Forbright (NASDAQ:FRBT) reported strong loan growth, stable credit performance and expanding digital deposits in its first earnings call as a public company, with management saying it expects lending growth to accelerate in the second half of 2026.
Chairman and Chief Executive Officer John Delaney said total loans increased by about $275 million from the first quarter, while loan originations rose 13% sequentially. The company recorded $1.2 billion in new and upsized loan commitments during the quarter, with healthcare finance and lender finance accounting for the largest portions of activity.
Loan Growth Expected to Accelerate
Management said lender finance and healthcare finance were the strongest contributors to lending activity in the first half, though growth was broadly balanced across the company’s strategies. Delaney said commercial real estate has a particularly strong pipeline and is expected to contribute more in the second half than it did in the first half.
Forbright also closed the first transaction in its new asset finance business during the second quarter. Delaney characterized the deal as small but said it closed several months ahead of schedule. He said the team leading the business has substantial industry experience and could ultimately build the unit into one of Forbright’s larger lending operations.
Loan yields increased by roughly three basis points during the quarter. Delaney said new-loan spreads have remained relatively stable after prior compression, while the company has continued to maintain disciplined structures.
During the question-and-answer session, management said it had strong visibility into deals expected to close over the next 30, 60 and 90 days. President and Chief Operating Officer Don Cole said the company also had several relatively large payoffs and paydowns in the second quarter that it grew through, and it does not currently expect the same level of activity in the third quarter.
Credit Trends Remain Favorable
Forbright’s core net charge-off rate, covering its six national lending strategies, was 8 basis points, unchanged from the first quarter. Total net charge-offs were $2.7 million, down from $4.1 million in the first quarter.
Cole said the company’s limited credit issues remain concentrated in discontinued and shrinking legacy community-bank and forward-flow small-balance portfolios, rather than in its national lending businesses. Management said it expects charge-offs in those runoff portfolios to remain somewhat variable but not to materially alter the company’s broader credit outlook.
The company’s allowance for credit losses was about 1% of loans. Cole said the allowance is expected to gradually decline as higher-reserve runoff portfolios shrink, noting that the core lending portfolio carries an allowance closer to 70 basis points.
Digital Deposits Outperform Expectations
Forbright said it surpassed 100,000 accounts on its proprietary digital banking platform, with approximately 90% of associated deposits covered by FDIC insurance. Digital deposits increased 9% from the first quarter, allowing the company to reduce some higher-cost funding and modestly improve its funding costs.
The company launched a digital deposit promotion capability on June 15. Delaney said the promotion has performed “meaningfully better” than projected and should leave Forbright with significantly more deposits than initially planned at the end of the third quarter.
Chief Strategy Officer Aaron Juda said the promotional offering remains available through the end of August, though the company has reduced some marketing activity because of its early success. Forbright’s base savings rate was 3.85% at the time of the call, while new customers meeting a $1,000 balance threshold could receive an additional 30 basis points through Dec. 31.
Juda said retention among existing digital-deposit customers remained strong, with more than 96% of customers who opened accounts still funded. The company expects the additional deposit base and reduced need for future deposit growth to create more flexibility to lower funding costs.
Management also said its digital checking product remains on schedule for an internal friends-and-family launch at the end of 2026 and a national launch in the first quarter of 2027. Juda said the product is expected to build gradually through 2027, with a larger contribution anticipated later in the year and into 2028.
Quarterly Earnings and Expenses
Forbright reported net income of $4.1 million, or $0.09 per fully diluted share. Net interest income increased 6% sequentially to $63.1 million, while net interest margin expanded 9 basis points. Pre-provision net revenue rose 15% from the first quarter to approximately $19 million.
Second-quarter expenses increased about $7 million from the prior quarter, driven largely by three items:
- A pre-IPO employee retention program, which added $3.9 million of expense.
- $3.2 million in solar servicing pass-through expenses that are reimbursed through other non-interest income.
- $900,000 in expenses tied to the acquisition of Forbright’s corporate headquarters building.
Cole said the headquarters building also generates rental revenue that more than offset the additional costs, producing roughly $400,000 of pretax income during the quarter. Excluding the discrete items, operating expenses would have been relatively flat from the first quarter, he said.
The company’s efficiency ratio was 77% in the second quarter, and management reiterated its medium-term target of 50% or below. Cole said headcount has remained relatively stable over the past six quarters despite roughly 40% loan growth and a doubling of digital deposits. Excluding solar services employees, headcount has increased by only five people during that period.
Capital, Taxes and Outlook
Chief Financial Officer Chris Lynch said Forbright ended the quarter with a 13% common equity tier 1 ratio at the parent company and 14.1% at the bank. The parent’s Tier 1 leverage ratio was 10.4%, while the bank’s was 11.2%. Those figures did not include $18 million in gross proceeds from the exercise of the IPO overallotment option, which closed in July.
Cash and available-for-sale investments totaled more than $2 billion at quarter-end, while the loan-to-deposit ratio increased about two percentage points from the first quarter to 83.5%.
The company’s tax rate rose to 69% in the second quarter from 12% in the first quarter, primarily because public-company tax rules limited deductions for executive compensation following the IPO. Lynch said Forbright estimates its tax rate will be approximately 20% for the second half of 2026 and about 17.5% for 2027, excluding discrete items.
Management said the company expects third-quarter net interest margin to be not materially different from the second-quarter level, as higher expected liquidity could temporarily reduce the loan-to-deposit ratio. However, executives said the stronger deposit position is expected to provide more meaningful funding-cost benefits after the third quarter.
