SR Bancorp(SRBK) - 2025 Q2 - Quarterly Results

Financial Highlights The company reported varied quarterly and six-month financial results, alongside completing a significant stock offering and merger Quarterly and Six-Month Performance Summary SR Bancorp, Inc. reported a net income of $1.0 million for Q4 2024, a decrease from $1.6 million in Q4 2023. For the six months ended December 31, 2024, net income was $2.4 million, a significant turnaround from a net loss of $8.9 million in the same period of 2023. The company's balance sheet showed growth, with total assets reaching $1.06 billion, driven by a 6.0% increase in net loans Quarterly Financial Results (Three Months Ended Dec 31) | Metric | Q4 2024 | Q4 2023 | | :--- | :--- | :--- | | Net Income | $1.0 million | $1.6 million | | EPS (basic and diluted) | $0.12 | - | | Adjusted Net Income* | $452,000 | $605,000 | Six-Month Financial Results (Six Months Ended Dec 31) | Metric | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Net Income (Loss) | $2.4 million | ($8.9 million) | | EPS (basic and diluted) | $0.27 | - | | Adjusted Net Income | $1.1 million | $1.2 million | Balance Sheet Highlights (as of Dec 31, 2024 vs Jun 30, 2024) | Metric | Dec 31, 2024 | Jun 30, 2024 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $1.06 billion | $1.02 billion | +4.3% | | Net Loans | $775.8 million | $731.9 million | +6.0% | | Total Deposits | $824.1 million | $807.1 million | +2.1% | - Loan growth was primarily funded by a $30.0 million short-term borrowing and an increase in deposits[4] Completed Stock Offering and Merger The company completed its conversion from a mutual to a stock form of organization and a related stock offering on September 19, 2023, concurrently finalizing the merger with Regal Bancorp to form Somerset Regal Bank - On September 19, 2023, the company completed its conversion and stock offering, selling 9,055,172 shares at $10.00 per share[5] - A charitable foundation, Somerset Regal Charitable Foundation, Inc., was established with a contribution of 452,758 shares and $905,517 in cash[5] - Following the conversion, Regal Bancorp merged into the Company, and Regal Bank merged into Somerset Bank, which was then renamed Somerset Regal Bank[6] Operating Results Analysis Analysis of quarterly and six-month operating results reveals shifts in net income, interest income, expenses, and tax impacts Comparison of Operating Results for the Three Months Ended December 31, 2024 and 2023 Net income for the fourth quarter of 2024 decreased by 36.5% to $1.0 million from $1.6 million in the prior-year period, primarily due to a 19.7% decrease in net interest income from margin compression, partially offset by a 35.4% reduction in noninterest expenses General Overview Net income fell by $586,000 to $1.0 million for the three months ended December 31, 2024, with current quarter results including $791,000 of net accretion income from fair value adjustments related to the merger, compared to $1.4 million last year Q4 Net Income Comparison | Metric | Q4 2024 | Q4 2023 | | :--- | :--- | :--- | | Net Income | $1.0 million | $1.6 million | | Change | -$586,000 | -36.5% | Net Interest Income Analysis Net interest income decreased by $1.8 million, or 19.7%, to $7.2 million, caused by a 68 basis point compression in the net interest margin to 2.88%, stemming from a 31.8% increase in interest expense while interest income fell by 6.0% - Interest income decreased by $741,000 (6.0%) due to a 26 basis point drop in asset yields and a lower average balance of interest-earning assets[9] - Interest expense increased by $1.0 million (31.8%), driven by higher rates paid on interest-bearing demand deposits and certificates of deposit to remain competitive[10] Q4 Net Interest Margin & Spread | Metric | Q4 2024 | Q4 2023 | | :--- | :--- | :--- | | Net Interest Income | $7.2 million | $9.0 million | | Net Interest Rate Spread | 2.27% | 3.08% | | Net Interest Margin | 2.88% | 3.56% | Provision for Credit Losses The Bank recorded a minimal provision for credit losses of $12,000, compared to a credit of $107,000 in the prior-year quarter, maintaining strong asset quality with no charge-offs or non-performing loans at December 31, 2024 - A provision of $12,000 was recorded in Q4 2024, compared to a $107,000 credit in Q4 2023[14] - The allowance for credit losses as a percentage of total loans was 0.65% at December 31, 2024, down from 0.74% a year prior[14] Noninterest Income and Expense Noninterest income rose by 71.8% to $627,000, while noninterest expense fell by 35.4% to $6.5 million, primarily due to lower salaries, employee benefits, and data processing costs - Noninterest income increased by $262,000 (71.8%), mainly from higher other noninterest income and service charges[15] - Noninterest expense decreased by $967,000 (35.4%), driven by a $509,000 drop in salaries and benefits and a $173,000 decrease in data processing expenses[16] Income Tax Expense Income tax expense was $324,000 for the quarter, with an effective tax rate of 24.1%, up from 20.2% in the same period last year Q4 Income Tax Comparison | Metric | Q4 2024 | Q4 2023 | | :--- | :--- | :--- | | Income Tax Expense | $324,000 | $408,000 | | Effective Tax Rate | 24.1% | 20.2% | Comparison of Operating Results for the Six Months Ended December 31, 2024 and 2023 For the six-month period, the company reported net income of $2.4 million, a significant improvement from a net loss of $8.9 million in the prior year, largely due to the absence of a $5.4 million charitable contribution and $3.9 million in merger-related costs that impacted the 2023 period, alongside 12.7% net interest income growth and a recovery for credit losses General Overview Net income increased by $11.3 million to $2.4 million for the six months ended December 31, 2024, as the prior-year period included significant one-time expenses, including a $5.4 million charitable contribution and $3.9 million in merger costs Six-Month Net Income (Loss) Comparison | Metric | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Net Income (Loss) | $2.4 million | ($8.9 million) | | Change | +$11.3 million | +126.9% | Net Interest Income Analysis Net interest income for the six-month period grew by 12.7% to $14.8 million, driven by a 29.1% increase in interest income from a larger post-merger loan portfolio, though the net interest margin slightly compressed by 12 basis points to 2.98% as the cost of liabilities increased faster than asset yields - Interest income increased by $5.2 million (29.1%) due to a larger average balance of interest-earning assets and higher yields on loans post-merger[19] - Interest expense rose by $3.5 million (75.3%), primarily from a $3.5 million increase in interest on deposits due to higher balances and rates[20] Six-Month Net Interest Margin & Spread | Metric | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Net Interest Income | $14.8 million | $13.2 million | | Net Interest Rate Spread | 2.39% | 2.69% | | Net Interest Margin | 2.98% | 3.10% | Provision for Credit Losses The Bank recorded a recovery for credit losses of $142,000 for the six-month period, compared to a provision of $4.1 million in the prior year, reflecting updates to model assumptions following the merger and changes in loan portfolio composition - A recovery of $142,000 was recorded for H1 2025, compared to a $4.1 million provision in H1 2024[22] - There were no charge-offs during the period and no non-performing loans at the end of the period[22] Noninterest Income and Expense Noninterest income increased by 45.7% to $1.3 million, while noninterest expense saw a significant decrease of 35.4% to $13.2 million, primarily due to the absence of a $5.4 million charitable contribution and other merger-related costs in the prior-year period - Noninterest income increased by $401,000 (45.7%), driven by higher service charges and fees[23] - Noninterest expense decreased by $7.2 million (35.4%), mainly due to the absence of the $5.4 million charitable contribution made in the prior year[24] Income Tax Expense The provision for income taxes was $687,000, compared to a benefit of $1.5 million in the prior-year period, with an effective tax rate of 22.3% for the six months ended December 31, 2024 Six-Month Income Tax Comparison | Metric | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Income Tax Expense (Benefit) | $687,000 | ($1.5 million) | | Effective Tax Rate | 22.3% | 14.7% | Financial Condition Analysis An in-depth review of the balance sheet highlights asset growth, liability changes, and equity movements Comparison of Financial Condition at December 31, 2024 and June 30, 2024 As of December 31, 2024, total assets grew by 4.3% to $1.06 billion since June 30, 2024, fueled by a 6.0% increase in net loans funded through a 2.1% rise in deposits and a new $30.0 million borrowing, while total equity slightly decreased by 0.7% due to share repurchases offsetting net earnings Assets Total assets increased by $43.7 million to $1.06 billion, driven by a $43.9 million increase in net loans receivable, with cash and cash equivalents also rising by $7.5 million, while securities held-to-maturity decreased by $7.3 million due to repayments and maturities - Net loans receivable increased by $43.9 million (6.0%) to $775.8 million, driven by growth in both residential mortgage and commercial loans[29] - Cash and cash equivalents increased by $7.5 million (16.4%) to $53.4 million[28] Liabilities (Deposits & Borrowings) Total deposits grew by $17.0 million to $824.1 million, with growth in interest-bearing checking accounts offsetting declines in non-maturity savings, and the Bank also took on a new $30.0 million borrowing from the FHLB of New York to fund loan growth - Deposits increased by $17.0 million (2.1%) to $824.1 million, with noninterest-bearing deposits constituting 11.5% of total deposits[30] - The Bank borrowed $30.0 million from the Federal Home Loan Bank of New York to provide additional liquidity[31] Equity Total equity decreased by $1.0 million to $198.1 million, primarily due to the company repurchasing 347,057 shares of its common stock for $3.9 million, partially offset by $2.4 million in net earnings - Equity decreased by $1.0 million (0.7%) due to $3.9 million in share repurchases, partially offset by $2.4 million in net income[32] Financial Statements and Ratios Detailed financial statements and key performance ratios provide a comprehensive overview of the company's financial health and operational efficiency Consolidated Statements of Financial Condition The consolidated balance sheet as of December 31, 2024, shows total assets of $1.06 billion, supported by $824.1 million in deposits and $198.1 million in stockholders' equity, with net loans receivable at $775.8 million Key Balance Sheet Items (in thousands) | Account | Dec 31, 2024 | Jun 30, 2024 | | :--- | :--- | :--- | | Total Assets | $1,064,505 | $1,020,844 | | Total cash and cash equivalents | $53,426 | $45,909 | | Loans receivable, net | $775,751 | $731,859 | | Total Liabilities | $866,360 | $821,361 | | Total deposits | $824,081 | $807,100 | | Borrowings | $30,000 | $0 | | Total Stockholders' Equity | $198,145 | $199,483 | Consolidated Statements of Income For the three months ended December 31, 2024, the company generated $7.2 million in net interest income and reported a net income of $1.0 million, or $0.12 per diluted share; for the six-month period, net interest income was $14.8 million, resulting in a net income of $2.4 million, or $0.27 per diluted share Key Income Statement Items (in thousands) | Account | Three Months Ended Dec 31, 2024 | Six Months Ended Dec 31, 2024 | | :--- | :--- | :--- | | Total Interest Income | $11,545 | $23,012 | | Total Interest Expense | $4,306 | $8,179 | | Net Interest Income | $7,239 | $14,833 | | Provision (Credit) for Credit Losses | $12 | ($142) | | Total Noninterest Income | $627 | $1,279 | | Total Noninterest Expense | $6,509 | $13,179 | | Net Income (Loss) | $1,021 | $2,388 | | Diluted EPS | $0.12 | $0.27 | Selected Ratios Key performance ratios for the three months ended December 31, 2024, include an annualized return on average assets (ROA) of 0.39%, return on average equity (ROE) of 2.16%, and a net interest margin of 2.88%, with asset quality remaining pristine as non-performing loans were 0.00% of total loans and tangible book value per share was $18.45 Key Performance Ratios (Q4 2024 vs Q4 2023) | Ratio | Q4 2024 | Q4 2023 | | :--- | :--- | :--- | | Return on average assets (annualized) | 0.39% | 0.60% | | Return on average equity (annualized) | 2.16% | 3.36% | | Net interest margin | 2.88% | 3.56% | | Efficiency ratio | 82.75% | 79.67% | Asset Quality and Other Data (as of Dec 31, 2024) | Ratio | Value | | :--- | :--- | | Allowance for credit losses / total gross loans | 0.65% | | Non-performing loans / total gross loans | 0.00% | | Tangible book value per share | $18.45 | Other Information This section provides an overview of Somerset Regal Bank and important disclosures regarding forward-looking statements About Somerset Regal Bank Somerset Regal Bank is a full-service commercial bank based in New Jersey, operating 14 branches across six counties, holding $1.06 billion in total assets, $775.8 million in net loans, and $824.1 million in deposits as of December 31, 2024 - The bank operates 14 branches in Essex, Hunterdon, Middlesex, Morris, Somerset, and Union Counties, New Jersey[33] Forward-Looking Statements This section contains standard safe harbor language, cautioning that the report includes forward-looking statements based on current management expectations, subject to significant business, economic, and competitive risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements subject to risks and uncertainties as defined by the Private Securities Litigation Reform Act of 1995[35] - Key risks include competitive pressures, interest rate changes, inflation, economic conditions, and regulatory changes[35]