Forbright, Inc. Class A Common Stock Q2 FY2026 earnings call

• Overall Q2 Performance

  • This is Forbright's first earnings call as a public company, with overall strong operational and financial results
  • Net income was $4.1 million ($0.09 per fully diluted share)
  • Net interest income was $63.1 million, up 6% QoQ, and net interest margin expanded 9 basis points QoQ due to improved asset mix, modestly higher loan yields, and lower cost of funds
  • Pre-provisioned net revenue was up 15% QoQ to ~$19 million

• Capital and Liquidity

  • IPO closing increased capital ratios: Common Equity Tier 1 (CET1) was 13% for the parent company and 14.1% for the bank; Tier 1 leverage ratios were 10.4% for the parent and 11.2% for the bank (does not include $18 million in gross proceeds from over-allotment option exercise that closed in July)
  • Cash and available-for-sale investments totaled over $2 billion at quarter-end, loan-to-deposit ratio was 83.5%, up ~2 percentage points from Q1

• Expense Management

  • Q2 operating expenses increased $7 million QoQ due to three discrete items: $3.9 million from IPO-era employee retention program expense recognition, $3.2 million from solar servicing pass-through expenses, $0.9 million from new corporate headquarters building acquisition
  • Excluding these discrete items, operating expenses were flat QoQ, demonstrating built-in operating leverage; headcount has remained stable over six quarters even as loans grew ~40% and digital deposits doubled, with only 5 net new hires outside of the acquired solar servicing business
  • The acquired headquarters building generates rental income that more than offsets its operating expenses, producing ~$400,000 in net pre-tax income in Q2, and is expected to deliver small ongoing net profits
  • Forbright remains on track to meet or exceed 2027 expense targets, with a medium-term target of reaching an efficiency ratio of 50% or below from Q2's 77% through organic growth

• Strategic Highlights

  • The new digital deposit promotion capability launched on June 15, 2026, is performing meaningfully better than internal projections, putting the company on track to end Q3 with significantly more digital deposits than planned
  • Forbright's flexible API-driven technology stack allowed rapid launch of the promotion capability, highlighting the advantage over legacy core banking systems
  • The new asset finance team has deep industry experience collectively larger than Forbright's entire current business, with high long-term growth potential

Forbright is a newly public bank with six core national lending strategies plus a discontinued legacy non-core segment and a solar servicing business. Core national lending strategies: Total loans grew by $275 million quarter-over-quarter (QoQ), with $1.2 billion in new and upsized loan commitments in Q2. Growth was broadly balanced, with healthcare finance and lender finance contributing the largest share of originations. Core net charge-off rate was 8 basis points in line with Q1, with total net charges of $2.7 million, down from $4.1 million in Q1. Loan yields increased 3 basis points QoQ, and pricing/discipline remained strong. The newly added asset finance segment closed its first transaction in Q2, several months ahead of schedule. Non-core legacy segment: All credit issues are concentrated in the shrinking discontinued legacy community bank and forward flow small balance portfolios, which remain appropriately provisioned as they run off. Digital deposits segment: Digital deposits grew 9% QoQ, the platform now has over 100,000 accounts, ~90% of which are FDIC-insured. Strong customer retention of over 96% for opened accounts. Solar servicing segment: The business manages $8 billion of loans for third-party owners. Q2 2026 saw $3.2 million in increased pass-through expenses (mostly for residential solar litigation) that are fully offset by corresponding non-interest income reimbursement, with no net impact to net income. The portfolio is slowly running off over time.

• Loan growth: Second half 2026 loan growth is expected to exceed first half growth, with accelerating momentum driven by a very strong pipeline across all verticals; commercial real estate and the new asset finance segment are expected to outperform their first half results, while healthcare finance and lender finance will remain strong contributors
• Cost of funds: Improved than expected digital deposit growth allows cost of funds reductions to be pulled forward from 2025 into late 2024, with excess liquidity positioning Forbright to reduce reliance on higher-cost brokered/wholesale funding
• Tax rates: Second half 2026 estimated effective tax rate is ~20% (net of 10.5% deferred credit accretion); fiscal 2027 estimated effective tax rate is ~17.5% (net of 10.5% deferred credit accretion), lower than H2 2026 due to fading impact of public company executive compensation deduction limits
• Digital checking product: Internal friends-and-family launch remains on track for end of 2026, with full national launch planned for Q1 2027; a slow balance build is expected through 2027, with meaningful contribution accelerating in the second half of 2027 and into 2028
• Non-interest income: FHA HUD business fee income, delayed from Q2 to Q3 due to federal agency staffing delays, is expected to grow meaningfully in the second half of 2026 as the underlying loan portfolio grows
• ACL and provision expense: ACL (allowance for credit losses) is expected to slowly decline as the higher-reserve non-core runoff portfolio shrinks; provision expense is expected to run in the $3 million to $5 million range baseline in the second half of 2026

• Discontinued non-core legacy portfolios are shrinking and appropriately provisioned, but will continue to produce minor, intermittent charge-off volatility that does not materially impact overall results
• Solar servicing third-party portfolio pass-through expenses create quarterly P&L volatility due to accounting treatment, but do not impact net income as expenses are fully offset by reimbursement; ongoing residential solar litigation creates recurring quarterly variability in these pass-through amounts
• Federal agency staffing delays can push expected FHA HUD fee income from one quarter to the next, creating short-term non-interest income volatility
• The public company executive compensation deduction limit increased Q2 2026 tax expense significantly, though this impact fades over time

Q: The company noted accelerating loan growth in the second half – can you share how much acceleration is expected, if any verticals will outperform, and what the outlook for credit spreads is? / A: Lender finance and healthcare finance will remain the top contributors, but growth will stay broadly balanced across all six verticals. Commercial real estate has a particularly strong pipeline right now and will perform better in H2 than H1, while the new asset finance segment will improve from its small first deal close in late Q2. Pipeline visibility for the next 90 days is very strong, with many deals already scheduled to close. After a period of spread compression that did not lead to loosened underwriting standards, spreads have now stabilized, and a recent full portfolio deep dive confirmed very strong credit quality across the book.

Q: With better than expected digital deposit growth, how will this impact deposit pricing and your mix of funding in H2? / A: Stronger than projected deposit growth gives the company flexibility to reduce higher-cost brokered and wholesale funding faster, and improve cost of funds sooner than the originally planned 2027 timeline. The company currently retains over 96% of existing digital deposit customers, with stable retention on legacy base rates. After the current promotion ends in August, leadership will assess the new balance levels before making any pricing changes. If rates increase, Forbright would not need to match the increase on the deposit side due to its strong liquidity position.

Q: Can you update the timeline for the national digital checking product launch, and how it will impact deposit cost trends? / A: An internal friends-and-family launch is still on track for end of 2026, with a full national launch scheduled for Q1 2027. The product will be primarily marketed to existing customers initially, with a slow balance build expected through 2027. Meaningful contributions to deposit balances and deposit cost reductions are not expected until the second half of 2027 and into 2028.

Q: What is your outlook for net interest margin (NIM) in the third quarter after the 9 basis point expansion in Q2? / A: Strong deposit growth will bring the loan-to-deposit ratio down in Q3 as the company builds excess liquidity, creating some modest near-term headwinds for NIM. Material cost of funds tailwinds and NIM improvement are expected to manifest in Q4 2026 after the Q3 deposit build is complete. NIM is not expected to change materially in Q3.

Q: What is your positioning on deposit rates relative to competitors, and how are you managing customer acquisition costs? / A: The current base savings rate is 385 bps, with a 30 bps promotional bump for new customers through the end of 2026, putting Forbright near the top of market rates. This promotional positioning has delivered very strong deposit growth and competitive customer acquisition costs, leading the company to dial back marketing spend slightly to align with its stronger than expected early results. Going forward, Forbright plans to expand promotion capabilities to include multi-product and cash-based promotions, focused on reducing all-in cost of funds over time.