Forbright's Deposit Cost Drivers and Checking Product Timelines Don't Align in Q2 2026 Earnings Call

Date of Call: Jul 30, 2026

Financials Results

• Revenue: Not explicitly provided; Net interest income was $63.1 million, up 6% from last quarter.
• EPS: $0.09 per share on a fully diluted basis.

Guidance:

• Expect second-half loan growth to be greater than first half, with acceleration expected.
• Expect continued investments in technology to enhance deposit promotion capabilities.
• Target efficiency ratio of 50% or below through executing strategy and simplifying the business.
• Expect continued growth in non-interest income from FHA/HUD business pipeline.
• Tax rate estimated at approximately 20% for second half of 2026 and 17% for fiscal year 2027.
• Digital checking product launch on track for national rollout in first quarter of 2028.
• Expect loan spreads to remain relatively stable.
• Expect ACL to slowly gravitate downward as non-core portfolios run off.
• Expect continued strong retention of digital deposit customers.

Business Commentary:

Strong Loan Growth and Favorable Credit Trends:

• Fulbright Inc. reported total loan growth of $275 million in Q2, with loan originations up 13% compared to Q1.
• The growth was driven by strong demand across its six national lending strategies, particularly in healthcare and lender finance, and a robust pipeline expected to accelerate in the second half.

Digital Deposit Platform Success:

• The company's digital deposit platform surpassed 100,000 accounts, with 90% of deposits being FDIC-insured.
• Digital deposits increased by 9% in Q2, attributed to the successful launch of a digital deposit promotion capability, which improved the cost of funds.

Expense Management and Efficiency:

• Fulbright maintained expense discipline, with operating expenses relatively flat excluding discrete items like employee retention programs and solar servicing pass-through expenses.
• The company is on track to meet its 2027 expense targets, driven by intentional headcount management and operational efficiencies.

Improved Net Interest Income and Margin:

• Net interest income rose to $63.1 million, up 6% from Q1, with a 9 basis point expansion in the net interest margin.
• This improvement was due to increased loan yields and a lower cost of funds, despite some government delays impacting the FHA business.

Positive Outlook on Credit Quality:

• The net charge-off rate decreased to $2.7 million in Q2, down from $4.1 million in Q1, with credit issues concentrated in legacy portfolios.
• The company's rigorous credit standards and strong focus on national lending businesses contributed to favorable credit trends.

Sentiment Analysis:

Overall Tone: Positive

• John stated: 'we would expect second-half loan growth to be greater than first half, because we see it accelerating as we go into the second half.' Don noted: 'the results this quarter add to our confidence in the fundamentals of our business.' John also said: 'I think we can continue to hold the line' on expenses and 'feel so bullish about 2027.' Aaron Judah highlighted: 'the promotion is performing meaningfully better than we had planned.'

Q&A:

• Question from Moshe Arnbach (T.D. Cowen): Could you flesh out the loan growth and commitments, any verticals changing, and how acceleration into second half might look?
  Response: Loan growth was balanced across businesses in Q2, with healthcare and lender finance strongest; commercial real estate and new asset finance expected to accelerate in second half. Credit metrics remain favorable, and pipelines are strong.

• Question from Moshe Arnbach (T.D. Cowen): Given macro changes on rate expectations, what are thoughts for second half on rates and deposit pricing?
  Response: John will address rate thoughts; Aaron Judah added that deposit promotion success allows for better cost management, with pricing decisions to be evaluated after the current promotion runs through August.

• Question from Ryan Nash (Goldman Snacks): Can you put finer point on expense management progress and achievement of 2027 goals?
  Response: Expenses were stable excluding discrete items; headcount growth has been intentional and flat/declining. Operating leverage exists, and initiatives are in place to hold the line, supporting confidence in 2027 targets.

• Question from Ryan Nash (Goldman Snacks): Where are you seeing acceleration in commercial real estate and other verticals, and can you maintain 5%+ loan growth?
  Response: Pipeline visibility is strong for near-term closures; meetings have been longer and deal quality is high. Expect loan growth to improve, supported by focus on execution post-IPO distractions.

• Question from Jared Shaw (Barclays): Can digital deposit growth continue to accelerate, and how is retention on existing balances?
  Response: Digital deposit growth was 9% in Q2; retention on existing digital deposit customers is over 96%, with strong stability. The promotion engine allows for better cost management as balances grow ahead of targets.

• Question from Jared Shaw (Barclays): What were dynamics behind solar services fee income growth?
  Response: Solar services growth was due to increased pass-through expenses from the servicing business; the portfolio itself was stable to slightly shrinking.

• Question from Jared Shaw (Barclays): In a neutral rate environment, do healthcare and lender finance still have tailwinds?
  Response: Loan spreads were stable; healthcare and lender finance have wider spreads, but recent 3 bps increase was due to offsetting factors (e.g., discount accretion from prepayments).

• Question from Nathan Race (Piper Sandler): Can you update on digital checking product rollout and its impact on deposit costs?
  Response: Product remains on track for national launch in Q1 2028; internal launch and build ongoing. It will be marketed primarily to existing customers, with balance growth expected more in back half of 2028.

• Question from Nathan Race (Piper Sandler): What is the outlook for fee income growth across various lines, especially solar servicing and HUD?
  Response: Biggest growth opportunity is FHA/HUD business as pipeline recovers from delays; fees should grow with portfolio growth. Solar servicing outside pass-throughs should stay stable. Small rental income from building ownership will increase.

• Question from Nathan Race (Piper Sandler): Any visibility on magnitude of charge-offs going forward?
  Response: Non-core portfolios had higher charge-offs in Q1, lower in Q2; expect them to remain stable. Core business credit is strong, and non-core portfolios are running off, which should reduce future charge-offs.

• Question from Anthony Killian (JP Morgan): How should we think about provision expense in second half relative to $6M in Q2?
  Response: ACL expected to slowly decline as non-core portfolios run off (which have higher provision). Provision expense likely to come down somewhat in Q3, but may be impacted by loan growth.

• Question from Anthony Killian (JP Morgan): How are you thinking about NIM or NII in second half given Q2 expansion and cost of funds improvements?
  Response: NIM not expected to be materially different in Q3. Cost of funds improvement will manifest more post-Q3 as loan-to-deposit ratio decreases, positioning for better margins in Q4.

• Question from Russ Chow (Wells Fargo): Thoughts on deposit competition and rates going forward?
  Response: Current base savings rate is 3.85% with a 30 bps promotion; results have been positive. Focus is on grinding down all-in cost of funds, with promotions expected to expand in capability over time.

Contradiction Point 1

Digital Deposit Promotion Success and Cost of Funds

It involves inconsistent messaging on the primary driver of improved funding costs, which is crucial for understanding the company's financial strategy and cost management.

Moshe Arnbach (T.D. Cowen) - Moshe Arnbach (T.D. Cowen)

2026Q2: Success in deposit growth provides flexibility to manage costs more effectively... The strong retention rate (~96%) among existing digital deposit customers supports the strategy. - Aaron Judah(CFO)

How do macroeconomic changes and interest rate expectations impact your strategies for deposits and pricing in the second half of this year? - Jared Shaw (Barclays)

2026Q2: It is a bit of both, but more so the latter. The significant increase in digital deposit balances ahead of plan allows the company to manage its cost of funds better going forward... The retention of existing digital deposit customers remains very strong (>96%). - Don Cole(CFO)

Contradiction Point 2

Digital Checking Product Launch Timeline

It involves contradictory timelines for the national rollout of a key product, which affects strategic planning and market expectations.

Nathan Race (Piper Sandler) - Nathan Race (Piper Sandler)

2026Q2: The product is on track for a national launch in Q1 2028 (with an internal/friends & family launch in late 2027)... - Aaron Judah(CFO)

What are the timing and plans for rolling out the digital checking product, and how will it impact deposit costs? - Nathan Race (Piper Sandler)

2026Q2: The rollout is still on track. Internal/Friends & Family launch is at year-end, with a full national launch in Q1 2027. - Aaron Juda(CFO)