SR Bancorp(SRBK) - 2025 Q4 - Annual Report

PART I Item 1. Business SR Bancorp, Inc. is a Maryland-chartered holding company for Somerset Regal Bank, which expanded its market presence and lending capabilities through a 2023 conversion and merger - SR Bancorp, Inc. is a Maryland-chartered holding company for Somerset Regal Bank, primarily owning the Bank's outstanding common stock[9] Key Financial Metrics (June 30, 2025) | Metric | June 30, 2025 (in millions) | | :----------------------- | :-------------------------- | | Total Assets | $1,080 | | Deposits | $846.0 | | Total Stockholders' Equity | $193.8 | - The Company completed its mutual-to-stock conversion and stock offering on September 19, 2023, selling 9,055,172 shares at $10.00 per share, and merged with Regal Bancorp, Inc. for approximately $69.5 million[13][14] - The merger expanded the Bank's market presence into Essex, Morris, and Union Counties, New Jersey, enhancing its commercial and residential lending expertise[14][15] General Company Overview SR Bancorp, Inc. serves as the holding company for Somerset Regal Bank, with its primary business being the ownership of the Bank's common stock - SR Bancorp, Inc. is a Maryland-chartered holding company for Somerset Regal Bank, primarily owning the Bank's outstanding common stock[9] Key Financial Metrics (June 30, 2025) | Metric | June 30, 2025 (in millions) | | :----------------------- | :-------------------------- | | Total Assets | $1,080 | | Deposits | $846.0 | | Total Stockholders' Equity | $193.8 | Somerset Regal Bank Operations Somerset Regal Bank, formed in September 2023 from a merger, operates 14 branches in New Jersey, offering diverse deposit and loan products - Somerset Regal Bank was formed on September 19, 2023, through the combination of Somerset Bank and Regal Bank, operating from 14 branches in northern and central New Jersey[12] - The Bank offers a variety of deposit and loan products to individuals and small businesses, primarily within its market[12] Stock Offering and Merger Details SR Bancorp completed its stock offering and acquired Regal Bancorp in September 2023, expanding its market presence and lending expertise - On September 19, 2023, SR Bancorp completed its stock offering, selling 9,055,172 shares at $10.00 per share, including shares to its Employee Stock Ownership Plan[13] - The Company contributed 452,758 shares and $905,517 in cash to the Somerset Regal Charitable Foundation, Inc. in connection with the conversion[13] - SR Bancorp acquired Regal Bancorp, Inc. for approximately $69.5 million, leading to the merger of Regal Bank into Somerset Savings Bank, renamed Somerset Regal Bank[14] - The merger expanded market presence and enhanced commercial and residential lending expertise for the combined entity[14][15] Market Area and Competition The Bank serves diverse, affluent markets in central and northern New Jersey, facing intense competition from various financial institutions - The Bank serves a broad geographic area in central and northern New Jersey, including Essex, Hunterdon, Middlesex, Morris, Somerset, and Union counties, characterized by diverse economies[16][17] - Hunterdon, Morris, and Somerset counties are relatively affluent markets with higher household and per capita incomes compared to the U.S. and New Jersey averages[19][20] - As of June 30, 2025, Somerset Regal Bank held $364.6 million in deposits in Somerset County, representing a 2.1% market share among 20 financial institutions[21] - The Company faces intense competition for deposits and loans from various financial institutions and non-depository financial service providers, with larger competitors having significantly greater resources[22][23][24] Lending Activities The Company offers diverse loan products, with commercial loans, particularly multi-family, significantly expanding post-merger and comprising 45.0% of the total portfolio - The Company offers a variety of loans, including residential, commercial real estate, multi-family, commercial and industrial, and consumer loans, with a historical concentration in residential loans[25] - The merger with Regal Bank significantly expanded the commercial loan portfolio, with commercial loans comprising 45.0% of the total loan portfolio at June 30, 2025, largely multi-family loans[25] Loan Portfolio Composition (June 30, 2025 vs. 2024) | Loan Type | June 30, 2025 (Amount in thousands) | June 30, 2025 (Percent) | June 30, 2024 (Amount in thousands) | June 30, 2024 (Percent) | | :------------------------------- | :---------------------------------- | :---------------------- | :---------------------------------- | :---------------------- | | 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% | - The Bank's loan policy limits loans to one borrower to $15.0 million and to related borrowers to $20.0 million, well within the regulatory limit of $28.9 million at June 30, 2025[51] Non-Performing and Problem Assets The Company generally places loans on non-accrual status after 90 days of delinquency, reporting no non-performing assets as of June 30, 2025 - Loans are generally placed on non-accrual status when payments are 90 days or more delinquent, unless well-secured and in the process of collection[54] Loan Delinquencies (June 30, 2025 vs. 2024) | Loan Type | June 30, 2025 (Total Past Due in thousands) | June 30, 2024 (Total Past Due in thousands) | | :------------------------------- | :------------------------------------------ | :------------------------------------------ | | Owner occupied commercial real estate | $0 | $0 | | Other commercial real estate | $0 | $0 | | Multi-family | $0 | $0 | | Commercial and industrial | $0 | $50 | | Residential mortgage | $1,945 | $572 | | Consumer and other | $67 | $40 | | Total | $2,012 | $662 | Non-Performing Assets (June 30, 2025 vs. 2024) | Metric | June 30, 2025 (in thousands) | June 30, 2024 (in thousands) | | :----------------------------------- | :--------------------------- | :--------------------------- | | Total non-accrual loans | $0 | $50 | | Total non-performing loans | $0 | $50 | | Total non-performing assets | $0 | $50 | | Total non-performing loans to total loans | —% | 0.01% | | Total non-performing assets to total assets | —% | 0.00% | - As of June 30, 2025, the Company had no assets classified as special mention, substandard, doubtful, or loss, indicating strong asset quality[60][61] Allowance for Credit Losses The Allowance for Credit Losses (ACL) is maintained to absorb expected credit losses, with its balance increasing to $5.36 million in FY2025 - The Allowance for Credit Losses (ACL) is maintained to absorb current expected credit losses, determined by management's subjective estimates considering loan portfolio characteristics, economic conditions, and regulatory reviews[62][63] Allowance for Credit Losses Activity (Years Ended June 30, 2025 and 2024) | Metric | Year Ended June 30, 2025 (in thousands) | Year Ended June 30, 2024 (in thousands) | | :----------------- | :-------------------------------------- | :-------------------------------------- | | Beginning balance | $5,229 | $1,116 | | Provisions (credits) | $133 | $4,066 | | Ending balance | $5,362 | $5,229 | Allocation of Allowance for Credit Losses (June 30, 2025 vs. 2024) | Loan Category | June 30, 2025 (ACL in thousands) | June 30, 2025 (ACL to Total Loans) | June 30, 2024 (ACL in thousands) | June 30, 2024 (ACL to Total Loans) | | :--------------------------------- | :------------------------------- | :--------------------------------- | :------------------------------- | :--------------------------------- | | Owner occupied commercial real estate loans | $675 | 0.08% | $1,331 | 0.81% | | Other commercial real estate loans | $179 | 0.02% | $502 | 0.07% | | Multi-family loans | $1,830 | 0.23% | $1,998 | 0.27% | | Commercial and industrial loans | $135 | 0.02% | $146 | 0.02% | | Residential mortgage loans | $2,308 | 0.29% | $1,175 | 0.16% | | Consumer and other loans | $235 | 0.03% | $77 | 0.01% | | Total allocated allowance | $5,362 | 0.67% | $5,229 | 0.71% | Investment Activities The Company's investment policy focuses on maximizing yield while managing risk, with its portfolio consisting solely of held-to-maturity securities at June 30, 2025 - The Company's investment policy aims to maximize portfolio yield while minimizing risk, meeting liquidity needs, and managing asset/liability and interest rate risks[68][71] - At June 30, 2025, the investment portfolio consisted solely of held-to-maturity securities, primarily U.S. government-sponsored enterprise obligations ($131.9 million), subordinated debentures ($7.8 million), and collateralized mortgage obligations ($2.0 million)[72] - During the year ended June 30, 2024, the Company sold $35.4 million of lower-yielding available-for-sale securities for a pre-tax loss of $4.4 million, redeploying proceeds into higher-yielding residential and commercial real estate mortgages[73] Investment Securities Portfolio Maturity Distribution and Weighted Average Yields (June 30, 2025) | Maturity Period | Amortized Cost (in thousands) | Fair Value (in thousands) | Weighted Average Yield | | :------------------------------ | :---------------------------- | :------------------------ | :--------------------- | | Due within one year | $200 | $200 | 4.40% | | Due after one through five years | $0 | $0 | — | | Due after five through ten years | $7,750 | $7,141 | 3.10% | | Residential mortgage-backed securities | $131,666 | $110,745 | 1.65% | | CMO | $2,011 | $1,890 | 2.50% | | Total | $141,845 | $120,195 | 1.75% | Deposit Activities and Other Sources of Funds Deposits and loan repayments are the primary funding sources, with the Bank offering diverse deposit products and managing uninsured deposits and FHLB advances - Deposits and loan repayments are the primary sources of funds, with deposit inflows and outflows significantly influenced by interest rates and market conditions[81] - The Bank attracts deposits through a broad selection of instruments, including noninterest-bearing demand, interest-bearing demand, savings, money market, and certificates of deposit, with no brokered deposits[82] Distribution of Total Deposits by Account Type (June 30, 2025 vs. 2024) | Account Type | June 30, 2025 (Amount in thousands) | June 30, 2025 (Percent) | June 30, 2025 (Average Rate) | June 30, 2024 (Amount in thousands) | June 30, 2024 (Percent) | June 30, 2024 (Average Rate) | | :------------------------------ | :---------------------------------- | :---------------------- | :--------------------------- | :---------------------------------- | :---------------------- | :--------------------------- | | Non-interest-bearing demand deposits | $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% | | - Uninsured deposits (over $250,000) totaled $145.3 million at June 30, 2025, up from $109.7 million at June 30, 2024[86] - The Company had a $30.0 million advance from the Federal Home Loan Bank of New York at a fixed rate of 4.42% at June 30, 2025, with access to up to $100.0 million in advances[88] Human Capital Resources The Company employs 119 full-time and two part-time non-unionized staff, fostering a discrimination-free workplace with competitive benefits and training - As of June 30, 2025, the Company had 119 full-time and two part-time employees, none of whom are unionized, and maintains a good relationship with its employees[90] - The Company is committed to a discrimination-free workplace, with a code of conduct and annual training, offering competitive pay, comprehensive benefits, a 401(k) plan, and an Employee Stock Ownership Plan (ESOP)[91][92] Subsidiaries SR Bancorp's sole subsidiary is Somerset Regal Bank, which in turn holds three inactive or investment-focused subsidiaries - SR Bancorp's only subsidiary is Somerset Regal Bank, which in turn has three subsidiaries: RB Properties, LLC (inactive), Somerset Investment Company (for investment securities), and Somerset Consumer Service Corporation (inactive)[94] Regulation and Supervision Somerset Regal Bank is regulated by NJDBI and FDIC, while SR Bancorp is a Federal Reserve and SEC-regulated bank holding company, both subject to capital requirements - Somerset Regal Bank is a New Jersey-chartered commercial bank, regulated by the NJDBI and FDIC, while SR Bancorp is a bank holding company regulated by the Federal Reserve and SEC[95][96][131] - The Bank is subject to minimum capital requirements, including a common equity Tier 1 capital ratio of 4.5%, Tier 1 capital ratio of 6.0%, total capital ratio of 8%, and a Tier 1 leverage ratio of 4%[107] - Somerset Regal Bank has opted into the community bank leverage ratio framework, requiring a leverage ratio greater than 9% to satisfy regulatory capital requirements, and was classified as 'well capitalized' at June 30, 2025[112][114][120] - SR Bancorp, as a bank holding company, is subject to Federal Reserve regulation, including restrictions on non-banking activities and requirements to act as a source of financial and managerial strength to its subsidiary[131][132][136] Federal Taxation SR Bancorp and Somerset Regal Bank are subject to federal income taxation, reporting on an accrual basis, with the Bank holding $3.0 million in federal net operating loss carryovers - SR Bancorp and Somerset Regal Bank are subject to federal income taxation, reporting income and expenses on the accrual method with a tax year ending June 30[148][149] - At June 30, 2025, Somerset Regal Bank had approximately $3.0 million in federal net operating loss carryovers (limited to 80% of future taxable income) and $2.5 million in capital loss carryovers[150][151] State Taxation New Jersey taxes banks based on apportioned taxable income at a 9% rate, while SR Bancorp pays franchise taxes to Maryland - New Jersey state taxation for banks is based on apportioned taxable income, with a Corporation Business Tax rate of 9% (lower for smaller incomes)[153] - As a Maryland business corporation, SR Bancorp files an annual report and pays franchise taxes to the State of Maryland[154] Item 1A. Risk Factors The Company faces diverse risks from economic conditions, interest rate fluctuations, operational challenges, regulatory compliance, and accounting changes, which could impact its financial performance and stock value - A worsening of local economic conditions, including inflation and recession, could reduce demand for products, increase non-performing loans, and decrease collateral values, disproportionately affecting the Company due to its geographic concentration[156][157][158][160][162] - Changes in interest rates or an inverted yield curve can adversely affect profitability by impacting the net interest spread, loan origination, borrower repayment ability, and creating reinvestment risk[163][164][165] - The Company's strategy for moderate growth carries risks, including the ability to attract and retain experienced bankers, competitive responses, and effective management of expansion costs[166] - Significant operational risks stem from high transaction volumes, potential fraud, system errors, security breaches, and reliance on third-party data processing, which could lead to financial loss, regulatory action, or reputational damage[178][179][180][181][182][183][184][185][186] - Non-compliance with regulations like the USA PATRIOT Act and Bank Secrecy Act could result in fines or sanctions, while extensive banking regulations and changes in accounting standards can increase operational costs and impact financial reporting[195][196][201] Risks Related to Economic Conditions Economic downturns, inflation, and trade policy changes can negatively impact demand for services, loan performance, collateral values, and operating costs - A downturn in local economic conditions could reduce demand for services, increase non-performing loans, and decrease collateral values, negatively impacting operations and earnings[156][157] - Inflation increases operating costs and can negatively affect customers' ability to repay loans, while sustained higher interest rates could weaken economic activity[158] - Changes in trade policies and tariffs could lead to higher costs, reduced demand, and supply chain disruptions for customers, potentially impairing their financial obligations and increasing loan delinquencies[159] Risks Related to Interest Rates Profitability is highly sensitive to interest rate changes, which can affect net interest margin, loan origination, borrower repayment, and reinvestment risk - Profitability is highly sensitive to changes in interest rates, as the spread between interest earned on assets and interest paid on liabilities can fluctuate, affecting income[163] - An imbalance where liabilities have shorter maturities than assets creates earnings volatility; rising rates can hinder loan origination and borrower repayment, while declining rates can lead to reinvestment risk[164] - An inverted yield curve, where short-term rates exceed long-term rates, can reduce net interest margin and pose financial risk for institutions with fixed-rate loans[165] Risks Related to Strategy and Growth Challenges in managing growth, introducing new products, and reliance on real estate-backed loans increase lending risk and the potential for insufficient credit loss allowance - Failure to effectively manage moderate growth, including attracting new customers and expanding market share, could negatively impact financial condition and operating results due to considerable expansion costs[166] - Introducing new lines of business or products involves substantial risks, including significant time and resource investment, potential failure to meet profitability targets, and increased burden on management and IT systems[167] - A significant portion (98.5%) of the loan portfolio is secured by real estate, making the Company vulnerable to a downturn in the local real estate market, which could impair collateral values and necessitate increased allowance for credit losses[168][169] - Increased multi-family, commercial real estate, and commercial loan originations will heighten lending risk due to larger loan balances, dependence on borrower property management, and potentially less liquid collateral[171][172] - If the allowance for credit losses is insufficient to cover actual credit losses, earnings and capital could decrease, especially with the implementation of the CECL accounting standard requiring earlier recognition of expected losses[173][174][175] Risks Related to Our Funding Inability to generate core deposits may force reliance on more expensive wholesale funding, adversely affecting net interest margin and profitability - Inability to generate core deposits may force reliance on more expensive wholesale funding, adversely affecting net interest margin and profitability[176] - Certificates of deposit comprised 31.7% of total deposits at June 30, 2025, with 28.3% maturing within one year, posing reinvestment risk if higher rates are required to retain them[176] Risks Related to Competition Intense competition from larger financial institutions and non-banks, exacerbated by technological advances, may limit the Company's growth and profitability - Intense competition from larger financial institutions and non-banks in the market area may limit growth and profitability, as competitors often have greater resources, name recognition, and can offer more aggressive pricing[177] - Technological advances and industry consolidation further intensify competition, allowing non-banks to offer traditional banking services and larger entities to achieve economies of scale[177] Risks Related to Operations and Security High transaction volumes, cyber-attacks, third-party reliance, and loss of key personnel pose significant operational and security risks, potentially leading to financial and reputational damage - The financial services business involves high transaction volumes, leading to significant operational risks such as fraud, unauthorized transactions, system errors, and internal control breaches, which may not be fully covered by insurance[178] - Cyber-attacks, security breaches, or employee errors can compromise confidential information, damage reputation, increase costs, and lead to regulatory consequences or litigation[179][180][181][182][183] - Reliance on third-party data processing providers introduces risks; their difficulties or communication issues could adversely affect transaction processing and business operations[185] - The Company's success depends on retaining key personnel, and the loss of experienced senior management could negatively impact major revenue-generating functions and increase recruiting expenses[187] Risks Related to Regulatory Matters Extensive regulation, supervision, and potential non-compliance with laws like the USA PATRIOT Act can increase costs, impact financial reporting, and lead to sanctions - Extensive regulation, supervision, and examination by banking regulators, along with changes in laws and accounting standards, can significantly increase operational costs and impact financial reporting[195][201] - Non-compliance with laws like the USA PATRIOT Act and Bank Secrecy Act could result in fines, sanctions, or restrictions on business activities[196] - Monetary policies and regulations of the Federal Reserve directly affect earnings and growth by influencing money supply, credit conditions, and interest rates[197][198] - As an 'emerging growth company' and 'smaller reporting company,' the Company may use reduced reporting and disclosure requirements, which could make its common stock less attractive to investors[199][200] Risks Related to Accounting Matters Changes in accounting standards and subjective management estimates for credit losses, goodwill, and deferred taxes can materially impact financial reporting - Changes in accounting standards by FASB and SEC can materially impact how financial condition and operating results are reported, potentially retroactively[201] - Management's estimates and assumptions, particularly for allowance for credit losses, goodwill impairment, and deferred income taxes, are subjective and susceptible to material changes, affecting consolidated financial statements[202] Risks Related to Our Common Stock The Company's low return on equity post-offering and anti-takeover provisions could negatively affect its stock price and acquisition potential - The Company's return on equity remains low following the stock offering, which could negatively affect its stock price until net interest and noninterest income increase and capital is profitably leveraged[203][204] - Provisions in articles of incorporation, bylaws, and banking laws, including regulatory approval requirements and a 10% voting limit, could make takeover attempts more difficult, potentially affecting the market price of common stock[205] Risks Related to the Somerset Regal Charitable Foundation The Company's contribution to the charitable foundation may not be fully tax deductible if profits are insufficient, potentially reducing overall profits - The Company's contribution to the charitable foundation may not be fully tax deductible if there are insufficient profits, potentially reducing overall profits[206] Item 1B. Unresolved Staff Comments This section confirms the absence of any unresolved staff comments from the SEC - The Company has no unresolved staff comments[207] Item 1C. Cybersecurity The Company maintains a comprehensive cybersecurity risk management program, overseen by its Information Security Officer and Board, encompassing risk assessments, policies, training, and third-party vendor management - The Company's cybersecurity risk management program is managed by its Information Security Officer, a member of the Executive Management Team, with direct access to the Board of Directors[208] - The program includes extensive risk assessments, policies, and regular employee training[209] - Daily operations are monitored by IT professionals and a third-party security vendor providing 24x7 monitoring, with annual audits by an outside firm specializing in IT and cybersecurity assessments[210][212] - A vendor management program ensures third-party service providers meet specific criteria for data security and cybersecurity risk management, with ongoing monitoring[213] Item 2. Properties As of June 30, 2025, the Company operates a main office and 13 branch offices, with seven properties owned and six leased, totaling $3.09 million in net book value for owned properties Properties as of June 30, 2025 | Description and Address | Leased or Owned | Square Footage | Net Book Value (in thousands) | | :-------------------------------- | :-------------- | :------------- | :---------------------------- | | Main Office (Bound Brook, NJ) | Owned | 15,000 | $801 | | Somerville Branch | 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 | Item 3. Legal Proceedings The Company is not currently involved in any legal proceedings expected to materially adversely affect its financial condition, operations, or cash flows - The Company is not involved in any pending legal proceedings believed to have a material adverse effect on its financial condition, results of operations, or cash flows[218] Item 4. Mine Safety Disclosures This item is not applicable to the Company's operations - Mine Safety Disclosures are not applicable to SR Bancorp, Inc[219] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities SR Bancorp's common stock trades on NASDAQ under 'SRBK', with 945 stockholders of record as of September 22, 2025, and recent share repurchases totaling 309,530 shares - SR Bancorp's common stock trades on The NASDAQ Capital Market under the symbol 'SRBK'[222] - As of September 22, 2025, the Company had 945 stockholders of record[222] Issuer Purchases of Equity Securities (Three Months Ended June 30, 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Shares Purchased as Part of Publicly Announced Program | | :----------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------- | | April 1 - April 30, 2025 | 57,116 | $12.11 | 57,116 | | May 1 - May 31, 2025 | 252,414 | $13.10 | 252,414 | | June 1 - June 30, 2025 | — | — | — | | Total | 309,530 | | 309,530 | - The Board of Directors approved repurchases of 950,793 shares on September 20, 2024, and an additional 886,137 shares on July 8, 2025, each representing approximately 10.0% of outstanding common stock[224] Item 6. [Reserved] This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes SR Bancorp's financial performance, highlighting the impact of its 2023 conversion and merger, which led to a $5.1 million net income in FY2025 and strategic focus on commercial lending, core deposits, and technology - The conversion to stock form and merger with Regal Bancorp, Inc. were completed on September 19, 2023, leading to the formation of Somerset Regal Bank and its listing on Nasdaq[227][229] Key Financial Metrics (June 30, 2025 vs. 2024) | Metric | June 30, 2025 (in millions) | June 30, 2024 (in millions) | | :----------------------- | :-------------------------- | :-------------------------- | | Total Assets | $1,080 | $1,020 | | Deposits | $846.0 | $807.1 | | Total Equity | $193.8 | $199.5 | - Net income increased by $16.0 million to $5.1 million for the year ended June 30, 2025, compared to a net loss of $10.9 million for the year ended June 30, 2024, primarily due to reduced one-time merger-related expenses and increased net accretion income[274] - The Company's business strategy focuses on growing commercial lending, maintaining high asset quality, building profitable customer relationships, increasing transaction deposit accounts, and leveraging technology for efficient operations and enhanced customer service[257][259][260][261][263][264] Conversion, Stock Offering and Merger The Company completed its mutual-to-stock conversion and stock offering on September 19, 2023, simultaneously merging with Regal Bancorp, Inc - The conversion of Somerset Savings Bank, SLA to stock form and the related stock offering by SR Bancorp, Inc. were completed on September 19, 2023[227] - SR Bancorp sold 9,055,172 shares of common stock at $10.00 per share and contributed shares and cash to the Somerset Regal Charitable Foundation[228] - Regal Bancorp, Inc. merged into SR Bancorp, and Regal Bank merged into Somerset Bank (renamed Somerset Regal Bank) on September 19, 2023, with Regal Bancorp shareholders receiving $23.00 cash per share[229] Overview of Business and Financial Performance The Company's primary business involves deposit acquisition and loan funding through Somerset Regal Bank, with net interest income as the main pre-tax income source - The principal business involves acquiring deposits and funding loans, with Somerset Regal Bank operating 14 branches in New Jersey[230][231] Key Financial Metrics (June 30, 2025) | Metric | Amount (in millions) | | :----------------------- | :------------------- | | Total Assets | $1,080 | | Deposits | $846.0 | | Total Equity | $193.8 | - Primary pre-tax income source is net interest income, with noninterest income derived from service charges and bank-owned life insurance[232][233] - Noninterest expenses include salaries, occupancy, equipment, data processing, advertising, FDIC premiums, and professional fees, with salaries and employee benefits being the largest component[236][237] Critical Accounting Policies Critical accounting policies involve significant management judgments for credit losses, goodwill impairment, and deferred taxes, with the Company delaying new pronouncement adoption as an emerging growth company - Critical accounting policies involve significant management judgments and estimates, particularly for the allowance for credit losses, goodwill and intangible assets impairment, and deferred tax assets[243][245] - As an 'emerging growth company,' the Company plans to delay adoption of new accounting pronouncements until applicable to private companies, potentially affecting comparability[244] - The Allowance for Credit Losses (ACL) is calculated under ASC 326, recognizing lifetime expected credit losses based on historical experience, current conditions, and economic forecasts, with qualitative adjustments for unmodeled risk factors[246][247][249] - Goodwill is tested annually for impairment, and core deposit intangibles are amortized over ten years and evaluated for impairment annually[250][252] - Income taxes are accounted for using the asset and liability method, recognizing deferred tax assets and liabilities for temporary differences, with a valuation allowance for amounts not likely to be realized[253][254] Business Strategy The Company's strategy focuses on community-oriented growth through commercial lending, asset quality, customer relationships, core deposit expansion, and technology leverage - The Company's business strategy is to operate and grow as a community-oriented financial institution[257] - Key strategic initiatives include leveraging residential and commercial lending expertise, expanding SBA lending, maintaining high asset quality through prudent underwriting, building profitable customer relationships, increasing transaction deposit accounts, and continuously leveraging technology for efficiency and customer service[257][259][260][261][262][263][264] - The merger and additional capital from the stock offering allow for increased loan originations and larger loan balances, with a legal lending limit of $29.1 million at June 30, 2025[258] - Core deposits represented 68.3% of total deposits at June 30, 2025, up from 66.2% at June 30, 2024, reflecting a focus on expanding these lower-cost funds[263] Comparison of Financial Condition at June 30, 2025 and June 30, 2024 Total assets increased by $63.6 million to $1,080 million at June 30, 2025, driven by loan growth, while total equity decreased by $5.7 million due to share repurchases Financial Condition Overview (June 30, 2025 vs. 2024) | Metric | June 30, 2025 (in millions) | June 30, 2024 (in millions) | Change (in millions) | Change (%) | | :----------------------- | :-------------------------- | :-------------------------- | :------------------- | :--------- | | Total Assets | $1,080 | $1,020 | $63.6 | 6.2% | | Cash and Cash Equivalents | $57.8 | $45.9 | $11.9 | 25.9% | | Securities Held-to-Maturity | $141.8 | $156.1 | $(14.3) | (9.2)% | | Loans Receivable, net | $797.2 | $731.9 | $65.3 | 8.9% | | Bank Owned Life Insurance | $36.6 | $37.1 | $(0.5) | (1.3)% | | Goodwill and Intangible Assets | $26.7 | $28.1 | $(1.4) | (5.0)% | | Total Liabilities | $890.6 | $821.4 | $69.3 | 8.4% | | Deposits | $846.0 | $807.1 | $38.9 | 4.8% | | Borrowings | $30.0 | $0 | $30.0 | N/A | | Total Equity | $193.8 | $199.5 | $(5.7) | (2.9)% | - The increase in total assets was primarily driven by new loan originations, resulting in a $65.3 million net increase in loans receivable and an $11.9 million increase in cash and cash equivalents, partially offset by a $14.3 million decrease in securities[265] - Total equity decreased by $5.7 million, or 2.9%, 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[273] Comparison of Operating Results for the Years Ended June 30, 2025 and June 30, 2024 Net income significantly increased to $5.1 million in FY2025 from a $10.9 million net loss in FY2024, driven by reduced merger expenses and increased net accretion income - Net income increased significantly to $5.1 million for FY2025 from a net loss of $10.9 million for FY2024, driven by reduced one-time merger-related expenses and a $2.8 million net accretion income from fair value adjustments[274] Interest Income (Years Ended June 30, 2025 vs. 2024) | Metric | Year Ended June 30, 2025 (in thousands) | Year Ended June 30, 2024 (in thousands) | Change (in thousands) | Change (%) | | :----------------- | :-------------------------------------- | :-------------------------------------- | :-------------------- | :--------- | | Total interest income | $46,315 | $40,866 | $5,449 | 13.3% | Interest Expense (Years Ended June 30, 2025 vs. 2024) | Metric | Year Ended June 30, 2025 (in thousands) | Year Ended June 30, 2024 (in thousands) | Change (in thousands) | Change (%) | | :----------------- | :-------------------------------------- | :-------------------------------------- | :-------------------- | :--------- | | Total interest expense | $16,734 | $11,495 | $5,239 | 45.6% | Net Interest Income and Margin (Years Ended June 30, 2025 vs. 2024) | Metric | Year Ended June 30, 2025 | Year Ended June 30, 2024 | Change | | :--------------------- | :----------------------- | :----------------------- | :----- | | Net interest income | $29.6 million | $29.4 million | 0.7% | | Net interest rate spread | 2.35% | 2.73% | (38 bps) | | Net interest margin | 2.93% | 3.19% | (26 bps) | Noninterest Income (Years Ended June 30, 2025 vs. 2024) | Noninterest Income Item | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | Change (%) | | :---------------------------------- | :------------------ | :------------------ | :-------------------- | :--------- | | Service charges and fees on deposit | $894 | $818 | $76 | 9.3% | | Increase in cash surrender value of bank owned life insurance | $1,043 | $907 | $136 | 15.0% | | Realized loss on sale of securities | $0 | $(4,463) | $4,463 | (100.0)% | | Gains from life insurance proceeds | $1,492 | $0 | $1,492 | 100.0% | | Total noninterest income (loss) | $3,734 | $(2,491) | $6,225 | 249.9% | Noninterest Expense (Years Ended June 30, 2025 vs. 2024) | Noninterest Expense Item | 2025 (in thousands) | 2024 (in thousands) | Change (in thousands) | Change (%) | | :----------------------- | :------------------ | :------------------ | :-------------------- | :--------- | | Salaries and employee benefits | $13,916 | $15,102 | $(1,186) | (7.9)% | | Data processing | $2,191 | $3,100 | $(909) | (29.3)% | | Other expenses | $3,082 | $8,737 | $(5,655) | (64.7)% | | Total noninterest expense | $27,055 | $34,583 | $(7,528) | (21.8)% | Market Risk Interest rate risk is the primary market risk, managed by the ALCO/Investment Committee through modeling and strategies to optimize deposit and loan structures - Interest rate risk is the most significant form of market risk, managed by the ALCO/Investment Committee using a third-party modeling program to evaluate sensitivity to interest rate changes[288] - Strategies to manage interest rate risk include growing transaction deposits, emphasizing shorter-term commercial loans, and pricing residential loans to encourage adjustable-rate options[294] Estimated Changes in Economic Value of Equity (EVE) at June 30, 2025 | Change in Interest Rates (basis points) | Estimated EVE (in thousands) | Estimated Increase (Decrease) in EVE (in thousands) | Percent Change | | :-------------------------------------- | :--------------------------- | :-------------------------------------------------- | :------------- | | +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% | Estimated Changes in Net Interest Income (NII) at June 30, 2025 | Change in Interest Rates (basis points) | Year 1 NII Forecast (in thousands) | Year 1 Change From Level (in thousands) | Year 2 NII Forecast (in thousands) | Year 2 Change From Level (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) | Liquidity and Capital Resources Liquidity is managed through deposit inflows, loan repayments, and investment securities, supplemented by wholesale borrowings, with liquid assets at 6.8% of total deposits at June 30, 2025 - Liquidity is managed to fund assets and meet obligations, with primary sources including deposit inflows, loan repayments, and investment securities repayments, supplemented by wholesale market and FHLB borrowings[300] - The Company aims to maintain a liquid assets to total deposits ratio between 4% and 30%, which was 6.8% at June 30, 2025[300] - At June 30, 2025, cash and cash equivalents totaled $57.8 million, with $41.0 million in outstanding loan commitments and $38.0 million of unused lines of credit[301][302] - Deposits increased by $38.9 million (4.8%) to $846.0 million at June 30, 2025, while borrowings increased to $30.0 million from the FHLB, with an additional $70.0 million borrowing capacity[304][305] - The Company repurchased 936,991 shares of common stock for $11.3 million and paid $444,000 in dividends during FY2025[306] Regulatory Capital Somerset Regal Bank adheres to federal regulatory capital requirements, including the community bank leverage ratio framework, and was categorized as 'well capitalized' at June 30, 2025 - Somerset Regal Bank is subject to federal regulatory capital requirements and has adopted the community bank leverage ratio framework, requiring a Tier 1 capital to average assets ratio greater than 9%[307][521][523] - At June 30, 2025, the Bank met all capital adequacy requirements and was categorized as 'well capitalized' by the FDIC[307][524] Tier 1 Capital to Average Total Assets (June 30, 2025 vs. 2024) | Metric | June 30, 2025 (Amount in thousands) | June 30, 2025 (Ratio) | June 30, 2024 (Amount in thousands) | June 30, 2024 (Ratio) | | :----------------------------------- | :---------------------------------- | :-------------------- | :---------------------------------- | :-------------------- | | Tier 1 capital (to average total assets) | $162,261 | 15.51% | $170,364 | 16.83% | Recent Accounting Pronouncements For details on the impact of recent accounting pronouncements, refer to Note 1 of the Notes to the Consolidated Financial Statements - For a discussion of the impact of recent accounting pronouncements, refer to Note 1 of the Notes to the Consolidated Financial Statements[309] Impact of Inflation and Changing Prices The Company's financial statements, prepared under GAAP, are more significantly impacted by market interest rate changes than by inflation - The Company's financial statements are prepared under GAAP, which does not account for changes in purchasing power due to inflation[310] - Changes in market interest rates have a greater impact on the Company's performance than inflation, as its assets and liabilities are primarily monetary[310] Item 7A. Quantitative and Qualitative Disclosures About Market Risk This section refers to the market risk disclosures within Item 7, 'Management's Discussion and Analysis of Financial Condition and Results of Operation—Market Risk,' for quantitative and qualitative information - Information regarding material market risk is provided in Item 7, 'Management's Discussion and Analysis of Financial Condition and Results of Operation—Market Risk'[311] Item 8. Financial Statements and Supplementary Data This section incorporates the Company's audited consolidated financial statements for FY2025 and FY2024, including the independent auditor's report, core financial statements, and detailed notes on accounting policies, business combinations, and various financial components - The Financial Statements and Supplementary Data are included starting on page F-1 (page 61 in the document) of this annual report on Form 10-K[311][326] - The consolidated financial statements include the Report of Independent Registered Public Accounting Firm, Consolidated Statements of Financial Condition, Income (Loss), Comprehensive Income (Loss), Changes in Equity, and Cash Flows[326][337] - Notes to Consolidated Financial Statements provide detailed information on significant accounting policies, business combinations, earnings per share, investment securities, loans, premises and equipment, leases, goodwill and intangibles, deposits, borrowings, benefit plans, stock-based compensation, income taxes, commitments, regulatory capital, related-party transactions, and fair value measurements[326][337][357] Report of Independent Registered Public Accounting Firm Baker Tilly US, LLP issued an unqualified opinion on the consolidated financial statements for June 30, 2025 and 2024, affirming fair presentation in conformity with GAAP - Baker Tilly US, LLP, the independent registered public accounting firm, issued an unqualified opinion, stating that the consolidated financial statements for June 30, 2025 and 2024, present fairly, in all material respects, the financial position, results of operations, and cash flows in conformity with GAAP[339] - The audit was conducted in accordance with PCAOB and U.S. GAAP auditing standards, but did not include an audit of internal control over financial reporting[341] Consolidated Statements of Financial Condition This section presents the Company's consolidated financial position, detailing assets, liabilities, and equity as of June 30, 2025 and 2024 Consolidated Statements of Financial Condition (June 30, 2025 vs. 2024) | Asset/Liability/Equity | June 30, 2025 (in thousands) | June 30, 2024 (in thousands) | | :------------------------------- | :--------------------------- | :--------------------------- | | Total cash and cash equivalents | $57,779 | $45,909 | | Securities held-to-maturity | $141,845 | $156,144 | | Loans receivable, net | $797,166 | $731,859 | | Bank owned life insurance | $36,607 | $37,093 | | Goodwill and intangible assets | $26,708 | $28,141 | | Total assets | $1,084,405 | $1,020,844 | | Total deposits | $846,022 | $807,100 | | Borrowings | $30,000 | $0 | | Total liabilities | $890,625 | $821,361 | | Total stockholders' equity | $193,780