RBBバンコープ（RBB）2026年第3四半期決算説明会：貸出成長とマージン拡大

主要なポイント

• 当四半期の純利益は前四半期比25%増の1,260万ドルとなり、1株当たり利益（EPS）は0.74ドルに達し、平均資産利益率（ROA）は1.17%に改善しました。
• ブルックリンのオフィスビル売却による270万ドルの税引前利益が、希薄化後EPSを約0.12ドル押し上げました。経営陣によると、この利益を除いたコア収益も、融資の伸びと純金利マージンの拡大により好調に推移しました。
• 投資目的保有融資は、1億5,400万ドルの新規執行と前四半期比24%減少した返済・繰上返済に支えられ、年率11%増に相当する9,000万ドルの増加となりました。
• 純金利収入は前四半期比6%増の3,180万ドルとなりました。純金利マージンは10ベーシスポイント拡大して3.16%となり、これには不稼働貸付金利息の回収による約7ベーシスポイントと、連邦ホームローン銀行（FHLB）の特別配当による3ベーシスポイントが含まれています。
• 信用力は引き続き改善しました。不稼働資産（NPA）は当四半期中に11%減少して3,870万ドルとなり、不稼働貸付金に対する引当金カバー率は234%に上昇しました。
• RBBバンコープは、450万ドルの普通株式自社株買いを実施した後、CET1比率17.9%、1株当たり有形純資産価格27.44ドルで当四半期を終了しました。

主な財務データ

事業および営業業績

当四半期の融資拡大の大半は戸建て住宅ローンが牽引し、成長の約3分の2に貢献しました。建設および土地開発ローンは800万ドル増加したほか、経営陣は商業・産業（C&I）融資や建設融資の勢いについても報告しました。

サンフランシスコ・ベイエリアの融資募集事務所は、稼働開始後初のフル四半期を完了しました。経営陣によると、同事務所の業務は軌道に乗っており、パイプラインはC&I、商業用不動産、建設融資などの商業向け融資に集中する見込みです。第4四半期には通常戸建て住宅向け業務が減速するため、これは融資構成の多角化に寄与する可能性があります。

リテール預金が6,300万ドル増加したことで、RBBバンコープはホールセール預金を5,900万ドル削減できました。ホールセール調達は預金総額の2%未満となっています。流動性利息付預金が4,700万ドル増加し、リテール定期預金が5,200万ドル増加した一方、無利息預金は3,500万ドル減少しました。

同社はブルックリンのオフィスビルを売却し、約740万ドルの純売却代金を得ました。RBBは融資運用チームを別の場所へ移転するまでの間、年末まで使用スペースをリースバックしています。

経営陣の見通し

経営陣は、四半期ベースの非金利費用を約1,900万ドルと見込んでおり、10万〜20万ドル程度の変動が発生する可能性があります。ブルックリン物件に関連するリース費用により不動産使用費用は増加するものの、所有不動産（OREO）費用、人件費、データ処理費用の減少がこれを軽減する可能性があります。

RBBバンコープは、当四半期中に購入した連邦生産税額控除の恩恵を反映し、2026年通期の実効税率を27%と見込んでいます。

経営陣は、融資の金利改定と新規執行に支えられ、純金利マージンが3%超を維持する可能性があると述べました。ただし、これは利息収益資産の利回りが足元の預金コスト上昇を相殺できるかどうかに依存します。

第4四半期の融資売却額は第3四半期の水準から増加する可能性があります。経営陣は、売却益について比較的高水準だった第2四半期の実績よりも第1四半期の水準に近くなると予想しています。

同社が保有する唯一の所有不動産（OREO）物件であるロサンゼルスエリアの工事進捗率約60%の建設プロジェクトは、帳簿価格を上回る価格で売りに出されています。経営陣は2027年前半にこの資産を売却処分できる機会があると見込んでいます。

リスクと注視すべきポイント

• 金利上昇は借り手の需要に一定の圧力をかけており、一部の顧客がプロジェクトを再検討したり条件を再交渉したりする原因となっています。
• 預金金利の競争は依然として激しい状態が続いています。経営陣によると、6カ月物預金金利は4%をわずかに上回り、6カ月〜12カ月物のブローカー調達預金金利は4.50%を超えていました。
• 負債の金利改定速度が融資ポートフォリオの大半よりも早いため、足元では預金コストの上昇が見込まれます。
• 発表された3.16%の純金利マージンには、約70万ドルの不稼働貸付金利息の回収および32万ドルのFHLB特別配当が含まれており、実質的なマージンを評価する際にはこれらの寄与度を考慮することが重要です。
• 預貸率は約100%となっていますが、経営陣は資本水準、融資売却、新規執行管理により柔軟性が確保されていると述べています。
• 1,980万ドルのOREO残高は引き続き単一の開発プロジェクトに集中しており、その解決時期に関する不透明感をもたらしています。

アナリスト質疑応答のハイライト

高金利により借換インセンティブが低下しているため、経営陣は今後数四半期にわたり融資の返済および繰上返済が抑制された状態が続くと予想しています。また、同社の信用力改善に伴う戦略的返済も減速しています。

融資ポートフォリオの約52%が変動金利であり、その約3分の2が1年以内に金利改定の対象となります。経営陣は、この金利改定と新規執行が資金調達コストの上昇を相殺するのに寄与すると期待しています。

RBBの預金ベータは過去1年間で約50%で推移してきましたが、市場が追加利上げを織り込むにつれて、経営陣は足元でベータが上昇すると予想しています。ただし、この圧力は時間の経過とともに和らぐと見込んでいます。

資本配分について、経営陣は継続的な自社株買いと4,000万ドルの劣後債の一部の繰上償還を強調しました。電話協議の時点で株価が1株当たり有形純資産価格を下回っていたことは認めたものの、公開買付け（TOB）の計画は示しませんでした。

経営陣は、要注意先および要管理先債権が減少を続けており、引き続き監視対象となっている残りの債権においても共通のストレスパターンは確認されていないと述べました。

決算電話協議の文字起こし全文

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Good afternoon, and welcome to the RBB Bancorp Third Quarter 2026 Earnings Conference Call.

[Operator Instructions]

It is now my pleasure to turn the floor over to your host, Rebeca Rico. The floor is yours.

Rebeca Rico

Thank you, Selvie. Good day, everyone, and thank you for joining us to discuss RBB Bancorp's results for the third quarter of 2026.

With me today are President and CEO, Johnny Lee; Chief Financial Officer, Lynn Hopkins; and Chief Credit Officer, Jeffrey Yeh. Johnny and Lynn will briefly summarize the results, which can be found in the earnings press release and investor presentation that are available on our Investor Relations website, and then we'll open the call to your questions.

I would ask that everyone please refer to the disclaimer regarding forward-looking statements in the investor presentation and the company's SEC filings.

Now I'd like to turn the call over to RBB Bancorp's President and Chief Executive Officer, Johnny Lee. Johnny?

Johnny Lee

Thank you, Rebeca. Good day, everyone, and thank you for joining us today. We're pleased to report a strong third quarter. Net income increased 25% from the prior quarter to $12.6 million or $0.74 per share, and our return on average assets improved to 1.17%. Our results included a gain on sale of our office building in Brooklyn, but the underlying drivers of our performance were higher net interest income, solid loan growth and continued improvement in credit quality. These results also show how far RBB has come over the past 2 years.

Compared to third quarter of 2024, earnings per share has increased 90%. Our return on average assets has improved 63% and our return on average tangible common equity has improved 69%. For the 9 months of the year, diluted earnings per share is up 60% from the same period last year.

Loan growth returned in the third quarter as we expected. Loans held for investment increased $90 million or 11% annualized, driven by steady origination volume and lower payoffs and loan sales. We also completed our first full quarter of operations at our new LPO in the San Francisco Bay Area, and we are encouraged by the early response from clients in that market. Our pipelines remain strong across the franchise, and we expect to continue these positive trends to finish the year. Credit quality continued to improve. Nonperforming assets declined 11% during the quarter. And over the past 2 years, NPAs are down 36%, while criticized and classified loans are down 48%. We continue to work toward the resolution of our only OREO property, which migrated from nonperforming loan last quarter.

On the funding side, retail deposit growth of $63 million allowed us to reduce wholesale deposits by $59 million and wholesale funding now represent less than 2% of total deposits. Over the past 2 years, we have grown savings, NOW and money market balances by 86% and reduced our cost of interest-bearing deposits by more than 100 basis points.

Our capital position remains a source of strength. During the quarter, we completed the partial redemption of our subordinate debt and continue to repurchase shares under our buyback program. Over the past 2 years, tangible book value per share has increased 11%, while shares outstanding have declined by 5%. Overall, we believe the third quarter reflected the progress we have made in improving RBB's earnings power, and we are well positioned as we head into the end of 2026.

With that, I'll hand it over to Lynn to talk about the results in more detail. Lynn?

Lynn Hopkins

Thank you, Johnny. Please feel free to refer to the investor presentation we have provided as I discuss the company's third quarter of 2026 financial performance. The $2.5 million increase in net income in the third quarter compared to the second quarter was primarily driven by higher net interest income, the $2.7 million pretax gain on the sale of our Brooklyn office building, and a lower effective tax rate. The building gain added approximately $0.12 to diluted earnings per share. Apart from the gain, our core earnings continued to strengthen, supported by loan growth and a wider net interest margin. Including the gain, pretax pre-provision income increased 23% from the second quarter and 25% from the third quarter of 2025.

I'd like to take a moment to provide some additional detail on the building sale. During the quarter, we had an opportunity to sell a building we owned in Brooklyn that housed our New York loan operations center. We occupied 2 of the building's 5 floors, so the property was larger than what we needed for our operations. The sale generated net proceeds of approximately $7.4 million that we have been able to redeploy. We are leasing back the space we currently occupy through the end of the year, after which we will transition our loan operations team to a new location. This was an opportunistic transaction for the benefit of our future operations.

Net interest income was $31.8 million for the third quarter, an increase of 6% from the second quarter and 8% from the third quarter of 2025. Higher average loan balances and higher interest recoveries on nonaccrual loans accounted for $1.5 million of the $1.7 million linked quarter increase. The remainder came from a special dividend of $320,000 and 1 more day in the quarter.

Our net interest margin expanded 10 basis points to 3.16% for the third quarter and increased 18 basis points from the third quarter of 2025. The yield on average loans increased 10 basis points to 6.23%, and our average cost of funds declined 3 basis points to 2.97%, which reflected the July 1 redemption of $40 million of our subordinated debt.

We estimate the FHLB special dividend contributed approximately 3 basis points to the margin this quarter, and nonaccrual interest recoveries contributed approximately 7 basis points. Our average cost of deposits declined 2 basis points to 2.79% for the quarter. With the federal funds rate increasing 25 basis points during the third quarter, our period-end weighted average rate on total deposits increased a few basis points to 2.82%. We continue to manage deposit pricing carefully, while new loan production at an average yield of 6.30% during the third quarter continues to support overall earning asset yields.

Noninterest income was $5.1 million for the third quarter, an increase of $2.1 million from the second quarter due mostly to the gain on the sale of the Brooklyn building. Excluding that gain, noninterest income declined $600,000 due mostly to lower gains on sale of loans as we retained more of our loan production on the balance sheet this quarter. Noninterest expense was $19.5 million for the third quarter, an increase of $526,000 from the second quarter due mainly to higher compensation and occupancy costs. These increases reflect a full quarter of our operations for our new San Francisco Bay Area LPO and the impact of the Brooklyn building sale.

Our efficiency ratio improved to 53%, which is 434 basis points better than the same quarter last year. Looking ahead, we expect our quarterly noninterest expense rate to be around $19 million.

Our effective tax rate was approximately 25% for the third quarter, reflecting the benefit of federal production tax credits purchased during the quarter, and we now estimate our effective tax rate will be 27% for the full year.

Turning quickly to the balance sheet. Loan growth during the quarter was led by single-family residential mortgages, which increased to $78 million, along with an $8 million increase in construction and land development loans. Third quarter originations totaled $154 million, and payoffs and paydowns declined 24% from the second quarter. We ended the quarter with a loan-to-deposit ratio of approximately 100%.

Total deposits were $3.4 billion at September 30 and were stable compared to the prior quarter. Non-maturity interest-bearing deposits increased $47 million and retail time deposits increased $52 million, while our noninterest-bearing deposits declined $35 million, partially reflecting the movement of balances into interest-bearing accounts during the quarter. On average, noninterest-bearing deposits increased from the second quarter to approximately 17% of average total deposits for the third quarter.

Nonperforming assets totaled $38.7 million or 91 basis points of total assets at September 30. Nonperforming loans declined $4.9 million, mostly through payoffs and paydowns, to 55 basis points of total loans and OREO was unchanged at $19.8 million. The allowance for loan losses stood at $44 million or 1.30% of loans held for investment at quarter end, and our allowance coverage of nonperforming loans increased to 234%. We recorded a $500,000 provision for credit losses in the quarter due mainly to loan growth, partially offset by improved credit quality trends. Net charge-offs were $122,000 or 1 basis point of average loans on an annualized basis.

Our tangible book value per share increased to $27.44 at September 30, an increase of 6% from a year ago, even as we continue to return capital to shareholders through share repurchases and dividends. We repurchased $4.5 million of common stock in the quarter, reducing shares outstanding by approximately 1%. Our capital ratios remain strong with tangible common equity to tangible assets ratio of 11.05% and a CET1 ratio of 17.9%.

This concludes my prepared remarks. Operator, we are now ready to take questions.

Operator

[Operator Instructions] And your first question will be from Liam Coohill at Hovde Group.

質疑応答

Liam Coohill

The recent rate hike impacted borrower demand? And do you expect further hikes to impact originations moving forward?

Johnny Lee

This is Johnny. Yes, certainly, a little bit headwind. But overall, I think many of our borrowers right now on the commercial side, particularly recognizes the higher rate environment. At least we're not faced with the sort of, I'll say, lesser. So the challenges that we had encountered during first half and maybe first part of Q3 where we were challenged with trying to compete with the below 6 sort of rates at a 5-year fixed. We see lesser of that. So it allows us the ability to not have to defend or go as aggressively as we may have to compete for deals. So that's helpful. But at the same time, certainly, with the high rate environment, some borrowers are just, kind of, stepping back, taking a closer look at the landscape and sometimes they want to renegotiate certain terms and conditions.

Liam Coohill

I guess, on the other side of the origination question, I noticed the payoffs declined substantially this quarter. Do you anticipate payoffs to remain near current levels, especially given how low they are?

Johnny Lee

Yes. And Lynn, maybe can chime in as well. So yes, we do expect payoffs to slow, to get tempered, kind of, trending downward given, again, the higher rate environment. I think some borrowers that typically may want too aggressive, more aggressive rates are not those below 6 anymore out there as much. So we do see -- we do anticipate paydowns payoff to get tempered during the next couple of quarters or so.

Lynn Hopkins

I would just add to Johnny's comment regarding tempering is appropriate. I think the other thing that we observed in the first half of this year was some strategic payoffs as we've continued to improve credit quality and those have also tempered as well.

Liam Coohill

That makes sense. And last one for me. With the loan-to-deposit ratio, kind of, in that 100% realm right now, are you comfortable keeping that ratio moving forward?

Lynn Hopkins

Sure. So we have been managing the loan-to-deposit ratio around the 100% mark, maybe call it, high 90s. I think we, with our capital levels, continue to remain comfortable at 100%. And I think that's managed to a large extent with our production levels that we just kind of talked about and also some loan sales. We had a little bit less in loan sales in the third quarter, which I think pushed up on our loan-to-deposit ratio a little bit. I think we expect loan sales in the fourth quarter to maybe be higher than what we saw in the third quarter.

Operator

The next question is from Matthew Clark at Piper Sandler.

Matthew Clark

Just on that point on gain on sale, expecting to step back up, roughly $0.5 million is the right way, maybe, to think about it from a run rate perspective? Just trying to make sure we're in the ballpark.

Lynn Hopkins

So a couple of things. I think everyone knows that our loan sales are combined between our SBA loan sales, which you can sell a little and get a lot because the premiums are there in the marketplace. So we would expect to participate there. And then on the mortgage loan sales, I think that we have to sell quite a bit. Premiums continue to be very thin. I think that the way we look at it, there's probably an opportunity to return to the levels that were -- we saw in the first part of this year, first quarter, but not necessarily the second quarter, which is a little bit outsized. So we are a taker in the market there. We believe our mortgage product continues to be priced competitively. So it should give us an opportunity to sell some of our loans.

Matthew Clark

Got it. Okay. Great. And then on the new originations, $154 million, 6.3%. Can you give us a sense of the types of loans that are in there, just thinking through kind of the growth in loans this quarter was largely SFR, so I just want to get a sense for? And it sounded like you felt like there was some good momentum going into 4Q. Just your thoughts on loan growth, in general.

Johnny Lee

Yes. This is Johnny. So, yes, Q3, I would say approximately 2/3 of the growth was contributed by SFRs. But we also see growth in C&I and C&D loans or construction loans. One positive thing we see on the C&I and C&D loans, by number of accounts, if you will. We have a much larger number of new borrowers or new loans that hopefully -- as they utilize these C&I, C&D credits, that hopefully that can contribute to our net loan growth in the near future.

Matthew Clark

Okay. And then just on the margin and kind of digging into it a little bit. I know you've got, what, 52% of your loans are variable rate, but those include ARMs. And so trying to get at what portion of your loan portfolio resets with the Fed? And then how should we think about your interest-bearing deposit beta, assuming we get another rate hike here in December?

Lynn Hopkins

Sure. So thanks for starting with the loan portfolio. So about 52% is variable. We do kind of look at what reprices over the next 2 years. I would share that about 2/3 of that population is eligible to reprice in the first year. So they don't all immediately reprice. There's various repricing dates. But based on the structure of our loans, they do have the opportunity over the next year. This does help contribute to -- while we tend to be highly sensitive in the near term, it does shift us to something that looks a little bit more asset sensitive as rates rise and our loans continue to reprice into a higher rate environment.

So turning to the liability side, when we think about our interest-bearing deposits and the betas there. I think over the last year, our betas have been, maybe, around 50%. But given the expectation of rate increases and kind of looking at the brokered CD market, I think things have priced in the rate increases. So I expect the near term to be a little bit higher than that, and then we will moderate over time. So there's a lot of pressure on the cost of liquidity right now is my general comment.

So I think over time, it will moderate, Matthew. But in the near term, I think it's going to provide a little bit of pressure.

Matthew Clark

Okay. So thinking about that 3.06%, kind of, adjusted margin ex the interest recoveries in the special FHLB divvy, a little pressure on that kind of normalized margin maybe hanging around 3% or you think you might start dipping below 3%?

Lynn Hopkins

I don't have a crystal ball. I think there's a lot of things that are going to support our net interest margin. So in addition to the fact that we have about -- so out of the 52%, I would say 2/3 reprices over the 1 year. We're also participating in new loan originations in the current environment. I think there'll be comments on the pipeline looks strong. I think to Johnny's point, we have C&I and construction loans that will be originating in the current rate environment. So there are things that continue to push up on the loan yield and the earning asset yield in the absence of interest recoveries or a special FHLB dividend.

And then on the funding side, yes, I think that things will be more expensive, but it does take time for that to come through. I think there's an opportunity for our net interest margin to be above 3%, but it does take participating in the current interest rate environment on the earning asset side.

Operator

Next question comes from Kelly Motta at KBW.

Kelly Motta

I apologize if I missed it here. Lynn, can you just quantify the amount of the interest recovery that impacted NIM in the quarter?

Lynn Hopkins

Kelly, it was around $700,000. So we were able to recapture some interest on the payoff of a nonperforming loan.

Kelly Motta

Got it. That's helpful. And then, as we think about -- you guys have continued to make progress on the credit recovery story. In higher for longer, as you, kind of, look at what's left to be done, how are you guys thinking through whether at the margin, if you're seeing any incremental headwinds on the credit side from borrowers and the potential to flow there?

Lynn Hopkins

Kelly, if I'm understanding your question, I think at this point, RBB's nonperforming assets at this point are very well understood that they're, kind of, down to 3 primary assets. And we're looking carefully at what we would classify as criticized and classified and criticized loans. Is that -- am I understanding your question correctly?

Kelly Motta

Yes. I mean, I guess you still have what's left to work out there, I guess, the potential -- if you're seeing any, kind of, like potential incremental headwinds from, I guess, the rest of the portfolio?

Lynn Hopkins

Right. So I think that's how we would look at our criticized and classified loans, and those have continued to decrease, and we monitor them carefully in the current environment. I would say, generally, no. There's always some credit that you have to be managing that risk, but that's an area that we think is under control, dare I say.

Kelly Motta

Got it. That's helpful. And then I guess a lot of the growth here was driven by single-family residential during the quarter. Obviously, you guys have a differentiated product that is, as you say, very competitively priced. But, kind of, as you look ahead, what's the overall pipeline for growth? And is there any change in mix given, kind of, the rate environment we're in?

Johnny Lee

Kelly, this is Johnny. So I would say, obviously, with our Northern California LPO now the teams are sort of completely in place. We see a great deal of momentum there, and much of the growth that from there, it's going to be very much all commercial loans, be it C&I, CRE, even including construction. So we do see that contribution making very -- making a very positive contribution for us. So that hopefully will help us sort of change the mix a little bit, I guess, overall. So especially single-family resi loans, typically Q4 regard -- even without the rate hikes, if you will, typically, Q4 is seasonality-wise is typically slower on the SFRs. But we do have a very strong pipeline on the commercial side right now that I think we will hopefully be able to change our mix a little bit.

Operator

Next question comes from Andrew Terrell at Stephens.

Andrew Terrell

Lynn, maybe just wanted to start just checking in on, kind of, the expectation around the expense run rate. And then you guys -- you've managed expenses very well throughout this year. Just what type of expense growth you're targeting? And if you could talk about any specific drivers like where you're most focused from an investment perspective right now?

Lynn Hopkins

Andrew, I was tracking the first half of your question. Was the second half related to noninterest expense as well? Can you just repeat that?

Andrew Terrell

Yes. Sorry. Just expectation, kind of, near term on the expense run rate. And then just bigger picture, you guys have managed to low single-digit expense growth this year so far. Is that still, kind of, the right ballpark? And can you talk about what areas of investment you're most focused in right now?

Lynn Hopkins

Great. Okay. Thank you. Sorry, I didn't hear the end of that the first time. So with the expectation of our expense run rate based on where we've been making investments and able to grow, as we mentioned, this is our first full quarter with the loan production office in Northern California. So those are included in our run rate at this point in time. I think there's an expectation that our OREO costs can moderate a little bit. We were catching up as we brought that onto the balance sheet this quarter.

We also had some costs associated with bringing in the production tax credits, and that translated to more income to the bottom line that showed up maybe in some of our professional fees. We also think that some of our compensation costs will be reflective of our growth, but we had a couple of things in there this quarter that might show that going down a little bit in the fourth quarter. Obviously, January is always a big month between raises, insurance premiums resetting and taxes. So there's definitely some things that we expect to go down.

The last one I would comment on is our data processing. We've spoken a bit about those costs. There's an expectation that we'll have an opportunity to improve our run rate in that particular category. And that should show up potentially in the fourth quarter, but more likely first quarter in 2027. The building sale, we have a little bit of additional cost in that particular line item as we are leasing space instead of owning it. The offset to that was higher interest income as we will deploy the proceeds there.

So there's a lot of different things that add up to our expectations of being around $19 million, call it, plus or minus $100,000, $200,000. So sorry, it's not a short answer, but there's a lot going on. And to your point, we work very hard to manage our overhead.

Andrew Terrell

Yes. No, I really do appreciate all the added color there. If I could go back to just one question around the margin. If I look at your time deposit costs as of the third quarter, 3.60-ish or so, Lynn, it sounds like pretty intense competition if you're looking against, kind of, the brokered market or I would just imagine in some of your local markets as well. Like can you help frame just where new deposits are at today or where you feel like pricing, specifically on the time deposit side needs to be in order to maintain or grow balances?

Lynn Hopkins

Sure. So to your point, CD balances or CD rates, what we're observing in the market, 12-month money is very popular. 6-month money is priced probably just over 4%, 6-month, 1-year money, given the expectation of rate hikes is up over -- in the brokered market, up over 4.50%. So competing for those dollars relative to our balance sheet, we're definitely well over 4% in that area. But as I mentioned earlier, a big part of our loan portfolio in addition to loan production is able to also participate in repricing. So it is moving up significantly in the deposit pricing category.

Andrew Terrell

Yes. Got it. Okay. And then just last one for me. It was good to see...

Lynn Hopkins

Let me make one additional comment, which I think speaks to loan production. We focus on short-term rates, which does impact, call it, funding, right? The liabilities tend to reprice more immediately and can create a bit of a headwind. But the way it's getting addressed is through the repricing of our loan portfolio. But the long end of the curve isn't moving up quite as aggressively. So the curve seems to potentially be flattening out, not perfect, but that does support additional production to then move generally into this environment. So that's, I think, what will be a natural hedge against some of the deposit pricing. But funding costs will go up. That is unavoidable in the near term.

Andrew Terrell

Yes. Got it. And if I could just ask one last one. I mean it was good to see the sub debt redemption this quarter as a use of capital. You've still got a pretty incredible capital position. The asset quality has improved significantly over the past couple of years. Your margins are better, ROA is better, but your stock is still trading a little bit below tangible book value. I guess when you put all that together, I know you're limited by liquidity a bit, but would you ever consider a tender offer? Are there other means to rightsize or leverage the capital base a bit? Just would love to hear your thoughts there.

Lynn Hopkins

Sure. No, thanks for the question. To your point, we do have a lot of capital. There is potential for leveraging that. I'm not sure that I think we needed to put a few things in place, which is getting our credit to be, I think, better understood, to your point, sustainable earnings. I think the participation in our stock buyback program has been consistent. And we are looking, I think, at the sub debt as well as maybe an opportunity to rightsize that relative to our balance sheet. But I don't know if I would say a tender offer on our stock at this point in time. Appreciate that we're trading below tangible book. So it is an attractive investment.

Operator

Next question comes from David Hart at Grant Private Wealth Management.

David Hart

I'm pleased to see what a solid quarter it was. I like the way that things continue to improve. I did have a couple of questions that have been answered already, but I have a couple of more on the asset quality on the balance sheet. First one is the large OREO item. Can you describe that further? What sort of mixed-use project it is? How far along is it towards completion? What are your expectations for the timing and exit from that?

Lynn Hopkins

David, it's Lynn. I think we have shared that this OREO is -- or it was a 60% or so completed construction project in the Los Angeles area by one of the major sports venues. It's now moving through its nonperforming asset life as an OREO. It is now listed for sale above the carrying value that we have on our books. And given the size of the project, we're expecting that we'll have an opportunity to exit it in the first half of next year.

David Hart

Well, that would be a positive. Moving on more into the asset quality. You noticing any common threads among substandard and other criticized loans? For example, are they running into problems due to fuel prices or other things? Just asking if there's any common themes or threads in that.

Lynn Hopkins

Good question, and we look at that as well. And at this point, we haven't identified any common threads for the assets that we are looking at or managing.

David Hart

Last question, somewhat of a decline, not major, but notable decline in the securities held. It seems to be a little bit puzzling given the way that the bond yields have risen in the recent quarter. Do you expect to start adding back to the securities to take advantage of the higher bond yields? Or is there a plan on that at all?

Lynn Hopkins

So yes, I did notice we are down just a little bit quarter-over-quarter. So we do actively manage the portfolio. I appreciate that there's higher yields. I think that we made a concerted effort and put the duration on inside of our loan portfolio. We always keep a bit of commercial paper, which gives us flexibility, I think, in the securities portfolio. But your comment regarding higher yields in the market and taking an opportunity to add something in the securities portfolio is a good one.

David Hart

Last question. Any comments? Are you pleased or disappointed? Any other comments on the new San Francisco Bay Area loan production office? How is that one going?

Johnny Lee

No. David, this is Johnny. No. So far, so good. Everything is tracking very positively. We're very pleased with the team. Yes, they're making great contributions right off the gate.

Operator

At this time, we have no other questions registered. I will turn the call back to Johnny Lee.

Johnny Lee

Thank you. Once again, thank you for joining us today. We look forward to speaking to many of you in the coming days and weeks. Have a great day, everyone. Thank you.

Operator

Thank you, sir. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you again for your participation.