Forbright Bank’s Community Reinvestment Act compliance needs improvement, according to an updated evaluation published by the Federal Deposit Insurance Corp.
The downgrade is related to an origination relationship the Chevy Chase, Maryland-based climate-focused bank had with a third party, a source familiar with the evaluation told Banking Dive. That relationship ended in April 2022, and the origination in question made up less than 0.05% of the bank’s assets, according to the source.
The undisclosed third party, a credit-building fintech, charged users fees that triggered CRA concerns for the FDIC. Forbright, which did not charge or derive revenue from those fees, is repaying affected users, the source said. The bank is committed to fully remediating the issue, they said.
Forbright is “deeply committed to the communities we serve and have developed systems and plans to remedy all the issues identified in the CRA evaluation,” a spokesperson for the bank said via email. “This includes discontinuing a line of business at issue, enhancing our monitoring and reporting systems, and implementing new policies and procedures to strengthen our processes moving forward.”
The bank has also built up its risk management team, the spokesperson said, and is “fully committed to operating at the highest standards.”
The CRA evaluation is unrelated to an FDIC consent order the bank is facing. That order, which went public late last month but was dated May 3, cited Forbright’s “reliance on noncore funding” as a liquidity risk.
That noncore funding came from brokered sweep deposits, a type of deposit sourced from uninvested cash in customer accounts. Brokered sweep deposits are sometimes seen as “hot money” because they migrate toward higher interest rate yields and are therefore less “sticky” than typical retail deposits, according to American Banker.
A Forbright spokesperson told Banking Dive the bank takes the consent order seriously and it’s working to address issues the FDIC identified.
“This includes enhancing our risk management policies and procedures and launching successful direct-to-consumer savings accounts that are replacing brokered sweep deposits,” the spokesperson said.
Forbright offers a high-yield savings account and high-yield certificates of deposit.
“The bank has strong capital levels with a CET1 ratio of ~16%, cash and short-term liquidity exceeding 40% of assets, and over 85% of our deposits are insured. The bank's earnings are strong and fortunately only ~1% of our loans are secured by commercial office buildings and our securities portfolio is overwhelmingly short-term treasuries,” the spokesperson said. “The bank's core lending areas – healthcare, lender finance, real estate, and leveraged finance – are all actively lending in today's market.”
An FDIC spokesperson did not return a request for comment by press time.
