SR Bancorp(SRBK) - 2026 Q1 - Quarterly Report

Financial Position - Total assets increased by $25.7 million, or 2.4%, to $1.11 billion at September 30, 2025, driven by new loan originations [113] - Total liabilities increased by $27.5 million, or 3.1%, to $918.2 million at September 30, 2025, primarily due to a $23.6 million increase in deposits [118] - Total equity decreased by $1.8 million, or 1.0%, to $191.9 million at September 30, 2025, mainly due to the repurchase of 198,310 shares of common stock [121] - Cash and cash equivalents increased by $526,000, or 0.9%, to $58.3 million at September 30, 2025 [114] - Securities held-to-maturity decreased by $3.6 million, or 2.5%, to $138.2 million at September 30, 2025 [114] - The investment portfolio consisted entirely of securities held-to-maturity, with a total amortized cost of $138.2 million as of September 30, 2025 [138] - The weighted average yield of the investment securities portfolio was 1.75% as of September 30, 2025 [139] - The liquidity ratio, defined as liquid assets as a percentage of total deposits, was 6.7% as of September 30, 2025, within the target range of 4% to 30% [175] Loan Performance - Loans receivable, net, increased by $29.2 million, or 3.7%, to $826.4 million at September 30, 2025, with residential mortgage loans growing by $12.5 million and commercial loans by $16.0 million [115] - Total loans increased to $829,504,000 as of September 30, 2025, up from $800,239,000 as of June 30, 2025, representing a growth of 3.16% [124] - Residential mortgage loans accounted for 53.03% of total loans, amounting to $439,851,000, while commercial loans made up 45.31% at $375,867,000 [124] - Multi-family loans represented 27.11% of total loans, amounting to $224,867,000, showing stability in this segment [124] - The total commercial loans increased to $375,867,000, up from $359,856,000, reflecting a growth of 2.8% [124] - The total amount of loans due in one year or less was $16,715,000, while loans due after five years totaled $198,565,000 [126] - The company reported a total of $2,481,000 in loans that were 30-59 days past due as of September 30, 2025 [131] - Non-performing assets were reported as zero as of September 30, 2025, indicating no loans in default or modifications due to financial difficulties [131] Income and Expenses - Net income decreased by $674,000, or 49.3%, to $693,000 for the three months ended September 30, 2025, compared to $1.4 million for the same period in 2024 [147] - Interest income increased by $468,000, or 4.1%, to $11.9 million for the three months ended September 30, 2025, driven by a $50.6 million increase in the average balance of interest-earning assets [148] - Interest expense rose by $467,000, or 12.1%, to $4.3 million for the three months ended September 30, 2025, due to a $55.1 million increase in the average balance of interest-bearing liabilities [149] - Net interest income remained unchanged at $7.6 million for the three months ended September 30, 2025, with a net interest rate spread decrease of 14 basis points to 2.56% [151] - Noninterest income decreased by $236,000, or 29.5%, to $565,000 in Q3 2025, primarily due to a drop in service charges and fees [160] - Noninterest expense increased by $275,000, or 4.0%, to $7,094,000 in Q3 2025, driven mainly by an 18.9% rise in salaries and employee benefits [161] Credit Quality - The allowance for credit losses was $5,533,000 as of September 30, 2025, compared to $5,362,000 as of June 30, 2025, indicating a slight increase in provisions [124] - The allowance for credit losses as a percentage of total loans was 0.67% at September 30, 2025, compared to 0.66% at the same date in 2024 [158] - The provision for credit losses was $171,000 in Q3 2025, compared to a recovery of $154,000 in Q3 2024, reflecting loan growth during the period [158] - The company maintained a strong focus on credit quality, with a detailed monitoring process for delinquent loans [128] Regulatory and Capital Position - The bank had outstanding borrowings of $35.0 million as of September 30, 2025, up from $30.0 million as of June 30, 2025 [182] - Somerset Regal Bank exceeded all regulatory capital requirements and is considered "well capitalized" under regulatory guidelines as of September 30, 2025 [183] Strategic Focus - The company plans to focus on increasing its share of commercial loan originations in its primary market area [122] - The company originated $43.7 million of loans and purchased $9.3 million in mortgage-backed securities during the three months ended September 30, 2025 [180] Internal Controls - A material weakness in internal controls was identified, leading to the implementation of a new reconciliation control to improve financial reporting accuracy [188] Interest Rate Sensitivity - As of September 30, 2025, a 200 basis point increase in interest rates would result in a 17.40% decrease in the estimated economic value of equity (EVE) [171] - The estimated net interest income (NII) would decrease by 4.97% in the event of a 200 basis point increase in market interest rates [173]