SR Bancorp, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended December 31, 2023. Unless otherwise noted, figures are in millions of dollars. SR Bancorp completed its conversion and stock offering and acquired Regal Bancorp on September 19, 2023. Accordingly, current-period results include the combined company only from September 20, while prior-period income comparisons are for Somerset Savings Bank on a standalone basis and are not directly comparable.
Key financial metrics
| Metric | December 31, 2023 / period | Comparison or context |
|---|---|---|
| Total assets | $1,074.9 | Up 65.0% from June 30, 2023, primarily due to the acquisition and stock offering. |
| Loans, net | $695.8 | Up 92.1% from June 30; acquired loans drove most of the increase. |
| Deposits | $843.3 | Up 67.4% from June 30, primarily from deposits assumed in the acquisition. |
| Cash and cash equivalents | $90.2 | Compared with $42.4 at June 30. |
| Borrowings | $20.0 | Unchanged from June 30; BTFP advance bears 4.76% and matures March 29, 2024. |
| Stockholders’ equity | $198.0 | Compared with $122.1 at June 30; includes offering proceeds and acquisition effects. |
| Quarterly net interest income | $9.0 | Up from $3.5 in the prior-year quarter. |
| Quarterly net income | $1.6; $0.18 per diluted share | Compared with $0.4 in the prior-year quarter. |
| Six-month net income (loss) | $(8.9); $(1.81) per diluted share | Compared with net income of $0.8 in the prior-year period. |
| Net interest margin | 3.56% for the quarter; 3.10% for six months | Prior-year comparable figures were 2.28% for each period. |
| Six-month cash flows | Operating $(7.0); investing $4.0; financing $50.8 | Cash and cash equivalents increased $47.8 to $90.2. |
Material changes and unusual items
- The Regal Bancorp acquisition added approximately $336.0 million of loans and $373.2 million of deposits at closing. Goodwill of $20.5 million and a core deposit intangible of $9.1 million were recorded; acquisition-date valuations remain subject to a measurement period through September 2024.
- The loan portfolio shifted materially: commercial loans were 44.8% of loans at December 31, versus a predominantly residential portfolio before the acquisition. Residential mortgage loans were 53.5% of loans.
- Six-month results included a $5.4 million charitable contribution to the foundation established in connection with the conversion, $3.9 million of merger-related expenses, and a $4.2 million provision for credit losses associated with the acquired portfolio. Management stated that, excluding these items and net accretion income, it would have reported approximately $1.2 million of six-month net income.
- Quarterly earnings benefited from $1.4 million of net accretion related to acquisition fair-value adjustments. Management stated that, excluding this accretion and $32,000 of merger-related costs, quarterly net income would have been $605,000.
- Interest income and net interest income increased with the larger loan base and higher asset yields, while deposit costs also rose. For the quarter, the average loan yield increased to 5.73% from 3.12%; the average cost of interest-bearing deposits rose to 1.69% from 0.37%.
Liquidity, credit, risks, and outlook
- Management reported a liquid-assets-to-deposits ratio of 10.7% and said it believed liquidity was sufficient. Certificates of deposit totaling $235.9 million, or 28.0% of deposits, mature within one year; replacement funding could cost more.
- The allowance for credit losses was $5.2 million, or 0.74% of loans. There were no commercial loans on nonaccrual or nonperforming status; one $145,000 residential loan was nonaccrual. Management considers the allowance adequate, but notes estimates may change with borrower and economic conditions.
- At December 31, the bank’s Tier 1 leverage ratio was 16.19% and it was categorized as well capitalized. The filing reports no material change in risk factors from the prior annual report and no pending legal proceeding believed likely to have a material adverse effect.
- Interest-rate sensitivity modeling estimated that an immediate parallel 200-basis-point increase would reduce economic value of equity by 17.71% and year-one net interest income by 6.59%; a 200-basis-point decrease was estimated to reduce year-one net interest income by 8.80%. Management cautions that these models rely on assumptions and are not precise forecasts.
- Available-for-sale securities had $3.9 million of unrealized losses and held-to-maturity securities had $25.5 million of unrealized losses at December 31. Management described the portfolios as primarily government-agency-backed and determined expected credit losses were negligible; rate-driven fair-value exposure remains relevant.
- No numerical earnings or balance-sheet guidance is provided. Management describes forward-looking plans and expectations as subject to economic, interest-rate, funding, credit, integration, operational, regulatory, and cybersecurity risks. It also states that the merger integration and expected synergies may not be achieved as anticipated.
Important facts for investors to verify
- How much of the reported earnings improvement persists after acquisition accretion and merger-related or conversion-related items roll off.
- Whether deposit retention and pricing remain manageable as $235.9 million of certificates mature within one year, and how the BTFP advance is repaid or refinanced at maturity.
- Whether credit quality and the allowance remain appropriate as the acquired commercial real-estate portfolio seasons and economic conditions change.
- How final acquisition fair-value adjustments affect goodwill, the core deposit intangible, loan yields, and earnings before the September 2024 measurement-period deadline.
- Whether realized interest-rate and liquidity outcomes differ from the filing’s modeled sensitivity estimates.