and growth synergies.

Conclusion

HOPE Bancorp’s third quarter marked a decisive pivot back to profitable growth, with margin expansion, asset quality gains, and a clear strategy for scaling commercial banking capabilities. Sustained execution on deposit optimization, talent investment, and integration will be critical for maintaining momentum into 2026.

Industry Read-Through

HOPE’s results reflect broader themes in regional banking: margin recovery as deposit costs ease, renewed focus on core deposit growth, and a willingness to invest in talent despite expense pressure. The bank’s disciplined approach to credit and integration offers a template for peers navigating post-acquisition transitions and volatile funding markets. CRE credit remains a sector-wide watchpoint, but HOPE’s trajectory suggests that regional banks with strong pipelines and operational discipline can regain positive operating leverage even in a mixed macro backdrop.

HOPE Financials Regional Banks Deposit Optimization Margin Expansion Commercial Lending Talent Investment Acquisition Integration