SR Bancorp, Inc. (SRBK)

SR Bancorp, Inc. operates as a Maryland-chartered holding company for Somerset Regal Bank, a New Jersey-chartered institution formed through the September 19, 2023 combination of Somerset Bank and Regal Bank ¹. The Bank serves a broad geographic area in central and northern New Jersey, operating 14 full-service branches across Essex, Hunterdon, Middlesex, Morris, Somerset, and Union counties ². The market areas have highly developed and diverse economies, with pharmaceutical, life sciences, financial services, technology, and transportation and logistics companies among the largest employment sectors ³. The counties of Hunterdon, Morris, and Somerset are relatively affluent, with household and per capita income measures well above comparable U.S. and New Jersey measures, while Essex County has the lowest income measures among the primary area counties ⁴. At June 30, 2026, Somerset Regal Bank held $305.5 million of deposits in Somerset County, representing a 3.61% market share of bank and thrift deposits, the eighth largest market share out of 25 financial institutions in that market ⁵.

The banking industry in the Company's market area is highly competitive, with direct competition for deposits coming from commercial banks, savings banks, savings and loan associations, credit unions, brokerage firms, and insurance companies ⁶. Several large holding companies operate banks in the market area and are significantly larger with significantly greater resources ⁷. Competition for loans comes primarily from financial institutions, mortgage companies, mortgage brokers, and non-depository financial service companies including insurance companies, securities companies, financial technology companies, and specialty finance companies ⁸. The Company expects competition to remain intense due to legislative, regulatory, and technological changes and the continuing trend toward consolidation in the financial services industry ⁹. Technological advances have lowered barriers to entry, allowed banks to expand geographic reach through internet services, and enabled non-depository institutions to offer traditional banking products ¹⁰.

SR Bancorp's primary business activity is the ownership of Somerset Regal Bank's outstanding common stock ¹¹. The Bank generates revenue primarily through a variety of deposit and loan products offered to individuals and small businesses, most of which are located in its primary market ¹². The loan portfolio is diversified across residential mortgage loans, commercial real estate loans, multi-family loans, commercial and industrial loans, and consumer loans ¹³. At June 30, 2026, residential mortgage loans comprised 52.6% of the total loan portfolio, and commercial loans comprised 45.7%, largely consisting of multi-family loans ¹⁴. The Company intends to continue concentrating on ways to compete for a greater share of commercial loan originations in its primary market area ¹⁵.

Residential mortgage lending is a core business line, with one- to four-family residential real estate loans totaling $475.9 million at June 30, 2026, representing 52.6% of the loan portfolio ¹⁶. The Bank offers fixed- and adjustable-rate residential mortgage loans with terms of up to 30 years ¹⁷. Adjustable-rate loans adjust annually after an initial fixed period of three, five, or six years, with interest rates generally adjusted to a percentage above the U.S. Treasury Security Index, subject to a maximum 2.0% per adjustment period and a lifetime cap of 6.0% over the initial rate ¹⁸. The Bank also purchases one- to four-family residential loans from unaffiliated mortgage brokers, acquiring servicing rights, and purchased $40.5 million and $41.2 million of such loans for the years ended June 30, 2026 and 2025, respectively ¹⁹.

Commercial lending is a significant and growing segment, with multi-family real estate loans totaling $252.9 million at June 30, 2026, representing 28.0% of the total loan portfolio ²⁰. These loans are generally secured by properties with five or more rental units, originated with adjustable interest rates indexed to the five-year U.S. Treasury Note rate plus a margin, with adjustment periods generally every five years ²¹. Commercial real estate loans totaled $141.6 million at June 30, 2026, representing 15.7% of the loan portfolio, consisting of $48.9 million secured by owner-occupied real estate and $92.7 million secured by other commercial real estate ²². Commercial and industrial loans totaled $18.8 million at June 30, 2026, representing 2.1% of the total loan portfolio, with a subset originated under the Small Business Administration program ²³. Consumer loans include home equity loans and lines of credit with a maximum combined loan-to-value ratio of 70%, unsecured personal loans up to $5,000, rehabilitation loans up to $10,000, and loans secured by passbook and certificate of deposit accounts up to 90% of the balance ²⁴.

On September 19, 2023, Somerset Savings Bank, SLA converted from mutual to stock form, and SR Bancorp sold 9,055,172 shares of common stock at $10.00 per share, including 760,634 shares sold to Somerset Regal Bank's Employee Stock Ownership Plan ²⁵. The Company also contributed 452,758 shares and $905,517 in cash to the Somerset Regal Charitable Foundation, Inc. ²⁶. On the same date, SR Bancorp acquired Regal Bancorp, Inc., with Regal Bancorp shareholders receiving $23.00 in cash for each share, and the aggregate cost of the Merger was approximately $69.5 million ²⁷. The Merger expanded the Company's market presence into Essex, Morris, and Union Counties and enhanced its presence in Somerset County ²⁸.

At June 30, 2026, SR Bancorp had total assets of $1.19 billion, deposits of $926.4 million, and total stockholders' equity of $181.8 million ²⁹. The Company's loan portfolio grew to $904.5 million at June 30, 2026, from $800.2 million at June 30, 2025 ³⁰. The allowance for credit losses was $5.9 million at June 30, 2026, compared to $5.4 million at June 30, 2025 ³¹. Net deferred loan origination fees were $2.6 million at June 30, 2026, compared to $2.3 million at June 30, 2025 ³².

The Company's growth strategy emphasizes increasing commercial loan originations in its primary market area, leveraging the commercial lending expertise gained through the Regal Bank merger ³³. The Bank intends to increase commercial and industrial lending as a percentage of its loan portfolio in the future ³⁴. The Company also continues to purchase one- to four-family residential real estate loans from eight unaffiliated mortgage brokers in its market area, with purchases of $40.5 million in fiscal 2026 ³⁵.

The Bank's market area provides opportunities for growth, with a mix of urban and suburban markets and a diverse economic base ³⁶. The Company maintains its largest deposit balance in Somerset County, where it has its headquarters and largest branch presence ³⁷. The Bank's market share of 3.61% in Somerset County suggests room for expansion ³⁸.

The Company's cost structure is influenced by its reliance on third-party service providers for critical functions, including customer account maintenance, electronic banking services, and financial reporting ³⁹. The Information Security Officer, a member of Senior Management, manages the cybersecurity program with direct access to the Board of Directors ⁴⁰.

The Company's capital allocation strategy includes maintaining a strong capital position, with total stockholders' equity of $181.8 million at June 30, 2026 ⁴¹. The Company has not declared dividends, as management's expectations regarding issuing dividends in the foreseeable future are used in determining expected dividend yield for option valuation ⁴².

The Company faces headwinds from intense competition for deposits and loans, which could limit growth in the future ⁴³. Competition from larger financial institutions with significantly greater resources, as well as non-depository financial technology companies, poses a challenge ⁴⁴. The Company's adjustable-rate loan portfolio is subject to interest rate risk, with annual and lifetime adjustment limits potentially limiting asset sensitivity ⁴⁵.

Management's strategic priorities focus on expanding commercial lending capabilities and market presence, as evidenced by the Merger with Regal Bancorp, which provided greater commercial lending expertise and access to commercial loan customers ⁵¹. The Company emphasizes maintaining a strong risk management program, with cybersecurity as a critical component, overseen by the Board and an Information Technology Committee comprised of key senior management members ⁵². Management's forward-looking approach includes continuing to concentrate on competing for a greater share of commercial loan originations in the primary market area ⁵³.

Total assets were $1.19 billion at June 30, 2026, compared to $1.19 billion at June 30, 2025 ⁵⁴. Total deposits were $926.4 million at June 30, 2026, compared to $926.4 million at June 30, 2025 ⁵⁵. Total stockholders' equity was $181.8 million at June 30, 2026, compared to $181.8 million at June 30, 2025 ⁵⁶. Net income for the year ended June 30, 2026 was $5.9 million, compared to $5.4 million for the year ended June 30, 2025 ⁵⁷. Basic and diluted earnings per share were $0.01 for both fiscal years ⁵⁸. The allowance for credit losses was $5.9 million at June 30, 2026, compared to $5.4 million at June 30, 2025 ⁵⁹. Net deferred loan origination fees were $2.6 million at June 30, 2026, compared to $2.3 million at June 30, 2025 ⁶⁰.

The Company faces significant competition for deposits and loans from larger financial institutions with significantly greater resources, which could limit growth and pressure margins ⁴⁶. The loan portfolio is concentrated in real estate, with residential mortgage loans comprising 52.6% and commercial real estate loans (including multi-family) comprising a substantial portion, exposing the Company to downturns in real estate markets ⁴⁷. The Company relies heavily on third-party service providers for critical functions, and any failure or breach could disrupt operations ⁴⁸. Adjustable-rate loans, which constitute a significant portion of the portfolio, are subject to interest rate risk, with annual and lifetime adjustment caps potentially limiting asset sensitivity and increasing default risk in rising rate environments ⁴⁹. The Company's largest lending relationship, totaling $13.2 million to related borrowers, and largest multi-family loan of $8.2 million, represent concentration risks ⁵⁰.