Forbright, Inc.

The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. Consumers can maintain funds that would have historically been held as bank deposits in brokerage accounts or mutual funds. Consumers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks. In addition, the emergence, adoption and evolution of new technologies that do not require intermediation, including distributed ledgers such as digital assets and blockchains, as well as advances in robotic process automation and AI, could significantly affect the competition for financial services. For example, growth in cryptocurrency and DeFi could reduce traditional banking deposits and income streams, challenging our ability to attract and retain consumers. A substantial shift of consumer deposits to these alternative products could adversely affect our liquidity position, funding costs, and overall financial stability. Regulatory uncertainty regarding cryptocurrency and DeFi could further complicate our strategic decisions, increase compliance costs, and potentially expose us to reputational and operational risks.

Technological advances, including the development and implementation of generative and agentic AI and other AIML technologies, may impact our business and our ability to successfully adopt and implement new technologies that our customers desire.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new, technology-driven products and services. As a digital financial services company and a primarily direct bank with a limited branch network, we significantly depend on technology to deliver our products and services and to otherwise conduct our business and operations. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy consumer demands. The recent technological advances in development and use of artificial intelligence and machine learning (“AIML”) present a number of risks and challenges to our business. The legal and regulatory environment relating to AIML is uncertain, rapidly evolving and includes regulation targeted specifically at AIML as well as provisions in intellectual property, privacy, consumer protection, employment and other laws applicable to the use of AIML. These evolving laws and regulations could require changes in our implementation of AIML and increase our compliance costs and the risk of non-compliance, including in relation to data privacy and security requirements. AIML models may be more susceptible to cybersecurity threats due to risks from using external, third-party data sources and given the volume of data they utilize, which, in turn, could make us more susceptible to cybersecurity threats.

The emergence of agentic and generative AI in particular presents unique risks and challenges that may adversely impact our business, including the production of output or taking of action that is incorrect. We or our third-party vendors or counterparties may develop or utilize such AIML in certain business processes, services, or products. Particularly agentic or generative AI models, may produce output or take action that is incorrect, that reflect biases included in the data on which they are trained, or that is otherwise harmful, which would likely degrade the effectiveness of such AI and could adversely impact us to the extent that we, our affiliates and our service providers or other third parties engaged by us rely on the work product of such AI. Use of AIML models may also infringe on the intellectual property rights of others or otherwise be affected by claims of infringement, misappropriation or other violations of intellectual property, including based on the use of large datasets used to train AI or the use of output generated by AI, in either case which contain or are substantially similar to material protected by intellectual property, including patents, copyrights, trademarks, or trade secrets. Furthermore, the use of personal or nonpublic information in connection with agentic or generative AI by the Company could result in a violation of certain laws, including data privacy laws and the data privacy and security requirements of the Gramm-Leach-Bliley Act of 1999 (“GLBA”), exposing us to legal liability or regulatory penalties.

We view the broader economy as benefiting from significant AI-related capital spending and inflation likely remaining elevated, driven mostly by geopolitical conflicts. We have very little credit exposure to the AI economy, which we view as an unattractive credit opportunity, or to software businesses that could be disrupted by new technologies. In general, broader economic conditions, while a consideration, are not central to our credit decisions, which rely on rigorous and disciplined bottom-up underwriting of asset values and cash flows.

We believe AI will accelerate this shift by lowering the cost and raising the quality of deposit-gathering and the disruption is about to intensify as AI agents that maximize deposit yields for consumers gain widespread adoption. JPMorgan's "Smart Cash," for instance, automatically sweeps idle balances into higher-yielding accounts. As these agents proliferate, they strip away the inertia that lets branch banks hold large balances in low- or no-interest accounts. Money will move fluidly to whoever offers a fair rate through the cleanest digital rails - a clear advantage for digitally native banks like Forbright.

The road ahead is straightforward. Our digital banking platform has significant capacity to grow, and each of our national lending businesses can scale meaningfully. Because our operating infrastructure is already built, every incremental loan and deposit carries only marginal cost - so growth drives dramatic improvement in operating efficiency, and AI could lower costs further still. None of this is accidental. It is the product of deliberate design, disciplined execution, and a long-term commitment to building an enduring franchise.

At the same time, we are actively exploring adjacent opportunities where our deposit technology platform could provide a distinct advantage as AI reshapes the deposit market. We will evaluate these opportunities with discipline, but once the path is clear, we plan to pursue them with ambition.