[10-K] SR Bancorp, Inc. Files Annual Report
SR Bancorp, Inc. (SRBK) completed a merger on September 19, 2023 and recorded acquisition accounting under ASC 805. Upon completion of a conversion and offering, 9,507,930 shares of common stock were outstanding. The company finalized purchase accounting adjustments by June 30, 2024, reducing goodwill slightly from $20.5 million to $20.4 million and recording a core deposit intangible of $9.1 million.
The filing describes the firm as a single operating segment with the CEO as the chief operating decision maker using consolidated net income to assess performance. Key policy notes include measurement of net interest-earning assets and net interest margin, fair-value adjustments to loans and time deposits related to the acquisition, lease terms of five to ten years (excluding short-term leases), and standard disclosures on investment securities, deposits, borrowings, benefit plans, income taxes, and regulatory capital. As of June 30, 2025, the company reported 8,875,170 and 9,507,930 shares issued and outstanding (two figures appear in the text), and 266,286 shares available for future equity grants.
SR Bancorp, Inc. (SRBK) ha completato una fusione il 19 settembre 2023 e ha registrato la contabilizzazione dell’acquisizione secondo ASC 805. Dopo una conversione e un’offerta, erano in circolazione 9.507.930 azioni ordinarie. Le rettifiche di accounting dell’acquisizione sono state finalizzate al 30 giugno 2024, riducendo leggermente l’avviamento da 20,5 milioni a 20,4 milioni e registrando un’intangibile legato ai depositi centrali pari a 9,1 milioni.
La documentazione descrive la società come un unico segmento operativo, con l’amministratore delegato come decisore operativo principale che utilizza il reddito netto consolidato per valutare la performance. Note chiave di policy includono la misurazione degli attivi netti che producono interessi e del margine di interesse netto, adeguamenti al fair value su prestiti e depositi a termine relativi all’acquisizione, termini di locazione da cinque a dieci anni (esclusi i contratti a breve termine) e disclosure standard su strumenti di investimento, depositi, indebitamenti, piani di beneficio, imposte sul reddito e capitale regolamentare. Al 30 giugno 2025 l’azienda ha riportato 8.875.170 e 9.507.930 azioni emesse e in circolazione (due cifre presenti nel testo) e 266.286 azioni disponibili per future assegnazioni azionarie.
SR Bancorp, Inc. (SRBK) completó una fusión el 19 de septiembre de 2023 y registró la contabilidad de la adquisición conforme a ASC 805. Tras una conversión y una oferta, había 9,507,930 acciones comunes en circulación. Se finalizaron los ajustes de contabilidad de la adquisición para el 30 de junio de 2024, reduciendo ligeramente la plusvalía de 20,5 millones a 20,4 millones y registrando un intangible de depósitos centrales de 9,1 millones.
La presentación describe a la firma como un único segmento operativo, con el CEO como el tomador de decisiones operativo principal que utiliza el ingreso neto consolidado para evaluar el desempeño. Las notas clave de política incluyen la medición de activos netos que generan intereses y del margen de interés neto, ajustes de valor razonable a préstamos y depósitos a plazo relacionados con la adquisición, plazos de arrendamiento de cinco a diez años (excluyendo arrendamientos a corto plazo), y divulgaciones estándar sobre valores de inversión, depósitos, préstamos, planes de beneficios, impuestos sobre la renta y capital regulatorio. A 30 de junio de 2025, la empresa reportó 8.875.170 y 9.507.930 acciones emitidas y en circulación (dos cifras aparecen en el texto) y 266.286 acciones disponibles para futuras entregas de acciones.
SR Bancorp, Inc. (SRBK)는 2023년 9월 19일 합병을 완료했고 ASC 805에 따라 인수 회계 처리를 기록했습니다. 전환 및 공모가 완료된 후 보통주 9,507,930주가 발행되었습니다. 2024년 6월 30일까지 인수 회계 조정을 최종 확정했고, 영업권은 2050만 달러에서 2040만 달러로 소폭 감소했으며 핵심 예금 무형자산은 910만 달러로 기록했습니다.
공시서는 회사를 단일 영업 부문으로 설명하며 CEO를 운영 의사결정권자로 보며 통합 순이익을 사용해 실적을 평가합니다. 주요 정책 주석으로는 이자 수익은 자산과 순이자마진을 측정하고, 인수와 관련된 대출 및 정기 예금의 공정가치 조정, 임대차 기간은 5~10년(단기 임대 제외), 투자 유가증권, 예금, 차입금, 복리후생 계획, 소득세, 규제 자본에 대한 표준 공시가 포함됩니다. 2025년 6월 30일 현재 회사는 발행 및 소지 주식이 8,875,170주와 9,507,930주로 보고되었고(본문에 두 수치가 나타남), 향후 주식 보상을 위한 266,286주를 보유하고 있습니다.
SR Bancorp, Inc. (SRBK) a conclu une fusion le 19 septembre 2023 et a comptabilisé l’acquisition selon ASC 805. Suite à une conversion et une offre, 9 507 930 actions ordinaires étaient en circulation. Les ajustements comptables de l’acquisition ont été finalisés au 30 juin 2024, réduisant légèrement la bonne volonté de 20,5 millions à 20,4 millions et enregistrant un intangible de dépôts principaux de 9,1 millions.
Le dossier décrit l’entreprise comme ayant un seul segment opérationnel, avec le PDG comme décideur opérationnel principal utilisant le résultat net consolidé pour évaluer la performance. Les notes de politique clés incluent la mesure des actifs nets générant des intérêts et de la marge d’intérêt nette, les ajustements à la juste valeur des prêts et des dépôts à terme liés à l’acquisition, des baux de cinq à dix ans (à l’exception des baux à court terme), et des divulgations standard sur les valeurs mobilières d’investissement, les dépôts, les emprunts, les régimes d’avantages, les impôts sur le revenu et le capital réglementaire. Au 30 juin 2025, l’entreprise a déclaré 8 875 170 et 9 507 930 actions émises et en circulation (deux chiffres figurent dans le texte) et 266 286 actions disponibles pour de futures attributions d’actions.
SR Bancorp, Inc. (SRBK) hat am 19. September 2023 eine Fusion abgeschlossen und die Erwerbsbilanz nach ASC 805 erfasst. Nach einer Umwandlung und einem Angebot waren 9.507.930 Stammaktien ausgegeben. Die Abschlussbuchungen der Erwerbskontierung wurden bis zum 30. Juni 2024 abgeschlossen, wodurch der Goodwill leicht von 20,5 Mio. USD auf 20,4 Mio. USD reduziert wurde und eine Kern-Depositen-Immateriellest nicht bezeichnete Position von 9,1 Mio. USD erfasst wurde.
Die Einreichung beschreibt das Unternehmen als eine einzige operierende Geschäftseinheit, bei der der CEO als Chief Operating Decision Maker fungiert und die Leistung anhand des konsolidierten Nettoeinkommens bewertet. Wichtige Richtlinienhinweise umfassen die Messung von zinstragenden Vermögenswerten und der Nettomarge, fair-value Anpassungen von Darlehen und Termingeldern im Zusammenhang mit der Akquisition, Mietverträge von fünf bis zehn Jahren (außer Kurzzeitleasing), sowie Standardangaben zu Investmentwerten, Einlagen, Verbindlichkeiten, Pensionsplänen, Einkommensteuern und regulatorischem Kapital. Zum 30. Juni 2025 meldete das Unternehmen 8.875.170 und 9.507.930 ausgegebene und ausstehende Aktien (zwei Zahlen erscheinen im Text) sowie 266.286 Aktien, die für zukünftige Aktienzuteilungen verfügbar sind.
SR Bancorp, Inc. (SRBK) أكملت الاندماج في 19 سبتمبر 2023 وسجّلت محاسبة الاستحواذ وفق ASC 805. بعد التحويل والعرض، كان هناك 9,507,930 سهمًا عاديًا قيد التداول. تم الانتهاء من تعديلات محاسبة الاستحواذ حتى 30 يونيو 2024، مما قلّص الشهرة من 20.5 مليون دولار إلى 20.4 مليون دولار وسجل أصلًا غير ملموسًا خاصًا بالودائع الأساسية قدره 9.1 مليون دولار.
تصف الوثيقة الشركة كخلال قطاع تشغيلي واحد، مع المدير التنفيذي كصانع قرار تشغيلي رئيسي يستخدم صافي الدخل المجمّع لتقييم الأداء. تشمل ملاحظات السياسة الرئيسية قياس الأصول التي تولِّد فائدة وصافي هامش الفائدة، وتعديلات قيمة عادلة للقروض والودائع الآجلة المرتبطة بالاستحواذ، وفترات الإيجار من خمس إلى عشر سنوات (باستثناء الإيجارات القصيرة الأجل)، والإفصاحات القياسية عن الأوراق الاستثمارية والودائع والاقتراضات وخطط المنافع والضرائب على الدخل ورأس المال التنظيمي. حتى 30 يونيو 2025، ذكرت الشركة 8,875,170 و9,507,930 سهمًا مُصدَرةً وقابلة للتداول (يظهر نصّان في السياق)، و266,286 سهمًا متاحًا لجوائز الأسهم المستقبلية.
SR Bancorp, Inc. (SRBK) 已于2023年9月19日完成合并，并按ASC 805确认收购会计。转换和公開募集完成后，已发行普通股为9,507,930股。至2024年6月30日，收购会计调整已最终确定，将商誉从2050万美元略降至2040万美元，并确认核心存款无形资产910万美元。
该披露将公司描述为单一经营性分部，CEO为首席经营决策者，利用合并后的净利润来评估业绩。关键政策要点包括净利息资产及净利息边际的衡量、与收购相关的贷款及定期存款的公允价值调整、租约期限为五到十年（不含短期租约），以及关于投资证券、存款、借款、福利计划、所得税和监管资本的标准披露。截至2025年6月30日，公司报告发行在外股票数为8,875,170股、9,507,930股（文本中出现两组数字），以及用于未来股权授予的266,286股。
- Merger accounting finalized with only modest goodwill adjustment (from $20.5M to $20.4M), indicating limited post‑close valuation changes
- Recorded core deposit intangible of $9.1M, reflecting identifiable aggregate value from the acquisition
- CEO designated as CODM and the company reports a single operating segment, which simplifies performance assessment
- Equity compensation reserve disclosed with 266,286 shares available for future grants, showing plan capacity
- Amortization and interest adjustments from acquisition (fair‑value reductions to loans and time deposits) will affect future reported interest income and expense
- Accelerated amortization of core deposit intangible may pressure future reported earnings relative to cash economics
- Text contains inconsistent share figures (mentions 8,875,170 and 9,507,930 issued/outstanding), requiring clarification
Insights
TL;DR: Acquisition accounting completed; modest goodwill adjustment and a $9.1M core deposit intangible recorded—key for future amortization and earnings impact.
The filing confirms the Merger closed in September 2023 and that the company applied acquisition accounting under ASC 805, finalizing fair value allocations by June 30, 2024. Goodwill was reduced from $20.5M to $20.4M, and a $9.1M core deposit intangible was recorded and will be amortized on an accelerated basis over the estimated life of the deposit base. The filing also notes adjustments that affect reported loan and deposit balances (fair-value reductions to loans and time deposits that flow through interest income/expense over remaining terms). These items are material to near-term profitability through amortization and interest accretion/expense patterns, and they will influence reported net interest margin and non-interest amortization expense going forward.
TL;DR: Governance and reporting structure appear standard: CEO is CODM; consolidated net income used for performance measurement.
The document states the CEO is the chief operating decision maker for a single business segment and that consolidated net income is the primary performance metric used monthly and for benchmarking peers. The filing documents standard disclosures for internal control reporting, remediation activities, and auditor attestation without revealing material control failures. Equity‑based compensation plans and share counts (including 1,331,110 shares reserved for awards and 266,286 available) are disclosed, which are relevant for shareholder dilution analysis. No unexpected governance departures or control weaknesses are stated in the provided text.
SR Bancorp, Inc. (SRBK) ha completato una fusione il 19 settembre 2023 e ha registrato la contabilizzazione dell’acquisizione secondo ASC 805. Dopo una conversione e un’offerta, erano in circolazione 9.507.930 azioni ordinarie. Le rettifiche di accounting dell’acquisizione sono state finalizzate al 30 giugno 2024, riducendo leggermente l’avviamento da 20,5 milioni a 20,4 milioni e registrando un’intangibile legato ai depositi centrali pari a 9,1 milioni.
La documentazione descrive la società come un unico segmento operativo, con l’amministratore delegato come decisore operativo principale che utilizza il reddito netto consolidato per valutare la performance. Note chiave di policy includono la misurazione degli attivi netti che producono interessi e del margine di interesse netto, adeguamenti al fair value su prestiti e depositi a termine relativi all’acquisizione, termini di locazione da cinque a dieci anni (esclusi i contratti a breve termine) e disclosure standard su strumenti di investimento, depositi, indebitamenti, piani di beneficio, imposte sul reddito e capitale regolamentare. Al 30 giugno 2025 l’azienda ha riportato 8.875.170 e 9.507.930 azioni emesse e in circolazione (due cifre presenti nel testo) e 266.286 azioni disponibili per future assegnazioni azionarie.
SR Bancorp, Inc. (SRBK) completó una fusión el 19 de septiembre de 2023 y registró la contabilidad de la adquisición conforme a ASC 805. Tras una conversión y una oferta, había 9,507,930 acciones comunes en circulación. Se finalizaron los ajustes de contabilidad de la adquisición para el 30 de junio de 2024, reduciendo ligeramente la plusvalía de 20,5 millones a 20,4 millones y registrando un intangible de depósitos centrales de 9,1 millones.
La presentación describe a la firma como un único segmento operativo, con el CEO como el tomador de decisiones operativo principal que utiliza el ingreso neto consolidado para evaluar el desempeño. Las notas clave de política incluyen la medición de activos netos que generan intereses y del margen de interés neto, ajustes de valor razonable a préstamos y depósitos a plazo relacionados con la adquisición, plazos de arrendamiento de cinco a diez años (excluyendo arrendamientos a corto plazo), y divulgaciones estándar sobre valores de inversión, depósitos, préstamos, planes de beneficios, impuestos sobre la renta y capital regulatorio. A 30 de junio de 2025, la empresa reportó 8.875.170 y 9.507.930 acciones emitidas y en circulación (dos cifras aparecen en el texto) y 266.286 acciones disponibles para futuras entregas de acciones.
SR Bancorp, Inc. (SRBK)는 2023년 9월 19일 합병을 완료했고 ASC 805에 따라 인수 회계 처리를 기록했습니다. 전환 및 공모가 완료된 후 보통주 9,507,930주가 발행되었습니다. 2024년 6월 30일까지 인수 회계 조정을 최종 확정했고, 영업권은 2050만 달러에서 2040만 달러로 소폭 감소했으며 핵심 예금 무형자산은 910만 달러로 기록했습니다.
공시서는 회사를 단일 영업 부문으로 설명하며 CEO를 운영 의사결정권자로 보며 통합 순이익을 사용해 실적을 평가합니다. 주요 정책 주석으로는 이자 수익은 자산과 순이자마진을 측정하고, 인수와 관련된 대출 및 정기 예금의 공정가치 조정, 임대차 기간은 5~10년(단기 임대 제외), 투자 유가증권, 예금, 차입금, 복리후생 계획, 소득세, 규제 자본에 대한 표준 공시가 포함됩니다. 2025년 6월 30일 현재 회사는 발행 및 소지 주식이 8,875,170주와 9,507,930주로 보고되었고(본문에 두 수치가 나타남), 향후 주식 보상을 위한 266,286주를 보유하고 있습니다.
SR Bancorp, Inc. (SRBK) a conclu une fusion le 19 septembre 2023 et a comptabilisé l’acquisition selon ASC 805. Suite à une conversion et une offre, 9 507 930 actions ordinaires étaient en circulation. Les ajustements comptables de l’acquisition ont été finalisés au 30 juin 2024, réduisant légèrement la bonne volonté de 20,5 millions à 20,4 millions et enregistrant un intangible de dépôts principaux de 9,1 millions.
Le dossier décrit l’entreprise comme ayant un seul segment opérationnel, avec le PDG comme décideur opérationnel principal utilisant le résultat net consolidé pour évaluer la performance. Les notes de politique clés incluent la mesure des actifs nets générant des intérêts et de la marge d’intérêt nette, les ajustements à la juste valeur des prêts et des dépôts à terme liés à l’acquisition, des baux de cinq à dix ans (à l’exception des baux à court terme), et des divulgations standard sur les valeurs mobilières d’investissement, les dépôts, les emprunts, les régimes d’avantages, les impôts sur le revenu et le capital réglementaire. Au 30 juin 2025, l’entreprise a déclaré 8 875 170 et 9 507 930 actions émises et en circulation (deux chiffres figurent dans le texte) et 266 286 actions disponibles pour de futures attributions d’actions.
SR Bancorp, Inc. (SRBK) hat am 19. September 2023 eine Fusion abgeschlossen und die Erwerbsbilanz nach ASC 805 erfasst. Nach einer Umwandlung und einem Angebot waren 9.507.930 Stammaktien ausgegeben. Die Abschlussbuchungen der Erwerbskontierung wurden bis zum 30. Juni 2024 abgeschlossen, wodurch der Goodwill leicht von 20,5 Mio. USD auf 20,4 Mio. USD reduziert wurde und eine Kern-Depositen-Immateriellest nicht bezeichnete Position von 9,1 Mio. USD erfasst wurde.
Die Einreichung beschreibt das Unternehmen als eine einzige operierende Geschäftseinheit, bei der der CEO als Chief Operating Decision Maker fungiert und die Leistung anhand des konsolidierten Nettoeinkommens bewertet. Wichtige Richtlinienhinweise umfassen die Messung von zinstragenden Vermögenswerten und der Nettomarge, fair-value Anpassungen von Darlehen und Termingeldern im Zusammenhang mit der Akquisition, Mietverträge von fünf bis zehn Jahren (außer Kurzzeitleasing), sowie Standardangaben zu Investmentwerten, Einlagen, Verbindlichkeiten, Pensionsplänen, Einkommensteuern und regulatorischem Kapital. Zum 30. Juni 2025 meldete das Unternehmen 8.875.170 und 9.507.930 ausgegebene und ausstehende Aktien (zwei Zahlen erscheinen im Text) sowie 266.286 Aktien, die für zukünftige Aktienzuteilungen verfügbar sind.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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Securities registered pursuant to Section 12(b) of the Act:
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officer's during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on the end of the most recently completed second fiscal quarter was $
The number of shares of Registrant’s Common Stock outstanding as of September 22, 2025 was
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's proxy statement for its 2025 annual meeting of stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K
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Table of Contents
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PART I |
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Item 1. |
Business |
1 |
Item 1A. |
Risk Factors |
23 |
Item 1B. |
Unresolved Staff Comments |
33 |
Item 1C. |
Cybersecurity |
33 |
Item 2. |
Properties |
35 |
Item 3. |
Legal Proceedings |
36 |
Item 4. |
Mine Safety Disclosures |
36 |
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PART II |
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Item 5. |
Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities |
37 |
Item 6. |
[Reserved] |
37 |
Item 7. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
38 |
Item 7A. |
Quantitative and Qualitative Disclosures About Market Risk |
51 |
Item 8. |
Financial Statements and Supplementary Data |
51 |
Item 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
51 |
Item 9A. |
Controls and Procedures |
51 |
Item 9B. |
Other Information |
52 |
Item 9C. |
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections |
52 |
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PART III |
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Item 10. |
Directors, Executive Officers and Corporate Governance |
53 |
Item 11. |
Executive Compensation |
53 |
Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
53 |
Item 13. |
Certain Relationships and Related Transactions, and Director Independence |
53 |
Item 14. |
Principal Accountant Fees and Services |
53 |
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|
PART IV |
|
|
Item 15. |
Exhibits and Financial Statement Schedules |
54 |
Item 16. |
Form 10-K Summary |
54 |
ii
PART I
Item 1. Business.
General
SR Bancorp, Inc. SR Bancorp, Inc. (“SR Bancorp” or the “Company”) is a Maryland chartered company and the holding company for Somerset Regal Bank (the “Bank”). SR Bancorp’s primary business activity is the ownership of the outstanding common stock of Somerset Regal Bank. SR Bancorp does not own or lease any property but instead uses the premises, equipment and other property of Somerset Regal Bank with the payment of appropriate rental fees, as required by applicable law and regulations, under the terms of an expense allocation agreement.
At June 30, 2025, SR Bancorp had total assets of $1.08 billion, deposits of $846.0 million and total stockholders' equity of $193.8 million.
The Company became the holding company for Somerset Regal Bank as part of the mutual-to-stock conversion of Somerset Savings Bank, SLA as described below.
In the future, SR Bancorp may acquire or organize other entities or operating subsidiaries; however, there are no current plans, arrangements, agreements or understandings, written or oral, to do so.
Our website address is www.somersetregalbank.com. We make available on our website, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. Information on our website is not to be considered a part of this document.
Somerset Regal Bank. Somerset Regal Bank was formed through the combination on September 19, 2023 of Somerset Bank and Regal Bank, two New Jersey chartered institutions. The Bank operates from 14 branches in Essex, Hunterdon, Hudson, Livingston, Middlesex, Morris, Somerset and Union counties in the northern and central New Jersey. The Bank offers a variety of deposit and loan products to individuals and small businesses, most of which are located in our primary market.
Completed Stock Offering
On September 19, 2023, Somerset Savings Bank, SLA converted from the mutual to stock form of organization and SR Bancorp completed its stock offering. SR Bancorp sold 9,055,172 shares of its common stock at a price of $10.00 per share, which included 760,364 shares sold to Somerset Regal Bank’s Employee Stock Ownership Plan. Additionally, the Company contributed 452,758 shares and $905,517 in cash to the Somerset Regal Charitable Foundation, Inc., a charitable foundation formed in connection with the conversion. Upon the completion of the conversion and offering, 9,507,930 shares of SR Bancorp common stock were outstanding.
Merger with Regal Bancorp, Inc. and Regal Bank
On September 19, 2023, SR Bancorp acquired Regal Bancorp, Inc. Immediately following that acquisition, Regal Bank, the wholly-owned subsidiary of Regal Bancorp, was merged with and into Somerset Savings Bank, which was renamed Somerset Regal Bank (collectively, the “Merger”). In connection with the Merger, Regal Bancorp’s shareholders received $23.00 in cash for each share of Regal Bancorp common stock they owned. The aggregate cost of the Merger was approximately $69.5 million. The acquisition of Regal Bancorp and Regal Bank expanded our market presence into Essex, Morris and Union Counties, New Jersey and enhanced our market presence in Somerset County, New Jersey.
The Merger increased the combined banks’ deposit base and its loan portfolio, provided Somerset Savings Bank with greater commercial lending expertise and access to commercial loan customers and provided Regal Bank with greater residential lending expertise and access to residential loan customers.
1
Market Area
The Bank, which was formed in 1887, serves Essex, Hunterdon, Middlesex, Morris, Somerset and Union counties in New Jersey through its 14 full-service branch locations.
The markets served by Somerset Regal Bank encompass a broad geographic area in central and northern New Jersey. The market areas served by Somerset Regal Bank have highly developed and diverse economies. Pharmaceutical, life sciences, financial services, technology and transportation and logistics companies are among the largest employment sectors in the counties served by Somerset Regal Bank.
Population and household data indicate that the market areas served by Somerset Regal Bank’s branches are a mix of urban and suburban markets. Middlesex County is the most populous county with a total population of 890,000, while Hunterdon County is the least populous county with a total population of 132,000.
Income measures show that the counties of Hunterdon, Morris and Somerset are relatively affluent markets, with household and per capita income measures that are well above the comparable U.S. and New Jersey measures. Comparatively, household and per capita income measures for Essex County are the lowest among the primary area counties, which were also lower than the comparable New Jersey measures and similar to the comparable U.S. measures.
A comparison of household income distribution measures provides another indication of the relative affluence of Hunterdon, Morris and Somerset Counties, which maintained significantly higher percentages of households with incomes above $100,000 compared to the U.S and New Jersey. None of the primary market area counties maintained a lower percentage of households with incomes above $100,000 compared to the U.S, while Essex, Middlesex and Union Counties maintained a lower percentage of households with incomes above $100,000 compared to New Jersey.
At June 30, 2025, Somerset Regal Bank maintained its largest balance of deposits in Somerset County, where it maintains its headquarters and maintains its largest branch presence. Based on June 30, 2025 deposit data, Somerset Regal Bank’s $364.6 million of deposits provided for a 2.1% market share of bank and thrift deposits in Somerset County, which was the nineth largest market share out of 20 financial institutions in the market.
Competition
We face significant competition for deposits and loans. Our most direct competition for deposits has historically come from the many financial institutions operating in our market area, including commercial banks, savings banks, savings and loan associations and credit unions, and from other financial service companies such as brokerage firms and insurance companies. Several large holding companies operate banks in our market area, and these institutions are significantly larger than us and, therefore, have significantly greater resources. We also face competition for investors’ funds from money market funds, mutual funds and other corporate and government securities.
Our competition for loans comes primarily from financial institutions in our market area and from other financial service providers, such as mortgage companies and mortgage brokers. Competition for loans also comes from non-depository financial service companies entering the mortgage market, such as insurance companies, securities companies, financial technology companies and specialty finance companies.
We expect competition to remain intense in the future as a result of legislative, regulatory and technological changes and the continuing trend toward consolidation of the financial services industry. Technological advances, for example, have lowered barriers to entry, allowed banks to expand their geographic reach by providing services over the internet and made it possible for non-depository institutions, including financial technology companies, to offer products and services that traditionally have been provided by banks. Competition for deposits and the origination of loans could limit our growth in the future.
2
Lending Activities
We offer a variety of loans, including residential, commercial real estate, multi-family, commercial and industrial and consumer loans. Historically, we have had a significant portion of our loan portfolio concentrated in residential loans, including one- to four-family residential loans. Our merger with Regal Bank greatly expanded our commercial loan portfolio and commercial lending capabilities. At June 30, 2025, residential mortgage loans comprised 53.4% of our total loan portfolio and commercial loans comprised 45.0%, which largely consisted of multi-family loans.
In the future, we intend to continue to concentrate on ways to compete for a greater share of commercial loan originations in our primary market area.
Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio by type of loan at the dates indicated.
|
|
At June 30, |
|
|||||||||||||
|
|
2025 |
|
|
2024 |
|
||||||||||
|
|
Amount |
|
|
Percent |
|
|
Amount |
|
|
Percent |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Owner occupied commercial real estate loans |
|
$ |
55,127 |
|
|
|
6.89 |
% |
|
$ |
59,968 |
|
|
|
8.16 |
% |
Other commercial real estate loans |
|
|
72,542 |
|
|
|
9.07 |
% |
|
|
75,782 |
|
|
|
10.31 |
% |
Multi-family loans |
|
|
219,934 |
|
|
|
27.48 |
% |
|
|
180,364 |
|
|
|
24.54 |
% |
Commercial and industrial loans |
|
|
12,253 |
|
|
|
1.53 |
% |
|
|
12,522 |
|
|
|
1.70 |
% |
Total commercial loans |
|
|
359,856 |
|
|
|
44.97 |
% |
|
|
328,636 |
|
|
|
44.71 |
% |
Residential mortgage loans |
|
|
427,345 |
|
|
|
53.40 |
% |
|
|
394,723 |
|
|
|
53.70 |
% |
Consumer and other loans |
|
|
13,038 |
|
|
|
1.63 |
% |
|
|
11,658 |
|
|
|
1.59 |
% |
Total loans |
|
|
800,239 |
|
|
|
100.00 |
% |
|
|
735,017 |
|
|
|
100.00 |
% |
Allowance for credit losses |
|
|
(5,362 |
) |
|
|
|
|
|
(5,229 |
) |
|
|
|
||
Net deferred loan origination fees |
|
|
2,289 |
|
|
|
|
|
|
2,071 |
|
|
|
|
||
Loans, net |
|
$ |
797,166 |
|
|
|
|
|
$ |
731,859 |
|
|
|
|
||
Contractual Maturities. The following tables set forth the contractual maturities of our total loan portfolio at June 30, 2025. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans reported as being due in one year or less. The tables present contractual maturities and do not reflect repricing or the effect of prepayments. Actual maturities may differ.
|
|
Owner |
|
|
Other |
|
|
Multi- |
|
|
Commercial |
|
|
Residential |
|
|
Consumer |
|
|
Total |
|
|||||||
|
|
(In thousands) |
|
|||||||||||||||||||||||||
Amounts due in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
One year or less |
|
$ |
54 |
|
|
$ |
886 |
|
|
$ |
3,460 |
|
|
$ |
3,258 |
|
|
$ |
204 |
|
|
$ |
7,310 |
|
|
$ |
15,172 |
|
After one through five years |
|
|
860 |
|
|
|
5,554 |
|
|
|
23,193 |
|
|
|
4,505 |
|
|
|
5,515 |
|
|
|
781 |
|
|
|
40,408 |
|
After five through 15 years |
|
|
17,464 |
|
|
|
29,320 |
|
|
|
77,491 |
|
|
|
2,253 |
|
|
|
76,195 |
|
|
|
4,265 |
|
|
|
206,988 |
|
More than 15 years |
|
|
36,749 |
|
|
|
36,782 |
|
|
|
115,790 |
|
|
|
2,237 |
|
|
|
345,431 |
|
|
|
682 |
|
|
|
537,671 |
|
Total |
|
$ |
55,127 |
|
|
$ |
72,542 |
|
|
$ |
219,934 |
|
|
$ |
12,253 |
|
|
$ |
427,345 |
|
|
$ |
13,038 |
|
|
$ |
800,239 |
|
3
Fixed Versus Adjustable-Rate Loans. The following tables sets forth our fixed and adjustable-rate loans at June 30, 2025 that are contractually due after June 30, 2026.
|
|
Due After June 30, 2026 |
|
|||||||||
|
|
Fixed |
|
|
Adjustable |
|
|
Total |
|
|||
|
|
(In thousands) |
|
|||||||||
Owner occupied commercial real estate loans |
|
$ |
— |
|
|
$ |
55,073 |
|
|
$ |
55,073 |
|
Other commercial real estate loans |
|
|
— |
|
|
|
71,656 |
|
|
|
71,656 |
|
Multi-family loans |
|
|
— |
|
|
|
216,474 |
|
|
|
216,474 |
|
Commercial and industrial loans |
|
|
— |
|
|
|
8,995 |
|
|
|
8,995 |
|
Total commercial loans |
|
$ |
— |
|
|
$ |
352,198 |
|
|
$ |
352,198 |
|
Residential mortgage loans |
|
|
330,434 |
|
|
|
96,707 |
|
|
|
427,141 |
|
Consumer and other loans |
|
|
3,096 |
|
|
|
2,632 |
|
|
|
5,728 |
|
Total loans |
|
$ |
333,530 |
|
|
$ |
451,537 |
|
|
$ |
785,067 |
|
One- to Four Family-Residential Mortgage Loans. We offer fixed- and adjustable-rate residential mortgage loans with terms of up to 30 years. We offer adjustable-rate mortgage loans with interest rates and payments that adjust annually after an initial fixed period of three, five or six years. Interest rates and payments on our adjustable-rate loans generally are adjusted to a rate equal to a percentage above the U.S. Treasury Security Index. The maximum amount by which the interest rate may be increased or decreased is generally 2.0% per adjustment period and the lifetime interest rate cap is generally 6.0% over the initial interest rate of the loan.
Borrower demand for adjustable-rate loans compared to fixed-rate loans is a function of the level of interest rates, the expectations of changes in the level of interest rates, and the difference between the interest rates and loan fees offered for fixed-rate mortgage loans as compared to the interest rates and loan fees for adjustable-rate loans. The relative amount of fixed-rate and adjustable-rate mortgage loans that can be originated at any time is largely determined by the demand for each in a competitive environment. The loan fees, interest rates and other provisions of mortgage loans are determined based on our own pricing criteria and competitive market conditions.
While one- to four-family residential real estate loans are normally originated with up to 30-year terms, such loans typically remain outstanding for substantially shorter periods because borrowers often prepay their loans in full either upon sale of the property pledged as security or upon refinancing the original loan. Therefore, average loan maturity is a function of, among other factors, the level of purchase and sale activity in the real estate market, prevailing interest rates and the interest rates payable on outstanding loans.
It is our general policy not to make high loan-to-value loans (defined as loans with a loan-to-value ratio of 80% or more) without private mortgage insurance. We require all properties securing mortgage loans to be appraised by a board-approved independent appraiser. We require title insurance on all first mortgage loans, and borrowers must obtain hazard insurance. Additionally, we require flood insurance for loans on properties located in a flood zone and may require such insurance on properties not located in a flood zone.
Generally, adjustable-rate loans will better insulate banks from interest rate risk as compared to fixed-rate mortgages. An increased monthly mortgage payment required of adjustable-rate loan borrowers in a rising interest rate environment, however, could cause an increase in delinquencies and defaults. To mitigate this risk, we adhere to strict underwriting guidelines by initially qualifying a borrower at a higher interest rate. The marketability of the underlying property also may be adversely affected in a high interest rate environment. In addition, although adjustable-rate mortgage loans make our asset base more responsive to changes in interest rates, the extent of this interest sensitivity is limited by the annual and lifetime interest rate adjustment limits.
Multi-Family and Commercial Real Estate Loans. At June 30, 2025, multi-family real estate loans totaled $219.9 million, which represented 27.5% of our total loan portfolio. Our multi-family real estate loans are generally secured by properties consisting of five or more rental units within our market area. We originate multi-family real estate loans with adjustable interest rates with maturities and amortization periods generally of up to 30 years. Interest rates on our multi-family real estate loans are generally indexed to the five-year United States Treasury Note rate, plus a margin, subject to an interest rate floor. Adjustment periods are generally every five years. At June 30,
4
2025, our largest multi-family real estate loan totaled $7.9 million and was secured by a non-owner-occupied multi-family apartment building located in our primary market area. At June 30, 2025, this loan was performing in accordance with its original terms.
At June 30, 2025, we had $127.7 million in commercial real estate loans, representing 16.0% of our total loan portfolio. Our commercial real estate loans are secured primarily by office buildings, industrial facilities, retail facilities and other commercial properties, substantially all of which are located in our primary market area. At June 30, 2025, $55.1 million of our commercial real estate loans was secured by owner occupied real estate and $72.5 million was secured by other commercial real estate.
We generally originate commercial real estate loans with maximum maturities and amortizations of up to 30 years and loan-to-value ratios of up to 75% of the appraised value of the collateral property on purchases and up to 70% of the appraised value of the collateral property on refinances. Our commercial real estate loans are offered with adjustable interest rates, which generally adjusts every five years with the interest rate indexed to the five-year United States Treasury Note rate, plus a margin, subject to an interest rate floor. All of our commercial real estate loans are subject to our underwriting procedures and guidelines, including requiring borrowers to generally establish a deposit relationship with us typically in the form of an operating account and/or tenant security accounts. At June 30, 2025, our largest commercial real estate loan totaled had an outstanding balance of $4.7 million and was secured by a non-owner-occupied commercial building located in our primary market area. At June 30, 2025, this loan was performing according to its original terms.
We consider a number of factors in originating commercial real estate loans. We evaluate the qualifications, experience and financial condition of the borrower (including credit history), the value and condition of the property securing the loan, the borrower’s experience in owning or managing similar property and the borrower’s payment history with us and other financial institutions. In evaluating the property securing the loan, among other factors, we consider the net operating income of the property before debt service and depreciation, the debt service coverage ratio (the ratio of net operating income to debt service) to ensure that it is at least 1.25x of the monthly debt service, and the ratio of the loan amount to the appraised value of the property. Our commercial real estate loans are generally appraised by outside independent appraisers approved by the board of directors. Personal guarantees are often obtained from commercial real estate borrowers. Each borrower’s financial information on such loans is monitored on an ongoing basis by requiring periodic financial statement updates.
In underwriting multi-family real estate loans, we require a debt service coverage ratio of at least 1.25x and consider several factors, including the age and condition of the collateral, the financial resources and income level of the borrower and the borrower’s experience in owning or managing similar properties. Multi-family real estate loans have loan-to-value ratios of up to 75% of the appraised value of the property securing the loans and up to 70% of the appraised value of the collateral property on refinances. All of our multi-family real estate loans are subject to our underwriting procedures and guidelines, including requiring borrowers to generally establish a deposit relationship with us typically in the form of an operating account and/or tenant security accounts. The borrower’s financial information on such loans is monitored on an ongoing basis by requiring periodic financial statement updates.
Commercial and Industrial Loans. At June 30, 2025, we had $12.3 million of commercial and industrial ("C&I") loans outstanding, representing 1.5% of the total loan portfolio. Typically, we originate C&I loans and lines of credit to small- and medium-sized companies in our market area under the Small Business Administration ("SBA") program. Our C&I loans, specifically SBA loans, are generally used for working capital purposes or for acquiring real estate, equipment, inventory or furniture. Our C&I loan portfolio consists of a mix of secured and unsecured loans. Generally, secured loans underwritten through the SBA program can have a loan-to-value ratio of up to 90% of the real estate collateral securing the loan. When making SBA C&I loans, we require a debt service coverage ratio of at least 1.25x and we review and consider the financial statements of the borrower, our lending history with the borrower, the borrower’s debt service capabilities, the projected cash flows of the business, and the value of collateral, accounts receivable, inventory, and equipment. Personal guarantees are obtained from all SBA C&I borrowers. We generally seek to establish the primary deposit account relationship of our C&I business borrowers to maintain their principal deposit accounts with us, which improves our overall interest rate spread and profitability. We may increase this type of lending in the future.
5
The commercial loans that we offer are variable- and fixed-rate loans, generally for a one- to ten-year term. Variable interest rates are indexed to the prime rate as published in The Wall Street Journal, plus a margin. Commercial loans typically have shorter terms to maturity and higher interest rates than commercial real estate loans.
When making C&I loans outside of the SBA program, we require a debt service coverage ratio of at least 1.25x and, for C&I loans secured by real estate, a loan-to-value ratio of up to 75% of the real estate securing the loan. We review and consider the financial statements of the borrower, our lending history with the borrower, the borrower’s debt service capabilities, and the value of the collateral. We generally do not make unsecured C&I loans and, if unsecured, personal guarantees are typically obtained from C&I borrowers.
At June 30, 2025, our largest C&I loan totaled $1.5 million on a line of credit with a total available draw of $212,000, and was secured by an owner occupied commercial building. At June 30, 2025, this loan was performing in accordance with its contractual terms.
Consumer loans. We generally offer home equity loans and lines of credit with a maximum combined loan-to-value ratio of 70% based on the appraised value for one- to four-family owner occupied loans. Home equity loans have fixed rates of interest and are originated with terms of up to 20 years. Home equity lines of credit have adjustable rates and are based upon the prime rate as published in The Wall Street Journal. We hold a first or second mortgage position on all of the properties that secure our home equity loans.
We offer unsecured personal loans up to $5,000 and rehabilitation loans up to $10,000. Borrowers seeking a personal loan must be a Bank customer for at least one year, among other requirements. Rehabilitation loans are subject to a 70% loan to value limit and must be for one- to two-family owner occupied properties located in the Bank’s market area. We also offer loans secured by passbook and certificates of deposit accounts held at the Bank, up to 90% of the balance of the certificate of deposit or passbook. For more information on our loan commitments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations of SR Bancorp—Liquidity and Capital Resources.”
Unsecured loans generally entail greater risk than do residential mortgage loans. Such loan collections depend on the borrower’s continuing financial stability, and therefore are likely to be adversely affected by various factors, including job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.
The procedures for underwriting consumer loans include an assessment of the applicant’s payment history on other debts and ability to meet existing obligations and payments on the proposed loan. Although the applicant’s creditworthiness is a primary consideration, the underwriting process also includes a comparison of the value of the collateral, if any, to the proposed loan amount.
Loan Originations, Sales, Purchases and Participations. Loan originations come from a number of sources. The primary source of loan originations are existing customers, broker referrals, walk-in traffic, purchases from correspondent banks, advertising and referrals from customers. At June 30, 2025, we had loan participations of $3.9 million. As a supplement to our in-house loan originations of one- to four-family residential real estate loans, Somerset Regal Bank enters into agreements with unaffiliated mortgage brokers as a source for additional residential real estate loans. We currently work with eight different mortgage brokers in our market area, none of which we have an ownership interest in or share any common employees or directors. These mortgage brokers fund the one- to four-family residential real estate loans and then sell them on a loan-by-loan basis to the Bank following a re-underwriting of the loan in accordance with our own underwriting criteria. We use the same parameters in evaluating these loans as we do for our in-house loan originations of one- to four-family residential real estate loans. For each purchased loan, we generally pay a fixed fee based on the loan balance. For the years ended June 30, 2025 and June 30, 2024, we purchased $41.2 million and $41.5 million, respectively, of loans from these mortgage brokers for our portfolio. As part of purchasing the loans, we acquire the servicing rights to the loans. The purchased loans are acquired from these mortgage brokers without recourse or any right to require the mortgage broker to repurchase the loans. The fixed aggregate fee we pay to acquire the loan and servicing rights are amortized over the contractual life of the loan.
6
Loan Approval Procedures and Authority. Our lending activities follow written, non-discriminatory, underwriting standards and loan origination procedures established by our Board of Directors and management. The Board of Directors has granted loan approval authority to certain officers or groups of officers up to prescribed limits, based on the officer’s position and experience. The Management Loan Committee, comprised of SR Bancorp Inc.'s Chairman, Somerset Regal Bank’s Chairman and Chief Executive Officer, President and Chief Operating Officer, Chief Credit Officer, Senior Mortgage Lending Officer and Senior Commercial Lending Officer, approves residential and commercial loans up to $1.0 million and builder tract loans up to $1.5 million. Loans in excess of such amounts must be approved by the Board of Directors. The Management Loan Committee approves commercial loans up to $3.0 million. Loans in excess of such amounts must be approved by the Board of Directors.
Loans to One Borrower. The maximum amount that we may lend to one borrower and the borrower’s related entities is limited, by regulation, to generally 15% of our stated capital and reserves. At June 30, 2025, our regulatory limit on loans to one borrower was $28.9 million. Our loan policy has a $15.0 million loan to one borrower limit and $20.0 million loan to related borrowers limit. At June 30, 2025, our largest lending relationship was comprised of five loans with an aggregate total of $12.5 million to related borrowers. The loans consisted of one non-owner occupied commercial building, one commercial and industrial term loan, and three multi-family buildings. These loans were performing in accordance with their terms at June 30, 2025.
Loan Commitments. We issue commitments for fixed- and adjustable-rate mortgage loans conditioned upon the occurrence of certain events. Commitments to originate mortgage loans are legally binding agreements to lend to our customers. Generally, our loan commitments expire after 60 days.
Non-Performing and Problem Assets
When a loan is 15 days past due, we send the borrower a late charge notice. If the loan delinquency is not corrected, other forms of collections are implemented, including telephone calls and collection letters. We attempt personal, direct contact with the borrower to determine the reason for the delinquency, to ensure that the borrower understands the terms of the loan and to emphasize the importance of making timely payments. If necessary, subsequent late charges and delinquency notices are issued and the account will be monitored on a regular basis thereafter. By the 90th day of delinquency, we will send the borrower a final demand for payment, after which we may refer the loan to legal counsel to commence foreclosure proceedings. Any of our loan officers can shorten these time frames in consultation with the senior lending officer.
Generally, loans are placed on non-accrual status when payment of principal or interest is 90 days or more delinquent unless the loan is considered well-secured and in the process of collection. Loans are also placed on non-accrual status if collection of principal or interest in full is in doubt. When loans are placed on a non-accrual status, unpaid accrued interest is fully reversed, and further income is recognized only to the extent received. The loan may be returned to accrual status if both principal and interest payments are brought current and factors indicating doubtful collection no longer exist, including performance by the borrower under the loan terms for a six-month period. Our Senior Mortgage Lending Officer reports monitored loans, including all loans rated special mention, substandard, doubtful or loss, to the Board of Directors on a quarterly basis. In addition, management presents a quarterly credit loss allowance analysis to our Board of Directors.
7
The following table sets forth our loan delinquencies by type and amount at the dates indicated.
|
|
June 30, 2025 |
|
|||||||||||||||||||||||||
|
|
30-59 Days |
|
|
60-89 Days |
|
|
90 Days or More Past Due and Still Accruing |
|
|
Non- |
|
|
Total Past Due |
|
|
Total Current |
|
|
Total |
|
|||||||
|
|
(In thousands) |
|
|||||||||||||||||||||||||
Owner occupied commercial real estate |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
55,127 |
|
|
$ |
55,127 |
|
Other commercial real estate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
72,542 |
|
|
|
72,542 |
|
Multi-family |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
219,934 |
|
|
|
219,934 |
|
Commercial and industrial |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12,253 |
|
|
|
12,253 |
|
Residential mortgage |
|
|
1,467 |
|
|
|
478 |
|
|
|
— |
|
|
|
— |
|
|
|
1,945 |
|
|
|
425,400 |
|
|
|
427,345 |
|
Consumer and other |
|
|
67 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
67 |
|
|
|
12,971 |
|
|
|
13,038 |
|
Total |
|
$ |
1,534 |
|
|
$ |
478 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,012 |
|
|
$ |
798,227 |
|
|
$ |
800,239 |
|
|
|
June 30, 2024 |
|
|||||||||||||||||||||||||
|
|
30-59 Days |
|
|
60-89 Days |
|
|
90 Days or More Past Due and Still Accruing |
|
|
Non- |
|
|
Total Past Due |
|
|
Total Current |
|
|
Total |
|
|||||||
|
|
(In thousands) |
|
|||||||||||||||||||||||||
Owner occupied commercial real estate |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
59,968 |
|
|
$ |
59,968 |
|
Other commercial real estate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
75,782 |
|
|
|
75,782 |
|
Multi-family |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
180,364 |
|
|
|
180,364 |
|
Commercial and industrial |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
50 |
|
|
|
50 |
|
|
|
12,472 |
|
|
|
12,522 |
|
Residential mortgage |
|
|
572 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
572 |
|
|
|
394,151 |
|
|
|
394,723 |
|
Consumer and other |
|
|
40 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
40 |
|
|
|
11,618 |
|
|
|
11,658 |
|
Total |
|
$ |
612 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
50 |
|
|
$ |
662 |
|
|
$ |
734,355 |
|
|
$ |
735,017 |
|
Non-Performing Assets. The following table sets forth information regarding our non-performing assets. The Bank had no troubled debt restructurings as of June 30, 2025 and June 30, 2024.
|
|
At June 30, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
|
|
(In thousands) |
|
|||||
Non-accrual loans: |
|
|
|
|
|
|
||
Residential mortgage loans |
|
$ |
— |
|
|
$ |
— |
|
Commercial loans |
|
|
— |
|
|
|
50 |
|
Total non-accrual loans |
|
|
— |
|
|
|
50 |
|
Accruing loans past due 90 days or more: |
|
|
|
|
|
|
||
Residential mortgage loans |
|
|
— |
|
|
|
— |
|
Total non-performing loans |
|
|
— |
|
|
|
50 |
|
Real estate owned |
|
|
— |
|
|
|
— |
|
Total non-performing assets |
|
$ |
— |
|
|
$ |
50 |
|
Total non-performing loans to total loans |
|
|
— |
% |
|
|
0.01 |
% |
Total non-accrual loans to total loans |
|
|
— |
% |
|
|
0.01 |
% |
Total non-performing assets to total assets |
|
|
— |
% |
|
|
0.00 |
% |
8
Our classified and special mention loans at the dates indicated were as follows:
|
|
June 30, 2025 |
|
|||||||||||||||||
|
|
Pass |
|
|
Special |
|
|
Substandard |
|
|
Doubtful |
|
|
Total |
|
|||||
|
|
(In thousands) |
|
|||||||||||||||||
Owner occupied commercial real estate |
|
$ |
55,127 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
55,127 |
|
Other commercial real estate |
|
|
72,542 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
72,542 |
|
Multi-family |
|
|
219,934 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
219,934 |
|
Commercial and industrial |
|
|
12,253 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
12,253 |
|
Residential mortgage |
|
|
427,345 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
427,345 |
|
Consumer and other |
|
|
13,038 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13,038 |
|
Total |
|
$ |
800,239 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
800,239 |
|
|
|
June 30, 2024 |
|
|||||||||||||||||
|
|
Pass |
|
|
Special |
|
|
Substandard |
|
|
Doubtful |
|
|
Total |
|
|||||
|
|
(In thousands) |
|
|||||||||||||||||
Owner occupied commercial real estate |
|
$ |
59,968 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
59,968 |
|
Other commercial real estate |
|
|
75,782 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
75,782 |
|
Multi-family |
|
|
180,364 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
180,364 |
|
Commercial and industrial |
|
|
12,472 |
|
|
|
— |
|
|
|
50 |
|
|
|
— |
|
|
|
12,522 |
|
Residential mortgage |
|
|
394,723 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
394,723 |
|
Consumer and other |
|
|
11,658 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
11,658 |
|
Total |
|
$ |
734,967 |
|
|
$ |
— |
|
|
$ |
50 |
|
|
$ |
— |
|
|
$ |
735,017 |
|
Real Estate Owned. Real estate acquired by us as a result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned. When property is acquired, it is recorded at the lower of cost or estimated fair market value at the date of foreclosure, establishing a new cost basis. Estimated fair value generally represents the sale price a buyer would be willing to pay on the basis of current market conditions, including normal terms from other financial institutions, less the estimated costs to sell the property. Holding costs and declines in estimated fair market value result in charges to expense after acquisition. At June 30, 2025 and June 30, 2024, we had no real estate owned.
Classification of Assets. Our policies, consistent with regulatory guidelines, provide for the classification of loans and other assets that are considered to be of lesser quality as substandard, doubtful, or loss assets. An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those assets characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Assets (or portions of assets) classified as loss are those considered uncollectible and are charged to the ACL as their continuance as assets is not warranted. Assets that do not expose us to risk sufficient to warrant classification in one of the aforementioned categories, but which possess potential weaknesses that deserve our close attention, are required to be designated as special mention. As of June 30, 2025, we had no assets designated as special mention.
The allowance for credit losses is the amount estimated by management as necessary to absorb credit losses in the loan portfolio that are both probable and reasonably estimable at the balance sheet date. Our determination as to the classification of our assets and the amount of our loss allowances are subject to review by the Federal Deposit Insurance Corporation and the New Jersey Department of Banking and Insurance, which can require that we establish additional loss allowances. We regularly review our asset portfolio to determine whether any assets require classification in accordance with applicable regulations. On the basis of our review of our assets at June 30, 2025 and June 30, 2024, we had $0 and $50,000, respectively, of loans classified as substandard, and no assets classified as doubtful or loss.
9
Allowance for Credit Losses
Our allowance for credit losses ("ACL") is maintained at a level necessary to absorb current expected credit losses. Management, in determining the allowance for credit losses, considers the losses in our loan portfolio and changes in the nature and volume of loan activities, along with the general economic and real estate market conditions. A description of our methodology in establishing our allowance for credit losses is set forth in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations of SR Bancorp—Critical Accounting Policies-Allowance for Credit Losses.” The allowance for credit losses as of June 30, 2025 was maintained at a level that represents management’s best estimate of current expected losses in the loan portfolio. However, this analysis process is subjective, as it requires us to make estimates that are susceptible to revisions as more information becomes available. Although we believe that we have established the allowance at levels to absorb current expected losses, future additions may be necessary if economic or other conditions in the future differ from the current environment.
In addition, as an integral part of their examination process, the Federal Deposit Insurance Corporation and the New Jersey Department of Banking and Insurance have authority to periodically review our allowance for credit losses. Such agencies may require that we recognize additions to the allowance based on their judgments of information available to them at the time of their examination.
The following table sets forth activity in our allowance for credit losses for the years indicated.
|
|
Year Ended June 30, 2025 |
|
|||||||||||||||||||||||||
|
|
Owner |
|
|
Other |
|
|
Multi- |
|
|
Commercial |
|
|
Residential |
|
|
Consumer |
|
|
Total |
|
|||||||
|
|
(In thousands) |
|
|||||||||||||||||||||||||
Allowance for Credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Beginning balance |
|
$ |
1,331 |
|
|
$ |
502 |
|
|
$ |
1,998 |
|
|
$ |
146 |
|
|
$ |
1,175 |
|
|
$ |
77 |
|
|
$ |
5,229 |
|
Charge-offs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Recoveries |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Provisions (credits) |
|
|
(656 |
) |
|
|
(323 |
) |
|
|
(168 |
) |
|
|
(11 |
) |
|
|
1,133 |
|
|
|
158 |
|
|
|
133 |
|
Ending balance |
|
$ |
675 |
|
|
$ |
179 |
|
|
$ |
1,830 |
|
|
$ |
135 |
|
|
$ |
2,308 |
|
|
$ |
235 |
|
|
$ |
5,362 |
|
|
|
Year Ended June 30, 2024 |
|
|||||||||||||||||||||||||
|
|
Owner |
|
|
Other |
|
|
Multi- |
|
|
Commercial |
|
|
Residential |
|
|
Consumer |
|
|
Total |
|
|||||||
|
|
(in thousands) |
|
|||||||||||||||||||||||||
Allowance for Credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Beginning balance |
|
$ |
— |
|
|
$ |
4 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,039 |
|
|
$ |
73 |
|
|
$ |
1,116 |
|
Impact of ASC 326 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
27 |
|
|
|
20 |
|
|
|
47 |
|
Charge-offs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Recoveries |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Provisions (credits) |
|
|
1,331 |
|
|
|
498 |
|
|
|
1,998 |
|
|
|
146 |
|
|
|
109 |
|
|
|
(16 |
) |
|
|
4,066 |
|
Ending balance |
|
$ |
1,331 |
|
|
$ |
502 |
|
|
$ |
1,998 |
|
|
$ |
146 |
|
|
$ |
1,175 |
|
|
$ |
77 |
|
|
$ |
5,229 |
|
10
Allocation of Allowance for Credit Losses. The following tables set forth the allowance for credit losses allocated by loan category and the percent of the allowance in each category to the total allocated allowance at the dates indicated. The allowance for credit losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.
|
|
June 30, 2025 |
|
|||||||||||||
|
|
ACL |
|
|
Percent of |
|
|
Percent |
|
|
ACL to Total Loans |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Owner occupied commercial real estate loans |
|
$ |
675 |
|
|
|
12.59 |
% |
|
|
6.89 |
% |
|
|
0.08 |
% |
Other commercial real estate loans |
|
|
179 |
|
|
|
3.34 |
|
|
|
9.07 |
|
|
|
0.02 |
|
Multi-family loans |
|
|
1,830 |
|
|
|
34.13 |
|
|
|
27.48 |
|
|
|
0.23 |
|
Commercial and industrial loans |
|
|
135 |
|
|
|
2.52 |
|
|
|
1.53 |
|
|
|
0.02 |
|
Residential mortgage loans |
|
|
2,308 |
|
|
|
43.04 |
|
|
|
53.40 |
|
|
|
0.29 |
|
Consumer and other loans |
|
|
235 |
|
|
|
4.38 |
|
|
|
1.63 |
|
|
|
0.03 |
|
Total allocated allowance |
|
|
5,362 |
|
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
0.67 |
% |
Allowance to non-performing loans |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
Allowance to total loans outstanding at |
|
|
0.67 |
% |
|
|
|
|
|
|
|
|
|
|||
Net (charge-offs) recoveries to average |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
June 30, 2024 |
|
|||||||||||||
|
|
ACL |
|
|
Percent of |
|
|
Percent |
|
|
ACL to Total Loans |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Owner occupied commercial real estate loans |
|
$ |
1,331 |
|
|
|
25.46 |
% |
|
|
8.16 |
% |
|
|
0.81 |
% |
Other commercial real estate loans |
|
|
502 |
|
|
|
9.60 |
|
|
10.31 |
|
|
0.07 |
|
||
Multi-family loans |
|
|
1,998 |
|
|
|
38.21 |
|
|
24.54 |
|
|
0.27 |
|
||
Commercial and industrial loans |
|
|
146 |
|
|
|
2.79 |
|
|
|
1.70 |
|
|
0.02 |
|
|
Residential mortgage loans |
|
|
1,175 |
|
|
|
22.47 |
|
|
|
53.70 |
|
|
0.16 |
|
|
Consumer and other loans |
|
|
77 |
|
|
|
1.47 |
|
|
1.59 |
|
|
0.01 |
|
||
Total allocated allowance |
|
|
5,229 |
|
|
|
100.00 |
% |
|
|
100.00 |
% |
|
|
0.71 |
% |
Allowance to non-performing loans |
|
|
10458.00 |
% |
|
|
|
|
|
|
|
|
|
|||
Allowance to total loans outstanding at |
|
|
0.71 |
% |
|
|
|
|
|
|
|
|
|
|||
Net (charge-offs) recoveries to average |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||
Investment Activities
General. The goals of our investment policy are to maximize portfolio yield over the long term in a manner that is consistent with minimizing risk, and meeting liquidity needs, pledging requirements, and asset/liability management and interest rate risk strategies. Subject to loan demand and our interest rate risk analysis, we will increase the balance of our investment securities portfolio when we have excess liquidity.
We have authority to invest in various types of liquid assets, including United States Treasury obligations, securities of various U.S. government sponsored enterprises and federal agencies, mortgage-backed securities and
11
certificates of deposit of federally insured institutions. Within certain regulatory limits, we also may invest a portion of our assets in corporate securities (equity as well as debt) and mutual funds. As a member of the Federal Home Loan Bank of New York, we also are required to maintain an investment in Federal Home Loan Bank of New York stock.
Our investment objectives are to provide and maintain liquidity, to establish an acceptable level of interest rate and credit risk, to provide an alternate source of low-risk investments when demand for loans is weak and to achieve a yield consistent with credit and interest rate risk parameters included in Somerset Regal Bank’s policies. Our Board of Directors has the overall responsibility for the investment portfolio, including approval of our investment policy, which is reviewed and approved at least annually. The Investment Committee, consisting of the Chief Executive Officer, President and Chief Financial Officer, is responsible for implementation of the investment policy, and monitoring our investment performance. Our Board of Directors reviews the status of our investment portfolio on a quarterly basis.
At June 30, 2025, our investment portfolio consisted solely of securities held-to-maturity, primarily securities and obligations issued by U.S. government-sponsored enterprises totaling $131.9 million, subordinated debentures issued by financial institutions in the Mid-Atlantic region totaling $7.8 million and collateralized mortgage obligations totaling $2.0 million. At June 30, 2025, we also owned $2.6 million of restricted equity securities, of which $2.5 million consisted of Federal Home Loan Bank of New York stock. As a member of the Federal Home Loan Bank of New York, we are required to purchase stock in the Federal Home Loan Bank of New York, which is carried at cost.
We sold all available-for-sale securities during the year ended June 30, 2024, and held no balance as of June 30, 2025. The sales were part of a balance sheet restructuring in which the Company sold $35.4 million in book value of its lower-yielding investment securities for a pre-tax realized loss of approximately $4.4 million. The Company redeployed the $30.9 million of proceeds from the sale of these securities into approximately the same amount of residential and commercial real estate mortgages. The loans originated had a positive spread differential of approximately 472 basis points over the securities that were sold, which is expected to result in $1.4 million in additional pre-tax earnings, on an annualized basis.
The following table presents the maturity distribution and weighted average yields of our investment securities portfolio on a contractual maturity basis at June 30, 2025:
|
|
June 30, 2025 |
|
|||||||||
|
|
Held-to-Maturity |
|
|||||||||
|
|
Amortized Cost |
|
|
Fair Value |
|
|
Weighted Average Yield |
|
|||
|
|
(In thousands) |
|
|||||||||
Due within one year |
|
$ |
200 |
|
|
$ |
200 |
|
|
|
4.40 |
% |
Due after one year through five years |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Due after five years through ten years |
|
|
7,750 |
|
|
|
7,141 |
|
|
|
3.10 |
% |
Due after ten years |
|
|
|
|
|
|
|
|
|
|||
Residential mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|||
Issued by FNMA and FHLMC |
|
|
131,666 |
|
|
|
110,745 |
|
|
|
1.65 |
% |
Issued by GNMA |
|
|
218 |
|
|
|
219 |
|
|
|
4.89 |
% |
CMO |
|
|
2,011 |
|
|
|
1,890 |
|
|
|
2.50 |
% |
Total |
|
$ |
141,845 |
|
|
$ |
120,195 |
|
|
|
1.75 |
% |
For additional information regarding our investment securities portfolio, see Note 4 to the Notes to Financial Statements.
United States Government and Federal Agency Obligations. While United States Government and federal agency securities generally provide lower yields than other investments in our securities investment portfolio, we
12
maintain these investments, to the extent appropriate, for liquidity purposes, as collateral for borrowings and as an interest rate risk hedge in the event of significant mortgage loan prepayments.
Mortgage-Backed Securities. We invest in mortgage-backed securities insured or guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae to achieve positive interest rate spreads with minimal administrative expense, and to lower our credit risk as a result of the guarantees provided by Freddie Mac, Fannie Mae or Ginnie Mae.
Mortgage-backed securities typically represent a participation interest in a pool of single-family or multi-family mortgages, although we invest primarily in mortgage-backed securities backed by one- to four-family mortgages. The issuers of such securities pool and resell the participation interests in the form of securities to investors. Some securities pools are guaranteed as to payment of principal and interest to investors. Mortgage-backed securities generally yield less than the loans that underlie such securities because of the cost of payment guarantees and credit enhancements. However, mortgage-backed securities are more liquid than individual mortgage loans since there is an active trading market for such securities. In addition, mortgage-backed securities may be used to collateralize our specific liabilities and obligations.
Investments in mortgage-backed securities involve a risk that actual payments will be greater or less than the prepayment rate estimated at the time of purchase, which may require adjustments to the amortization of any premium or acceleration of any discount relating to such interests, thereby affecting the net yield on our securities. We periodically review current prepayment speeds to determine whether prepayment estimates require modification that could cause amortization or accretion adjustments.
Collateral Mortgage Obligations. CMOs are debt securities issued by a special-purpose entity that aggregates pools of mortgages and mortgage-backed securities and creates different classes of securities with varying maturities and amortization schedules, as well as a residual interest, with each class possessing different risk characteristics. The cash flows from the underlying collateral are generally divided into “tranches” or classes that have descending priorities with respect to the distribution of principal and interest cash flows, while cash flows on pass-through mortgage-backed securities are distributed pro rata to all security holders. All the CMOs in our investment portfolio are rated “AAA” by at least one of the major investment securities rating services.
Deposit Activities and Other Sources of Funds
General. Deposits and loan repayments are the major sources of our funds for lending and other investment purposes. Scheduled loan repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and money market conditions.
Deposit Accounts. Deposits are primarily attracted from within our market area through the offering of a broad selection of deposit instruments, including noninterest-bearing demand deposits (such as checking accounts), interest-bearing demand accounts (such as NOW accounts), savings accounts, money market accounts and certificates of deposit. At June 30, 2025, we also held $31.8 million of accounts from a variety of local municipal relationships. We have no brokered deposits.
We also offer a variety of deposit accounts designed for the businesses operating in our market area. Our business banking deposit products include a business checking account designed for small businesses, savings and money market accounts. We offer bill payment services through our online banking system.
Deposit account terms vary according to the minimum balance required, the time period the funds must remain on deposit and the interest rate, among other factors. In determining the terms of our deposit accounts, we consider the rates offered by our competition, the rates on borrowings, our liquidity needs, profitability to us, and customer preferences and concerns. We generally review our deposit mix and pricing weekly. Our deposit pricing strategy has generally been to offer competitive rates on all types of deposit products, and to periodically offer special rates to attract deposits of a specific type or term.
13
The following table sets forth the distribution of total deposits by account type at the dates indicated.
|
|
At June 30, |
|
|||||||||||||||||||||
|
|
2025 |
|
|
2024 |
|
||||||||||||||||||
|
|
Amount |
|
|
Percent |
|
|
Average |
|
|
Amount |
|
|
Percent |
|
|
Average |
|
||||||
|
|
(In thousands) |
|
|||||||||||||||||||||
Non-interest-bearing demand |
|
$ |
114,107 |
|
|
|
13.49 |
% |
|
|
— |
% |
|
$ |
108,026 |
|
|
|
13.39 |
% |
|
|
— |
% |
Interest-bearing deposits |
|
|
319,829 |
|
|
|
37.80 |
|
|
|
1.88 |
|
|
|
252,880 |
|
|
|
31.33 |
|
|
|
1.13 |
|
Savings and club accounts |
|
|
143,881 |
|
|
|
17.01 |
|
|
|
0.07 |
|
|
|
173,375 |
|
|
|
21.48 |
|
|
|
0.07 |
|
Time deposits |
|
|
268,205 |
|
|
|
31.70 |
|
|
|
3.52 |
|
|
|
272,819 |
|
|
|
33.80 |
|
|
|
3.81 |
|
Total |
|
$ |
846,022 |
|
|
|
100.00 |
% |
|
|
|
|
$ |
807,100 |
|
|
|
100.00 |
% |
|
|
|
||
As of June 30, 2025 and June 30, 2024, the aggregate amount of uninsured deposits (deposits in amounts greater than $250,000, which is the maximum amount for federal deposit insurance), was $145.3 million and $109.7 million, respectively. In addition, as of June 30, 2025 and 2024, the aggregate amount of all our uninsured certificates of deposit was $24.9 million and $21.9 million, respectively. We have no deposits that are uninsured for any reason other than being in excess of the maximum amount for federal deposit insurance. The following table sets forth the maturity of the uninsured certificates of deposit as of June 30, 2025.
|
|
At June 30, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
|
|
(In thousands) |
|
|||||
Maturity Period: |
|
|
|
|
|
|
||
Three months or less |
|
$ |
8,473 |
|
|
$ |
4,050 |
|
Over three through six months |
|
|
6,530 |
|
|
|
5,733 |
|
Over six through twelve months |
|
|
7,479 |
|
|
|
8,813 |
|
Over twelve months |
|
|
2,467 |
|
|
|
3,351 |
|
Total |
|
$ |
24,949 |
|
|
$ |
21,947 |
|
Borrowings. We have the ability to utilize advances from the Federal Home Loan Bank of New York to supplement our investable funds. The Federal Home Loan Bank functions as a central reserve bank providing credit for member financial institutions. As a member, we are required to own capital stock in the Federal Home Loan Bank and are authorized to apply for advances on the security of such stock and certain of our mortgage loans and other assets (principally securities that are obligations of, or guaranteed by, the United States), provided certain standards related to creditworthiness have been met. Advances are made under several different programs, each having its own interest rate and range of maturities. Depending on the program, limitations on the amount of advances are based either on a fixed percentage of an institution’s net worth or on the Federal Home Loan Bank’s assessment of the institution’s creditworthiness.
At June 30, 2025, the Company had a $30.0 million advance with the Federal Home Loan Bank of New York at a fixed rate of 4.42%, which matured on July 7, 2025. At June 30, 2024, the Company had no outstanding borrowings. At June 30, 2025, we had access to Federal Home Loan Bank advances of up to $100.0 million based on our unused qualifying collateral available to support such advances.
We also have the ability to borrow from the Federal Reserve Bank of New York to supplement our investable funds. All borrowings are secured by pledges of qualifying loans and investment securities and are generally on overnight terms with interest rates quoted at the time of the borrowing. At June 30, 2025 and 2024, we had a no outstanding borrowings with the Federal Reserve Bank of New York.
14
Human Capital Resources
Employees
As of June 30, 2025, we had 119 full-time employees and two part-time employees. None of our employees are represented by a labor union or covered by collective bargaining agreements, and we believe our relationship with our employees is good.
Anti-Discrimination and Code of Conduct
We are committed to creating and maintaining a workplace free from discrimination or harassment on the basis of color, race, sex, national origin, ethnicity, religion, age, disability, sexual orientation, gender identification or expression or any other status protected by applicable law. Our management team and employees are expected to exhibit and promote honest, ethical and respectful conduct in the workplace. All our employees must adhere to a code of conduct that sets standards for appropriate behavior and are required to attend annual training to help prevent, identify, report and stop any type of discrimination and harassment. Recruitment, hiring, development, training, compensation and advancement at our company are based on qualifications, performance, skills and experience without regard to gender, race and ethnicity.
Competitive Pay and Benefits
We strive to provide pay, comprehensive benefits and services that help meet the varying needs of our employees. Our total rewards package includes competitive pay and comprehensive healthcare benefits for employees. We sponsor a 401(k) plan and we match employee contributions up to a certain limit. In addition, nearly all our employees are stockholders of SR Bancorp through participation in our Employee Stock Ownership Plan, which aligns stockholder interests by providing stock ownership on a tax-deferred basis at no cost to the employee.
Employee Development and Training
We focus on attracting, retaining, and cultivating talented individuals. We emphasize employee development and training by providing access to a wide range of online and instructor-led development and continual learning programs. Employees have access to broad resources they need to be successful and are encouraged to attend meetings and conferences.
Subsidiaries
Somerset Regal Bank is SR Bancorp’s only subsidiary.
Somerset Regal Bank maintains three subsidiaries: (1) RB Properties, LLC, a New Jersey limited liability corporation established to hold and manage foreclosed real estate properties; (2) Somerset Investment Company, a New Jersey corporation established to hold certain investment securities; and (3) Somerset Consumer Service Corporation, a New Jersey corporation that is currently inactive.
Regulation and Supervision
Upon consummation of the mutual-to-stock conversion, stock offering, charter conversion, Merger and bank merger (collectively, the “transactions”), Somerset Regal Bank became a New Jersey chartered commercial bank which is not a member of the Federal Reserve System (referred to as a “state nonmember bank”), subject to regulation, supervision and examination by the NJDBI and the FDIC. In turn, SR Bancorp became a bank holding company registered under the Bank Holding Company Act of 1956, as amended, and subject to regulation, supervision and examination by the Federal Reserve. As a public holding company, SR Bancorp is also subject to the rules and regulations of the SEC under the federal securities laws. This description is not intended to be a complete list or description of such statutes and regulations and their effects on Somerset Regal Bank and SR Bancorp.
15
Bank Regulation
As a New Jersey chartered commercial bank with federally insured deposits, Somerset Regal Bank will be subject to comprehensive regulation by the NJDBI, as its chartering authority, and by the FDIC, as its primary federal regulator and deposit insurer. New Jersey chartered commercial banks are required to file reports with, and are periodically examined by, the FDIC and the NJDBI concerning their activities and financial condition and must obtain regulatory approvals before entering into certain transactions, including, but not limited to, mergers with or acquisitions of other financial institutions.
This regulatory and supervisory structure is intended primarily for the protection of depositors and the Deposit Insurance Fund. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies regarding classifying assets and establishing an adequate allowance for credit losses for regulatory purposes. The regulatory authorities have substantial discretion to take enforcement action with respect to an institution that fails to comply with applicable regulatory requirements or engages in violations of law or unsafe and unsound practices.
New Jersey Banking Laws and Supervision
As a New Jersey chartered commercial bank, Somerset Regal Bank will be subject to extensive regulation, examination and supervision by the NJDBI, as its chartering authority.
Activity Powers. New Jersey chartered banks derive their lending, investment and other activity powers primarily from the New Jersey Banking Act of 1948, as amended, and the regulations of the NJDBI. Under these laws and regulations, New Jersey chartered banks generally may invest in:
New Jersey-chartered banks may also make other investments pursuant to “leeway” authority that permits investments not otherwise permitted by the New Jersey Banking Act. Leeway investments must comply with a number of limitations on the individual and aggregate amounts of such investments. A bank may also exercise trust powers upon approval of the NJDBI. New Jersey-chartered banks also may exercise those powers, rights, benefits or privileges authorized for national banks or out-of-state banks or for federal or out-of-state savings banks or savings associations, provided that before exercising any such power, right, benefit or privilege, prior approval by the NJDBI by regulation or by specific authorization is required. The exercise of these lending, investment and activity powers is limited by federal law and regulations. See “—Federal Bank Regulation—Activities and Investments” below. Certain corporate transactions by a New Jersey-chartered bank, such as establishing branches and acquiring other banks, require the prior approval of the NJDBI.
Loan-to-One-Borrower Limitations. With certain specified exceptions, a New Jersey chartered bank may not make loans or extend credit to a single borrower or to entities related to the borrower in an aggregate amount that would exceed 15% of the bank’s capital funds. A bank may lend an additional 10% of the bank’s capital funds if secured by collateral meeting the requirements of the New Jersey Banking Act.
The New Jersey Banking Act imposes conditions and limitations on the liabilities to a bank of its directors and executive officers and of corporations and partnerships controlled by such persons, that are comparable in many respects to the conditions and limitations imposed on the loans and extensions of credit to insiders and their related interests under federal law, as discussed below. The New Jersey Banking Act also provides that a bank that is in compliance with the Federal Reserve’s Regulation O, as discussed below, is deemed to be in compliance with such provisions of the New Jersey Banking Act.
16
Dividends. Under the New Jersey Banking Act, a stock bank may not pay a cash dividend unless, following the payment, the bank’s capital stock will be unimpaired, and the bank will have a surplus of no less than 50% of its capital stock or, if not, the payment of the dividend will not reduce the surplus of the bank. Federal law may also limit the amount of dividends that may be paid by a New Jersey chartered nonmember bank. See “—Federal Bank Regulation—Prompt Corrective Regulatory Action” below.
Minimum Capital Requirements. Regulations of the NJDBI impose on New Jersey chartered depository institutions minimum capital requirements generally similar to those imposed by the FDIC on insured state banks. See “—Federal Bank Regulation—Capital Requirements.”
Examination and Enforcement. The NJDBI examines all state chartered commercial banks. The NJDBI has authority to enforce applicable law and prevent practices that may cause harm to an institution, including the issuance of cease and desist orders and civil money penalties and removal of directors, officers and employees. The NJDBI also has authority to appoint a conservator or receiver for a bank under certain circumstances such as insolvency or unsafe or unsound condition to transact business.
Federal Bank Regulation
Supervision and Enforcement Authority. Somerset Regal Bank is subject to extensive regulation, examination and supervision by the FDIC as its primary federal prudential regulator and the insurer of its deposits. State nonmember banks must file reports with the FDIC concerning their activities and financial condition. State nonmember banks must also obtain prior FDIC approval before entering into certain corporate transactions such as establishing new branches and mergers with, or acquisitions of, other financial institutions. There are periodic examinations by the FDIC to evaluate state nonmember banks' safety and soundness and compliance with various regulatory requirements.
The FDIC maintains substantial enforcement authority over regulated institutions. That includes, among other things, the ability to assess civil money penalties, issue cease and desist orders and remove directors and officers. In general, enforcement actions may be initiated in response to violations of laws and regulations, breaches of fiduciary duty and unsafe or unsound practices. The FDIC may also appoint itself as conservator or receiver for an insured bank under certain circumstances.
Capital Requirements. FDIC regulations require FDIC-supervised institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets ratio of 8%, and a Tier 1 capital to average total assets leverage ratio of 4%.
Common equity Tier 1 capital is generally defined as common shareholders’ equity and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and additional Tier 1 capital. Additional Tier 1 capital generally includes certain non cumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus meeting specified requirements and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions that have exercised an opt-out election regarding the treatment of Accumulated Other Comprehensive Income (“AOCI”), up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values. Institutions that have not exercised the AOCI opt-out have AOCI incorporated into common equity Tier 1 capital (including unrealized gains and losses on available-for-sale-securities). Somerset Regal Bank exercised the AOCI opt-out-election. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations.
In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, a bank’s assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests), are multiplied by a risk weight factor assigned by the regulations based on perceived risks inherent in the
17
type of asset. Higher levels of capital are required for asset categories believed to present greater risk. For example, a risk weight of 0% is assigned to cash and U.S. government securities, a risk weight of 50% is generally assigned to prudently underwritten first lien one-to-four family residential mortgages, a risk weight of 100% is assigned to commercial and consumer loans, a risk weight of 150% is assigned to certain past due loans, and a risk weight of between 0% to 600% is assigned to permissible equity interests, depending on certain specified factors.
In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if an institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements, effectively resulting in the following minimum ratios: a common equity Tier 1 capital ratio of 7.0%, a Tier 1 capital ratio of 8.5%, and a total capital ratio of 10.5%.
Institutions that have less than $10 billion in total consolidated assets and meet other qualifying criteria may elect to use the optional community bank leverage ratio framework, which requires maintaining a leverage ratio of greater than 9%, to satisfy the regulatory capital requirements, including the risk-based requirements. A qualifying institution may opt in and out of the community bank leverage ratio framework on its quarterly call report. Somerset Regal Bank has opted into the community bank leverage ratio framework.
In assessing an institution’s capital adequacy, the FDIC takes into consideration not only these numeric factors, but also qualitative factors. The FDIC has the authority to establish higher capital requirements for individual institutions where deemed necessary.
At June 30, 2025, Somerset Regal Bank exceeded each of its capital requirements.
Standards for Safety and Soundness. As required by statute, the federal banking agencies have adopted final regulations and Interagency Guidelines Establishing Standards for Safety and Soundness. The guidelines set forth the safety and soundness standards the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. The guidelines address internal controls and information systems, internal audit systems, credit underwriting, loan documentation, interest rate exposure, asset growth, asset quality, earnings and compensation, fees and benefits. The agencies have also established standards for safeguarding customer information. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard.
Activities and Investments. Federal law provides that a state-chartered bank insured by the FDIC generally may not engage as a principal in any activity not permissible for a national bank to conduct or make any equity investment of a type or in an amount not authorized for a national bank, notwithstanding state law, subject to certain exceptions.
In addition, the FDIC is authorized to permit a state-chartered bank to engage in state-authorized activities or investments not permissible for national banks (other than non-subsidiary equity investments) if it meets all applicable capital requirements and it is determined that the activities or investments involved do not pose a significant risk to the Deposit Insurance Fund. The FDIC has adopted procedures for institutions seeking approval to engage in such activities or investments. In addition, a state nonmember bank may control a subsidiary that engages in activities as principal that would only be permitted for a national bank to conduct in a “financial subsidiary” if a bank meets specified conditions and deducts its investment in the subsidiary for regulatory capital purposes.
Prompt Corrective Regulatory Action. Federal law requires, among other things, that federal bank regulatory authorities take “prompt corrective action” with respect to banks that do not meet minimum capital requirements. For these purposes, the law establishes five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.
An institution is considered “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater, and a common equity Tier 1 capital ratio of 6.5% or greater. An institution is considered “adequately capitalized” if it has a total risk-based
18
capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater, and a common equity Tier 1 capital ratio of 4.5% or greater. An institution is considered “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0%, or a common equity Tier 1 capital ratio of less than 4.5%. An institution is considered “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0%, or a common equity Tier 1 capital ratio of less than 3.0%. An institution is considered “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets equal to or less than 2.0%. At June 30, 2025, Somerset Regal Bank was classified as a “well capitalized” institution.
“Undercapitalized” banks must adhere to growth, capital distribution (including dividend) and other limitations, and are required to submit a capital restoration plan to the appropriate federal banking agency. An undercapitalized bank’s compliance with a capital restoration plan must be guaranteed by any company that controls the undercapitalized institution in an amount equal to the lesser of 5.0% of the institution’s total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately capitalized. If an “undercapitalized” bank fails to submit an acceptable capital restoration plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of possible additional measures, including an order by the FDIC to sell sufficient voting stock to become adequately capitalized, reduce total assets, cease receipt of deposits from correspondent banks, dismiss directors or officers, or to limit interest rates paid on deposits, compensation of executive officers or capital distributions by the parent holding company. “Critically undercapitalized” institutions are subject to additional measures including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after they are determined to be critically undercapitalized.
A bank that is classified as well capitalized, adequately capitalized or undercapitalized may be treated as though it were in the next lower capital category if the FDIC, after notice and opportunity for hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants such treatment.
Qualifying institutions that elect and comply with the community bank leverage ratio framework are considered well-capitalized under the prompt corrective action regulations if they have a community bank leverage ratio of 9% or greater. See “—Capital Requirements” above.
Transactions with Affiliates and Loans to Insiders. Transactions between banks and their affiliates are governed by federal law and regulation. Generally, Section 23A of the Federal Reserve Act and the Federal Reserve’s Regulation W, made applicable to Somerset Regal Bank by Section 18(j) of the Federal Deposit Insurance Act and FDIC regulations, prohibit a bank and its subsidiaries from engaging in a “covered transaction” with an affiliate if the aggregate amount of covered transactions outstanding with that affiliate would exceed an amount equal to 10% of the bank’s capital stock and surplus. The aggregate amount of covered transactions outstanding with all affiliates is limited to 20% of the bank’s capital stock and surplus. The term “covered transaction” includes making loans to, purchasing assets from, and issuing guarantees to an affiliate, and other similar transactions. Loans or other extensions of credit by a bank to an affiliate are required to be collateralized according to the requirements set forth in Section 23A of the Federal Reserve Act. Section 23B of the Federal Reserve Act and Regulation W apply to “covered transactions,” as well as to certain other transactions with or involving affiliates, and requires that all such transactions be on terms and under circumstances that are substantially the same, or at least as favorable, to the bank or its subsidiary as those prevailing at the time for comparable transactions with or involving a non-affiliate. Transactions covered by Section 23B also include the provision of services and selling of assets by a bank to an affiliate.
Somerset Regal Bank’s loans to its directors, executive officers and owners of 10% or more of its stock (each, an insider) and entities controlled by such persons (each, a related interest) are subject to the conditions and limitations imposed by Sections 22(g) and 22(h) of the Federal Reserve Act and the Federal Reserve’s Regulation O, as made applicable to the Bank by Section 18(j) of the Federal Deposit Insurance Act and FDIC regulations. Among other things, these provisions generally require that extensions of credit to insiders be made on terms that are substantially the same as and follow credit underwriting procedures that are not less stringent than those prevailing at the time for comparable transactions with unaffiliated persons and that such extensions of credit do not involve more than the normal risk of repayment or present other unfavorable features. In addition, extensions of credit to
19
insiders may not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based on a bank’s unimpaired capital and unimpaired surplus. Extensions of credit in excess of certain limits must be approved by a majority of the bank’s entire Board of Directors. Extensions of credit to executive officers are subject to additional limits based on the type of extension involved.
Federal Insurance of Deposit Accounts. Deposit accounts in Somerset Regal Bank are insured up to a maximum of $250,000 per depositor for each account ownership category. The FDIC assesses all insured depository institutions. An institution’s assessment rate depends upon the perceived risk to the Deposit Insurance Fund of that institution, with less risky institutions paying lower rates. Currently, assessments for institutions of less than $10 billion of total assets are based on financial measures and supervisory ratings derived from statistical models estimating the probability of failure within three years. Assessment rates (inclusive of possible adjustments) for insured depository institutions with assets of less than $10 billion currently range from 2.5 to 32 basis points of each institution’s total assets less tangible capital.
The FDIC may increase or decrease the range of assessments uniformly, except that no adjustment in the risk-based assessment system may be made without notice and comment rulemaking.
Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, order or regulatory condition imposed in writing. We do not know of any practice, condition or violation that might lead to termination of our deposit insurance.
Community Reinvestment Act. Under the Community Reinvestment Act, or “CRA,” every insured depository institution has a continuing and affirmative obligation, consistent with its safe and sound operation, to help meet the credit needs of its entire community, including low- and moderate- income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions, nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the FDIC, in connection with its examination of each state non-member bank, to assess the institution’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution, including applications to establish branches and acquire other financial institutions. The CRA and its current regulations require the FDIC to provide a written evaluation of an institution’s CRA performance utilizing a four-tiered descriptive rating system. Somerset Regal Bank's most recent FDIC CRA rating, dated April 7, 2025, was “Satisfactory.”
Federal Home Loan Bank System. Somerset Regal Bank is a member of the Federal Home Loan Bank System, which consists of 11 regional Federal Home Loan Banks. The Federal Home Loan Banks provide a central credit facility primarily for member institutions. Somerset Regal Bank, as a member of the Federal Home Loan Bank of New York, is required to acquire and hold shares of capital stock in the Federal Home Loan Bank of New York. Somerset Regal Bank was in compliance with this requirement at June 30, 2025.
Holding Company Regulation
Federal Holding Company Regulation. SR Bancorp is a bank holding company registered with the Federal Reserve and subject to regulation, examination, supervision and reporting requirements applicable to bank holding companies. In addition, the Federal Reserve has enforcement authority over SR Bancorp and its non-bank subsidiaries. Among other things, this authority permits the Federal Reserve to restrict or prohibit activities that are determined to be a serious risk to the subsidiary bank.
A bank holding company is generally prohibited from engaging in non-banking activities, or acquiring direct or indirect control of more than 5% of the voting securities of any company engaged in non-banking activities. One of the principal exceptions to this prohibition is for activities the Federal Reserve has determined to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the principal activities that the Federal Reserve has determined by regulation to be so closely related to banking are: (1) making or servicing loans; (2) performing certain data processing services; (3) providing discount brokerage services; (4)
20
acting as fiduciary, investment or financial advisor; (5) leasing personal or real property; (6) making investments in corporations or projects designed primarily to promote community welfare; and (7) acquiring a savings and loan association whose direct and indirect activities are limited to those permitted for bank holding companies.
The Gramm-Leach-Bliley Act of 1999 authorizes a bank holding company that meets specified conditions, including that its depository institution subsidiaries are “well capitalized” and “well managed,” to opt to become a “financial holding company.” A “financial holding company” may engage in a broader range of financial activities than a bank holding company. Such activities may include insurance underwriting and investment banking. SR Bancorp has no plans to elect “financial holding company” status at this time.
Capital. Bank holding companies with $3 billion or more in total consolidated assets are subject to consolidated regulatory capital requirements that are as stringent as those applicable to their insured depository subsidiaries. SR Bancorp has consolidated assets of less than $3 billion and, therefore, is not subject to the consolidated capital requirements, unless otherwise advised by the Federal Reserve.
Source of Strength. Federal law provides that bank and savings and loan holding companies must act as a source of financial and managerial strength to their subsidiary depository institution. The expectation is that the holding company will provide capital, liquidity and other support for the institution in times of financial stress.
Stock Repurchases and Dividends. A bank holding company is generally required to give the Federal Reserve prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the company’s consolidated net worth. The Federal Reserve may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, Federal Reserve order or directive, or any condition imposed by, or written agreement with, the Federal Reserve. There is an exception to this approval requirement for well capitalized bank holding companies that meet certain other conditions. Federal Reserve guidance provides for regulatory consultation and non-objection under specified circumstances prior to a holding company redeeming or repurchasing regulatory capital instruments, including common stock, regardless of the previously referenced notification requirement.
The Federal Reserve has issued a policy statement regarding capital distributions, including dividends, by bank holding companies. In general, the Federal Reserve’s policies provide that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the bank holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. Regulatory guidance provides for prior consultation with and non-objection of the Federal Reserve in certain cases, such as where a proposed dividend exceeds earnings for the period for which the dividend would be paid (e.g., calendar quarter) or where the holding company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund a proposed dividend. The Federal Reserve guidance also provides for consultation and non-objection for material increases in the amount of a bank holding company’s common stock dividend. Additionally, under the prompt corrective action laws, the ability of a bank holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized.
These regulatory policies could affect the ability of SR Bancorp to pay dividends, engage in stock repurchases or otherwise engage in capital distributions.
Acquisition of Holding Company. Under the Change in Bank Control Act and its implementing regulations, no person, or group of persons acting in concert, may acquire control of a bank holding company, such as SR Bancorp, unless the Federal Reserve has been given 60 days’ prior written notice and not disapproved the proposed acquisition. Control, as defined under the Change in Bank Control Act and its regulations, means the power, directly or indirectly, to direct the management or policies of the company or to vote 25% or more of any class of voting securities of the company. Acquisition of more than 10% of any class of a bank holding company’s voting securities constitutes a rebuttable presumption of control under certain circumstances, including where, as is the case with SR Bancorp, the issuer has registered securities under Section 12 of the Exchange Act.
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In addition, federal regulations provide that no company may acquire control of a bank holding company without the prior approval of the Federal Reserve. Control, as defined under the Bank Holding Company Act and Federal Reserve regulations, means ownership, control or power to vote 25% or more of any class of voting stock, control in any manner over the election of a majority of the company’s directors, or a determination by the regulator that the acquiror has the power to exercise, directly or indirectly, a controlling influence over the management or policies of the company. Any company that acquires such control becomes a “bank holding company” subject to registration, examination and regulation by the Federal Reserve. Effective September 30, 2020, the Federal Reserve amended its regulations concerning when a company exercises a controlling influence over a bank or bank holding company for purposes of the Bank Holding Company Act. Relevant factors include the company’s voting and nonvoting equity investment in the bank or bank holding company, director, officer and employee overlap, and the scope of business relationships between the company and bank or bank holding company.
New Jersey Holding Company Regulation. As a bank holding company, SR Bancorp is also subject to the provisions of the New Jersey Banking Act of 1948, as amended, and the regulations of the NJDBI. New Jersey law establishes similar filing and prior approval requirements by the NJDBI for acquisitions of New Jersey chartered institutions.
Federal Securities Laws
SR Bancorp’s common stock is registered with the SEC. SR Bancorp, therefore, is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Exchange Act.
The registration under the Securities Act of shares of common stock issued in the stock offering does not cover the resale of those shares. Shares of common stock purchased by persons who are not affiliates of SR Bancorp may be resold without registration. Shares purchased by an affiliate of SR Bancorp will be subject to the resale restrictions of Rule 144 under the Securities Act. If SR Bancorp meets the current public information requirements of Rule 144, each affiliate that complies with the other conditions of Rule 144, including those that require the affiliate’s sale to be aggregated with those of other persons, would be able to sell in the public market without registration, a number of shares not to exceed, in any three-month period, the greater of 1% of the outstanding shares of SR Bancorp, or the average weekly volume of trading in the shares during the preceding four calendar weeks.
Emerging Growth Company Status. SR Bancorp qualifies as an “emerging growth company” under the JOBS Act. For as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As an emerging growth company, we also will not be subject to Section 404(b) of the Sarbanes-Oxley Act of 2002, which would require that our independent auditors review and attest as to the effectiveness of our internal control over financial reporting. An emerging growth company may also elect to use an extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Such an election is irrevocable during the period a company is an emerging growth company.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 is intended to improve corporate responsibility, provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. SR Bancorp has in place policies, procedures and systems designed to comply with this Act and its implementing regulations.
Federal Taxation
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General. SR Bancorp and Somerset Regal Bank are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal taxation is intended only to summarize material federal income tax matters and is not a comprehensive description of the tax rules applicable to SR Bancorp and Somerset Regal Bank.
Method of Accounting. For federal income tax purposes, Somerset Regal Bank currently reports its income and expenses on the accrual method of accounting and uses a tax year ending June 30 for filing its federal income tax returns.
Net Operating Loss Carryovers. Effective with the passage of the Federal Tax Cuts and Jobs Act, net operating loss carrybacks are no longer permitted, and net operating losses are allowed to be carried forward indefinitely. Net operating loss carryforwards arising from tax years beginning after January 1, 2018 are limited to offset a maximum of 80% of a future year’s taxable income. At June 30, 2025, Somerset Regal Bank had approximately $3.0 million in net operating loss carryovers at the federal level and approximately $7.5 million in net operating loss carryovers at the state level.
Capital Loss Carryovers. Generally, corporations may carry back capital losses to the preceding three taxable years and forward to the succeeding five taxable years. Any capital loss carryback or carryover is treated as a short-term capital loss for the year to which it is carried. As such, it is grouped with any other capital losses for the year to which carried and is used to offset any capital gains. Any loss remaining after the five-year carryover period that has not been deducted is no longer deductible. At June 30, 2025, Somerset Regal Bank had approximately $2.5 million in capital loss carryovers.
Corporate Dividends. We may generally exclude from our income 100% of dividends received from Somerset Regal Bank as a member of the same affiliated group of corporations.
Audit of Tax Returns. SR Bancorp's federal income tax returns and New Jersey State income tax returns have not been audited in the last three years.
State Taxation
New Jersey State Taxation. In 2014, tax legislation was enacted that changed the manner in which banks and their affiliates are taxed in New Jersey. Taxable income is apportioned to New Jersey based on the location of the taxpayer’s customers, with special rules for income from certain financial transactions. The location of the taxpayer’s offices and branches are not relevant to the determination of income apportioned to New Jersey. The Corporation Business Tax rate is 9% on adjusted entire net income or on the portion allocable to New Jersey; the rate is 7.5% for all corporations with entire net income of $100,000 or less; and the rate is 6.5% for all corporations with entire net income of $50,000 or less.
Maryland State Taxation. As a Maryland business corporation, SR Bancorp is required to file an annual report with and pay franchise taxes to the State of Maryland.
Item 1A. Risk Factors.
You should consider carefully the following risk factors in evaluating an investment in the shares of common stock.
Risks Related to Economic Conditions
A worsening of economic conditions in our market area could reduce demand for our products and services and/or result in increases in our level of non-performing loans, which could adversely affect our operations, financial condition and earnings.
Local economic conditions have a significant impact on the ability of our borrowers to repay loans and the value of the collateral securing loans. A deterioration in economic conditions, especially local conditions, could
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have the following consequences, any of which could have a material adverse effect on our business, financial condition, liquidity and results of operations, and could more negatively affect us compared to a financial institution that operates with more geographic diversity:
Moreover, a significant decline in general economic conditions caused by inflation, tariffs, recession, acts of terrorism, civil unrest, an outbreak of hostilities or other international or domestic calamities, an epidemic or pandemic, unemployment or other factors beyond our control could further impact these local economic conditions and could further negatively affect the financial results of our banking operations. In addition, deflationary pressures, while possibly lowering our operating costs, could have a significant negative effect on our borrowers, especially our business borrowers, and the values of underlying collateral securing loans, which could negatively affect our financial performance.
Inflation can have an adverse impact on our business and on our customers.
Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. As discussed below under “—Risks Related to Interest Rates – Changes in interest rates or the shape of the yield curve may adversely affect our profitability and financial condition,” as inflation increases and market interest rates rise the value of our investment securities, particularly those with longer maturities, decrease, although this effect can be less pronounced for floating rate instruments. In addition, inflation generally increases the cost of goods and services we use in our business operations, such as electricity and other utilities, which increases our noninterest expenses. Furthermore, our customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us. Sustained higher interest rates by the FRB to tame persistent inflationary pressures could decrease asset prices and weaken economic activity.
Changes to trade policies and tariffs can have an adverse impact on our business and our customers.
Changes in trade policies, including the imposition of tariffs or the escalation of a trade war, could negatively impact the economic conditions in the markets we serve. Our customers—particularly local businesses engaged in manufacturing and retail—may face higher costs for imported goods and materials, reduced export demand and supply chain disruptions due to increased tariffs. These challenges could lead to lower revenues, reduced profitability and potential layoffs, all of which may impair our customers’ ability to meet their financial obligations. Furthermore, prolonged trade tensions and economic uncertainty could lead to market volatility, declining asset values and weakened consumer confidence. If our customers experience financial stress, we could see loan delinquencies and credit losses, negatively affecting our asset quality and overall financial performance. Additionally, any decline in local economic activity could reduce loan demand and deposit growth, which are critical to our long-term success. While we actively monitor economic and policy developments, we cannot predict the outcome of trade negotiations or the full impact of tariffs and trade restrictions on our business, customers, and the broader economy. Any adverse effects from tariffs or a trade war could materially and negatively impact our financial condition, results of operations, and future growth prospects.
A recession could result in increases in our level of non-performing loans and/or reduce demand for our products and services, which would lead to lower revenue, higher credit losses and lower earnings.
Our business activities and earnings are affected by general business conditions in the United States and in our local market area. These conditions include short-term and long-term interest rates, inflation, unemployment levels, real estate values, monetary supply, consumer confidence and spending, fluctuations in both debt and equity capital
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markets, and the strength of the economy in the United States generally and in our market area in particular. If the national economy experiences a recession, which might include rising unemployment levels, declines in real estate values and/or an erosion in consumer confidence, the ability of our borrowers to repay their loans in accordance with their terms could be impaired. Nearly all our loans are secured by real estate or made to businesses in the counties in which we have offices in New Jersey. As a result of this concentration, a prolonged or more severe downturn in the local economy could result in significant increases in non-performing loans, negatively impacting our interest income and resulting in higher provisions for credit losses. An economic downturn could also result in reduced demand for credit, which would lessen our revenues.
Risks Related to Interest Rates
Changes in interest rates or the shape of the yield curve may adversely affect our profitability and financial condition.
We derive our income mainly from the difference or spread between the interest earned on loans, securities and other interest-earning assets and the interest paid on deposits, borrowings and other interest-bearing liabilities. In general, the larger the spread, the more we earn. When market interest rates change, the interest we receive on our assets and the interest we pay on our liabilities will fluctuate. This can cause decreases in our spread and can adversely affect our income.
Like many financial institutions, our liabilities generally have shorter contractual maturities than our assets. This imbalance can create significant earnings volatility because market interest rates change over time. Furthermore, increases in interest rates may adversely affect our ability to originate loans and/or the ability of our borrowers to make loan repayments on adjustable-rate loans, as the interest owed on such loans would increase as interest rates increase. In a period of declining interest rates, the interest income we earn on our assets may decrease more rapidly than the interest we pay on our liabilities, as borrowers prepay mortgage loans, and mortgage-backed securities and callable securities are called, requiring us to reinvest those cash flows at lower interest rates.
In addition, changes in interest rates can affect the average life of loans and mortgage-backed and related securities. A decline in interest rates generally results in increased prepayments of loans and mortgage-backed and related securities as borrowers refinance their debt to reduce their borrowing costs. This creates reinvestment risk, which is the risk that we may not be able to reinvest prepayments at rates that are comparable to the rates we earned on the prepaid loans or securities. Furthermore, an inverted interest rate yield curve, where short-term interest rates (which are usually the rates at which financial institutions borrow funds) are higher than long-term interest rates (which are usually the rates at which financial institutions lend funds for fixed-rate loans) can reduce a financial institution’s net interest margin and create financial risk for financial institutions that originate longer-term, fixed-rate mortgage loans.
Risks Related to Strategy and Growth
Our business strategy includes moderate growth, and our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively.
Our business strategy includes moderate growth in assets, deposits and the scale of our operations. Achieving our growth targets will require us to attract customers that currently bank at other financial institutions in our market, thereby increasing our share of the market, and to expand the size of our market area. Our ability to successfully grow will depend on a variety of factors, including our ability to attract and retain experienced bankers, the continued availability of desirable business opportunities, the competitive responses from other financial institutions in our market area and our ability to manage our growth. Growth opportunities may not be available or we may not be able to manage our growth successfully. If we do not manage our growth effectively, our financial condition and operating results could be negatively affected. Furthermore, there can be considerable costs involved in expanding lending capacity, and generally a period of time is required to generate the necessary revenues to offset these costs, especially in areas in which we do not have an established presence. Accordingly, any such business expansion can be expected to negatively impact our earnings until certain economies of scale are reached.
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New lines of business or new products and services may subject us to additional risks.
From time to time, we may implement new lines of business or offer new products and services within existing lines of business. In addition, we will continue to invest in research, development, and marketing for new products and services. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or new products and services, we may invest significant time and resources. Initial timetables for the development and introduction of new lines of business and/or new products or services may not be achieved and price and profitability targets may not prove feasible. Furthermore, if customers do not perceive our new offerings as providing significant value, they may fail to accept our new products and services. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. Furthermore, the burden on management and our information technology in introducing any new line of business and/or new product or service could have a significant impact on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, financial condition and results of operations.
A significant portion of our loans are secured by real estate, which could negatively impact our profitability upon a downturn in the local real estate market.
At June 30, 2025, approximately $787.9 million or 98.5% of our loan portfolio was secured by real estate, most of which is located in our primary lending market area of Essex, Hunterdon, Middlesex, Morris, Somerset and Union Counties, New Jersey and surrounding areas. Future declines in real estate values in our primary lending markets and surrounding markets because of an economic downturn could significantly impair the value of the collateral securing our loans and our ability to sell the collateral upon foreclosure for an amount necessary to satisfy the borrower’s obligations to us. This could require us to increase our allowance for credit losses to address the decrease in the value of the real estate securing our loans, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
Unlike larger financial institutions that are more geographically diversified, our profitability depends primarily on the general economic conditions in our primary market area. Local economic conditions have a significant impact on our residential real estate and other types of lending, including, the ability of borrowers to repay these loans and the value of the collateral securing these loans.
Our reliance on third parties to originate certain loans may negatively impact our financial results if such relationships are discontinued.
We purchase residential mortgage loans from third-party brokers. Such purchases represented $41.2 million, or 42.2%, of our residential mortgage loan purchases and originations for the year ended June 30, 2025. Similarly, we relied on third-party brokers to refer to us multi-family real estate loans. Such referrals represented $50.5 million, or 100.0%, of the Bank's multi-family loan originations for the year ended June 30, 2025. These third parties are used to supplement the originations made by in-house staff. In each case, Somerset Regal Bank separately underwrite each loan before it is either purchased or closed. Should these broker relationships be discontinued or the Bank is otherwise unable to use these companies in the future, our ability to originate residential mortgage loans or multi-family real estate loans may be reduced unless and until we are able to find a suitable replacement or have the capability to originate such loans through our lending staff. If we have to add more staff, our compensation expense would increase. Our income may be negatively affected if our residential mortgage lending or multi-family residential lending operations are disrupted.
Because we intend to increase our multi-family and commercial real estate and commercial loan originations, our lending risk will increase.
Multi-family and commercial real estate and commercial loans generally have more risk than residential mortgage loans. Because the repayment of multi-family and commercial real estate and commercial loans depends on the successful management and operation of the borrower’s properties or related businesses, repayment of such loans can be affected by adverse conditions in the real estate market or the local economy. Multi-family and
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commercial real estate and commercial loans may also involve relatively large loan balances to individual borrowers or groups of related borrowers. A downturn in the real estate market or the local economy could adversely impact the value of properties securing the loan or the revenues from the borrower’s business thereby increasing the risk of non-performing loans. Also, many multi-family and commercial real estate and commercial business borrowers can have more than one loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss compared to an adverse development with respect to a residential mortgage loan. Further, unlike residential mortgages or multi-family and commercial real estate loans, commercial and industrial loans may be secured by collateral other than real estate, such as inventory and accounts receivable, the value of which may be more difficult to appraise, may be more susceptible to fluctuation in value at default, and may be more difficult to realize upon enforcement of our remedies. As our multi-family and commercial real estate and commercial loan portfolios increase, the corresponding risks and potential for losses from these loans may also increase.
If our allowance for credit losses is not sufficient to cover actual credit losses, our earnings and capital could decrease.
We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for our loans. In determining the amount of the allowance for credit losses, we review our loans and our loss and delinquency experience, and we evaluate other factors including, among other things, current and forecastable economic conditions. If our assumptions are incorrect, or if delinquencies or non-performing loans increase, our allowance for credit losses may not be sufficient to cover current expected losses in our loan portfolio, which would require additions to our allowance, that could materially decrease our net income. Our allowance for credit losses was 0.65% and 0.71% of total loans at June 30, 2025 and June 30, 2024, respectively.
The implementation of the Current Expected Credit Losses accounting standard or "CECL" was effective for SR Bancorp on July 1, 2023. CECL requires financial institutions to determine periodic estimates of lifetime expected credit losses on loans and recognize the expected credit losses as allowances for credit losses. This changed the method of providing allowances for loan losses that are incurred or probable, which increased the types of data we need to collect and review to determine the appropriate level of the allowance for credit losses.
In addition, Somerset Regal Bank regulators periodically review our allowance for credit losses and, based on their judgments and information available to them at the time of their review, may require us to increase our allowance for credit losses or recognize further loan charge-offs. An increase in our allowance for credit losses or loan charge-offs as required by these regulatory authorities may reduce our net income and our capital, which may have a material adverse effect on our financial condition and results of operations.
Risks Related to Our Funding
Our inability to generate core deposits may cause us to rely more heavily on wholesale funding strategies for funding and liquidity needs, which could have an adverse effect on our net interest margin and profitability.
We must maintain sufficient funds to respond to the needs of depositors and borrowers. Deposits have traditionally been our exclusive source of funds for use in lending and investment activities. We also receive funds from loan repayments, maturities of securities and income on other interest-earning assets. While we emphasize generating transaction accounts, we cannot guarantee if and when this will occur. Certificates of deposit comprised $268.2 million or 31.7% of our total deposits at June 30, 2025. Certificates of deposit due within one year of June 30, 2025 totaled $239.0 million, or 28.3% of total deposits. Further, the considerable competition for deposits in our market area also has made, and may continue to make, it difficult for us to obtain reasonably priced deposits. Moreover, deposit balances can decrease if customers perceive alternative investments as providing a better risk/return tradeoff. If we are not able to increase our lower-cost transactional deposits at a level necessary to fund our asset growth or deposit outflows, we may be forced seek other sources of funds, including other certificates of deposit, Federal Home Loan Bank advances, brokered deposits and lines of credit to meet the borrowing and deposit withdrawal requirements of our customers, which may be more expensive and have an adverse effect on our net interest margin and profitability.
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Risks Related to Competition
Strong competition within our market area may limit our growth and profitability.
Competition in the banking and financial services industry is intense. In our market area, we compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, and brokerage and investment banking firms. Many of our competitors have greater name recognition, market presence and substantially more resources that benefit them in attracting business and offer certain services that we do not or cannot provide. Our smaller asset size also makes it more difficult to compete, as many of our competitors are larger and can more easily afford to invest in the marketing and technologies needed to attract and retain customers. In addition, larger competitors may be able to price loans and deposits more aggressively than we do, which could affect our ability to grow and remain profitable on a long-term basis. Our profitability depends upon our continued ability to successfully compete in our market area. If we must raise interest rates paid on deposits or lower interest rates charged on our loans, our net interest margin and profitability could be adversely affected. Competition also makes it increasingly difficult and costly to attract and retain qualified employees. For additional information see “Business of SR Bancorp and Somerset Regal Bank—Competition.”
The financial services industry could become even more competitive as a result of continuing legislative, regulatory and technological changes and continued industry consolidation. Banks, securities firms and insurance companies can merge under the umbrella of a financial holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. Also, technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. Many of our competitors have fewer regulatory constraints and may have lower cost structures. Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services than we can as well as better pricing for those products and services.
Risks Related to Operations and Security
We face significant operational risks because the nature of the financial services business involves a high volume of transactions.
We operate in diverse markets and rely on the ability of our employees and systems to process a high number of transactions. Operational risk is the risk of loss resulting from our operations, including but not limited to, the risk of fraud by employees or persons outside our company, the execution of unauthorized transactions by employees, errors relating to transaction processing and technology, breaches of our internal control systems and compliance requirements. Insurance coverage may not be available for such losses, or where available, such losses may exceed insurance limits. This risk of loss also includes potential legal actions that could arise as a result of operational deficiencies or as a result of non-compliance with applicable regulatory standards, adverse business decisions or their implementation, or customer attrition due to potential negative publicity. In the event of a breakdown in our internal control systems, improper operation of systems or improper employee actions, we could suffer financial loss, face regulatory action, and/or suffer damage to our reputation.
Cyber-attacks or other security breaches could adversely affect our operations, net income or reputation.
We regularly collect, process, transmit and store significant amounts of confidential information regarding our customers, employees and others and concerning our own business, operations, plans and strategies. In some cases, this confidential or proprietary information is collected, compiled, processed, transmitted or stored by third parties on our behalf.
Information security risks have generally increased in recent years because of the proliferation of new technologies, the use of the Internet and telecommunications technologies to conduct financial and other transactions, the increased sophistication and activities of perpetrators of cyber-attacks and mobile phishing and more employees working remotely. Mobile phishing, a means for identity thieves to obtain sensitive personal information through fraudulent e-mail, text or voice mail, is an emerging threat targeting the customers of financial entities. A failure in or breach of our operational or information security systems, or those of our third-party service providers, as a result of cyber-attacks or information security breaches or due to employee error, malfeasance or
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other disruptions could adversely affect our business, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and/or cause losses.
Although we employ a variety of safeguards to protect confidential and proprietary information from mishandling, misuse or loss, these safeguards do not provide absolute assurance that mishandling, misuse or loss of the information will not occur, and that if mishandling, misuse or loss of information does occur, those events will be promptly detected and addressed. Similarly, when confidential or proprietary information is collected, compiled, processed, transmitted or stored by third parties on our behalf, our policies and procedures require that the third party agree to maintain the confidentiality of the information, establish and maintain policies and procedures designed to preserve the confidentiality of the information, and permit us to confirm the third party’s compliance with the terms of the agreement. As information security risks and cyber threats continue to evolve, we may be required to expend additional resources to continue to enhance our information security measures and/or to investigate and remediate any information security vulnerabilities.
If our confidential or proprietary information were to be mishandled, misused or lost, we could be exposed to significant regulatory consequences, reputational damage, civil litigation and/or financial loss.
Risks associated with system failures, interruptions, or breaches of security could negatively affect our earnings.
Information technology systems are critical to our business. We use various technology systems to manage our customer relationships, general ledger, securities, deposits, and loans. We have established policies and procedures to prevent or limit the impact of system failures, interruptions, and security breaches, but such events may still occur and may not be adequately addressed if they do occur. In addition, any compromise of our systems could deter customers from using our products and services. Although we rely on security systems to provide the security and authentication necessary to effect the secure transmission of data, these precautions may not protect our systems from compromises or breaches of security.
In addition, we outsource a majority of our data processing to third-party providers. If these third-party providers encounter difficulties, or if we have difficulty communicating with them, our ability to adequately process and account for transactions could be affected, and our business operations could be adversely affected. Threats to information security also exist in the processing of customer information through various other vendors and their personnel.
The occurrence of any system failures, interruptions, or breaches of security could damage our reputation and result in a loss of customers and business, subject us to additional regulatory scrutiny or expose us to litigation and possible financial liability. Any of these events could have a material adverse effect on our financial condition and results of operations.
Our success depends on retaining certain key personnel.
Our performance largely depends on the talents and efforts of our experienced senior management team. We rely on key personnel to manage and operate our business, including major revenue generating functions such as loan and deposit generation. The loss of key staff may adversely affect our ability to maintain and manage these functions effectively, which could negatively affect our income. In addition, the loss of key personnel could result in increased recruiting and hiring expenses, which would reduce our net income. Our continued ability to compete effectively depends on our ability to attract new employees and to retain and motivate our existing employees.
The cost of additional finance and accounting systems, procedures and controls to satisfy our new public company reporting requirements will increase our expenses.
The obligations of being a public company require significant expenditures and place additional demands on our management team. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a public company. Section 404 of the Sarbanes-Oxley Act of 2002 requires annual management assessments of the effectiveness of our internal control
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over financial reporting. Any failure to achieve and maintain an effective internal control environment could have a material adverse effect on our business. At June 30, 2025, management identified a material weakness in our internal control over financial reporting related to the untimely recognition of income from life insurance contracts resulting from the death of a former employee, which originated from differences in the contract balances reported by our bank owned life insurance ("BOLI") administrator as compared to the underlying insurance carriers. See Item 9A, ”Controls and Procedures.” If we neglect to implement and maintain effective internal control over financial reporting, it could result in material misstatements in our financial statements, which could result in a restatement of our financial statements or cause investors to lose confidence in our reported financial information, adversely affecting our stock price. Any such failure could also adversely affect the results of periodic management evaluations regarding the effectiveness of our internal control over financial reporting required under Section 404 of the Sarbanes-Oxley Act of 2002 and the rules promulgated by the SEC under Section 404. These obligations have increased our operating expenses and could divert our management’s attention from our operations.
We are a community bank and our ability to maintain our reputation is critical to the success of our business and the failure to do so may materially adversely affect our performance.
We are a community bank, and our reputation is one of the most valuable components of our business. A key component of our business strategy is to rely on our reputation for customer service and knowledge of local markets to expand our presence by capturing new business opportunities from existing and prospective customers in our market area and contiguous areas. As such, we strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring and retaining employees who share our core values of being an integral part of the communities we serve, delivering superior service to our customers and caring about our customers. If our reputation is negatively affected by the actions of our employees, by our inability to conduct our operations in a manner that is appealing to current or prospective customers, or otherwise, our business and operating results may be materially adversely affected.
Our risk management framework may not be effective in mitigating risk and reducing the potential for significant losses.
Our risk management framework is designed to minimize risk and loss to us. We seek to identify, measure, monitor, report and control our exposure to risk, including strategic, market, liquidity, compliance and operational risks. While we use broad and diversified risk monitoring and mitigation techniques, these techniques are limited because they cannot anticipate the existence or future development of currently unanticipated or unknown risks. Recent economic conditions and heightened legislative and regulatory scrutiny of the financial services industry, among other developments, have increased our level of risk. Accordingly, we could suffer losses if we fail to properly anticipate and manage these risks.
While our Board of Directors takes an active role in cybersecurity risk tolerance, we rely to a large degree on management and outside consultants in overseeing cybersecurity risk management.
Our Board of Directors takes an active role in our cybersecurity risk management and all members receive cybersecurity training annually. The Board reviews the annual risk assessments and approves information technology policies, which include cybersecurity. Furthermore, our Audit Committee is responsible for reviewing all audit findings related to information technology general controls, internal and external vulnerability, and penetration testing. The Board receives an annual information security report from our Chief Technology Officer as it relates to cybersecurity and related issues. We also engage outside consultants to support our cybersecurity efforts. However, our directors do not have significant experience in cybersecurity risk management outside of the Company and therefore, its ability to fulfill its oversight function remains dependent on the input it receives from management and outside consultants.
Natural disasters, acts of terrorism, global market disruptions and other external events could harm our business.
Natural disasters can disrupt our operations, result in damage to our properties, reduce or destroy the value of the collateral for our loans and negatively affect the economies in which we operate, which could have a material adverse effect on our results of operations and financial condition. A significant natural disaster, such as a tornado,
30
hurricane, fire or flood, could have a material adverse impact on our ability to conduct business, and our insurance coverage may be insufficient to compensate for losses that may occur. Acts of terrorism, war, civil unrest, violence or human error could cause disruptions to our business or the economy as a whole. While we have established and regularly test disaster recovery procedures, the occurrence of any such event could have a material adverse effect on our business, operations and financial condition. Additionally, global markets may be adversely affected by natural disasters, the emergence of widespread health emergencies or pandemics, cyber attacks or campaigns, military conflict, terrorism or other geopolitical events. Global market disruptions may affect our business liquidity. Also, any sudden or prolonged market downturn in the U.S. or abroad, as a result of the above factors or otherwise could result in a decline in revenue and adversely affect our results of operations and financial condition, including capital and liquidity levels.
Risks Related to Regulatory Matters
Changes in laws and regulations and the cost of regulatory compliance with new laws and regulations may adversely affect our operations and/or increase our costs of operations.
We are subject to extensive regulation, supervision and examination by our banking regulators. Such regulation and supervision govern the activities in which a financial institution and its holding company may engage and are intended primarily for the protection of insurance funds and the depositors and borrowers of the Bank rather than for the protection of our shareholders. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the ability to impose restrictions on our operations, classify our assets and determine the level of our allowance for credit losses. These regulations, along with the currently existing tax, accounting, securities, deposit insurance and monetary laws, rules, standards, policies, and interpretations, control the methods by which financial institutions conduct business, implement strategic initiatives, and govern financial reporting and disclosures. As a smaller institution, we are disproportionately affected by the ongoing increased costs of compliance with banking and other regulations. Any change in such regulation and oversight, whether in the form of regulatory policy, new regulations, legislation or supervisory action, may have a material impact on our operations. Further, changes in accounting standards can be both difficult to predict and involve judgment and discretion in their interpretation by us and our independent accounting firm. These changes could materially impact, potentially retroactively, how we report our financial condition and results of operations.
Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions.
The USA PATRIOT and Bank Secrecy Acts require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure to comply with these regulations could result in fines or sanctions, including restrictions on conducting acquisitions or establishing new branches. The policies and procedures we have adopted that are designed to assist in compliance with these laws and regulations may not be effective in preventing violations of these laws and regulations.
Monetary policies and regulations of the Federal Reserve could adversely affect our business, financial condition and results of operations.
In addition to being affected by general economic conditions, our earnings and growth are affected by the policies of the Federal Reserve. An important function of the Federal Reserve is to regulate the money supply and credit conditions. Among the instruments used by the Federal Reserve to implement these objectives are open market purchases and sales of U.S. government securities, adjustments of the discount rate and changes in banks’ reserve requirements against bank deposits. These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits. Their use also affects interest rates charged on loans or paid on deposits.
The monetary policies and regulations of the Federal Reserve have a significant effect on the operating results of financial institutions.
31
We are an emerging growth company, and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.
We are an emerging growth company, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As an emerging growth company, we also will not be subject to Section 404(b) of the Sarbanes-Oxley Act, which would require that our independent auditors review and attest as to the effectiveness of our internal control over financial reporting. We have also elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.
We are also a smaller reporting company, and even if we no longer qualify as an emerging growth company, any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to smaller reporting companies could make our common stock less attractive to investors.
In addition to qualifying as an emerging growth company, we qualify as a “smaller reporting company” under the federal securities laws. For as long as we continue to be a smaller reporting company, we may choose to take advantage of reduced financial disclosure obligations and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and the price of our common stock may be more volatile.
Risks Related to Accounting Matters
Changes in accounting standards could affect reported earnings.
The bodies responsible for establishing accounting standards, including the Financial Accounting Standards Board and the Securities and Exchange Commission, periodically change the financial accounting and reporting guidance that govern the preparation of our financial statements. These changes can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply new or revised guidance retroactively.
Changes in management’s estimates and assumptions may have a material impact on our consolidated financial statements and our financial condition or operating results.
In preparing our periodic reports, under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management is required to make estimates and assumptions as of specified dates. These estimates and assumptions are based on management’s best estimates and experience at such times and are subject to substantial risk and uncertainty. Materially different results may occur as circumstances change and additional information becomes known. Areas requiring significant estimates and assumptions by management include our evaluation of the adequacy of our allowance for credit losses, the impairment of our goodwill and the determination of our deferred income taxes.
Risks Related to Our Common Stock
Our return on equity remains low following the stock offering, which could negatively affect our stock price.
Net income divided by average shareholders’ equity, known as “return on equity,” is a ratio many investors use to compare the performance of financial institutions. Our return on equity will be low until we are able to profitably leverage the additional capital we received from the offering. Our return on equity also will be negatively affected by added expenses associated with our employee stock ownership plan and the stock-based benefit plan.
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Until we can increase our net interest income and noninterest income and leverage the capital raised in the offering, we expect our return on equity to be low, which may reduce our stock price.
Various factors may make takeover attempts more difficult to achieve.
Certain provisions of our articles of incorporation and bylaws and state and federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire control of SR Bancorp without our Board of Directors’ approval. Under applicable regulations, for a period of three years following completion of the conversion, no person may acquire beneficial ownership of more than 10% of our common stock without prior approval of the Federal Reserve. Under federal law, subject to certain exemptions, a person, entity or group must notify the Federal Reserve before acquiring control of a bank holding company. There also are provisions in our articles of incorporation and bylaws that may be used to delay or block a takeover attempt, including a provision that prohibits any person from voting more than 10% of our outstanding shares of common stock. Taken as a whole, these statutory and regulatory provisions and provisions in our articles of incorporation and bylaws could result in our being less attractive to a potential acquirer and thus could adversely affect the market price of our common stock.
Risks Related to the Somerset Regal Charitable Foundation
Our contribution to the charitable foundation may not be tax deductible, which could reduce our profits.
We may not have sufficient profits to be able to fully use the tax deduction from our contribution to the charitable foundation. Under the Internal Revenue Code, an entity is permitted to deduct up to 10% of its taxable income (generally income before federal income taxes and charitable contributions expense) in any one year for charitable contributions. Any contribution in excess of the 10% limit may be deducted for federal income tax purposes over each of the five years following the year in which the charitable contribution is made. Accordingly, a charitable contribution could, if necessary, be deducted over a six-year period and expires thereafter.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 1C. Cybersecurity.
We have implemented a cybersecurity risk management program to protect the confidentiality, integrity and availability of our information and information technology environment. Our cybersecurity risk management program consists of an extensive range of risk assessments to identify the cyber threats to our environment along with multiple policies and procedures to mitigate the risks identified, including, but not limited to, information technology and cybersecurity standards, incident response and disaster recovery/business continuity. Employees receive regular information and cybersecurity training and reminders throughout the year.
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procedures are maintained, including a requirement that our security vendor notify designated members of management when unusual or suspicious activity is identified.
To test and evaluate the effectiveness of our cybersecurity program, we are subject to annual audits of our program by an outside audit firm who specializes in both information technology and cybersecurity assessments. These assessments include a review of general IT controls, external penetration assessments, internal penetration assessments and security awareness testing of our staff.
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Item 2. Properties.
The following table sets forth certain information relating to our properties as of June 30, 2025.
Description and Address |
|
Leased or Owned |
|
Square |
|
|
|
Net Book Value at |
|
||
|
|
|
|
|
|
|
|
(In thousands) |
|
||
Main Office |
|
Owned |
|
|
15,000 |
|
(1) |
|
$ |
801 |
|
Branch Offices |
|
Owned |
|
|
3,100 |
|
|
|
|
122 |
|
Raritan Branch |
|
Owned |
|
|
1,800 |
|
|
|
|
173 |
|
Middlesex Branch |
|
Owned |
|
|
1,800 |
|
|
|
|
249 |
|
Whitehouse Branch |
|
Owned |
|
|
1,800 |
|
|
|
|
394 |
|
Flemington Branch |
|
Owned |
|
|
3,400 |
|
|
|
|
272 |
|
Manville Branch |
|
Owned |
|
|
4,900 |
|
|
|
|
682 |
|
Livingston Branch |
|
Leased |
|
|
2,800 |
|
|
|
|
44 |
|
Roseland Branch |
|
Leased |
|
|
1,800 |
|
|
|
|
0 |
|
Florham Park Branch |
|
Leased |
|
|
1,100 |
|
|
|
|
0 |
|
Millburn Branch |
|
Leased |
|
|
2,500 |
|
|
|
|
0 |
|
West Orange Branch |
|
Leased |
|
|
2,000 |
|
|
|
|
0 |
|
Springfield Branch |
|
Leased |
|
|
3,600 |
|
|
|
|
0 |
|
Somerset Branch |
|
Leased |
|
|
3,600 |
|
|
|
|
687 |
|
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Item 3. Legal Proceedings.
Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.
Item 4. Mine Safety Disclosures.
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market for Registrant’s Common Equity
The common stock of SR Bancorp, is listed on The NASDAQ Capital Market under the symbol “SRBK”. At September 22, 2025, SR Bancorp, Inc. had 945 stockholders of record. Certain shares of the Company are held in “nominee” or “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number.
The Company did not have any unregistered sales of equity securities during the three months ended June 30, 2025. The table below summarizes the number of shares of the Company’s common stock that were repurchased during the three months ended June 30, 2025.
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Total |
|
|
Average |
|
|
Total |
|
|
Maximum |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
April 1 - April 30, 2025 |
|
|
57,116 |
|
|
$ |
12.11 |
|
|
|
57,116 |
|
|
|
266,216 |
|
May 1 - May 31, 2025 |
|
|
252,414 |
|
|
|
13.10 |
|
|
|
252,414 |
|
|
|
13,802 |
|
June 1 - June 30, 2025 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13,802 |
|
Total |
|
|
309,530 |
|
|
|
|
|
|
309,530 |
|
|
|
|
||
On September 20, 2024, the Company’s Board of Directors approved the repurchase of 950,793 shares, or approximately 10.0% of the Company’s common stock outstanding. On July 8, 2025, the Company’s Board of Directors approved the repurchase of an additional 886,137 shares, or approximately 10.0% of the Company’s common stock outstanding. The stock repurchase plans have a one-year expiration term, and the Board of Directors has the right to suspend or discontinue the plan at any time.
Item 6. [Reserved].
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The objective of this section is to assist in the understanding of the financial performance of the Company and its subsidiaries through a discussion of our results of operations and financial condition as of the dates presented. You should read this discussion in conjunction with the SR Bancorp Consolidated Financial Statements and Notes to the Consolidated Financial Statements that appear at the end of this document.
Conversion, Stock Offering and Merger
The conversion of Somerset Savings Bank, SLA from the mutual to stock form of organization and related stock offering by SR Bancorp, Inc. (the "Company"), the holding company for Somerset Savings Bank, SLA, was completed on September 19, 2023. The Company’s common stock began trading on the Nasdaq Capital Market under the trading symbol “SRBK” on September 20, 2023.
The Company sold 9,055,172 shares of its common stock at a price of $10.00 per share, which included 760,634 shares sold to Somerset Regal Bank’s Employee Stock Ownership Plan. Additionally, the Company contributed 452,758 shares and $906,000 in cash to the Somerset Regal Charitable Foundation, Inc., a charitable foundation formed in connection with the conversion. Upon the completion of the conversion and offering, 9,507,930 shares of Company common stock were outstanding.
Promptly following the completion of the conversion and related stock offering, Regal Bancorp, Inc., a New Jersey corporation (“Regal Bancorp”), merged with and into the Company, with the Company as the surviving entity (the “Merger”). Immediately following the Merger, Regal Bank, a New Jersey chartered commercial bank headquartered in Livingston, New Jersey and the wholly-owned subsidiary of Regal Bancorp, merged with and into Somerset Bank, which had converted to a commercial bank charter, and was renamed Somerset Regal Bank (the “Bank”). In connection with the Merger, each outstanding share of Regal Bancorp common stock converted into the right to receive $23.00 in cash. The Merger was completed on September 19, 2023.
Overview
Our principal business is to acquire deposits from individuals and businesses in the communities surrounding our offices and to use these deposits to fund loans.
Somerset Regal Bank is a New Jersey-chartered commercial bank that operates from 14 branches in Essex, Hunterdon, Middlesex, Morris, Somerset and Union Counties, New Jersey. Somerset Regal Bank offers a variety of deposit and loan products to individuals and small businesses, most of which are located in our primary market. The acquisition of Regal Bancorp and its wholly owned subsidiary, Regal Bank, expanded our market presence into Essex, Morris and Union Counties, New Jersey and enhanced our market presence in Somerset County, New Jersey. At June 30, 2025, SR Bancorp had total assets of $1.08 billion, deposits of $846.0 million and total equity of $193.8 million.
Income. Our primary source of pre-tax income is net interest income. Net interest income is the difference between interest income, which is the income that we earn on our loans and investments, and interest expense, which is the interest that we pay on our deposits. Changes in levels of interest rates affect our net interest income.
A secondary source of income is noninterest income, which is revenue that we receive from providing products and services. The majority of our noninterest income generally comes from service charges and fees related to deposit accounts and net gains in cash surrender value of bank owned life insurance. In some years, we recognize income from the sale of securities.
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Allowance for Credit Losses. The allowance for credit losses is a valuation allowance for the current expected credit losses in the loan portfolio. We evaluate the need to establish allowances against losses on loans on a quarterly basis. When additional allowances are necessary, a provision for credit losses is charged to earnings. Loans are charged against the allowance when management believes that the collectability of the principal loan amount is not probable. Recoveries on loans previously charged off, if any, are credited to the allowance for credit losses when realized.
Expenses. The noninterest expenses we incur in operating our business consist of salaries and employee benefits expenses, occupancy expenses, furniture and equipment expenses, data processing, advertising, FDIC insurance premiums, directors fees, professional fees, insurance, telephone, postage and supplies and other miscellaneous expenses.
Our largest noninterest expense is salaries and employee benefits, which consist primarily of salaries and wages paid to our employees, payroll taxes, expenses for retirement plans and other employee benefits including disability insurance and health insurance and compensation expenses related to the recently implemented employee stock ownership plan.
Occupancy expenses and furniture and equipment expenses are the fixed and variable costs of buildings and equipment, and consist primarily of depreciation charges, furniture and equipment expenses, repair and maintenance costs, real estate taxes and costs of utilities. Depreciation of premises and equipment is computed using a straight-line method based on the estimated useful lives of the related assets or the expected lease terms, if shorter.
Data processing expenses are fees paid to third parties for use of their software and for processing customer information, deposits and loans.
Advertising includes most marketing expenses including multi-media advertising (public and in-branch), promotional events and materials, civic and sales focused memberships, and community support.
Federal deposit insurance premiums are payments we make to the FDIC for insurance of our deposit accounts.
Professional fees include legal, accounting, auditing, risk management and payroll processing expenses.
Insurance includes expenses for worker’s compensation, property and casualty insurance and professional insurance.
Other expenses include expenses for directors fees, office supplies, postage, telephone and other miscellaneous operating expenses.
Critical Accounting Policies
Certain of our accounting policies are important to the presentation of our financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances that could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy and changes in the financial condition of borrowers. Our significant accounting policies are discussed in detail in Note 1 to our Consolidated Financial Statements included elsewhere in this document.
The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we plan to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, our consolidated financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.
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Management believes our most critical accounting policies, which involve the most complex or subjective decisions or assessments, are as follows: the determination of the allowance for credit losses, the assessment of the impairment of goodwill and intangible assets and the valuation of our deferred tax assets.
Allowance for Credit Losses: The allowance for credit losses (“ACL”), calculated in accordance with ASC 326, is deducted from the amortized cost basis of loans. The ACL represents an amount that, in management’s judgment, is adequate to absorb the lifetime expected credit losses that may be experienced on outstanding loans at the balance sheet date based on the evaluation of the size and current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts of economic conditions and prepayment experience. The allowance for credit losses is measured and recorded upon the initial recognition of a financial asset. Determination of the adequacy of the allowance is inherently complex and requires the use of significant and highly subjective estimates. Loans are charged-off against the allowance when deemed uncollectible by management. Adjustments to the allowance are reported in our income statement as a component of the provision for credit losses.
In calculating the allowance for credit losses, loans are segmented into pools based upon similar characteristics and risk profiles. Common characteristics and risk profiles include the type of loan, underlying collateral, geographical similarity and historical or expected credit loss patterns. The Company applies two methodologies to estimate the allowance on its pooled portfolio segments: a cohort method based on common characteristics and the weighted average remaining life method. The models related to these methodologies utilize the Company’s historical default and loss experience adjusted for future economic forecasts. The reasonable and supportable forecast period represents a one-year economic outlook for the applicable economic variables.
In some cases, management may determine that an individual loan exhibits unique risk characteristics that differentiate the loan from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing, among other things, the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk rating of the loan and economic conditions affecting the borrower.
Management qualitatively adjusts model results for risk factors that are not considered within our modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. These qualitative factor adjustments may increase or decrease management’s estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making qualitative factor adjustments include, among other things: the impact of changes in lending policies and procedures, including changes in underwriting standards and practices for collections, write-offs, and recoveries; actual and expected changes in national, regional, and local economic and business conditions and developments that affect the collectability of the loan pools; changes in the composition and size of the loan portfolio and in the terms of the underlying loans; changes in the experience, ability, and depth of our lending management and staff; changes in volume and severity of past due and nonaccrual assets; changes to the quality of our internal loan review system; the existence, growth, and effect of any concentrations of credit; and regulatory, legal and environmental events. Management believes it uses relevant information available to make determinations about the allowance and that it has established the existing allowance in accordance with GAAP. However, the determination of the allowance requires significant judgment, and estimates of expected lifetime losses in the loan portfolio can vary significantly from the amounts actually observed. While management uses available information to recognize expected losses, future additions to the allowance may be necessary based on changes in the loans comprising the portfolio, changes in the current and forecasted economic conditions, changes to the interest rate environment and changes in the financial condition of borrowers.
Goodwill and Other Intangible Assets: Our intangible assets consist primarily of goodwill and core deposit intangibles. The initial recording of goodwill and other intangible assets requires subjective judgments concerning estimates of the fair value of the acquired assets and assumed liabilities. Goodwill is not amortized but is subject to annual tests for impairment, or more often if events or circumstances indicate it may be impaired. We may elect to perform a qualitative assessment as a part of the annual impairment test. If the qualitative assessment indicates it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or if we elect not to perform a qualitative assessment, then we would be required to perform a quantitative test for goodwill impairment. If the estimated fair value of the reporting unit less than the carrying value, goodwill is impaired and is written down to its estimated fair value.
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In the year ended June 30, 2025, we performed a qualitative assessment of goodwill. Based on that assessment, we determined that it was more likely than not that the unit's fair value was not less than its carrying amount. We concluded that our goodwill was not impaired as of June 30, 2025.
Core deposit intangibles are amortized on an accelerated basis using an estimated life of ten years. The core deposit intangibles are evaluated annually for impairment in accordance with GAAP. An impairment loss will be recognized if the carrying amount of the intangible asset is not recoverable and exceeds fair value. The carrying amount of the intangible asset is not considered recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset.
Income Taxes: Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The measurement of deferred tax assets is reduced by a valuation allowance for the amount of the deferred tax asset that is more likely than not to be realized.
A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.
We recognize interest and/or penalties related to income tax matters in other operating expenses.
Business Strategy
Our business strategy is to operate and grow a profitable community-oriented financial institution. We plan to achieve this by:
Leveraging our residential and commercial lending expertise to pursue new opportunities to increase lending in our primary market area and expand our existing loan relationships. Prior to the Merger, Somerset Savings Bank’s principal business activity historically had been the origination of residential mortgage loans, while Regal Bank’s principal business activity historically had been the origination of multi-family and commercial real estate loans. Somerset Regal Bank will continue to provide products and services that meet the needs of the existing residential lending customers and be able to offer such products, services and expertise to the former Regal Bank customers throughout its newly-expanded market area. Additionally, Somerset Regal Bank will continue to provide products and services that meet the needs of the existing commercial customers and be able to offer such products, services and expertise to the former Somerset Savings Bank customers throughout its newly-expanded market area.
The opportunity for both banks to diversify their loan portfolios and leverage their lending expertise in new markets were primary factors for the Merger. Moreover, with the additional capital raised in the stock offering, we can increase our loan originations in our market area and originate loans with larger balances. Somerset Regal Bank’s legal lending limit was $29.1 million at June 30, 2025. While Somerset Regal Bank’s credit risk management policies will result in an internal loan to one borrower limit less than Somerset Regal Bank’s regulatory limit, the legal lending limit will provide opportunities to expand existing customer relationships and reach new larger customers.
We intend to leverage the SBA preferred lender expertise to expand SBA lending activity in our market areas. SBA lending capabilities provide an opportunity to establish additional commercial account relationships and the potential to generate additional noninterest income related to the sale and servicing of the guaranteed portion of an SBA loan on the secondary market.
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Continuing to use prudent underwriting practices to maintain a high-quality loan portfolio. Maintaining high asset quality is a key to long-term financial success. Somerset Regal Bank seeks to grow its loan portfolio while keeping non-performing assets to a minimum. Somerset Regal Bank’s strategy for credit risk management focuses on having an experienced team of credit professionals, well-defined policies and procedures, appropriate and conservative loan underwriting criteria and active credit monitoring. At June 30, 2025, Somerset Regal Bank had no non-performing loans.
Building profitable business and consumer relationships through enhanced product offerings and by continuing to provide superior customer service. We are a full-service financial services company offering our customers a broad range of loan and deposit products and services, including internet banking, which enables our customers to pay bills on-line. Our commercial lending capacity has been significantly enhanced through our merger, which allows us to continue to increase the commercial real estate and commercial business loans we originate and better serve the small businesses in our market area, and realize higher fees and yields associated with such type of lending. Further, commercial deposit accounts, generally yield higher average balances than can be acquired from retail deposit relationships.
As a community-oriented financial institution, we emphasize providing superior customer service to attract and retain customers. We deliver personalized service and respond with flexibility to customer needs. We believe that our community orientation is attractive to our customers and distinguishes us from the larger institutions that operate in our area. Further, given our attractive market area, we believe we are well-positioned to increase our customer relationships without a proportional increase in overhead expense or operating risk.
Increasing transaction deposit accounts and deposit balances. Deposits are our primary source of funds for lending and investment. We intend to focus on expanding our core deposits (which we define as all deposits except certificates of deposit). Core deposits represented 68.3% of our total deposits at June 30, 2025 compared to 66.2% of our total deposits at June 30, 2024. We believe core deposits will increase by increasing our commercial lending activities and enhancing our relationships with retail customers through our commitment to quality customer service along with the introduction of additional products and services, such as remote deposit capture and enhanced online business account services.
Continuing to leverage technology to maintain efficient operations and enhance customer service. We have historically focused on leveraging technology to maintain efficient operations and provide our customers with secure means to conduct business outside of our traditional branch network. Customer facing applications include online banking and mobile banking with bill payment capabilities, mobile deposit and debit card control functionality. We have been a Zelle™ participant since 2019, which has allowed our customers the ability to send and receive real-time payments online and through mobile banking. Our online loan application platform affords customers the convenience of submitting a loan application online. Internally we leverage technology to achieve efficiencies for tasks such as document preparation and retention, data analytics and call report preparation. We intend to build on this foundation and have plans to add, among other services, online deposit account opening for existing customers, tokenization (meaning the process of exchanging sensitive data with a less sensitive equivalent (or token), specifically Apply Pay©, Google Pay© and Samsung Pay©), and expanded business online banking capabilities including wire transfer origination and ACH origination services. These additional services are in various stages of implementation, and we anticipate customer availability for most prior to the end of 2024. Our investment in technology allows us to remain competitive, effectively serve our customers and results in operating efficiencies.
Comparison of Financial Condition at June 30, 2025 and June 30, 2024
Total Assets. Total assets increased $63.6 million, or 6.2%, to $1.08 billion at June 30, 2025 from $1.02 billion at June 30, 2024. The increase was primarily driven by new loan originations, resulting in a net increase of $65.3 million in loans receivable and an $11.9 million increase in cash and cash equivalents, offset by a $14.3 million decrease in securities.
Cash and Cash Equivalents. Cash and cash equivalents increased $11.9 million, or 25.9%, to $57.8 million at June 30, 2025 from $45.9 million at June 30, 2024 primarily due to a $38.9 million increase in deposits, borrowings of $30.0 million from the Federal Home Loan Bank of New York during the year ended June 30, 2025 and the decrease in securities.
42
Securities Held-to-Maturity. Securities held-to-maturity decreased $14.3 million, or 9.2%, to $141.8 million at June 30, 2025 from $156.1 million at June 30, 2024. The decrease was primarily due to principal repayments and maturities.
Loans. Loans receivable, net, increased $65.3 million, or 8.9%, to $797.2 million at June 30, 2025 from $731.9 million at June 30, 2024, driven by increases in residential mortgage loans of $32.6 million and multi-family loans of $40.0 million.
Bank Owned Life Insurance. Bank owned life insurance decreased $486,000, or 1.3%, to $36.6 million at June 30, 2025 from $37.1 million at June 30, 2024. The reduction was primarily attributable to death benefit proceeds under existing policies.
Goodwill and Intangible Assets. The Company recognized goodwill and a core deposit premium intangible through the acquisition of Regal Bancorp. At the time of acquisition, goodwill was $20.5 million and the core deposit premium intangible asset was $9.1 million. Finalization of the purchase allocation reduced goodwill to $20.4 million at June 30, 2024. No impairment loss was recognized on goodwill during the year ended June 30, 2025. The carrying amount of the core deposit premium intangible, net of accumulated amortization, was $6.3 million at June 30, 2025.
Total Liabilities. Total liabilities increased $69.3 million, or 8.4%, to $890.6 million at June 30, 2025 from $821.4 million at June 30, 2024. The increase was primarily the result of an increase in deposits of $38.9 million and an increase in borrowings of $30.0 million.
Deposits. Deposits increased $38.9 million, or 4.8%, to $846.0 million at June 30, 2025 from $807.1 million at June 30, 2024. Increases in interest-bearing deposit accounts resulted from the Company having raised rates on certain interest-bearing deposit products in an effort to remain competitive in the market area. At June 30, 2025, $114.1 million, or 13.5%, of total deposits consisted of noninterest-bearing deposits. At June 30, 2025, $145.4 million, or 17.2%, of total deposits were uninsured.
Borrowings. During the year ended June 30, 2025, the Company borrowed $30.0 million from the Federal Home Loan Bank of New York to provide for additional liquidity to fund new loans. At June 30, 2024, there were no outstanding borrowings.
Total Equity. Total equity decreased $5.7 million, or 2.9%, to $193.8 million at June 30, 2025 from $199.5 million at June 30, 2024. The decrease was primarily due to the repurchase of 936,991 shares of common stock at a cost of $11.3 million, partially offset by net income of $5.1 million.
Comparison of Operating Results for the Years Ended June 30, 2025 and June 30, 2024
General. Net income increased $16.0 million to $5.1 million for the year ended June 30, 2025 from a net loss of $10.9 million for the year ended June 30, 2024. Net income for the year ended June 30, 2025 included $2.8 million of net accretion income related to fair value adjustments resulting from the Merger. Net loss for the year ended June 30, 2024 included $4.4 million of Merger-related non-interest expenses and a $4.2 million provision for credit losses related to the acquisition of Regal Bancorp, which is described in greater detail below, as well as a $5.4 million charitable contribution to establish the Somerset Regal Charitable Foundation. In addition, a $4.4 million loss on the sale of available-for-sale securities was incurred during the fourth quarter of fiscal 2024 as part of the balance sheet restructuring strategy. Excluding the aforementioned one-time expenses, offset by $4.1 million of net accretion income related to fair value adjustments, net income for the year ended June 30, 2024 would have been $1.0 million
Interest Income. Interest income increased $5.4 million, or 13.3%, to $46.3 million for the year ended June 30, 2025 from $40.9 million for the year ended June 30, 2024 due to a 15 basis point increase in the yield on interest-earning assets and a $87.9 million increase in the average balance of interest-earning assets. The increase resulted from a $8.1 million, or 24.0%, increase in interest income on loans due to the increased size of the loan portfolio, as well as a higher average yield on the loan portfolio due to an increased proportion of higher-yielding
43
commercial real estate loans. The increase was offset by a $762,000 decrease in interest income on securities and a $1.7 million decrease in interest income from other interest-earning assets due to lower average balances and a lower interest rate environment. The decrease in interest income on securities was due to a $44.2 million decrease in the average balance of securities, resulting primarily from the sale of $35.4 million of lower-yielding securities in the fourth quarter of fiscal year 2024 as part of the balance sheet restructuring, and a two basis point decrease in the average yield on securities due to the lower interest rate environment, which was mitigated by the balance sheet restructuring.
Interest Expense. Interest expense increased $5.2 million, or 45.6%, to $16.7 million for the year ended June 30, 2025 from $11.5 million for the year ended June 30, 2024, primarily due to a $4.9 million increase in interest expense on deposits. Interest expense on interest-bearing demand deposits increased due to an increase of $96.4 million in the average balance and an increase of 112 basis points in the cost of interest-bearing deposits to 1.68% for the year ended June 30, 2025 from 0.56% for the year ended June 30, 2024 as the Bank raised rates on certain interest-bearing deposit products in an effort to remain competitive in the market area. Interest expense on certificates of deposit increased $1.0 million due to a $24.9 million increase in the average balance and an increase in the average rate on certificates of deposit of four basis points to 3.83% for the year ended June 30, 2025 from 3.79% for the year ended June 30, 2024 due to the highly competitive interest rate environment in our market area. Interest expense on borrowings increased by $370,000 due to a higher average outstanding balance, offset by a 82 basis point decrease in the rate paid.
Net Interest Income. Net interest income increased $210,000, or 0.7%, to $29.6 million for the year ended June 30, 2025 from $29.4 million for the year ended June 30, 2024. Net interest rate spread decreased 38 basis points to 2.35% for the year ended June 30, 2025 from 2.73% for the year ended June 30, 2024. Net interest margin decreased 26 basis points to 2.93% for the year ended June 30, 2025 from 3.19% for the year ended June 30, 2024. Net interest-earning assets increased $14.9 million, or 6.0%, to $262.1 million for the year ended June 30, 2025 from $247.2 million for the year ended June 30, 2024. The decreases in net interest rate spread and net interest margin were primarily a result of the cost of interest-bearing liabilities increasing at a higher rate than the yield on interest-earning assets.
44
Average Balances and Yields. The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects are immaterial. Average balances are calculated using month-end average balances, rather than daily average balances. We believe the use of month-end average balances is representative of our operations. Non-accrual loans are included in average balances only. Average yields include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Deferred loan fees are immaterial.
|
|
For the Year Ended June 30, |
|
|||||||||||||||||||||
|
|
2025 |
|
|
2024 |
|
||||||||||||||||||
|
|
Average |
|
|
Interest |
|
|
Yield/Rate |
|
|
Average |
|
|
Interest |
|
|
Yield/Rate |
|
||||||
|
|
(In thousands) |
|
|||||||||||||||||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Loans |
|
|
771,733 |
|
|
|
41,685 |
|
|
|
5.40 |
% |
|
|
634,268 |
|
|
|
33,619 |
|
|
|
5.30 |
% |
Securities |
|
|
151,626 |
|
|
|
2,436 |
|
|
|
1.61 |
% |
|
|
195,826 |
|
|
|
3,198 |
|
|
|
1.63 |
% |
Other |
|
|
85,799 |
|
|
|
2,194 |
|
|
|
2.56 |
% |
|
|
91,167 |
|
|
|
4,049 |
|
|
|
4.44 |
% |
Total interest-earning assets |
|
|
1,009,158 |
|
|
|
46,315 |
|
|
|
4.59 |
% |
|
|
921,261 |
|
|
|
40,866 |
|
|
|
4.44 |
% |
Noninterest-earning assets |
|
|
48,076 |
|
|
|
|
|
|
|
|
|
64,837 |
|
|
|
|
|
|
|
||||
Total assets |
|
|
1,057,234 |
|
|
|
|
|
|
|
|
|
986,098 |
|
|
|
|
|
|
|
||||
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Savings and club accounts |
|
|
153,038 |
|
|
|
94 |
|
|
|
0.06 |
% |
|
|
208,682 |
|
|
|
113 |
|
|
|
0.05 |
% |
Interest-bearing demand accounts |
|
|
295,609 |
|
|
|
4,963 |
|
|
|
1.68 |
% |
|
|
199,243 |
|
|
|
1,123 |
|
|
|
0.56 |
% |
Certificates of deposit |
|
|
274,267 |
|
|
|
10,499 |
|
|
|
3.83 |
% |
|
|
249,390 |
|
|
|
9,451 |
|
|
|
3.79 |
% |
Total interest-bearing deposits |
|
|
722,913 |
|
|
|
15,556 |
|
|
|
2.15 |
% |
|
|
657,315 |
|
|
|
10,687 |
|
|
|
1.63 |
% |
Federal Home Loan Bank advances |
|
|
24,155 |
|
|
|
1,178 |
|
|
|
4.88 |
% |
|
|
1,790 |
|
|
|
102 |
|
|
|
5.70 |
% |
Other borrowings |
|
|
— |
|
|
|
— |
|
|
|
— |
% |
|
|
14,915 |
|
|
|
706 |
|
|
|
4.73 |
% |
Total interest-bearing liabilities |
|
|
747,068 |
|
|
|
16,734 |
|
|
|
2.24 |
% |
|
|
674,021 |
|
|
|
11,495 |
|
|
|
1.71 |
% |
Noninterest-bearing deposits |
|
|
105,043 |
|
|
|
|
|
|
|
|
|
109,726 |
|
|
|
|
|
|
|
||||
Other noninterest-bearing liabilities |
|
|
13,458 |
|
|
|
|
|
|
|
|
|
19,368 |
|
|
|
|
|
|
|
||||
Total liabilities |
|
|
865,569 |
|
|
|
|
|
|
|
|
|
803,115 |
|
|
|
|
|
|
|
||||
Equity |
|
|
191,665 |
|
|
|
|
|
|
|
|
|
182,983 |
|
|
|
|
|
|
|
||||
Total liabilities and equity |
|
|
1,057,234 |
|
|
|
|
|
|
|
|
|
986,098 |
|
|
|
|
|
|
|
||||
Net interest income |
|
|
|
|
|
29,581 |
|
|
|
|
|
|
|
|
|
29,371 |
|
|
|
|
||||
Net interest rate spread |
|
|
|
|
|
|
|
|
2.35 |
% |
|
|
|
|
|
|
|
|
2.73 |
% |
||||
Net interest-earning assets(1) |
|
|
262,090 |
|
|
|
|
|
|
|
|
|
247,240 |
|
|
|
|
|
|
|
||||
Net interest margin(2) |
|
|
|
|
|
|
|
|
2.93 |
% |
|
|
|
|
|
|
|
|
3.19 |
% |
||||
Average interest-earning assets to |
|
|
135.08 |
% |
|
|
|
|
|
|
|
|
136.68 |
% |
|
|
|
|
|
|
||||
45
Rate/Volume Analysis
The following table sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. Changes attributable to both rate and volume that cannot be segregated have been allocated proportionately based on the changes due to rate and the changes due to volume.
|
|
Years Ended |
|
|||||||||
|
|
Increase (Decrease) Due to |
|
|
Total |
|
||||||
|
|
Volume |
|
|
Rate |
|
|
(Decrease) |
|
|||
|
|
(In thousands) |
|
|||||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|||
Loans |
|
$ |
7,286 |
|
|
$ |
780 |
|
|
$ |
8,066 |
|
Securities |
|
|
(722 |
) |
|
|
(40 |
) |
|
|
(762 |
) |
Other |
|
|
(238 |
) |
|
|
(1,617 |
) |
|
|
(1,855 |
) |
Total interest-earning assets |
|
|
6,326 |
|
|
|
(877 |
) |
|
|
5,449 |
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|||
Savings and club accounts |
|
|
(30 |
) |
|
|
11 |
|
|
|
(19 |
) |
Interest-bearing accounts |
|
|
543 |
|
|
|
3,297 |
|
|
|
3,840 |
|
Certificates of deposit |
|
|
943 |
|
|
|
105 |
|
|
|
1,048 |
|
Federal Home Loan Bank advances |
|
|
1,274 |
|
|
|
(198 |
) |
|
|
1,076 |
|
Other borrowings |
|
|
(706 |
) |
|
|
— |
|
|
|
(706 |
) |
Total interest-bearing liabilities |
|
|
2,024 |
|
|
|
3,215 |
|
|
|
5,239 |
|
Change in net interest income |
|
$ |
4,302 |
|
|
$ |
(4,092 |
) |
|
$ |
210 |
|
Provision for Credit Losses. We establish provisions for credit losses, which are charged to operations in order to maintain the allowance for credit losses at a level necessary to absorb current expected credit losses in the loan portfolio at the balance sheet date. In determining the level of the allowance for credit losses, we consider, among other things, loss experience, evaluations of real estate collateral, current and reasonably supportable economic conditions, volume and type of lending, adverse situations that may affect a borrower’s ability to repay a loan and the levels of delinquent and classified loans. The amount of the allowance is based on estimates and the ultimate losses may vary from such estimates as more information becomes available or conditions change. We assess the allowance for credit losses and make provisions for credit losses on a monthly basis.
Based on our evaluation of the above factors, we recorded a provision for credit losses of $133,000 for the year ended June 30, 2025 compared to a provision for credit losses of $4.1 million for the year ended June 30, 2024, which was related to the Merger. The provision of $133,000 was due to provisions of $288,000 reflecting loan growth, offset by a recovery of $155,000 recorded during in the first quarter resulting from updates made to model assumptions in the calculation of the allowance for credit losses. The Bank had no charge-offs during the years ended June 30, 2025 and 2024 and no non-performing loans at June 30, 2025 compared to $50,000 of non-performing loans at June 30, 2024. The allowance for credit losses as a percentage of total loans was 0.67% at June 30, 2025 compared to 0.71% at June 30, 2024.
46
Noninterest Income. Noninterest income was as follows:
|
|
Years Ended June 30, |
|
|
Change |
|
||||||||||
|
|
2025 |
|
|
2024 |
|
|
Amount |
|
|
Percent |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Service charges and fees on deposit |
|
$ |
894 |
|
|
$ |
818 |
|
|
$ |
76 |
|
|
|
9.3 |
% |
Increase in cash surrender value of bank owned |
|
|
1,043 |
|
|
|
907 |
|
|
|
136 |
|
|
|
15.0 |
% |
Fees and service charges on loans |
|
|
145 |
|
|
|
89 |
|
|
|
56 |
|
|
|
62.9 |
% |
Unrealized gain on equity securities |
|
|
13 |
|
|
|
1 |
|
|
|
12 |
|
|
|
1200.0 |
% |
Realized loss on sale of securities |
|
|
— |
|
|
|
(4,463 |
) |
|
|
4,463 |
|
|
|
(100.0 |
)% |
Gain on sale of loans |
|
|
51 |
|
|
|
55 |
|
|
|
(4 |
) |
|
|
(7.3 |
)% |
Gains from life insurance proceeds |
|
|
1,492 |
|
|
|
— |
|
|
|
1,492 |
|
|
|
100.0 |
% |
Other |
|
|
96 |
|
|
|
102 |
|
|
|
(6 |
) |
|
|
(5.9 |
)% |
Total noninterest income (loss) |
|
$ |
3,734 |
|
|
$ |
(2,491 |
) |
|
$ |
6,225 |
|
|
|
249.9 |
% |
Noninterest income increased $6.2 million, or 249.9%, to income of $3.7 million for the year ended June 30, 2025 from a loss of $2.5 million for the year ended June 30, 2024, primarily as a result of the $4.5 million loss incurred on the sale of securities as part of the Company’s balance sheet restructuring in fiscal 2024 and $1.5 million gain in life insurance proceeds gain in connection with the death benefit on a former employee. An increase of $0.1 million in the cash surrender value of bank owned life insurance and $76,000 in service charges and fees on deposit accounts also contributed to the increase in noninterest income.
Noninterest Expense. Noninterest expense was as follows:
|
|
Years Ended June 30, |
|
|
Change |
|
||||||||||
|
|
2025 |
|
|
2024 |
|
|
Amount |
|
|
Percent |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Salaries and employee benefits |
|
$ |
13,916 |
|
|
$ |
15,102 |
|
|
$ |
(1,186 |
) |
|
|
(7.9 |
)% |
Occupancy |
|
|
2,219 |
|
|
|
2,349 |
|
|
|
(130 |
) |
|
|
(5.5 |
)% |
Furniture and equipment |
|
|
1,218 |
|
|
|
966 |
|
|
|
252 |
|
|
|
26.1 |
% |
Data processing |
|
|
2,191 |
|
|
|
3,100 |
|
|
|
(909 |
) |
|
|
(29.3 |
)% |
Advertising |
|
|
385 |
|
|
|
301 |
|
|
|
84 |
|
|
|
27.9 |
% |
FDIC premiums |
|
|
480 |
|
|
|
468 |
|
|
|
12 |
|
|
|
2.6 |
% |
Directors fees |
|
|
366 |
|
|
|
389 |
|
|
|
(23 |
) |
|
|
(5.9 |
)% |
Professional fees |
|
|
1,854 |
|
|
|
1,999 |
|
|
|
(145 |
) |
|
|
(7.3 |
)% |
Insurance |
|
|
589 |
|
|
|
546 |
|
|
|
43 |
|
|
|
7.9 |
% |
Telephone, postage and supplies |
|
|
755 |
|
|
|
626 |
|
|
|
129 |
|
|
|
20.6 |
% |
Other expenses |
|
|
3,082 |
|
|
|
8,737 |
|
|
|
(5,655 |
) |
|
|
(64.7 |
)% |
Total noninterest expense |
|
$ |
27,055 |
|
|
$ |
34,583 |
|
|
$ |
(7,528 |
) |
|
|
(21.8 |
)% |
Noninterest expense decreased $7.5 million, or 21.8%, to $27.1 million for the year ended June 30, 2025 from $34.6 million for the year ended June 30, 2024, primarily as a result of a $5.4 million charitable contribution, contained within other expenses, as the Company established the Somerset Regal Charitable Foundation in connection with its conversion to the stock form of organization and funded it with 452,758 shares of SR Bancorp common stock and $905,517 in cash. The decrease was also due to a decrease in salaries and employee benefits for change in control payments totaling $1.2 million, or 7.9%, related to the Merger, a decrease in data processing expenses primarily due to the payment of a $414,000 early termination fee related to the acquisition of Regal Bancorp, and additional miscellaneous expenses related to the Merger totaling $72,000.
Income Tax Expense. The provision for income taxes was $991,000 for the year ended June 30, 2025, compared to a benefit of $909,000 for the year ended June 30, 2024. The Company's effective tax rate was 16.2% for the year ended June 30, 2025 compared to 7.7% for the year ended June 30, 2024.
47
Market Risk
General. Our most significant form of market risk is interest rate risk because, as a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of our financial condition and results of operations to changes in market interest rates. Our ALCO/Investment Committee, which consists of members of management, is responsible for evaluating the interest rate risk in our assets and liabilities, for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the policy and guidelines approved by our Board of Directors. We currently utilize a third-party modeling program, prepared on a quarterly basis, to evaluate our sensitivity to changing interest rates.
We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. We have implemented the following strategies to manage our interest rate risk:
By following these strategies, we believe that we are better positioned to react to changes in market interest rates.
We generally do not engage in hedging activities, such as engaging in futures or options, or investing in high-risk mortgage derivatives, such as collateralized mortgage obligation residual interests, real estate mortgage investment conduit residual interests or stripped mortgage-backed securities.
Economic Value of Equity. We compute amounts by which the net present value of our cash flow from assets, liabilities and off-balance sheet items (economic value of equity “EVE”) would change in the event of a range of assumed changes in market interest rates. We measure potential change in our EVE through the use of a financial model. This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100-basis point increase in the “Basis Point Change in Interest Rates” column below.
The table below sets forth, as of June 30, 2025 the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve.
At June 30, 2025 |
|
|||||||||||
|
|
|
|
|
Estimated Increase (Decrease) in EVE |
|
||||||
Change in Interest |
|
Estimated EVE(2) |
|
|
Amount |
|
|
Percent |
|
|||
(In thousands) |
|
|||||||||||
+400 |
|
$ |
112,890 |
|
|
$ |
(80,575 |
) |
|
|
(41.65 |
)% |
+300 |
|
|
136,356 |
|
|
|
(57,109 |
) |
|
|
(29.52 |
)% |
+200 |
|
|
158,020 |
|
|
|
(35,445 |
) |
|
|
(18.32 |
)% |
+100 |
|
|
177,314 |
|
|
|
(16,151 |
) |
|
|
(8.35 |
)% |
— |
|
|
193,465 |
|
|
|
— |
|
|
|
— |
|
-100 |
|
|
205,646 |
|
|
|
12,181 |
|
|
|
6.30 |
% |
-200 |
|
|
213,269 |
|
|
|
19,804 |
|
|
|
10.24 |
% |
-300 |
|
|
217,861 |
|
|
|
24,395 |
|
|
|
12.61 |
% |
-400 |
|
|
220,240 |
|
|
|
26,775 |
|
|
|
13.84 |
% |
48
The table above indicates that at June 30, 2025, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 18.32% decrease in EVE, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 10.24% increase in EVE.
Change in Net Interest Income. The following table sets forth, as of June 30, 2025, the calculation of the estimated changes in our net interest income (“NII”) that would result from the designated immediate changes in the United States Treasury yield curve.
At June 30, 2025 |
|
|||||||||||||||
Change in Interest |
|
Net Interest |
|
|
Year 1 |
|
|
Net Interest |
|
|
Year 2 Change |
|
||||
(In thousands) |
|
|||||||||||||||
+400 |
|
$ |
27,658 |
|
|
$ |
(4,934 |
) |
|
$ |
31,572 |
|
|
$ |
(3,198 |
) |
+300 |
|
|
29,149 |
|
|
|
(3,443 |
) |
|
|
33,015 |
|
|
|
(1,755 |
) |
+200 |
|
|
30,473 |
|
|
|
(2,119 |
) |
|
|
34,026 |
|
|
|
(744 |
) |
+100 |
|
|
31,619 |
|
|
|
(973 |
) |
|
|
34,599 |
|
|
|
(171 |
) |
— |
|
|
32,592 |
|
|
|
— |
|
|
|
34,770 |
|
|
|
— |
|
-100 |
|
|
32,889 |
|
|
|
297 |
|
|
|
33,731 |
|
|
|
(1,039 |
) |
-200 |
|
|
32,902 |
|
|
|
310 |
|
|
|
32,122 |
|
|
|
(2,648 |
) |
-300 |
|
|
32,642 |
|
|
|
50 |
|
|
|
30,056 |
|
|
|
(4,714 |
) |
-400 |
|
|
31,964 |
|
|
|
(628 |
) |
|
|
27,446 |
|
|
|
(7,324 |
) |
The table above indicates that at June 30, 2025, after one year, we would have experienced an 6.50% decrease in NII in the event of an instantaneous parallel 200 basis point increase in market interest rates and an 0.95% increase in NII in the event of an instantaneous 200 basis point decrease in market interest rates.
Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The above table assumes that the composition of our interest sensitive assets and liabilities existing at the date indicated remains constant uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the table provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our NPV and will differ from actual results.
Liquidity and Capital Resources
Liquidity is the ability to fund assets and meet obligations as they come due. Our primary sources of funds consist of deposit inflows, loan repayments, and repayments from investment securities. In addition, we have the ability to borrow in the wholesale markets or from the Federal Home Loan Bank of New York. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. Our ALCO/Investment Committee is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We seek to maintain a ratio of liquid assets (including cash and federal funds sold) as a percentage of total deposits ranging between 4% and 30%. At June 30, 2025, this ratio was 6.8%. We believe that we have sufficient sources of liquidity to satisfy our short- and long-term liquidity needs as of June 30, 2025.
49
We regularly adjust our investments in liquid assets based upon our assessment of:
Excess cash is invested generally in interest-earning deposits and short- and intermediate-term securities.
Our most liquid assets are cash and cash equivalents. The levels of these assets depend on our operating, financing and investing activities during any given period. At June 30, 2025, cash and cash equivalents totaled $57.8 million.
At June 30, 2025, we had $41.0 million in outstanding loan commitments and $38.0 million of unused lines of credit. Certificates of deposit due within one year of June 30, 2025 totaled $239.1 million, or 28.3%, of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including loan sales, other deposit products, including replacement certificates of deposit, securities sold under agreements to repurchase (repurchase agreements) or advances from the Federal Home Loan Bank of New York and other borrowing sources. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or after June 30, 2025. We believe, however, based on past experience that a significant portion of such deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.
Our cash flows are derived from operating activities, investing activities and financing activities as reported in our Consolidated Statements of Cash Flows included in our Consolidated Financial Statements.
Our primary investing activities are originating and purchasing loans and purchasing mortgage-backed securities. During the year ended June 30, 2025, we originated $97.6 million of loans and purchased $41.2 million. We had no purchases of securities during the years ended June 30, 2025 or June 30, 2024.
Financing activities consist primarily of activity in deposit accounts, borrowings, repurchases of and dividends paid on common stock. Deposits increased $38.9 million, or 4.8%, to $846.0 million at June 30, 2025 from $807.1 million at June 30, 2024. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors, and by other factors.
We had outstanding borrowings of $30.0 million as of June 30, 2025 and none as of June 30, 2024. We had $70.0 million of additional borrowing capacity at FHLB as of June 30, 2025.
We had no outstanding borrowings with the Federal Reserve Bank at June 30, 2025, or June 30, 2024 and did not borrow from the FRB-NY in the year ended June 30, 2025. We had $25.0 million of available borrowing capacity at FRB-NY as of June 30, 2025.
We repurchased 936,991 shares of our common stock during the year ended June 30, 2025 at a cost of $11.3 million and paid dividends on common stock of $444,000.
Regulatory Capital
Somerset Regal Bank is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At June 30, 2025, Somerset Regal Bank exceeded all regulatory capital requirements. Somerset Regal Bank is considered “well capitalized” under regulatory guidelines. See “Regulation and Supervision—Federal Banking Regulation—Capital Requirements” and Note 15 of the Notes to the Consolidated Financial Statements.
50
Recent Accounting Pronouncements
For a discussion of the impact of recent accounting pronouncements, see Note 1 of the Notes to the Consolidated Financial Statements.
Impact of Inflation and Changing Prices
Our consolidated financial statements and related notes have been prepared in accordance with generally accepted accounting principles (“GAAP”). GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on our performance than the effects of inflation.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
For information regarding material risk, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation—Market Risk.”
Item 8. Financial Statements and Supplementary Data.
The Financial Statements are included beginning on page F-1 of this annual report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the fiscal year (the “Evaluation Date”). Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were not effective because of the material weakness described below.
Our management is responsible for establishing and maintaining effective internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of our internal control over financial reporting based on criteria established in “Internal Control — Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management, including our Principal Executive Officer and Principal Financial Officer, concluded that our internal control over financial reporting was not effective as of June 30, 2025 based on the criteria of the “Internal Control — Integrated Framework (2013).” Management identified a material weakness in internal controls related to the untimely recognition of income from life insurance contracts resulting from the death of a former employee. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the registrant’s annual or interim financial statements will not be prevented or detected on a timely basis. The identified
51
material weakness resulted in a material misstatement in the Company’s consolidated financial statements. We are implementing remedial changes to improve our internal control over financial reporting described below.
Management has instituted a new reconciliation control to address the above control deficiency. The deficiency originated from differences in the contract balances reported by our bank-owned life insurance (“BOLI”) administrator as compared to the underlying insurance carriers. The new control requires that in the event of a death of an individual insured by any active BOLI policies, management will obtain the death benefit information for which it is contractually entitled to receive from the insurance carriers and reconcile such information to the BOLI administrator records. All required entries will be recorded in the period in which the death occurred. Management believes the foregoing efforts will effectively remediate the material weakness. As management continues to evaluate and work to improve its internal control over financial reporting, management may determine to take additional measures to address control deficiencies or determine to modify the remediation plan described above.
Not applicable because the Company is an emerging growth company.
Other than the changes described above, there were no changes in our internal control over financial reporting that occurred during the fourth quarter of fiscal 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
52
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Information regarding directors, executive officers and corporate governance of the Company is presented under the headings “Other Information Relating to Directors and Executive Officers — Delinquent Section 16(a) Reports Compliance,” “Proposal 1 — Election of Directors,” “Corporate Governance — Code of Ethics for Senior Officers,” “Corporate Governance — Insider Trading Policy” and “— Committees of the Board of Directors — Audit Committee” in the Company’s definitive Proxy Statement for the 2025 Annual Meeting of Stockholders (the “Proxy Statement”) and is incorporated herein by reference.
A copy of the Code of Ethics for Senior Officers is available to shareholders in the “Corporate Governance Documents” section of the “Investor Relations” portion of Somerset Regal Bank’s website of www.somersetregalbank.com.
Item 11. Executive Compensation.
Information regarding executive compensation is presented under the headings “Executive Compensation” and “Director Compensation” in the Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information regarding security ownership of certain beneficial owners and management is presented under the heading “Stock Ownership” in the Proxy Statement and is incorporated herein by reference.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth information regarding outstanding options and shares under the 2024 Equity Incentive Plan at June 30, 2025:
Plan Category |
|
Number of Securities to be Issued Upon Exercise of Outstanding Options |
|
|
Weighted-Average Exercise Price of Outstanding Options |
|
|
Number of Securities Remaining for Future Issuance under Equity Compensation Plans |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Equity Compensation Plans Approved by Security Holders |
|
|
760,593 |
|
|
$ |
12.03 |
|
|
|
266,286 |
|
Equity Compensation Plans Not Approved by Security Holders |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
|
|
760,593 |
|
|
$ |
12.03 |
|
|
|
266,286 |
|
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information regarding certain relationships and related transactions, and director independence is presented under the heading “Corporate Governance — Director Independence” and “Other Information Relating to Directors and Executive Officers — Transactions with Certain Related Persons” in the Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
Information regarding principal accounting fees and services is presented under the heading “Proposal 3 — Ratification of the Appointment of Independent Registered Public Accountants” in the Proxy Statement and is incorporated herein by reference.
53
PART IV
Item 15. Exhibits, Financial Statement Schedules.
Consolidated Financial Statements of SR Bancorp and Subsidiaries |
|
|
|
Report of Independent Registered Public Accounting Firm |
F-2 |
|
|
Consolidated Statements of Financial Condition as of June 30, 2025 and 2024 |
F-3 |
|
|
Consolidated Statements of Income (Loss) for the years ended June 30, 2025 and 2024 |
F-4 |
|
|
Consolidated Statements of Comprehensive Income (Loss) for the years ended June 30, 2025 and 2024 |
F-5 |
|
|
Consolidated Statements of Changes in Equity for the years ended June 30, 2025 and 2024 |
F-6 |
|
|
Consolidated Statements of Cash Flows for the years ended June 30, 2025 and 2024 |
F-7 |
|
|
Notes to Consolidated Financial Statements. |
F-8 |
The Consolidated Financial Statements of SR Bancorp and Subsidiaries beginning on page F-1 of this Form 10-K for the year ended June 30, 2025 are incorporated by reference herein.
All financial statement schedules are omitted because they are either inapplicable or not required, or because the required information is included in the Consolidated Financial Statements or notes thereto contained in this 2025 Annual Report.
Item 16. Form 10-K Summary
None.
54
Exhibit Index
Exhibit Number |
|
Description |
3.1 |
|
Amended and Restated Articles of Incorporation of SR Bancorp, Inc. (Incorporated by reference to the Registrant’s Registration Statement on Form S-1/A (File No. 333-270489) as filed on July 10, 2023) |
3.2 |
|
Amended and Restated Bylaws of SR Bancorp, Inc. (Incorporated by reference to the Registrant's Annual Report on Form 10-K (File No. 001-41808) filed on October 15, 2024) |
4.1 |
|
Form of Common Stock Certificate of SR Bancorp, Inc. (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-270489) as initially filed on March 13, 2023) |
4.2 |
|
Description of Registrant's Securities (Incorporated by reference to the Registrant’s Annual Report on Form 10-K (File No. 001-41808) filed on October 16, 2024) |
10.1 |
|
Employment Agreement, dated July 25, 2022, by and between Somerset Regal Bank, SLA and William P. Taylor (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-270489) as initially filed on March 13, 2023) |
10.2 |
|
Employment Agreement, dated July 25, 2022, by and between Somerset Regal Bank, SLA and Christopher J. Pribula (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-270489) as initially filed on March 13, 2023) |
10.3 |
|
Employment Agreement, dated July 25, 2022, by and between Somerset Regal Bank, SLA and David Orbach (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-270489) as initially filed on March 13, 2023) |
10.4 |
|
Somerset Savings Bank Supplemental Executive Retirement Plan (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-270489) as initially filed on March 13, 2023) |
10.5 |
|
Somerset Regal Bank, SLA Deferred Compensation Plan (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-270489) as initially filed on March 13, 2023) |
10.7 |
|
Somerset Regal Bank Supplemental Executive Retirement Plan (Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 001-41808) as filed on April 26, 2024) |
10.8 |
|
SR Bancorp, Inc. 2024 Equity Incentive Plan (Incorporated by reference to Appendix A to the proxy statement for the Annual Meeting of Stockholders filed with the Securities and Exchange Commission on October 17, 2024) |
19.0 |
|
SR Bancorp, Inc. Policy Regarding Insider Trading (Incorporated by reference to the Registrant’s Annual Report on Form 10-K (File No. 001-41808) filed on October 16, 2024) |
21.0 |
|
Subsidiaries (Incorporated by reference to the Registrant's Annual Report on Form 10-K (File No. 001-41808) filed on September 28, 2023) |
23.0 |
|
Consent of Baker Tilly US, LLP* |
31.1 |
|
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* |
31.2 |
|
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002* |
32.0 |
|
Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
97.0 |
|
SR Bancorp, Inc. Clawback Policy* |
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents |
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
SR Bancorp, Inc. |
|
|
|
|
|
Date: September 29, 2025 |
|
By: |
/s/ William P. Taylor |
|
|
|
William P. Taylor |
|
|
|
Chief Executive Officer |
|
|
|
(Principal Executive Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Name |
|
Title |
|
Date |
|
|
|
|
|
/s/ William P. Taylor |
|
Director and Chief Executive Officer (Principal Executive Officer) |
|
September 29, 2025 |
William P. Taylor |
|
|
|
|
|
|
|
|
|
/s/ Harris M. Faqueri |
|
Chief Financial Officer (Principal Financial and Accounting Officer) |
|
September 29, 2025 |
Harris M. Faqueri |
|
|
|
|
|
|
|
|
|
/s/ Christopher J. Pribula |
|
Director, President and Chief Operating Officer |
|
September 29, 2025 |
Christopher J. Pribula |
|
|
|
|
|
|
|
|
|
/s/ David M. Orbach |
|
Director (Executive Chairman) |
|
September 29, 2025 |
David M. Orbach |
|
|
|
|
|
|
|
|
|
/s/ Douglas M. Sonier |
|
Director |
|
September 29, 2025 |
Douglas M. Sonier |
|
|
|
|
|
|
|
|
|
/s/ John W. Mooney |
|
Director |
|
September 29, 2025 |
John W. Mooney |
|
|
|
|
|
|
|
|
|
/s/ Mary E. Davey |
|
Director |
|
September 29, 2025 |
Mary E. Davey |
|
|
|
|
|
|
|
|
|
/s/ Thomas Lupo |
|
Director |
|
September 29, 2025 |
Thomas Lupo |
|
|
|
|
|
|
|
|
|
/s/ Marc Lebovitz |
|
Director |
|
September 29, 2025 |
Marc Lebovitz |
|
|
|
|
56
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm |
F-2 |
|
|
Consolidated Statements of Financial Condition as of June 30, 2025 and 2024 |
F-3 |
|
|
Consolidated Statements of Income (Loss) for the years ended June 30, 2025 and 2024 |
F-4 |
|
|
Consolidated Statements of Comprehensive Income (Loss) for the years ended June 30, 2025 and 2024 |
F-5 |
|
|
Consolidated Statements of Changes in Equity for the years ended June 30, 2025 and 2024 |
F-6 |
|
|
Consolidated Statements of Cash Flows for the years ended June 30, 2025 and 2024 |
F-7 |
|
|
Notes to Consolidated Financial Statements. |
F-8 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stakeholders and the Board of Directors of SR Bancorp Inc:
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial condition of SR Bancorp Inc. and Subsidiaries (the "Company") as of June 30, 2025 and June 30, 2024, the related consolidated statements of income, comprehensive income (loss), changes in equity, and cash flows for the years then ended, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2025 and June 30, 2024, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have not been able to determine the specific year that we began serving as the Company’s auditor; however, we are aware that we have served as the Company’s auditor since at least 1994.
/s/
Iselin, New Jersey
September 29, 2025
F-2
SR Bancorp, Inc. and Subsidiaries
Consolidated Statements of Financial Condition
June 30, 2025 and June 30, 2024
(In thousands)
|
|
June 30, 2025 |
|
|
June 30, 2024 |
|
||
|
|
|
|
|
|
|
||
Cash and due from banks |
|
$ |
|
|
$ |
|
||
Interest-bearing deposits at other banks |
|
|
|
|
|
|
||
Total cash and cash equivalents |
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||
Securities held-to-maturity, at amortized cost |
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|
||
Equity securities, at fair value |
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|
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Loans receivable, net of allowance for credit losses of $ |
|
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|
||
Premises and equipment, net |
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|
||
Right-of-use asset |
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|
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Restricted equity securities, at cost |
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|
||
Accrued interest receivable |
|
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|
|
||
Bank owned life insurance |
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|
||
Goodwill and intangible assets |
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|
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|
|
|
||
Other assets |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
Liabilities and Equity |
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|
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|
||
Liabilities |
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|
||
Deposits: |
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|
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|
|
||
Noninterest-bearing |
|
$ |
|
|
$ |
|
||
Interest-bearing |
|
|
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|
|
|
||
Total deposits |
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|
||
Borrowings |
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|
|
||
Advance payments by borrowers for taxes and insurance |
|
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|
|
||
Accrued interest payable |
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|
|
||
Lease liability |
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|
||
Other liabilities |
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|
||
Total liabilities |
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|
||
Equity |
|
|
|
|
|
|
||
Preferred Stock, $ |
|
|
— |
|
|
|
— |
|
Common stock, $ |
|
|
|
|
|
|
||
Additional paid-in capital |
|
|
|
|
|
|
||
Retained earnings |
|
|
|
|
|
|
||
Unearned compensation ESOP |
|
|
( |
) |
|
|
( |
) |
Accumulated other comprehensive loss |
|
|
( |
) |
|
|
( |
) |
Total stockholders' equity |
|
|
|
|
|
|
||
Total liabilities and stockholders' equity |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
The accompanying notes are an integral part of these consolidated financial statements.
F-3
SR Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income (Loss)
For the Years Ended June 30, 2025 and 2024
(In thousands)
|
|
Year Ended June 30, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Interest Income |
|
|
|
|
|
|
||
Loans, including fees |
|
|
|
|
|
|
||
Securities, taxable |
|
|
|
|
|
|
||
Federal funds sold |
|
|
— |
|
|
|
|
|
Interest bearing deposits at other banks |
|
|
|
|
|
|
||
Total interest income |
|
|
|
|
|
|
||
Interest Expense |
|
|
|
|
|
|
||
Deposits: |
|
|
|
|
|
|
||
Demand |
|
|
|
|
|
|
||
Savings and time |
|
|
|
|
|
|
||
Borrowings |
|
|
|
|
|
|
||
Total interest expense |
|
|
|
|
|
|
||
Net Interest Income |
|
|
|
|
|
|
||
Provision for Credit Losses |
|
|
|
|
|
|
||
Net Interest Income After Provision For Credit Losses |
|
|
|
|
|
|
||
Noninterest Income (Loss) |
|
|
|
|
|
|
||
Service charges and fees |
|
|
|
|
|
|
||
Increase in cash surrender value of bank owned life insurance |
|
|
|
|
|
|
||
Fees and service charges on loans |
|
|
|
|
|
|
||
Unrealized gain on equity securities |
|
|
|
|
|
|
||
Realized loss on sale of securities |
|
|
— |
|
|
|
( |
) |
Gain on sale of loans |
|
|
|
|
|
|
||
Gains from life insurance proceeds |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total noninterest income (loss) |
|
|
|
|
|
( |
) |
|
Noninterest Expense |
|
|
|
|
|
|
||
Salaries and employee benefits |
|
|
|
|
|
|
||
Occupancy |
|
|
|
|
|
|
||
Furniture and equipment |
|
|
|
|
|
|
||
Data processing |
|
|
|
|
|
|
||
Advertising |
|
|
|
|
|
|
||
FDIC premiums |
|
|
|
|
|
|
||
Directors fees |
|
|
|
|
|
|
||
Professional fees |
|
|
|
|
|
|
||
Insurance |
|
|
|
|
|
|
||
Telephone, postage and supplies |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total noninterest expense |
|
|
|
|
|
|
||
Income (Loss) Before Income Tax Expense (Benefit) |
|
|
|
|
|
( |
) |
|
Income Tax Expense (Benefit) |
|
|
|
|
|
( |
) |
|
Net Income (Loss) |
|
$ |
|
|
$ |
( |
) |
|
Basic earnings (loss) per share |
|
$ |
|
|
$ |
( |
) |
|
Diluted earnings (loss) per share |
|
$ |
|
|
$ |
( |
) |
|
Weighted average number of common |
|
|
|
|
|
|
||
Weighted average number of common |
|
|
|
|
|
|
||
The accompanying notes are an integral part of these consolidated financial statements.
F-4
SR Bancorp, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
For the Years Ended June 30, 2025 and 2024
(In thousands)
|
|
Year Ended June 30, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
|
|
|
|
|||||
Net Income (Loss) |
|
$ |
|
|
$ |
( |
) |
|
Other Comprehensive Income (Loss) |
|
|
|
|
|
|
||
Unrealized holding gains (losses) on securities available-for-sale |
|
|
— |
|
|
|
|
|
Reclassification adjustment for losses on sale of securities included in |
|
|
— |
|
|
|
|
|
Total change in unrealized gains |
|
|
— |
|
|
|
|
|
Change in defined pension plan for unrealized actuarial gains net |
|
|
|
|
|
|
||
Total other comprehensive income |
|
|
|
|
|
|
||
Total comprehensive income (loss) |
|
$ |
|
|
$ |
( |
) |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
SR Bancorp, Inc. and Subsidiaries
Consolidated Statements of Changes in Equity
For the Years Ended June 30, 2025 and 2024
(In thousands)
|
|
Common |
|
|
Common |
|
|
Additional |
|
|
Retained |
|
|
Unearned |
|
|
Accumulated |
|
|
Total |
|
|||||||
Balance, June 30, 2024 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Other comprehensive income, |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
ESOP shares earned, |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
Repurchase of common shares |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Cash dividends declared on common stock, $ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Restricted stock awards issued |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
||
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Balance, June 30, 2025 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Balance, June 30, 2023 |
|
|
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Other comprehensive income, |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Cumulative adjustment for |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
Common stock issued, |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Initial funding of ESOP, |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
ESOP shares committed for |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Balance, June 30, 2024 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
SR Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended June 30, 2025 and 2024
(In thousands)
|
|
Year Ended June 30, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
Cash Flows from Operating Activities |
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
|
|
$ |
( |
) |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
||
Provision for credit losses |
|
|
|
|
|
|
||
Depreciation |
|
|
|
|
|
|
||
Deferred income tax benefit |
|
|
( |
) |
|
|
( |
) |
Accretion of acquisition fair value adjustments, net |
|
|
( |
) |
|
|
( |
) |
Amortization of core deposit intangible asset |
|
|
|
|
|
|
||
Net amortization of premiums and discounts on securities |
|
|
|
|
|
|
||
Net amortization of deferred loan fees, costs and discounts |
|
|
|
|
|
|
||
Amortization of right-of-use asset |
|
|
|
|
|
|
||
Income from cash surrender value of bank owned life insurance |
|
|
( |
) |
|
|
( |
) |
Stock-based compensation expense |
|
|
|
|
|
|
||
Unrealized gain on equity securities |
|
|
( |
) |
|
|
( |
) |
Loss on sale of investments, net |
|
|
|
|
|
|
||
Gain on sale of loans held for sale |
|
|
( |
) |
|
|
( |
) |
Proceeds from sales of loans held for sale |
|
|
|
|
|
|
||
Originations of loans held for sale |
|
|
( |
) |
|
|
( |
) |
Gain on sale of premises and equipment |
|
|
|
|
|
( |
) |
|
Noncash expense of common shares contributed to Somerset Regal Bank Charitable Foundation |
|
|
|
|
|
|
||
(Increase) decrease in: |
|
|
|
|
|
|
||
Accrued interest receivable |
|
|
( |
) |
|
|
( |
) |
Other assets |
|
|
|
|
|
|
||
Decrease in other liabilities |
|
|
( |
) |
|
|
( |
) |
Net cash provided by (used in) operating activities |
|
|
|
|
|
( |
) |
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
||
Proceeds from sales, maturities, and principal repayments of securities available-for-sale |
|
|
|
|
|
|
||
Proceeds from maturities, calls and principal repayments of securities held-to-maturity |
|
|
|
|
|
|
||
Proceeds from sale of securities available-for-sale |
|
|
|
|
|
|
||
Proceeds from sale of time deposits in other financial institutions |
|
|
|
|
|
|
||
Net increase in loans receivable |
|
|
( |
) |
|
|
( |
) |
Purchases of premises and equipment |
|
|
( |
) |
|
|
( |
) |
Proceeds from sale of premises and equipment |
|
|
|
|
|
|
||
Purchase of restricted equity securities |
|
|
( |
) |
|
|
|
|
Cash paid for acquisition |
|
|
|
|
|
( |
) |
|
Cash received from acquisition |
|
|
|
|
|
|
||
Net cash (used in) provided by investing activities |
|
|
( |
) |
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
||
Net increase (decrease) in interest bearing deposits |
|
|
|
|
|
( |
) |
|
Net increase (decrease) in non-interest bearing deposits |
|
|
|
|
|
( |
) |
|
Net increase in advance payments by borrowers for taxes and insurance |
|
|
|
|
|
|
||
Net increase in short-term borrowings |
|
|
|
|
|
— |
|
|
Repayment of short-term borrowings |
|
|
|
|
|
( |
) |
|
Dividends Paid |
|
|
( |
) |
|
|
— |
|
Cash proceeds from issuance of common stock |
|
|
|
|
|
|
||
Repurchase of common stock |
|
|
( |
) |
|
|
— |
|
Net cash provided by (used in) financing activities |
|
|
|
|
|
( |
) |
|
Net increase in cash and cash equivalents |
|
|
|
|
|
|
||
Cash and Cash Equivalents, Beginning of Period |
|
|
|
|
|
|
||
Cash and Cash Equivalents, End of Period |
|
$ |
|
|
$ |
|
||
Supplementary Cash Flow Information |
|
|
|
|
|
|
||
Cash paid during the period for: |
|
|
|
|
|
|
||
Interest paid |
|
$ |
|
|
$ |
|
||
Income taxes paid |
|
|
|
|
|
|
||
Acquisition: |
|
|
|
|
|
|
||
Fair value of assets acquired, net of cash and cash equivalents acquired |
|
|
|
|
|
|
||
Goodwill recorded at merger |
|
|
|
|
|
|
||
Fair value of liabilities assumed |
|
|
|
|
|
|
||
Fair values of |
|
|
|
|
|
|
||
The accompanying notes are an integral part of these consolidated financial statements.
F-7
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2025 and 2024
Conversion, Stock Offering and Merger
The conversion of Somerset Savings Bank, SLA from the mutual to stock form of organization and related stock offering by SR Bancorp, Inc. (the "Company"), the holding company for Somerset Savings Bank, SLA, was completed on September 19, 2023. The Company’s common stock began trading on the Nasdaq Capital Market under the trading symbol “SRBK” on September 20, 2023.
The Company sold
Promptly following the completion of the conversion and related stock offering, Regal Bancorp, Inc., a New Jersey corporation (“Regal Bancorp”), merged with and into the Company, with the Company as the surviving entity (the “Merger”). Immediately following the Merger, Regal Bank, a New Jersey chartered commercial bank headquartered in Livingston, New Jersey and the wholly-owned subsidiary of Regal Bancorp, merged with and into Somerset Bank, which had converted to a commercial bank charter, and was renamed Somerset Regal Bank (the “Bank”). In connection with the Merger, each outstanding share of Regal Bancorp common stock converted into the right to receive $
Business
The Company, a Maryland corporation, is the holding company for Somerset Regal Bank. The Bank, which was formed in 1887, serves Essex, Hunterdon, Middlesex, Morris, Somerset and Union counties in New Jersey. The Bank is a New Jersey chartered commercial bank subject to federal and state laws and regulations. As a locally managed community bank, the Bank provides retail and commercial banking services to individuals, businesses and local municipalities through its
Principles of Consolidation
The consolidated financial statements include the accounts of SR Bancorp, Inc. and its wholly owned subsidiary the Bank, and its wholly-owned subsidiaries, Somerset Investment Co. (the “Investment Co.”), RB Properties, LLC and Somerset Consumer Service Corp. (“SCS”). All significant intercompany accounts and transactions have been eliminated in consolidation.
The Investment Co. is a special purpose entity subject to the investment company provisions of the New Jersey Corporation Business Tax Act whose activities are limited to holding investment securities and recognizing income and other gains/losses thereon. RB Properties, LLC was formed to own and manage real estate property acquired through foreclosure or in lieu of foreclosure in connection with loans. RB Properties, LLC is currently inactive. SCS has had limited activity.
Basis of Presentation and Use of Estimates
The financial information contained in this Annual Report on Form 10-K as of and for the years ended June 30, 2025 and 2024 is for the Company and the Bank, unless indicated otherwise. However, due to the timing of the Merger, the statement of income (loss) and related disclosures only includes operations of Regal Bancorp and Regal Bank since September 19, 2023.
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities as of the date of the consolidated statement of financial condition and revenues and expenses for the periods then
F-8
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
ended. Actual results could differ significantly from those estimates. Prior period amounts have been reclassified when necessary to conform to the current year’s presentation. Such reclassifications did not have a material impact on the operating results or financial position of the Company.
Material estimates that are particularly susceptible to change are: the allowance for credit losses; the evaluation of goodwill for impairment; and income taxes. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are deemed necessary. While management uses its best judgment, actual results could differ from those estimates.
Segment Reporting
Accounting Standards Codification ("ASC") Topic 280, Segment Reporting, establishes standards for the way business enterprises report information about operating segments in annual consolidated financial statements. The Company operates exclusively as a community banker within the "Community Banking" financial services industry. Community Banking encompasses the Company's primary business, which includes providing a wide range of commercial, retail and related banking services. The Company's primary focus within Community Banking is to grow loans using deposits generated by the Company's branches. Our business is generated principally in central and northern New Jersey.
Concentrations of Credit Risk
The Company's lending activity is concentrated in loans secured by real estate located primarily in New Jersey. Credit risk exposure in this area of lending is mitigated by adhering to conservative underwriting practices and policies, and close monitoring of the loan portfolio. The Company does not have any significant concentrations to any one industry or customer.
Note 4 discuss the types of investment securities in which the Company invests. Credit risk as it relates to investment activities is mitigated through the monitoring of ratings and the purchase of government-sponsored agency securities, backed by the full faith and credit of the United States.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, amounts due from banks and interest-earning deposits in other banks with original maturities of three months or less. The Company maintains accounts at other financial institutions with balances in excess of federal deposit insurance limits. The Company has not experienced any loss in such accounts.
Adoption of Accounting Standards Codification Topic 326: Financial Instruments - Credit Losses ("ASC 326")
On July 1, 2023, the Company adopted ASC 326 ("CECL"), which requires the earlier recognition of credit losses on loans and other financial instruments based on an expected loss model, replacing the incurred loss model that was in use through June 30, 2023. Under this guidance, an entity measures all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable economic forecasts. The CECL model applies to loans and leases, unfunded lending commitments,
F-9
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
held-to-maturity debt securities and other debt instruments measured at amortized cost. The Company recorded the effect of implementing CECL using a modified-retrospective approach through a cumulative effect adjustment through retained earnings as of July 1, 2023, the beginning of the reporting period in which CECL became effective. The adoption of the new standard resulted in an increase to the allowance for credit losses on loans of $
Securities
Investments in debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. Debt and equity securities that are bought and held principally to sell in the near term are classified as trading securities and reported at fair value, with unrealized holding gains and losses included in earnings.
Debt and equity securities not classified as trading securities or as held-to-maturity securities are classified as available-for-sale securities and reported at fair value, with unrealized holding gains or losses, net of deferred income taxes, reported in the accumulated other comprehensive income/loss component of stockholders' equity.
Premiums/discounts on all securities are amortized/accreted to maturity by use of the level yield method. Gain or loss on sales of securities is based on the specific identification method.
Sales or dispositions of securities whose fair value exceed amortized cost are recognized in earnings. On a quarterly basis, the Company assesses investments with unrealized losses in its available-for-sale and held-to-maturity portfolios regarding its ability and intent to hold those investments until fair value equals or exceeds amortized cost.
Equity securities with readily determinable fair values are measured at fair value. Any realized or unrealized gains or losses are recognized in earnings. Dividends are included in interest income.
In compliance with ASC 326, the Company conducted a review of its investment portfolio to determine the appropriate level of credit losses to reserve. The Company did
The Company's held-to-maturity ("HTM") portfolio consists principally of highly-rated GSE residential mortgage-backed securities. The Company segments its HTM securities into GSE, residential mortgage-backed securities, collateralized mortgage obligations ("CMOs"), and other debt securities to determine the ACL. The ACL is determined based on the security's historical losses and the ratings of major investment securities rating services, adjusted for certain qualitative factors. The Company has determined that for GSE residential mortgage-backed securities, it would be appropriate to assume the expected credit loss to be zero. At both June 30, 2025 and 2024, the Company had
Loans Receivable
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for credit losses and any deferred fees and costs. Interest income is accrued on the unpaid principal balance and credited to income. Loan origination fees
F-10
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
and costs are deferred and recognized over the life of the loans as an adjustment to yield (interest income). Discounts and premiums on purchased loans are amortized to income using the interest method over the expected lives of the loans.
Following the completion of the Merger, the loans receivable portfolio was segmented as follows: multi-family real estate loans, owner occupied commercial real estate loans, other commercial real estate loans, commercial and industrial loans, residential mortgage loans and consumer loans.
The accrual of interest is generally discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even when the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for credit losses. Interest received on nonaccrual loans generally is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally six months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt. The past due status of all classes of loans receivable is determined based on contractual due dates for loan payments.
Allowance for Credit Losses
The ACL is a significant accounting estimate used in the preparation of the Company's consolidated financial statements. Upon adoption of ASC 326 on July 1, 2023, the Company replaced the incurred loss impairment model with a requirement to recognize lifetime expected credit losses on loans and other financial instruments immediately when a financial asset is originated or purchased. The ACL is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the allowance when they are deemed uncollectible. The allowance is comprised of reserves measured on a collective (pool) basis based on a lifetime loss-rate model when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis. Arriving at an appropriate level of ACL involves a high degree of judgment. While management uses available information to recognize losses on loans, changing economic conditions and the economic prospects of the borrowers may necessitate future additions or reductions to the allowance.
The Company estimates expected credit losses using a combination of the cohort method and weighted average remaining maturities method. The loan portfolio is segmented into pools of loans by similar attributes and risk characteristics, as of a particular point in time, to which expected losses are calculated over their remaining lives, or until sufficiently attrited (i.e., have reached an acceptable stage at which a significant majority of all losses are expected to have been recognized). Each model factors historical loss rates into quantitative adjustments, to which management applies qualitative adjustments. The various risks that may be considered in making qualitative factor adjustments include, among other things: the impact of changes in lending policies and procedures, including: changes in underwriting standards and practices for collections, write-offs, and recoveries; actual and expected changes in national, regional, and local economic and business conditions and developments that affect the collectability of the loan pools; changes in the composition and size of the loan portfolio and in the terms of the underlying loans; changes in the experience, ability, and depth of our lending management and staff; changes in amount and severity of past due and nonaccrual assets; changes to the quality of our internal loan review system; the existence, growth, and effect of any concentrations of credit; and regulatory, legal and environmental events.
The ACL is increased by the provision for credit losses, and decreased by charge-offs, net of recoveries. Loans deemed to be uncollectible are charged against the ACL, and subsequent recoveries, if any, are credited to the allowance. All, or part, of the principal balance of loans receivable are charged off against the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely. Because all identified losses are immediately charged off, no portion of the allowance for credit losses is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all credit losses.
F-11
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
Mortgage loans are secured by the borrower’s residential or non-residential real estate in a first lien position. Mortgage loans have varying loan rates depending on the financial condition of the borrower and the loan to value ratio. Commercial real estate loans consist of multi-family real estate, owner-occupied, mixed use and other commercial real estate, as well as other commercial loans. Commercial and industrial loans are extended to businesses as either unsecured or secured by various types of collateral, such as accounts receivable, inventory, equipment and/or real estate. Consumer loans are primarily home equity loans and are generally secured by the borrower’s personal residence in a second lien position.
From time to time, we may modify certain loans to borrowers who are experiencing financial difficulty. In some cases, these modifications may result in new loans. Loan modifications to borrowers experiencing financial difficulty may be in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, a term extension, or a combination thereof, among other things.
Our policies, consistent with regulatory guidelines, provide for the classification of loans and other assets that are considered to be of lesser quality as substandard, doubtful, or loss assets. An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those assets characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Assets (or portions of assets) classified as loss are those considered uncollectible and are charged to the ACL as their continuance as assets is not warranted. Assets that do not expose us to risk sufficient to warrant classification in one of the aforementioned categories, but which possess potential weaknesses that deserve closer attention, are designated as special mention. As of June 30, 2025, we had no assets designated as loss, doubtful, substandard or special mention.
Prior to the adoption of ASC 326 on July 1, 2023, a loan was individually evaluated when the loan was considered impaired. A loan was considered individually impaired when, based on current information and events, it was probable that the Bank would be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining whether a loan was individually impaired included payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experienced insignificant payment delays and payment shortfalls generally were not classified as individually impaired. Management determined the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment was measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan was collateral dependent.
With the adoption of ASC 326, loans that do not share risk characteristics with existing pools are evaluated on an individual basis, such as collateral dependent loans. The Company considers a loan to be collateral dependent when management has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and repayment of the financial asset is expected to be provided substantially through the operation or sale of the collateral. When repayment is expected to be from the operation of the collateral, the specific credit loss reserve is calculated as the amount by which the amortized cost basis of the financial asset exceeds the net present value from the operation of the collateral. When repayment is expected to be from the sale of the collateral, the specific credit loss reserve is calculated as the amount by which the amortized cost basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The allowance may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.
In addition, federal and state regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for credit losses and may require the Company to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examination, which may
F-12
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
not be currently available to management. Based on management’s comprehensive analysis of the loan portfolio, management believes the current level of the allowance for credit losses is adequate.
Upon adoption of ASC 326 on July 1, 2023, the Company made the following elections regarding accrued interest receivable: (i) present accrued interest receivable balances separately on the consolidated statements of financial condition; (ii) exclude accrued interest from the measurement of the ACL, including investments and loans; and (iii) continue to write-off accrued interest receivable by reversing interest income when a loan is placed on non-accrual status. The Company's policy is to write-off accrued interest when a loan is placed on non-accrual status. Historically, the Company has not experienced uncollectible accrued interest receivable on investment debt securities.
The exposure for unfunded commitments is a component of other liabilities on the Company's consolidated statement of financial condition and represents the estimate for current expected credit losses inherent in unfunded commitments to extend credit. Unfunded commitments to extend credit include unused portions of lines of credit, unfunded loan commitments, availability on construction and land development loans and standby and commercial letters of credit. The process used to determine the ACL for these exposures is consistent with the process for determining the ACL for loans, as adjusted for estimated funding probabilities or loan equivalency factors. A charge (credit) to the provision for unfunded commitments on the consolidated statements of income is made to account for the change in the ACL on unfunded commitment exposures between reporting periods.
Premises and Equipment, net
Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed on the straight-line method over the estimated useful lives of the related assets. Routine maintenance and repairs are expensed as incurred, while significant expenditures for improvements are capitalized. Gains or losses upon disposition are reflected in earnings as realized. Bank premises and equipment are reviewed by management for potential impairment whenever events or circumstances indicate that carrying amounts may not be recoverable.
Leases
The lease liability for operating leases is measured and recognized as the present value of all future lease payment obligations. The right-of-use asset for operating leases is measured as the amount of the lease liability, plus any unamortized initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received, and any impairment recognized.
The discount rate used to compute the lease liability is the implicit rate in the lease contract, if readily determinable, or the Company's incremental borrowing rate. The implicit rates of the Company's operating leases are not readily determinable, therefore the Company uses its incremental borrowing rate at the commencement date of each lease. The Company's incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms and in a similar economic environment.
For all underlying classes of assets, the Company has elected not to recognize right-of-use assets and lease liabilities for leases that have a term of 12 months or less at lease commencement. Leases containing termination clauses in which either party may terminate the lease without cause and the notice period is less than 12 months are also deemed short-term leases. The Company recognizes short-term lease costs on a straight-line basis over the lease term.
Leases acquired in a business combination are evaluated as of the acquisition date to determine if the terms of the acquired leases are more or less favorable than the market terms of similar agreements on the acquisition date. If the lease terms are favorable as compared to the market, the Company records an asset. If the lease terms are unfavorable as compared to the market, the Company records a liability. The Company acquired $
F-13
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
Restricted Equity Securities
Restricted stock, which represents a required investment in the capital stock of correspondent banks related to available credit facilities, are carried at cost. As of those dates, restricted stock may include investments in the capital stock of the Federal Home Loan Bank ("FHLB") of New York, Atlantic Community Bankers Bank (“ACBB”) and Bankers Compliance Group (“BCG”).
Federal law requires a member institution of the FHLB system to hold stock of its district bank according to a predetermined formula. At June 30, 2025 and 2024, the Bank held $
Management evaluates the stock for impairment in accordance with guidance on accounting by certain entities that lend or finance the activities of others. Management’s determination of whether these investments are impaired is based on its assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as: (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted; (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB; and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB.
Management believes
Bank Owned Life Insurance
The Company invests in bank owned life insurance as a source of funding for employee benefit expenses. Bank owned life insurance involves the purchasing of life insurance by the Company on a chosen group of employees. The Company is the owner and beneficiary of the policies. This investment is carried as an asset in the consolidated statement of financial condition at the cash surrender value of the underlying policies. Increases in the cash surrender value of the policies, as well as proceeds, are recorded as income in the consolidated statement of income (loss). At June 30, 2025, the Company recorded a $
Goodwill and Other Intangible Assets
The Company recorded goodwill through the acquisition of Regal Bancorp that it tests for impairment at least annually and more frequently as conditions warrant. As of June 30, 2025, goodwill amounted to $
The Company recorded a core deposit premium intangible through the acquisition of Regal Bancorp that is amortized on an accelerated basis over
Revenue Recognition
The Company earns income from various sources, including loans, investment securities, BOLI, deposit accounts, and sales of assets. The revenue is recognized as it is earned and when collectability is reasonably assured.
Interest income on loans is accrued on the unpaid principal balance and recorded daily. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment to the related loan yield using the interest method. Other loan fees, including late charges, are recognized as the transactions occur.
F-14
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
Interest income on debt securities, including purchase premiums and discounts, is also accrued using the interest method over the term of the securities. Income from dividends on equity securities are recorded when declared.
Noninterest income is accounted for under ASC 606, Revenue from Contracts with Customers, and is discussed in greater detail below. Fees and service charges related to deposit accounts are largely based on contracts with customers that are short-term in nature and where the performance obligations are satisfied as services are rendered. Fees are either fixed at a specific amount or assessed as a percentage of the transaction amount. No judgments or estimates are required by management to determine the amount and timing of the related revenue. Descriptions of the primary revenue contracts included as components of noninterest income are as follows:
Other income items are transactional in nature and are recorded as they occur.
Gains or losses on sales of assets are recorded in accordance with ASC 860, "Transfers and Servicing," and are generally recognized when the asset has been legally transferred to the buyer and the Company has no continuing involvement with the asset. The Company does not generally finance the sale of foreclosed assets.
Comprehensive Income (Loss)
U.S. GAAP requires comprehensive income (loss) and its components to be reported when a company presents a full set of financial statements. The term comprehensive income (loss) refers to net income (loss) plus other comprehensive income, that is, certain revenues, expenses, gains, and losses that are reported as separate components of equity instead of net income. For the Company, the primary component of other comprehensive income (loss) is the unrealized holding gains or losses on available-for-sale investment securities. The Company has elected to report these effects on the consolidated statements of comprehensive income (loss).
Advertising Costs
Advertising costs are expensed in the period in which they are incurred and recorded as non-interest expense in the consolidated statements of income (loss). Advertising expense was approximately $
Income Taxes
SR Bancorp, Inc. and its subsidiaries file a consolidated federal income tax return. Income taxes are allocated to SR Bancorp, Inc. and its subsidiaries based on their respective income or loss included in the consolidated income tax return. Separate state income tax returns are filed by SR Bancorp, Inc. and its subsidiaries.
Federal and state income taxes have been provided on the basis of reported income. The amounts reflected on SR Bancorp, Inc. and subsidiaries’ tax returns differ from these provisions due principally to temporary differences in the reporting of certain items for financial reporting and income tax reporting purposes.
The Company accounts for income taxes using the asset and liability method in accordance with accounting guidance ASC Topic 740, Income Taxes. Under this guidance, deferred income tax expense or benefit is determined
F-15
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
by recognizing deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. The realization of deferred tax assets is assessed and a valuation allowance provided, when necessary, for that portion of the asset that is not likely to be realized. Management believes, based upon current facts, that it is more likely than not that there will be sufficient taxable income in future years to realize the deferred tax assets.
The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements in accordance with accounting guidance which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the Company’s evaluation, no significant income tax uncertainties were identified. Therefore, the Company recognized
The Company’s policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the consolidated statements of income.
Retirement Benefits
The Bank has a funded noncontributory defined benefit pension plan that covered substantially all employees meeting certain eligibility requirements as of April 30, 2023. The cost of the pension plan is based on actuarial computations of current and future benefits for employees. The Bank froze the pension plan with respect to participation and benefit accounts effective as of April 30, 2023.
The Bank follows the accounting guidance applicable to a defined benefit pension plan that requires an employer to: (a) recognize in its statement of financial condition an asset for a plan’s overfunded status or a liability for a plan’s underfunded status; (b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year (with limited exceptions); and (c) recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur.
The Bank also maintains a 401(k) Plan. Eligible employees who are at least 21 years old become participants in the 401(k) Plan after they have been employed for six consecutive months. Under the 401(k) Plan, a participant may elect to defer, on a pre-tax basis, between
Employee Stock Ownership Plan (the “ESOP”)
As part of the conversion and stock offering, the Bank established the Somerset Regal Bank Employee Stock Ownership Plan to provide eligible employees of the Bank the opportunity to own Company stock. The ESOP is a tax-qualified retirement plan for the benefit of Bank employees. The ESOP was funded through the purchase of
Accounting Pronouncements Adopted
The Company adopted ASC 326 on July 1, 2023. The transition to the new Accounting Standards Update ("ASU") resulted in a cumulative effect adjustment to the allowance for credit losses of $
F-16
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
deferred tax assets of $
The following table below presents the impact of ASC 326 on the consolidated balance sheet:
|
|
July 1, 2023 |
|
|||||||||
|
|
As reported under |
|
|
Pre-ASC 326 |
|
|
Impact of |
|
|||
|
|
(In thousands) |
|
|||||||||
Assets |
|
|
|
|
|
|
|
|
|
|||
ACL on loans: |
|
|
|
|
|
|
|
|
|
|||
Other commercial real estate |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
Residential |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Consumer |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total ACL on loans |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|||
Deferred income taxes |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Liabilities |
|
|
|
|
|
|
|
|
|
|||
Liability for credit losses for unfunded commitments |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|||
Shareholders' equity |
|
|
|
|
|
|
|
|
|
|||
Retained earnings |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
||
In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments—Credit Losses—Troubled Debt Restructurings and Vintage Disclosures. This standard eliminated the recognition and measurement guidance for troubled debt restructurings by creditors and enhances disclosure requirements for certain loan restructurings when a borrower is experiencing financial difficulty. For public business entities, these amendments require that an entity disclose current-period gross charge-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20. Gross charge-off information must be included in the vintage disclosures required for public business entities in accordance with paragraph 326-20-50-6, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. ASU No. 2022-02 was effective for the Company on
In March 2023, FASB issued ASU No. 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures. The amendments in this update permit reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. A reporting entity may make an accounting policy election to apply the proportional amortization method on a tax-credit-program-by-tax-credit-program basis rather than electing to apply the proportional amortization method at the reporting entity level or to individual investments. The amendments in this update also remove certain guidance for Qualified Affordable Housing Project investments and require the application of the delayed equity contribution guidance to all tax equity investments. The Company
In November 2023, FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments in this ASU require improved reportable segment information on an annual and interim basis, primarily through enhanced disclosures about significant segment expenses. This update will be
F-17
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
effective for financial statements issued for fiscal years beginning after December 15, 2023, and interim periods for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company
Recent Accounting Standards Not Yet Adopted
In December 2023, FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this ASU require improved annual income tax disclosures surrounding rate reconciliation, income taxes paid, and other disclosures. This update will be effective for financial statements issued for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of this standard, which is not expected to have a material impact on our consolidated financial statements.
Accounting Standards Update 2024-01, Compensation - Stock Compensation (Topic 718) - Scope Application of Profits Interest and Similar Awards ("ASU 2024-01") clarifies how an entity determines whether a profits interest or similar award is within the scope of Topic 718 or is not a share-based payment arrangement and therefore within the scope of other guidance. ASU 2024-01 provides an illustrative example with multiple fact patterns and also amends certain language in the "Scope" and "Scope Exceptions" sections of Topic 718 to improve its clarity and operability without changing the guidance. Entities can apply the amendments either retrospectively to all prior periods presented in the financial statements or prospectively to profits interest and similar awards granted or modified on or after the date of adoption. If prospective application is elected, an entity must disclose the nature of and reason for the change in accounting principle. ASU 2024-01 is effective for the Company for the fiscal year beginning on July 1, 2025, including interim periods, and is not expected to have a material impact on our financial statements.
Accounting Standards Update 2024-02, Codification Improvements ("ASU 2024-02") amends the Codification to remove references to various concept statements and impacts a variety of topics in the Codification. The amendments apply to all reporting entities within the scope of the affected accounting guidance, but in most instances the references removed are extraneous and not required to understand or apply the guidance. Generally, the amendments in ASU 2024-02 are not intended to result in significant accounting changes for most entities. ASU 2024-02 is effective for the Company for the fiscal year beginning on July 1, 2025, and is not expected to have a material impact on our consolidated financial statements.
Accounting Standards Update 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures ("ASU 2024-03") requires additional expense disclosures by public entities in the notes to the financial statements. ASU 2024-03 outlines the specific costs that are required to be disclosed, which include costs such as: employee compensation, depreciation, intangible asset amortization, selling costs and depreciation. It also requires qualitative descriptions of the amounts remaining in the relevant income statement captions that are not separately disaggregated quantitatively in the notes to the financial statements and the entity's definition of selling expenses. The disclosures are required for each interim and annual reporting period. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026. In January 2025, the FASB issued Accounting Standards Update 2025-01, "Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures: Clarifying the Effective Date" ("ASU 2025-01"), clarifying the interim reporting date when an entity must adopt ASU 2024-03. According to ASU 2025-01, ASU 2024-03 is effective for interim periods within fiscal years beginning after December 15, 2027. The Company is currently evaluating the impact of this standard on our consolidated financial statements, which is not expected to have a material impact on our financial statements
Subsequent Events
The Company has evaluated subsequent events for recognition or disclosure through September 29, 2025, the date consolidated financial statements were available to be issued.
F-18
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
On
The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their fair values as of September 19, 2023 based on management’s best estimate using the information available as of the merger date. The application of the acquisition method of accounting resulted in the recognition of goodwill of $
The following table sets forth assets acquired and liabilities assumed in the acquisition of Regal Bancorp, at their estimated fair values as of the closing date of the transaction:
|
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As recorded |
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|
Fair value |
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As recorded |
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|||
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(In thousands) |
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||||||||||
Consideration paid ( |
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$ |
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|||
Assets Acquired |
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|||
Cash and cash equivalents |
|
$ |
|
|
$ |
— |
|
|
|
$ |
|
||
Time deposits in other financial institutions |
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Securities available-for-sale, at fair value |
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Securities held-to-maturity, at amortized cost |
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Federal Home Loan Bank stock and other |
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|||
Loans receivable, net |
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|
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( |
) |
(a) |
|
|
|
||
Allowance for credit losses |
|
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( |
) |
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(b) |
|
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— |
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Accrued interest receivable |
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Premises and equipment, net |
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Right-of-use asset |
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Goodwill |
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( |
) |
(c) |
|
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— |
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Core deposit intangible |
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(d)(e) |
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Deferred costs |
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( |
) |
(f) |
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— |
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Bank owned life insurance |
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Net deferred tax asset |
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( |
) |
(g)(i) |
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Other assets |
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( |
) |
(i) |
|
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||
Total assets acquired |
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$ |
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$ |
( |
) |
|
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$ |
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||
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Liabilities assumed |
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Deposits |
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$ |
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$ |
( |
) |
(h) |
|
$ |
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||
Lease liability |
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Deferred compensation |
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Accrued expenses and other liabilities |
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( |
) |
(i) |
|
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||
Total liabilities assumed |
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$ |
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$ |
( |
) |
|
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$ |
|
||
Net assets acquired |
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$ |
|
|||
Goodwill recorded at merger |
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$ |
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|||
F-19
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
During the year ended June 30, 2024, the Company recorded one-time merger-related expenses of $
The Company had
The fair value of loans acquired from Regal Bank was estimated using cash flow projections based on the remaining maturity and repricing terms. Cash flows were adjusted by estimating future credit losses and the rate of prepayments. Projected monthly cash flows were then discounted to present value using a risk-adjusted market rate for similar loans. There was no carryover of Regal Bank’s allowance for loan losses associated with the loans that were acquired. The core deposit intangible asset recognized is being amortized over its estimated useful life of approximately
The fair value of retail demand and interest-bearing deposit accounts was assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. The fair value of time deposits was estimated by discounting the contractual future cash flows using market rates offered for time deposits of similar remaining maturities.
Basic earnings (loss) per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding. Diluted earnings per share have been calculated in a manner similar to that of basic earnings per share except that weighted-average number of common shares outstanding is increased to include the number of additional common shares that would have been outstanding if all potential dilutive common shares (such as those resulting from the exercise of stock options and vested restricted stock awards) were issued during the period, computed using the treasury stock method. Unallocated ESOP shares are not deemed outstanding for earnings per share calculations.
F-20
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
The following table presents the composition of the weighted average common shares used in the earnings per share calculation:
|
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Year Ended June 30, |
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|||||
|
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2025 |
|
|
2024 |
|
||
Net income (loss) |
|
$ |
|
|
$ |
( |
) |
|
Weighted average number of common shares outstanding |
|
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|
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|
||
Less: Average unallocated ESOP shares |
|
|
( |
) |
|
|
( |
) |
Less: Average unvested restricted stock awards |
|
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( |
) |
|
|
— |
|
Weighted average common shares outstanding used to calculate basic |
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||
Add: Dilutive effect of common stock equivalents |
|
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|
|
— |
|
|
Weighted average common shares outstanding used to calculate diluted |
|
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||
Basic income (loss) per common share |
|
$ |
|
|
$ |
( |
) |
|
Diluted income (loss) per common share |
|
$ |
|
|
$ |
( |
) |
|
Number of common stock equivalents excluded from the calculation of |
|
|
|
|
|
— |
|
|
The amortized cost and approximate fair values of securities held-to-maturity at June 30, 2025 and June 30, 2024 are as follows:
|
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June 30, 2025 |
|
|||||||||||||
|
|
Amortized |
|
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Gross |
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Gross |
|
|
Fair |
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||||
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(In thousands) |
|
|||||||||||||
Federal National Mortgage Association |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Federal Home Loan Mortgage Corporation |
|
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|
|
|
|
|
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( |
) |
|
|
|
|||
Government National Mortgage Association |
|
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|
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|
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|
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— |
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|||
Subordinated Debt |
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|
|
|
— |
|
|
|
( |
) |
|
|
|
||
CMO |
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|
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|
|
— |
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|
( |
) |
|
|
|
||
Foreign Government Bonds |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
|
|
June 30, 2024 |
|
|||||||||||||
|
|
Amortized |
|
|
Gross |
|
|
Gross |
|
|
Fair |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Federal National Mortgage Association |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Federal Home Loan Mortgage Corporation |
|
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|
|
|
|
|
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( |
) |
|
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|
|||
Government National Mortgage Association |
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
||
Subordinated Debt |
|
|
|
|
|
— |
|
|
|
( |
) |
|
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|
||
CMO |
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|
|
|
|
— |
|
|
|
( |
) |
|
|
|
||
Foreign Government Bonds |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
F-21
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
The amortized cost and fair value of securities held-to-maturity by contractual maturity at June 30, 2025 are shown in the following table. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities are assigned to categories based on contractual maturity except for mortgage-backed securities and CMOs, which are based on the estimated average life of the securities.
|
|
June 30, 2025 |
|
|||||
|
|
Amortized |
|
|
Fair |
|
||
|
|
(In thousands) |
|
|||||
Due within 1 year |
|
$ |
|
|
$ |
|
||
Due after 1 but within 5 years |
|
|
— |
|
|
|
— |
|
Due after 5 but within 10 years |
|
|
|
|
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|
||
Due after 10 years |
|
|
— |
|
|
|
— |
|
Mortgage-backed securities |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
The unrealized losses as of June 30, 2025 and June 30, 2024, categorized by the length of time of continuous loss position and the fair value of related securities held-to-maturity, were as follows:
|
|
June 30, 2025 |
|
|||||||||||||||||||||
|
|
Less than 12 Months |
|
|
More than 12 Months |
|
|
Total |
|
|||||||||||||||
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
||||||
|
|
(In thousands) |
|
|||||||||||||||||||||
Federal National Mortgage |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Federal Home Loan Mortgage |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Subordinated Debt |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
CMO |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|||
|
|
June 30, 2024 |
|
|||||||||||||||||||||
|
|
Less than 12 Months |
|
|
More than 12 Months |
|
|
Total |
|
|||||||||||||||
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
||||||
|
|
(In thousands) |
|
|||||||||||||||||||||
Federal National Mortgage |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Federal Home Loan Mortgage |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Government National |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Subordinated Debt |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
CMO |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Total |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
F-22
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
At June 30, 2025 and June 30, 2024, the Bank had
|
|
June 30, |
|
|
June 30, |
|
||
|
|
(In thousands) |
|
|||||
Net gains recognized on equity securities |
|
$ |
|
|
$ |
|
||
Less: Net gains recognized on equity securities sold/acquired |
|
|
— |
|
|
|
— |
|
Net unrealized gains recognized on equity securities |
|
$ |
|
|
$ |
|
||
On a quarterly basis, management evaluates whether there is a credit loss associated with any declines in fair value on securities. Management considers the nature of the collateral, default rates, delinquency rates, credit ratings and interest rate changes, among other factors. However, the Company has determined that highly-rated issues of mortgage-backed securities of government-sponsored agencies have a
At June 30, 2025 and June 30, 2024, mortgage-backed securities with a carrying value of approximately $
Loans at June 30, 2025 and June 30, 2024 are summarized as follows:
|
|
June 30, 2025 |
|
|
June 30, 2024 |
|
||
|
|
(In thousands) |
|
|||||
Owner occupied commercial real estate loans |
|
$ |
|
|
$ |
|
||
Other commercial real estate loans |
|
|
|
|
|
|
||
Multi-family loans |
|
|
|
|
|
|
||
Commercial and industrial loans |
|
|
|
|
|
|
||
Total commercial loans |
|
|
|
|
|
|
||
Residential mortgage loans |
|
|
|
|
|
|
||
Consumer and other loans |
|
|
|
|
|
|
||
Total loans |
|
|
|
|
|
|
||
Allowance for credit losses |
|
|
( |
) |
|
|
( |
) |
Deferred loan costs, net |
|
|
|
|
|
|
||
Loans receivable, net |
|
$ |
|
|
$ |
|
||
The Company engages primarily in the lending of fixed-rate and adjustable-rate commercial real estate and residential mortgage loans. Lending activities are targeted to individuals within the Company's geographic footprint. Risks associated with lending activities include economic conditions and changes in interest rates, which can adversely impact both the ability of borrowers to repay their loans and the value of the associated collateral. Credit risk exposure in these areas of lending are minimized by the evaluation of the creditworthiness of the borrower, including debt-to-income ratios, credit scores and conservative underwriting standards that contain loan-to-value ratios of generally no more than
F-23
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
At June 30, 2025, commercial loans represented
The Company adopted ASC 326 on July 1, 2023. All disclosures are presented in accordance with ASC 326 as of June 30, 2025 and June 30, 2024.
|
|
June 30, 2025 |
|
|||||||||||||||||||||||||
|
|
Owner |
|
|
Other |
|
|
Multi- |
|
|
Commercial |
|
|
Residential |
|
|
Consumer |
|
|
Total |
|
|||||||
|
|
(In thousands) |
|
|||||||||||||||||||||||||
Allowance for Credit Losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Beginning balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Provisions (credits) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Ending balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Ending balance, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Individually evaluated |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Ending balance, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Collectively evaluated |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Loans Receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Ending balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Ending balance, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Individually evaluated |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Ending balance, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Collectively evaluated |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
F-24
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
|
|
June 30, 2024 |
|
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|
|
Owner |
|
|
Other |
|
|
Multi- |
|
|
Commercial |
|
|
Residential |
|
|
Consumer |
|
|
Total |
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|||||||
|
|
(In thousands) |
|
|||||||||||||||||||||||||
Allowance for Credit Losses: |
|
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|
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|||||||
Beginning balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Impact of ASC 326 |
|
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|||||||
Charge-offs |
|
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|
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|
|
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|
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|
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|||||||
Recoveries |
|
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|||||||
Provisions (credits) |
|
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|
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|
|
|
|
|
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|
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( |
) |
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||||||
Ending balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Ending balance, |
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|
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|
|||||||
Individually evaluated |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Ending balance, |
|
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|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|||||||
Collectively evaluated |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Loans Receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Ending balance |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Ending balance, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Individually evaluated |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Ending balance, |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Collectively evaluated |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
F-25
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
The following tables present the credit risk profile of loans by class and fiscal year of origination as of June 30, 2025 and June 30, 2024:
|
|
June 30, 2025 |
|
|||||||||||||||||||||||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
Prior |
|
|
Revolving |
|
|
Total |
|
||||||||
|
|
(In thousands) |
|
|||||||||||||||||||||||||||||
Owner Occupied Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Owner Occupied Commercial |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Other Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Other Commercial Real Estate |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Multi-Family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Multi-Family |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Commercial and Industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Commercial and Industrial |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Residential Mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Residential Mortgage |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Consumer and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Consumer and other |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Total Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Gross charge-offs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
F-26
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
|
|
June 30, 2024 |
|
|||||||||||||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
Prior |
|
|
Revolving |
|
|
Total |
|
||||||||
|
|
(In thousands) |
|
|||||||||||||||||||||||||||||
Owner Occupied Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Owner Occupied Commercial |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Other Commercial Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Other Commercial Real Estate |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Multi-Family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Multi-Family |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Commercial and Industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Commercial and Industrial |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Residential Mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Residential Mortgage |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Consumer and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Risk Rating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Consumer and other |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Total Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Pass |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Special mention |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Substandard |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Doubtful |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total Loans |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
Gross charge-offs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||||
F-27
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
The following tables present the recorded investment in loans receivable by major category and credit quality indicators at June 30, 2025 and June 30, 2024:
|
|
June 30, 2025 |
|
|||||||||||||||||
|
|
Pass |
|
|
Special |
|
|
Substandard |
|
|
Doubtful |
|
|
Total |
|
|||||
|
|
(In thousands) |
|
|||||||||||||||||
Owner occupied commercial real estate |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Other commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Multi-family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Residential mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Consumer and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
|
|
June 30, 2024 |
|
|||||||||||||||||
|
|
Pass |
|
|
Special |
|
|
Substandard |
|
|
Doubtful |
|
|
Total |
|
|||||
|
|
(In thousands) |
|
|||||||||||||||||
Owner occupied commercial real estate |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Other commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Multi-family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Commercial and industrial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Residential mortgage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Consumer and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
The following table presents the amortized cost basis of non-accrual loans and loans 90 days or more past due and still accruing, by loan portfolio class with related allowance, as of June 30, 2025:
|
|
June 30, 2025 |
|
|||||||||
|
|
Non-Accrual Loans |
|
|||||||||
|
|
With a Related Allowance |
|
|
Without a Related Allowance |
|
|
Total |
|
|||
|
|
(In thousands) |
|
|||||||||
Commercial and Industrial |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The following tables provide a breakdown of impaired loans by loan portfolio class and related allowance as of June 30, 2024:
|
|
June 30, 2024 |
|
|||||||||
|
|
Non-Accrual Loans |
|
|||||||||
|
|
With a Related Allowance |
|
|
Without a Related Allowance |
|
|
Total |
|
|||
|
|
(In thousands) |
|
|||||||||
Commercial and Industrial |
|
$ |
|
|
$ |
|
|
$ |
|
|||
F-28
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
The following tables present the classes of loans summarized by the past due status as of June 30, 2025 and June 30, 2024:
|
|
June 30, 2025 |
|
||||||||||||||||||||||||
|
|
30-59 Days |
|
|
60-89 Days |
|
|
90 Days or More Past Due and Still Accruing |
|
|
Non- |
|
Total Past Due |
|
|
Total Current |
|
|
Total |
|
|||||||
|
|
(In thousands) |
|
||||||||||||||||||||||||
Owner occupied commercial real |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
Other commercial real estate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
— |
|
|
|
|
|
|
|
||
Multi-family |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
— |
|
|
|
|
|
|
|
||
Commercial and industrial |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
— |
|
|
|
|
|
|
|
||
Residential mortgage |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|||||
Consumer and other |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
$ |
|
|
$ |
|
|
$ |
|
|||||
|
|
June 30, 2024 |
|
||||||||||||||||||||||||
|
|
30-59 Days |
|
|
60-89 Days |
|
|
90 Days or More Past Due and Still Accruing |
|
|
Non- |
|
Total Past Due |
|
|
Total Current |
|
|
Total |
|
|||||||
|
|
(In thousands) |
|
||||||||||||||||||||||||
Owner occupied commercial real |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
Other commercial real estate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
— |
|
|
|
|
|
|
|
||
Multi-family |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
— |
|
|
|
|
|
|
|
||
Commercial and industrial |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Residential mortgage |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
||||
Consumer and other |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
$ |
|
|
$ |
|
|
$ |
|
|||||
As of June 30, 2025, the Bank had made
Premises and equipment at June 30, 2025 and June 30, 2024 are summarized as follows:
|
|
June 30, |
|
|
June 30, |
|
||
|
|
(In thousands) |
|
|||||
Land |
|
$ |
|
|
$ |
|
||
Buildings and leasehold improvements |
|
|
|
|
|
|
||
Furniture, fixtures and equipment |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Total premises and equipment, net |
|
$ |
|
|
$ |
|
||
Depreciation expense amounted to $
F-29
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
The Company accounts for its leases in accordance with ASC Topic 842. The Company's right-of-use asset and operating lease liability are recognized at lease commencement based on the present value of the remaining lease payment obligations using discount rates that represent the Company’s incremental borrowing rate as of the lease commencement dates. The Company leases only office space and equipment under operating leases, with original lease terms ranging from five to
|
|
Year Ended June 30, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
|
|
(Dollars in thousands) |
|
|||||
Right-of-use asset |
|
$ |
|
|
$ |
|
||
Lease liability |
|
$ |
|
|
$ |
|
||
Weighted-average remaining lease term, in years |
|
|
|
|
|
|
||
Weighted-average discount rate |
|
|
% |
|
|
% |
||
|
|
|
|
|
|
|
||
Future undiscounted minimum lease payments for operating leases with initial terms of one year or more as of June 30, 2025 are as follows:
|
|
June 30, |
|
|
|
|
(In thousands) |
|
|
June 30, 2026 |
|
$ |
|
|
June 30, 2027 |
|
|
|
|
June 30, 2028 |
|
|
|
|
June 30, 2029 |
|
|
|
|
June 30, 2030 |
|
|
|
|
Thereafter |
|
|
|
|
Total future minimum lease payments |
|
|
|
|
Less: imputed interest |
|
|
( |
) |
Total |
|
$ |
|
|
Future undiscounted minimum lease payments for operating leases with initial terms of one year or more as of June 30, 2025 are as follows:
|
|
Year Ended June 30, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
|
|
(In thousands) |
|
|||||
Operating lease cost |
|
$ |
|
|
$ |
|
||
Cash paid for amounts included in measurement of lease liabilities |
|
$ |
|
|
$ |
|
||
Goodwill and core deposit intangibles resulted from the Company's acquisition of Regal Bancorp, which was accounted for under FASB ASC 805, Business Combinations. In accordance with ASC 805, the Company recorded $
F-30
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
The changes in the carrying amount of goodwill and core deposit intangibles are summarized as follows:
|
|
June 30, 2025 |
|
|
June 30, 2024 |
|
||
|
|
(In thousands) |
|
|||||
Balance at beginning of period |
|
$ |
|
|
$ |
— |
|
|
Acquisition of Regal Bancorp |
|
|
— |
|
|
|
|
|
Amortization expense |
|
|
( |
) |
|
|
( |
) |
Balance at end of period |
|
$ |
|
|
$ |
|
||
Goodwill and Intangible assets at June 30, 2025 and June 30, 2024:
|
|
June 30, 2025 |
|
|
June 30, 2024 |
|
||
|
|
(In thousands) |
|
|||||
Goodwill |
|
$ |
|
|
$ |
|
||
Core deposit intangible, net of amortization |
|
|
|
|
|
|
||
Goodwill and intangible assets |
|
$ |
|
|
$ |
|
||
As of June 30, 2025, the amortization of the core deposit intangibles in future fiscal years is as follows:
|
|
Amount |
|
|
|
|
(In thousands) |
|
|
2026 |
|
$ |
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
|
Deposits at June 30, 2025 and June 30, 2024 consisted of the following:
|
|
June 30, |
|
|
June 30, |
|
||
|
|
(In thousands) |
|
|||||
Demand accounts: |
|
|
|
|
|
|
||
Interest-bearing |
|
$ |
|
|
$ |
|
||
Noninterest-bearing |
|
|
|
|
|
|
||
Total demand accounts |
|
|
|
|
|
|
||
Savings and club |
|
|
|
|
|
|
||
Certificates of deposit |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Certificates of deposit with balances in excess of the FDIC insurance limit of $250,000 at June 30, 2025 and June 30, 2024 amounted to approximately $
F-31
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
At June 30, 2025, the scheduled maturities of certificates of deposit are as follows:
|
|
(In thousands) |
|
|
Year ending June 30, 2026 |
|
$ |
|
|
Year ending June 30, 2027 |
|
|
|
|
Year ending June 30, 2028 |
|
|
|
|
Year ending June 30, 2029 |
|
|
|
|
Year ending June 30, 2030 |
|
|
|
|
Total |
|
$ |
|
|
At June 30, 2025 there were $
At June 30, 2025 and June 30, 2024, the Company could borrow overnight funds from the FHLB-NY under a redesigned overnight advance program up to the Company's maximum borrowing capacity based on the Company's ability to collateralize such borrowings. At June 30, 2025, the Company's maximum borrowing capacity was $
At June 30, 2025 and June 30, 2024, the Company's Board of Directors had authorized borrowings of up to $
F-32
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
Retirement Plan
The Bank has a non-contributory pension plan covering all eligible employees. The plan is a defined benefit plan that provides benefits based on a participant’s years of service and overall annual compensation.
The following tables set forth the plan’s funded status and components of net periodic pension:
|
|
Year Ended |
|
|
Year Ended |
|
||
|
|
(Dollars in thousands) |
|
|||||
Change in benefit obligation: |
|
|
|
|
|
|
||
Obligation, beginning |
|
$ |
|
|
$ |
|
||
Service cost |
|
|
|
|
|
|
||
Interest cost |
|
|
|
|
|
|
||
Actuarial (gain) loss |
|
|
|
|
|
( |
) |
|
Benefit payments |
|
|
( |
) |
|
|
( |
) |
Curtailments |
|
|
|
|
|
|
||
Obligation, ending |
|
$ |
|
|
$ |
|
||
Change in plan assets: |
|
|
|
|
|
|
||
Fair value of plan assets, beginning |
|
$ |
|
|
$ |
|
||
Actual gain (loss) on plan assets |
|
|
|
|
|
|
||
Employer contributions |
|
|
|
|
|
|
||
Benefit payments |
|
|
( |
) |
|
|
( |
) |
Fair value of plan assets, ending |
|
$ |
|
|
$ |
|
||
Funded status, |
|
|
|
|
|
|
||
Accumulated benefit obligation |
|
$ |
|
|
$ |
|
||
Projected benefit obligation |
|
$ |
( |
) |
|
$ |
( |
) |
Fair value of assets |
|
|
|
|
|
|
||
Funded status and prepaid pension cost included in other liabilities |
|
$ |
|
|
$ |
|
||
Assumptions used to determine benefit obligation: |
|
|
|
|
|
|
||
Discount rate |
|
|
% |
|
|
% |
||
Rate of increase in compensation |
|
n/a |
|
|
n/a |
|
||
F-33
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
The Company's mortality rate assumptions use the projected mortality improvement scale, Mortality Projection-2021, as published by the Society of Actuaries.
|
|
Year Ended |
|
|
Year Ended |
|
||
|
|
(Dollars in thousands) |
|
|||||
Net periodic pension cost included the following: |
|
|
|
|
|
|
||
Service cost |
|
$ |
|
|
$ |
|
||
Interest cost |
|
|
|
|
|
|
||
Expected return on plan assets |
|
|
( |
) |
|
|
( |
) |
Net amortization |
|
|
|
|
|
|
||
Net periodic pension cost included in salaries and employee benefits |
|
$ |
( |
) |
|
$ |
( |
) |
Assumptions used to determine net periodic pension cost: |
|
|
|
|
|
|
||
Discount rate |
|
|
% |
|
|
% |
||
Rate of increase in compensation |
|
n/a |
|
|
n/a |
|
||
Rate of return on plan assets |
|
|
% |
|
|
% |
||
For the years ended June 30, 2025 and 2024, the plan’s assets realized an annual return of approximately
|
|
June 30, |
|
|
June 30, |
|
||
Cash and equivalents |
|
|
% |
|
|
% |
||
Fixed income securities and mutual funds |
|
|
|
|
|
|
||
Equity securities and mutual funds |
|
|
|
|
|
|
||
|
|
|
% |
|
|
% |
||
The fair values of the Bank’s pension plan assets at June 30, 2025 and June 30, 2024, by asset category (see Note 17 for the definitions of levels), are as follows:
|
|
Assets at Fair Value as of June 30, 2025 |
|
|||||||||||||
Asset Category |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Fair |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Cash |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Equity securities |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Mutual funds - equity |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Mutual funds - fixed income |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
|
|
Assets at Fair Value as of June 30, 2024 |
|
|||||||||||||
Asset Category |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Fair |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Cash |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Equity securities |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Mutual funds - equity |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Mutual funds - fixed income |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
F-34
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
The Bank did not contribute to the pension plan during the year ended June 30, 2025. Benefit payments, which reflect expected future service, are expected to be paid as follows:
Year ending June 30: |
|
(In thousands) |
|
|
2026 |
|
$ |
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
2030 |
|
|
|
|
Thereafter |
|
|
|
|
|
|
$ |
|
|
As of June 30, 2025 and June 30, 2024, unrecognized net loss of $
Savings and Investment Plan
The Bank has a savings and investment plan, pursuant to Section 401(k) of the Internal Revenue Code, for all eligible employees. Under this plan, employees may make voluntary contributions in an amount equal to not less than
Deferred Compensation
The Bank has deferred compensation plans for directors and certain officers that permit the deferral of director fees and officer compensation. Amounts deferred earn interest at rates comparable to rates the Bank pays on deposit accounts. At June 30, 2025 and June 30, 2024, liabilities under the plans totaled approximately $
12. Stock- Based Compensation
On November 20, 2024, the Company adopted the SR Bancorp, Inc. 2024 Equity Incentive Plan ("2024 Equity Plan”). The 2024 Equity Plan authorizes
Stock Options
On November 21, 2024, the Company granted
F-35
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model.
Date of grant |
|
|
|
|
|
|
||||||
Options granted |
|
|
|
|
|
|
|
|
|
|||
Exercise price |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Vesting period (years) |
|
|
|
|
|
|
|
|
|
|||
Expiration date |
|
|
|
|
|
|
||||||
Expected Volatility(1) |
|
|
% |
|
|
% |
|
|
% |
|||
Expected term (years)(2) |
|
|
|
|
|
|
|
|
|
|||
Expected dividend yield(3) |
|
|
% |
|
|
% |
|
|
% |
|||
Forfeiture rate |
|
|
% |
|
|
% |
|
|
% |
|||
Risk free rate of return(4) |
|
|
% |
|
|
% |
|
|
% |
|||
Fair value per option |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The following table represents stock option activities for the period indicated:
|
|
Year Ended June 30, 2025 |
|
|||||||||||||
|
|
Shares |
|
|
Weighted- |
|
|
Weighted- |
|
|
Aggregate |
|
||||
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
||||
Balance at beginning of period |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||
Exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Vested |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Forfeited or expired |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance at end of period |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercisable at end of period |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
The aggregate intrinsic value is calculated by multiplying the number of in-the-money shares by the difference between the Company’s closing price on the last trading day of the period and the exercise price.
Restricted Stock Awards
On November 21, 2024, the Company granted
F-36
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
The following table represents information regarding restricted stock award activities for the periods indicated:
|
|
Year Ended |
|
|||||
|
|
Number |
|
|
Weighted- |
|
||
Balance at beginning of period |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
— |
|
|
|
— |
|
Forfeited |
|
|
— |
|
|
|
— |
|
Balance at end of period |
|
|
|
|
$ |
|
||
The following table represents the compensation expense and income tax benefit recognized for stock options and restricted stock awards for the period indicated:
|
|
Year Ended |
|
|
|
|
(In thousands) |
|
|
Stock-based compensation expense |
|
|
|
|
Stock options |
|
$ |
|
|
Restricted stock awards |
|
|
|
|
Total stock-based compensation expense |
|
$ |
|
|
Related tax benefits recognized in earnings |
|
$ |
|
|
The following table sets forth the total compensation cost related to non-vested awards not yet recognized and the weighted average period (in years) over which it is expected to be recognized as of June 30, 2025:
|
|
Amount |
|
|
Weighted |
|
||
|
|
(In thousands) |
|
|
|
|
||
Stock options |
|
$ |
|
|
|
|
||
Restricted stock awards |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
|
|
||
ESOP
The Company maintains the Somerset Regal Bank Employee Stock Ownership Plan (the "ESOP"). Coincident with its conversion on September 19, 2023, the Company loaned the ESOP $
Under applicable accounting requirements, the Company records compensation expense for the ESOP equal to the fair market value of shares when they are earned and committed to be released to participants' accounts under the plan. The principal outstanding of the ESOP loan was $
F-37
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
Shares held by the ESOP were as follows:
|
|
June 30, 2025 |
|
June 30, 2024 |
|
||
|
|
(In thousands) |
|
||||
Allocated to participants |
|
|
|
|
|
||
Committed to be allocated |
|
|
|
|
|
||
Unallocated |
|
|
|
|
|
||
Total ESOP shares |
|
|
|
|
|
||
|
|
|
|
|
|
||
Fair value of unearned shares |
|
$ |
|
$ |
|
||
Prior to the year ended June 30, 2024, the Bank qualified as a Savings Institution under the provisions of the Internal Revenue Code and, therefore, prior to January 1, 1996, was permitted to calculate its bad debt deduction using either the experience method or the specific charge off method. Retained earnings at June 30, 2025 and June 30, 2024 included approximately $
The components of income tax expense are as follows for years ended June 30, 2025 and June 30, 2024:
|
|
Year Ended |
|
|
Year Ended |
|
||
|
|
(In thousands) |
|
|||||
Current tax expense: |
|
|
|
|
|
|
||
Federal income |
|
$ |
|
|
$ |
|
||
State income |
|
|
|
|
|
|
||
Total current |
|
|
|
|
|
|
||
Deferred tax expense (benefit): |
|
|
|
|
|
|
||
Federal income |
|
|
|
|
|
( |
) |
|
State income |
|
|
|
|
|
( |
) |
|
Total deferred |
|
|
|
|
|
( |
) |
|
Change in valuation allowance |
|
|
— |
|
|
|
|
|
Total |
|
$ |
|
|
$ |
( |
) |
|
F-38
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
The following table presents a reconciliation between the effective income tax expense and the income tax expense which would be computed by applying the federal statutory tax rate of
|
|
Year Ended |
|
|
Year Ended |
|
||
|
|
(In thousands) |
|
|||||
Federal income tax expense (benefit), at the statutory rate |
|
|
|
|
$ |
( |
) |
|
Increases (decreases) in taxes resulting from: |
|
|
|
|
|
|
||
New Jersey state tax, net of federal income tax effect |
|
|
|
|
|
( |
) |
|
Bank owned life insurance |
|
|
( |
) |
|
|
( |
) |
Merger expenses |
|
|
— |
|
|
|
|
|
Other items, net |
|
|
|
|
|
|
||
Change in valuation allowance |
|
|
— |
|
|
|
|
|
Effective income tax expense (benefit) |
|
$ |
|
|
$ |
( |
) |
|
The tax effects of existing temporary differences that give rise to deferred income tax assets and liabilities are as follows:
|
|
June 30, |
|
|
June 30, |
|
||
|
|
(In thousands) |
|
|||||
Deferred tax assets: |
|
|
|
|
|
|
||
ESOP |
|
$ |
|
|
$ |
|
||
Capital loss carryover |
|
|
|
|
|
|
||
Deferred compensation |
|
|
|
|
|
|
||
Unrecognized pension losses |
|
|
|
|
|
|
||
Deferred loan fees |
|
|
|
|
|
|
||
Allowance for credit loss |
|
|
|
|
|
|
||
Compensation |
|
|
|
|
|
|
||
Depreciation |
|
|
|
|
|
|
||
Federal net operating loss |
|
|
|
|
|
|
||
State net operating loss |
|
|
|
|
|
|
||
Charitable contributions |
|
|
|
|
|
|
||
Uncollected interest |
|
|
|
|
|
|
||
Fair value adjustments related to acquisition |
|
|
|
|
|
|
||
Total deferred tax assets |
|
|
|
|
|
|
||
Deferred tax liabilities: |
|
|
|
|
|
|
||
Core deposit intangible |
|
|
|
|
|
|
||
Prepaid pension |
|
|
|
|
|
|
||
Deferred loan costs |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total deferred tax liabilities |
|
|
|
|
|
|
||
Valuation allowance |
|
|
|
|
|
|
||
Net deferred income tax asset included in other assets |
|
$ |
|
|
$ |
|
||
A deferred tax asset or liability is recognized for the estimated future tax effects attributable to temporary differences and carryforwards. The measurement of such deferred tax items is reduced by the amount that is more likely than not to be realized based on available evidence. The ultimate realization of the deferred tax asset is
F-39
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
dependent upon the generation of future taxable income during the periods in which those temporary differences and carryforwards become deductible. At June 30, 2025 and 2024, there was a valuation allowance of $
A corporation may carry forward net operating losses to the succeeding
Management assesses the available evidence to estimate whether sufficient future taxable income will be generated to realize the existing deferred tax asset. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth.
On the basis of this evaluation, a valuation allowance of $
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition.
The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
At June 30, 2025, total unfunded loan-related commitments, including lines of credit, amounted to $
At June 30, 2024, total unfunded loan-related commitments, including lines of credit, amounted to $
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on management’s credit evaluation of the counterparty.
A reserve for unfunded commitments is recognized and included in other liabilities in the consolidated statements of financial condition. Periodic adjustments to either increase or decrease the reserve are recognized in non-interest expense in the consolidated statements of income, however the Company recorded
F-40
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
The Bank is subject to regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance sheet items calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the maintenance of minimum amounts and ratios (set forth in the following table) of total capital, Tier 1 capital (as defined in the regulations) and common equity Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. A capital conservation buffer of
In 2021, the Bank adopted the new community bank leverage ratio framework. This framework simplifies the regulatory capital requirements by requiring the Bank to meet only the Tier 1 capital to average assets (leverage) ratio. The Bank must only maintain a leverage ratio greater than the
Market risk, credit risk, operational risk and deposits are some of the factors that can impact the capital adequacy ratio and in turn, adversely affect the performance of the Bank. As of June 30, 2025, management believes that the Bank met all capital adequacy requirements to which it was subject. As of June 30, 2025, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum ratios as set forth in the following tables. There are no conditions or events since that notification that management believes have changed the Bank’s category.
|
|
Actual |
|
|
To be Well Capitalized |
|
||||||||||
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
||||
|
|
(In thousands) |
|
|||||||||||||
June 30, 2025: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Tier 1 capital (to average total assets) |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
June 30, 2024: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Tier 1 capital (to average total assets) |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
F-41
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
In the ordinary course of business, the Bank has engaged, and continues to engage, in banking transactions with its directors, officers and their related parties.
At June 30, 2025, the Bank had $
|
|
June 30, |
|
|
June 30, |
|
||
|
|
(In thousands) |
|
|||||
Balance, beginning of year |
|
$ |
|
|
$ |
|
||
New loans and advances |
|
|
— |
|
|
|
— |
|
Repayments |
|
|
( |
) |
|
|
( |
) |
Balance, end of year |
|
$ |
|
|
$ |
|
||
Deposits from directors, officers and their related parties held by the Bank at June 30, 2025 and June 30, 2024 amounted to $
The Company leases
The Bank uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The Company's securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Bank may be required to record at fair value other assets or liabilities on a non-recurring basis. These non-recurring fair value adjustments involve the application of lower-of-cost-or-market accounting or write-downs of individual assets.
FASB ASC 820, Fair Value Measurements and Disclosures, defines fair value as an exit price representing the amount that would be received to sell an asset or settle a liability in an orderly transaction between market participants. A three-level hierarchy has been established for fair value measurements based upon the inputs to the valuation of an asset or liability.
Level 1 - Valuation is based on quoted prices in active markets for identical assets or liabilities;
Level 2 - Valuation is determined from quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument;
Level 3 - Valuation is derived from model-based and other techniques in which at least one significant input is unobservable and which may be based on the Company’s own estimates about the assumptions that a market participant would use to value the asset or liability.
The Banks’ available-for-sale portfolio is carried at estimated fair value on a recurring basis, with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income or loss. The securities available-for-sale portfolio consists of U.S. government-sponsored enterprise and mortgage-backed securities. The fair values of these securities were obtained from an independent nationally recognized pricing service. The independent pricing service provided prices categorized as Level 2, as quoted prices in active markets for identical assets are generally not available for the securities.
F-42
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
For financial assets measured at fair value on a recurring basis as of June 30, 2025 and June 30, 2024, the fair value measurements by level within the fair value hierarchy used are as follows:
|
|
June 30, 2025 |
|
|||||||||||||
Description |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Total |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Equity securities |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
June 30, 2024 |
|
|||||||||||||
Description |
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
Total |
|
||||
|
|
(In thousands) |
|
|||||||||||||
Equity securities |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Total |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
The classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
Other securities are measured at fair value using quoted market prices in an active market for identical assets and are classified as Level 1 in the hierarchy. The estimated fair values of equity securities are determined by obtaining quoted prices on nationally recognized exchanges (Level 1 inputs).
All debt securities are measured at fair value using matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices and are classified as Level 2 in the hierarchy.
The fair value of deposits with no defined maturities (e.g. demand deposits, interest-bearing demand accounts, money market accounts and savings accounts) is the amount payable on demand of the liabilities at the reporting date (i.e. their carrying amounts). This approach to estimating fair value excludes the significant benefit that results from the low-cost funding provided by such deposit liabilities, as compared to alternative sources of funding.
Deposits with stated maturities (time deposits) have been valued using the present value of cash flows discounted at rates approximating the current market for similar deposits.
Financial Assets Measured at Fair Value on a Nonrecurring Basis
The following tables present those assets and liabilities measured at fair value on a non-recurring basis at June 30, 2025 and June 30, 2024, and additional quantitative information about the valuation techniques and inputs utilized to determine fair value. All such assets and liabilities were measured using Level 3 inputs:
|
June 30, 2025 |
||||||||||||||||
|
Fair Value Measurement |
|
|
Quantitative Information |
|||||||||||||
|
Recorded Investment |
|
|
Valuation Allowance |
|
|
Fair Value |
|
|
Valuation |
|
Unobservable Inputs |
|
Value/Range |
|||
|
(In thousands) |
|
|
|
|
|
|
|
|||||||||
Individually evaluated |
$ |
|
|
$ |
— |
|
|
$ |
|
|
Appraisal of collateral |
|
Selling costs |
|
|||
F-43
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
|
June 30, 2024 |
||||||||||||||||
|
Fair Value Measurement |
|
|
Quantitative Information |
|||||||||||||
|
Recorded Investment |
|
|
Valuation Allowance |
|
|
Fair Value |
|
|
Valuation |
|
Unobservable Inputs |
|
Value/Range |
|||
|
(In thousands) |
|
|
|
|
|
|
|
|||||||||
Individually evaluated |
$ |
|
|
$ |
— |
|
|
$ |
|
|
Appraisal of collateral |
|
Selling costs |
|
|||
Loans which meet certain criteria are evaluated individually for impairment. A loan is impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Bank's impaired loans are generally collateral dependent whose fair value is estimated through current appraisals, and adjusted as necessary by management to reflect current market conditions. Appraisals of collateral securing impaired loans are conducted by approved, qualified, and independent third-party appraisers. Such appraisals are ordered once the loan is deemed impaired, as previously described. Impaired loans are generally classified as Level 3 assets. There were
Fair Value on a Nonrecurring Basis
The Company discloses fair value information about financial assets, whether or not recognized in the statements of financial condition, for which it is practicable to estimate that value. The fair value of financial assets that are not measured at fair value in the financial statements were based on the exit price notion. The following estimated fair value amounts have been determined using available market information and appropriate valuation methodologies. However, the estimates below are not necessarily indicative of amounts that could be realized in the marketplace. The use of different market assumptions or valuation methodologies may have a material effect on the estimated fair value amounts.
For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2025 and June 30, 2024 were as follows:
|
|
June 30, 2025 |
|
|||||||||||||||||
Description |
|
Carrying Value |
|
|
Fair Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|||||
|
|
(In thousands) |
|
|||||||||||||||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|||
Securities held-to-maturity, at amortized cost |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
Restricted equity securities, at cost |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
Loans receivable, net |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Accrued interest receivable |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Deposits |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
Borrowings |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|||
F-44
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
|
|
June 30, 2024 |
|
|||||||||||||||||
Description |
|
Carrying Value |
|
|
Fair Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|||||
|
|
(In thousands) |
|
|||||||||||||||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|||
Securities held-to-maturity, at amortized cost |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
Restricted equity securities, at cost |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
Loans receivable, net |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Accrued interest receivable |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Deposits |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|||
Borrowings |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Financial information pertaining to SR Bancorp, Inc. only is as follows:
|
|
June 30, 2025 |
|
|
June 30, 2024 |
|
||
|
|
(In thousands) |
|
|
(In thousands) |
|
||
Assets |
|
|
|
|
|
|
||
Cash held at Somerset Regal Bank |
|
$ |
|
|
$ |
|
||
Loan to Somerset Regal Bank ESOP |
|
|
|
|
|
|
||
Other assets |
|
|
|
|
|
|
||
Due from Somerset Regal Bank |
|
|
|
|
|
|
||
Investment in Somerset Regal Bank |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Liabilities and equity |
|
|
|
|
|
|
||
Other liabilities |
|
$ |
|
|
$ |
— |
|
|
Shareholders' equity |
|
|
|
|
|
|
||
Total liabilities and equity |
|
$ |
|
|
$ |
|
||
|
|
Year Ended |
|
|
Year Ended |
|
||
|
|
(In thousands) |
|
|
(In thousands) |
|
||
Income and Expense |
|
|
|
|
|
|
||
Interest income on ESOP loan |
|
$ |
|
|
$ |
|
||
Other expense |
|
|
|
|
|
— |
|
|
Contribution expense Somerset Regal Bank Charitable Foundation |
|
|
— |
|
|
|
|
|
Income (loss) before income tax expense and equity in undistributed net loss of Somerset Regal Bank |
|
|
|
|
|
( |
) |
|
Income tax expense |
|
|
|
|
|
— |
|
|
Income before undistributed net loss of Somerset Regal Bank |
|
|
|
|
|
( |
) |
|
Equity in undistributed net income (loss) of Somerset Regal Bank |
|
|
|
|
|
( |
) |
|
Net Income (Loss) |
|
|
|
|
|
( |
) |
|
F-45
SR Bancorp, Inc. and Subsidiaries
Notes to Consolidated Financial Statements — Continued
June 30, 2025 and 2024
|
|
Year Ended |
|
|
Year Ended |
|
||
|
|
(In thousands) |
|
|
(In thousands) |
|
||
Cash Flows From Operating Activities: |
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
|
|
$ |
( |
) |
|
Adjustments to reconcile net loss to cash provided by operating activities: |
|
|
|
|
|
|
||
Undistributed net (earnings) loss of Somerset Regal Bank |
|
|
( |
) |
|
|
|
|
Stock based compensation |
|
|
|
|
|
— |
|
|
Change in other assets and other liabilities |
|
|
|
|
|
( |
) |
|
Contribution expense common shares contributed to Somerset Regal Bank Charitable Foundation |
|
|
— |
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
|
|
|
( |
) |
|
Cash Flows From Investing Activities: |
|
|
|
|
|
|
||
Investment in Somerset Regal Bank |
|
|
( |
) |
|
|
( |
) |
Dividend from Somerset Regal Bank |
|
|
|
|
|
|
||
ESOP loan |
|
|
— |
|
|
|
( |
) |
Principal payment received on ESOP loan |
|
|
|
|
|
|
||
Cash paid for acquisition |
|
|
— |
|
|
|
( |
) |
Net cash provided by (used in) investing activities |
|
|
|
|
|
( |
) |
|
Cash Flows From Financing Activities: |
|
|
|
|
|
|
||
Repurchase of common stock |
|
|
( |
) |
|
|
— |
|
Cash dividends paid on common stock |
|
|
( |
) |
|
|
— |
|
Cash proceeds from issuance of common stock |
|
|
— |
|
|
|
|
|
Change in due from Somerset Regal Bank |
|
|
( |
) |
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
( |
) |
|
|
|
|
Net increase in cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Cash and cash equivalents, beginning of period |
|
|
|
|
|
— |
|
|
Cash and cash equivalents, end of period |
|
$ |
|
|
$ |
|
||
F-46
FAQ
When did SR Bancorp complete the merger referenced in the 10‑K (SRBK)?
How many SR Bancorp common shares were outstanding after the conversion?
What goodwill and intangible impacts resulted from the acquisition?
Who is the chief operating decision maker (CODM) for SR Bancorp?
Are there equity awards reserved for future grants at SR Bancorp?
