SR Bancorp(SRBK) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The unaudited financial statements reflect significant asset growth and a six-month net loss, primarily driven by the stock conversion and merger with Regal Bancorp, Inc Condensed Consolidated Statements of Financial Condition Total assets increased by 65.0% to $1.07 billion, primarily due to the Regal Bancorp acquisition, which significantly boosted loans, deposits, and stockholders' equity Consolidated Statement of Financial Condition (Unaudited) | Account | Dec 31, 2023 ($ in thousands) | June 30, 2023 ($ in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Total cash and cash equivalents | 90,238 | 42,449 | 112.6% | | Loans receivable, net | 695,751 | 362,252 | 92.1% | | Goodwill and intangible assets | 29,032 | — | N/A | | Total assets | 1,074,940 | 651,486 | 65.0% | | Total deposits | 843,311 | 503,917 | 67.4% | | Total liabilities | 876,959 | 529,402 | 65.7% | | Total stockholders' equity | 197,981 | 122,084 | 62.2% | Condensed Consolidated Statements of (Loss) Income The company reported a $1.6 million net income for the three months ended December 31, 2023, but a $8.9 million net loss for the six-month period, primarily due to increased credit loss provisions and noninterest expenses including merger-related costs Financial Performance Summary (Unaudited) | Metric ($ in thousands) | Three Months Ended Dec 31, 2023 | Three Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2023 | Six Months Ended Dec 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | 9,019 | 3,451 | 13,164 | 6,878 | | Provision (Credit) for Credit Losses | (107) | — | 4,055 | — | | Total Noninterest Income | 365 | 353 | 878 | 701 | | Total Noninterest Expense | 7,476 | 3,329 | 20,413 | 6,705 | | Net Income (Loss) | 1,607 | 399 | (8,891) | 753 | | Diluted EPS | $0.18 | N/A | ($1.81) | N/A | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail significant corporate actions including the mutual-to-stock conversion, IPO, and Regal Bancorp merger, which impacted accounting, loan portfolio composition, and regulatory capital status - On September 19, 2023, the company completed its conversion from a mutual to a stock organization, sold 9,055,172 shares at $10.00 per share, and began trading on Nasdaq as 'SRBK'[23][24] - Immediately following the conversion, the company acquired Regal Bancorp, Inc. for $23.00 per share in cash, accounted for using the acquisition method, resulting in goodwill of $20.5 million and a core deposit intangible of $9.1 million[25][91] - The company adopted ASC 326 (CECL) on July 1, 2023, resulting in a cumulative effect adjustment that decreased retained earnings by $34,000[36][87] - Post-merger, commercial loans constituted 44.8% of total loans as of December 31, 2023, a significant increase from pre-merger levels[110][111] - The Bank is considered 'well capitalized' as of December 31, 2023, with a Tier 1 capital to average total assets ratio of 16.19%, exceeding the 9.00% requirement[141] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes significant financial changes to the September 2023 stock conversion and Regal Bancorp merger, resulting in substantial asset growth, a six-month net loss due to one-time expenses, and enhanced liquidity and capital - The increase in total assets by $423.5 million to $1.07 billion was primarily due to the acquisition of Regal Bancorp, which had $428.0 million in assets, and net proceeds of $86.9 million from the stock offering[175] - The loan portfolio grew by $333.5 million (92.1%), mainly from the $336.0 million in loans acquired from Regal, shifting the commercial loan mix to 44.83% of total loans at December 31, 2023[179] - The six-month net loss of $8.9 million was driven by one-time expenses, including a $5.4 million charitable contribution, a $4.2 million provision for credit losses, and $3.9 million in merger expenses, which, if excluded, would have resulted in a $1.2 million net income[202][203] - Net interest income for the three months ended December 31, 2023, increased 161.3% to $9.0 million, with the net interest margin expanding to 3.56% from 2.28% year-over-year, reflecting the higher-yielding acquired loan portfolio[191] - Liquidity was significantly boosted by the net proceeds from the stock offering, with the company maintaining sufficient liquidity, evidenced by a liquid assets to total deposits ratio of 10.7% at December 31, 2023[226][235] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, with sensitivity analysis indicating that a 200 basis point increase in rates would decrease Economic Value of Equity by 17.71% and Net Interest Income by 6.59% Economic Value of Equity (EVE) Sensitivity Analysis (Dec 31, 2023) | Change in Interest Rates (bps) | Estimated Decrease in EVE (%) | | :--- | :--- | | +400 | (37.84)% | | +300 | (28.98)% | | +200 | (17.71)% | | +100 | (7.47)% | | -100 | 4.93% | | -200 | 7.66% | Net Interest Income (NII) Sensitivity Analysis - Year 1 (Dec 31, 2023) | Change in Interest Rates (bps) | Year 1 Change From Level (%) | | :--- | :--- | | +400 | (18.80)% | | +300 | (14.21)% | | +200 | (6.59)% | | +100 | 1.89% | | -100 | (4.26)% | | -200 | (8.80)% | Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2023, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[239] - No changes in internal control over financial reporting occurred during the quarter ended December 31, 2023, that materially affected, or are reasonably likely to materially affect, the company's internal controls[240] PART II. OTHER INFORMATION Legal Proceedings The company is not party to any pending legal proceedings that are expected to have a material adverse effect on its financial condition, results of operations, or cash flows - The company reports no pending legal proceedings that would have a material adverse effect on its financial condition or operations[243] Risk Factors There have been no material changes in the risk factors applicable to the company from those disclosed in its Annual Report on Form 10-K for the fiscal year ended June 30, 2023 - No material changes to risk factors have occurred since the last Annual Report on Form 10-K[244] Other Information Items The company reported no unregistered sales of equity securities, no defaults upon senior securities, and no other material information for the reporting period - The company reports no unregistered sales of equity securities, defaults upon senior securities, or other information for the period[245] Exhibits The report lists the exhibits filed, which include CEO and CFO certifications pursuant to the Sarbanes-Oxley Act (Sections 302 and 906) and Inline XBRL data files - Exhibits filed with the report include certifications from the Principal Executive Officer and Principal Financial Officer as required by the Sarbanes-Oxley Act, along with XBRL data files[246]