SRBK 10-K & 10-Q changes, risk factors and insider trading

Inflation risk iscan thenegatively risk thatimpact the value of assets or income from investments will be worth less in the future as inflation decreases the value of money. As discussed below under “—Risks Related to Interest Rates – Changes in interest rates or the shape of the yield curve may adversely affect our profitability and financial condition,” as inflation increases and market interest rates rise the value of our investment securities, particularly those with longer maturities, decrease, although this effect can be less pronounced for floating rate instruments. In addition, inflation generally increases the cost of goods and services we use in our business operations, such as electricity and other utilities, which increases our noninterest expenses. Furthermore, our customers are also affected by inflation and the rising costs of goods and services used in their households and businesses, which could have a negative impact on their ability to repay their loans with us. Sustained higher interest rates by the FRB to tame persistent inflationary pressures could decrease asset prices and weaken economic activity.

Changes in trade policies, including the imposition of tariffs or the escalation of a trade war,war and any retaliatory responses, could negatively impact the economic conditions in the markets we serve. Our customers—particularly local businesses engaged in manufacturing and retail—may face higher costs for imported goods and materials, reduced export demand and supply chain disruptions due to increased tariffs. These challenges could lead to lower revenues, reduced profitability and potential layoffs, allany of which may impair our customers’ ability to meet their financial obligations. Furthermore, prolonged trade tensions and economic uncertainty could lead to market volatility, declining asset values and weakened consumer confidence. If our customers experience financial stress, we could see loan delinquencies and credit losses, negatively affecting our asset quality and overall financial performance. Additionally, anya decline in local economic activity could reduce loan demand and deposit growth, which are critical to our long-term success. While we actively monitor economic and policy developments, we cannot predict the outcome of trade negotiations or the full impact of tariffs and trade restrictions on our business, customers, and the broader economy. Any adverse effects from tariffs or a trade war could materially and negatively impact our financial condition, results of operations, and future growth prospects.

Our business activities and earnings are affected by general business conditions in the United States and in our local market area. These conditions include short-term and long-term interest rates, inflation, the imposition of tariffs and any retaliatory responses, unemployment levels, real estate values, monetary supply, consumer confidence and spending, fluctuations in both debt and equity capital markets, and the strength of the economy in the United States generally and in our market area in particular. If the national economy experiences a recession, which might include rising unemployment levels, declines in real estate values and/or an erosion in consumer confidence, the ability of our borrowers to repay their loans in accordance with their terms could be impaired. Nearly all our loans are secured by real estate or made to businesses in the counties in which we have offices in New Jersey. As a result of this concentration, a prolonged or more severe downturn in the local economy could result in significant increases in non-performing loans, negatively impacting our interest income and resulting in higher provisions for credit losses. An economic downturn could also result in reduced demand for credit, which would lessen our revenues.

At June 30, 2025,2026, approximately $787.9$885.7 million or 98.5%97.9% of our loan portfolio was secured by real estate, most of which is located in our primary lending market area of Essex, Hunterdon, Middlesex, Morris, Somerset and Union Counties,in New Jersey and the surrounding areas. Future declines in real estate values in our primary lending markets and surrounding markets because of an economic downturn could significantly impair the value of the collateral securing our loans and our ability to sell the collateral upon foreclosure for an amount necessary to satisfy the borrower’s obligations to us. This could require us to increase our allowance for credit losses to address the decrease in the value of the real estate securing our loans, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

We purchase residential mortgage loans from third-party brokers. Such purchases represented $41.2$40.5 million, or 42.2%,41.3%, of our residential mortgage loan purchases and originations for the year ended June 30, 2025.2026. Similarly, we relied on third-party brokers to refer to us multi-family real estate loans. Such referrals represented $50.5$91.1 million, or 100.0%, of the Bank's multi-family loan originations for the year ended June 30, 2025.2026. These third parties are used to supplement the originations made by in-house staff. In each case, Somerset Regal Bank separately underwriteunderwrites each loan before it is either purchased or closed. Should these broker relationships be discontinued or the Bank is otherwise unable to use these companies in the future, our ability to originate residential mortgage loans or multi-family real estate loans may be reduced unless and until we are able to find a suitable replacement or have the capability to originate such loans through our lending staff. If we have to add more staff, our compensation expense would increase. Our income may be negatively affected if our residential mortgage lending or multi-family residential lending operations are disrupted.

Multi-family and commercial real estate and commercial loans generally have more risk than residential mortgage loans. Because the repayment of multi-family and commercial real estate and commercial loans depends on the successful management and operation of the borrower’s properties or related businesses, repayment of such loans can be affected by adverse conditions in the real estate market or the local economy. Multi-family and commercial real estate and commercial loans may also involve relatively large loan balances to individual borrowers or groups of related borrowers. A downturn in the real estate market or the local economy could adversely impact the value of properties securing the loan or the revenues from the borrower’s business thereby increasing the risk of non-performing loans. Commercial business and commercial real estate loans are more susceptible to a risk of loss during a downturn in the business cycle. These types of loans involve larger loan balances to a single borrower or groups of related borrowers. These loans also expose us to greater credit risk than loans secured by residential real estate because the collateral securing these loans typically cannot be liquidated as easily as residential real estate. If we foreclose on these loans, our holding period for the collateral typically is longer than for a single or multi-family residential property because there are fewer potential purchasers of the collateral. Also, many multi-family and commercial real estate and commercial business borrowers can have more than one loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss compared to an adverse development with respect to a residential mortgage loan. Further, unlike residential mortgages or multi-family and commercial real estate loans, commercial and industrial loans may be secured by collateral other than real estate, such as inventory and accounts receivable, the value of which may be more difficult to appraise, may be more susceptible to fluctuation in value at default, and may be more difficult to realize upon enforcement of our remedies. As our multi-family and commercial real estate and commercial loan portfolios increase, the corresponding risks and potential for losses from these loans may also increase.

The implementation of the Current Expected Credit Losses accounting standard or "“CECL" was effective for SR Bancorp on July 1, 2023. CECL” requires financial institutions to determine periodic estimates of lifetime expected credit losses on loans and recognize the expected credit losses as allowances for credit losses. This changedIf the methodevaluation ofwe providingperform allowancesin forconnection loanwith lossesestablishing thatcredit areloss incurredreserves is wrong or probable,the assumptions on which increased the types of data we needrely provide to collectbe andincorrect, review to determine the appropriate level of theour allowance for credit losses.losses on loans may not be sufficient to cover our losses and adjustments may be necessary to address different economic conditions or adverse development in the loan portfolio, which would have an adverse effect on our operating results.

We must maintain sufficient funds to respond to the needs of depositors and borrowers. Deposits have traditionally been our exclusive source of funds for use in lending and investment activities. We also receive funds from loan repayments, maturities of securities and income on other interest-earning assets. While we emphasize generating transaction accounts, we cannot guarantee if and when this will occur. Certificates of deposit comprised $268.2$279.7 million or 31.7%30.2% of our total depositsdeposits, at June 30, 2025.2026. Certificates of deposit due within one year of June 30, 20252026 totaled $239.0$257.4 million, or 28.3%27.8% of total deposits. Further, the considerable competition for deposits in our market area also has made, and may continue to make, it difficult for us to obtain reasonably priced deposits. Moreover, deposit balances can decrease if customers perceive alternative investments as providing a better risk/return tradeoff. If we are not able to increase our lower-cost transactional deposits at a level necessary to fund our asset growth or deposit outflows, we may be forced to seek other sources of funds, including other certificates of deposit, Federal Home Loan Bank advances, brokered deposits and lines of credit to meet the borrowing and deposit withdrawal requirements of our customers, which may be more expensive and have an adverse effect on our net interest margin and profitability.

Information technology systems are critical to our business. We use various technology systems to manage our customer relationships, general ledger, securities, deposits, and loans. We have established policies and procedures to prevent or limit the impact of system failures, interruptions, and security breaches, but such events may still occur and may not be adequately addressed if they do occur. In addition, any compromise of our systems could deter customers from using our products and services. Although we rely on security systems to provide the security and authentication necessary to effect the secure transmission of data, these precautions may not protect our systems from compromises or breaches of security. While the Company has not, to date, detected a significant compromise, significant data loss or any material financial losses related to cybersecurity attacks, its systems and those of its customers and third-party service providers are under constant threat. It is possible that the Company could experience a significant cybersecurity event. The Company expects risks and exposures related to cybersecurity attacks to remain high for the foreseeable future.

The obligations of being a public company require significant expenditures and place additional demands on our management team. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a public company. Section 404 of the Sarbanes-Oxley Act of 2002 requires annual management assessments of the effectiveness of our internal control over financial reporting. Any failure to achieve and maintain an effective internal control environment could have a material adverse effect on our business. At June 30, 2025, management identified a material weakness in our internal control over financial reporting related to the untimely recognition of income from life insurance contracts resulting from the death of a former employee, which originated from differences in the contract balances reported by our bank owned life insurance ("BOLI") administrator as compared to the underlying insurance carriers. See Item 9A, ”Controls and Procedures.” If we neglect to implement and maintain effective internal control over financial reporting, it could result in material misstatements in our financial statements, which could result in a restatement of our financial statements or cause investors to lose confidence in our reported financial information, adversely affecting our stock price. Any such failure could also adversely affect the results of periodic management evaluations regarding the effectiveness of our internal control over financial reporting required under Section 404 of the Sarbanes-Oxley Act of 2002 and the rules promulgated by the SEC under Section 404. These obligations have increased our operating expenses and could divert our management’s attention from our operations.

We are a community bank, and our reputation is one of the most valuable components of our business. A key component of our business strategy is to rely on our reputation for customer service and knowledge of local markets to expand our presence by capturing new business opportunities from existing and prospective customers in our market area and contiguous areas. As such, we strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring and retaining employees who share our core values of being an integral part of the communities we serve, delivering superior serviceThreats to our customersreputation can come from many sources, including adverse sentiment about financial institutions generally, unethical practices, employee misconduct, failure to deliver minimum standards of service or quality, compliance deficiencies, cybersecurity incidents, errors in the use of artificial intelligence and caringquestionable aboutor fraudulent activities of our customers. IfIn addition, third parties with whom the Company has relationships may take actions over which the Company has limited control that could negatively impact perceptions about the Company or the financial services industry. The proliferation of social media may increase the likelihood that negative information about the Company, whether or not accurate, could impact the Company’s reputation and business. Negative publicity regarding our reputationbusiness, isemployees, negativelyor affectedcustomers, bywith or without merit, may result in the actionsloss of ourcustomers and employees, bycostly ourlitigation inabilityand toincreased conductgovernmental ourregulation, operationsall inof awhich mannercould thatadversely is appealing to current or prospective customers, or otherwise,affect our business and operating results may be materially adversely affected.results.

We are subject to extensive regulation, supervision and examination by our banking regulators. Such regulation and supervision govern the activities in which a financial institution and its holding company may engage and are intended primarily for the protection of insurance funds and the depositors and borrowers of the Bank rather than for the protection of our shareholders. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the ability to impose restrictions on our operations, classify our assets and determine the level of our allowance for credit losses. These regulations, along with the currently existing tax, accounting, securities, deposit insurance and monetary laws, rules, standards, policies, and interpretations, control the methods by which financial institutions conduct business, implement strategic initiatives, and govern financial reporting and disclosures. As a smaller institution, we are disproportionately affected by the ongoing increased costs of compliance with banking and other regulations. Any change in such regulation and oversight, whether in the form of regulatory policy, new regulations, executive orders, legislation or supervisory action, may have a material impact on our operations. Further, changes in accounting standards can be both difficult to predict and involve judgment and discretion in their interpretation by us and our independent accounting firm. These changes could materially impact, potentially retroactively, how we report our financial condition and results of operations.

Net income divided by average shareholders’ equity, known as “return on equity,” is a ratio many investors use to compare the performance of financial institutions. Our return on equity will be low until we are able to profitably leverage the additional capital we received from the offering. Our return on equity also will be negatively affected by added expenses associated with our employee stock ownership plan and the stock-based benefit plan. Until we can increase our net interest income and noninterest income and leverage the capital raised in the offering, we expect our return on equity to be low, which may reduce our stock price.

Certain provisions of our articles of incorporation and bylaws and state and federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire control of SR Bancorp without our Board of Directors’ approval. Under applicable regulations, for a period of three years following completion of the conversion, no person may acquire beneficial ownership of more than 10% of our common stock without prior approval of the Federal Reserve. Under federal law, subject to certain exemptions, a person, entity or group must notify the Federal Reserve before acquiring control of a bank holding company. There also are provisions in our articles of incorporation and bylaws that may be used to delay or block a takeover attempt, including a provision that prohibits any person from voting more than 10% of our outstanding shares of common stock. Taken as a whole, these statutory and regulatory provisions and provisions in our articles of incorporation and bylaws could result in our being less attractive to a potential acquirer and thus could adversely affect the market price of our common stock.

Promptly following the completion of the conversion and related stock offering, Regal Bancorp, Inc., a New Jersey corporation (“Regal Bancorp”), merged with and into the Company, with the Company as the surviving entity (the “Merger”). Immediately following the Merger, Regal Bank, a New Jersey chartered commercial bank headquartered in Livingston, New Jersey and the wholly-owned subsidiary of Regal Bancorp, merged with and into Somerset Bank, which had converted to a commercial bank charter, and was renamed Somerset Regal Bank (the “Bank”). In connection with the Merger, each outstanding share of Regal Bancorp common stock converted into the right to receive $23.00 in cash. The Merger was completed on September 19, 2023.

Our largest noninterest expense is salaries and employee benefits, which consist primarily of salaries and wages paid to our employees, payroll taxes, expenses for retirement plans and other employee benefits including disability insurance and health insurance and compensation expenses related to the recently implementedour employee stock ownership plan and equity incentive plan.

Insurance includes expenses for worker’sworkers’ compensation, property and casualty insurance and professional insurance.

Other expenses include expenses for directorsdirectors’ fees, office supplies, postage, telephone and other miscellaneous operating expenses.

Certain of our accounting policies are important to the presentation of our financial condition,condition and results of operation, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances that could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economyeconomy, political and global events and changes in the financial condition of borrowers. Our significant accounting policies are discussed in detail in Note 1 to our Consolidated Financial Statements included elsewhere in this document.

Allowance for Credit Losses: The allowance for credit losses (“ACL”), calculated in accordance with the current expected credit losses concepts Accounting Standards Concept – Topic 326 – Credit Losses (“ASC 326,326”), is deducted from the amortized cost basis of loans. The ACL represents an amount that, in management’s judgment, is adequate to absorb the lifetime expected credit losses that may be experienced on outstanding loans at the balance sheet date based on the evaluation of the size and current risk characteristics of the loan portfolio, past events, current conditions, reasonable and supportable forecasts of economic conditions and prepayment experience. The allowance for credit losses is measured and recorded upon the initial recognition of a financial asset. Determination of the adequacy of the allowance is inherently complex and requires the use of significant and highly subjective estimates. Loans are charged-off against the allowance when deemed uncollectible by management. Adjustments to the allowance are reported in our income statement as a component of the provision for credit losses.

Goodwill and Other Intangible Assets: Our intangible assets consist primarily of goodwill and core deposit intangibles. The initial recording of goodwill and other intangible assets requires subjective judgments concerning estimates of the fair value of the acquired assets and assumed liabilities. Goodwill is not amortized but is subject to annual tests for impairment, or more often if events or circumstances indicate it may be impaired. We may elect to perform a qualitative assessment as a part of the annual impairment test. If the qualitative assessment indicates it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or if we elect not to perform a qualitative assessment, then we would be required to perform a quantitative test for goodwill impairment. If the estimated fair value of the reporting unit is less than the carrying value, goodwill is impaired and is written down to its estimated fair value.

InFor the year ended June 30, 2025,2026, wethe performedCompany engaged an independent third-party appraiser to perform a qualitative assessment of goodwill. Based on that assessment, we determined that it was more likely than not that the unit's fair value was not less than its carrying amount. We concluded that our goodwill was not impaired as of June 30, 2025.2026.

Core deposit intangibles are amortized on an accelerated basis using an estimated life of ten years.years The core deposit intangiblesand are evaluated annually for impairment inif accordancecertain withevents GAAP.occur. An impairment loss will be recognized if the carrying amount of the intangible asset is not recoverable and exceeds the fair value. The carrying amount of the intangible asset is not considered recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset.

Leveraging our residential and commercial lending expertise to pursue new opportunities to increase lending in our primary market area and expand our existing loan relationships. Prior to the Merger, Somerset Savings Bank’s principal business activity historically had been the origination of residential mortgage loans, while Regal Bank’s principal business activity historically had been the origination of multi-family and commercial real estate loans. Somerset Regal Bank will continue to provide products and services that meet the needs of the existing residential lending customers and be able to offer such products, services and expertise to the former Regal Bank customers throughout its newly-expanded market area. Additionally, Somerset Regal Bank will continue to provide products and services that meet the needs of the existing commercial customers and be able to offer such products, services and expertise to the former Somerset Savings Bank customers throughout its newly-expanded market area.

The opportunity for both banks to diversify their loan portfolios and leverage their lending expertise in new markets were primary factors for the Merger. Moreover, with the additional capital raised in the stock offering, we can increase our loan originations in our market area and originate loans with larger balances. Somerset Regal Bank’s legal lending limit was $29.1$23.9 million at June 30, 2025.2026. While Somerset Regal Bank’s credit risk management policies will result in an internal loan to one borrower limit less than Somerset Regal Bank’s regulatory limit, the legal lending limit will provide opportunities to expand existing customer relationships and reach new larger customers.

Increasing transaction deposit accounts and deposit balances. Deposits are our primary source of funds for lending and investment. We intendare to focusfocused on expanding our core deposits (which we define as all deposits except certificates of deposit). Core deposits represented 69.8% of our total deposits at June 30, 2026 compared to 68.3% of our total deposits at June 30, 2025 compared to 66.2% of our total deposits at June 30, 2024.2025. We believe core deposits will increase by increasing our commercial lending activities and enhancing our relationships with retail customers through our commitment to quality customer service along with the introduction of additional products and services, such as remote deposit capture and enhanced online business account services.

Continuing to leverage technology to maintain efficient operations and enhance customer service. We have historically focused on leveraging technology to maintain efficient operations and provide our customers with secure means to conduct business outside of our traditional branch network. Customer facingAvailable applications include online banking and mobile banking with bill payment capabilities, mobile deposit and debit card control functionality. We have been a Zelle™ participant since 2019, which has allowed our customers the ability to send and receive real-time payments online and through mobile banking. Our online loan application platform affords customers the convenience of submitting a loan application online. InternallyInternally, we leverage technology to achieve efficiencies for tasks such as document preparation and retention, data analytics and call report preparation. We intend to build on this foundation and have plans to add, among other services, online deposit account opening for existing customers, tokenization (meaning the process of exchanging sensitive data with a less sensitive equivalent (or token), specifically Apply Pay©, Google Pay© and Samsung Pay©), and expanded business online banking capabilities including wire transfer origination and ACH origination services. These additional services are in various stages of implementation, and we anticipate customer availability for most prior to the end of 2024. Our investment in technology allows us to remain competitive, effectively serve our customers and results in operating efficiencies.

Total Assets. Total assetsAssets increased $63.6$105.7 million, or 6.2%,9.7%, to $1.08$1.19 billion at June 30, 20252026 from $1.02$1.09 billion at June 30, 2024.2025. The increase was primarily driven by new loan originations, resulting in a net increase of $65.3$104.0 million in loans receivablereceivable, and ana $11.9$13.7 million increase in cash and cash equivalents, partially offset by a $14.3$10.7 million decrease in securities.

Cash and Cash Equivalents. Cash and cash equivalents increased $11.9$13.7 million, or 25.9%,23.7%, to $71.5 million at June 30, 2026 from $57.8 million at June 30, 2025 from $45.9 million at June 30, 2024 primarily due to an increase in deposits, a $38.9$35.0 million increase in deposits, borrowings of $30.0 million from the Federal Home Loan Bank of New York during the year ended June 30, 20252026 and funds obtained through the decreasematurity inof securities.securities, partially offset by the use of cash to fund increased loan originations.

Securities Held-to-Maturity. Securities held-to-maturity decreased $14.3$10.7 million, or 9.2%,7.5%, to $131.1 million at June 30, 2026 from $141.8 million at June 30, 2025 from $156.1 million at June 30, 2024.2025. The decrease was primarily due to principal repayments and maturities.maturities in excess of purchases.

Bank Owned Life Insurance. Bank owned life insurance decreasedincreased $486,000,$1.8 million, or 1.3%,4.9%, to $38.4 million at June 30, 2026 from $36.6 million at June 30, 2025 from $37.1 million at June 30, 2024. The reduction was primarily attributable to death benefit proceeds under existing policies.2025.

Goodwill and Intangible Assets. The Company recognized goodwill and a core deposit premium intangible through the acquisition of Regal Bancorp. At the time of acquisition, goodwill was $20.5 million and the core deposit premium intangible asset was $9.1 million. Finalization of the purchase allocation reduced goodwill to $20.4 million at June 30, 2024. No impairment losslosses washave been recognized on goodwill duringsince the yearRegal endedBancorp June 30, 2025.acquisition. The carrying amount of the core deposit premium intangible, net of accumulated amortization, was $6.3$5.1 million at June 30, 2025.2026.

Total Liabilities. Total liabilities increased $69.3$117.7 million, or 8.4%,13.2%, to $890.6$1.01 billion at June 30, 2026 from $892.7 million at June 30, 2025 from $821.4 million at June 30, 2024.2025. The increase was primarily the result of an increase in deposits of $38.9$80.4 million and an increase in borrowings of $30.0$35.0 million.

Deposits. Deposits increased $38.9$80.4 million, or 4.8%,9.5%, to $926.4 million at June 30, 2026 from $846.0 million at June 30, 2025 from $807.1 million at June 30, 2024.2025. Increases in interest-bearing depositdemand accounts of $70.0 million, or 21.9%, resulted from the Company having raisedincreased rates on certain interest-bearing depositdemand products in an effort to remain competitive in the market area. At June 30, 2025,2026, $114.1$128.2 million, or 13.5%,13.8%, of total deposits consisted of noninterest-bearing deposits. At June 30, 2025,2026, $145.4$191.6 million, or 17.2%,20.7%, of total deposits were uninsured.

Borrowings. During the year ended June 30, 2025,2026, the Company borrowed $30.0an additional $35.0 million from the Federal Home Loan Bank of New York to provide for additional liquidity to fund new loans.loans increasing the total outstanding borrowings to $65.0 million. At June 30, 2024,2025, there were no$30.0 million of outstanding borrowings.

Total Equity. Total equityEquity decreased $5.7$12.0 million, or 2.9%,6.2%, to $181.8 million at June 30, 2026 from $193.8 million at June 30, 2025 from $199.5 million at June 30, 2024.2025. The decrease was primarily due to the repurchase of 936,991978,778 shares of common stock at a cost of $11.3$16.3 million and the payment of dividends at a cost of $1.6 million, partially offset by net incomeearnings of $5.1$3.4 million and stock-based compensation of $2.3 million.

Interest Expense. Interest expense increased $5.2$1.6 million, or 45.6%,9.6%, to $18.3 million for the year ended June 30, 2026 from $16.7 million for the year ended June 30, 2025 from $11.5 million for the year ended June 30, 2024,2025, primarily due to a $4.9$2.1 million increase in interest expense on deposits.interest-bearing demand deposit accounts. Interest expense on interest-bearing demand depositsdeposit accounts increased due to an increase of $96.4$60.2 million in the average balance and an increase of 11230 basis points in the costaverage of interest-bearing depositsrate to 1.98% for the year ended June 30, 2026 from 1.68% for the year ended June 30, 2025 from 0.56% for the year ended June 30, 20242025, as the BankCompany raised rates on certain interest-bearing deposit productsdeposits in an effort to remain competitive in the market area. InterestThe increase was partially offset by a $994,000 decrease in interest expense onfrom certificates of deposit increaseddriven $1.0by milliona 42 basis point decline in the average rate due to the lower interest rate environment, partially offset by a $24.9$4.4 million increase in the average balance and an increase in the average rate on certificates of deposit of four basis points to 3.83% for the year ended June 30, 2025 from 3.79% for the year ended June 30, 2024 due to the highly competitive interest rate environment in our market area.balance. Interest expense on borrowings increased by$534,000, $370,000or 45.3%, due to aan higherincrease of $20.7 million in the average outstanding balance, offset by a 82107 basis point decrease in the rateaverage paid.cost.

Provision for Credit Losses. We establish provisions for credit losses, which are charged to operations in order to maintain the allowance for credit losses at a level necessary to absorb current expected credit losses in the loan portfolio at the balance sheet date. In determining the level of the allowance for credit losses, we consider, among other things, loss experience, evaluations of real estate collateral, current and reasonably supportable economic conditions, volume and type of lending, adverse situations that may affect a borrower’s ability to repay a loan and the levels of delinquent and classified loans. The amount of the allowance is based on estimatesestimates, and the ultimate losses may vary from such estimates as more information becomes available or conditions change. We assess the allowance for credit losses and make provisions for credit losses on a monthlyquarterly basis.

BasedThe onCompany ourrecorded evaluationa provision for credit losses of $575,000 for the aboveyear factors,ended weJune recorded30, 2026 reflecting the loan growth during the period, compared to a provision for credit losses of $133,000 for the year ended June 30, 2025 compared to a provision for credit losses of $4.1 million for the year ended June 30, 2024, which was related to the Merger.2025. The provision of $133,000 was due to provisions of $288,000 reflecting loan growth, offset byincluded a recovery of $155,000 recorded during in the first quarter of 2025, resulting from updates made to model assumptions in the calculation of the Company's allowance for credit losses.losses, offset by provisions of $288,000 recorded during the remainder of the 2025 fiscal year reflecting loan growth, which included an adjustment of $157,000 due to a revised calculation of the quantitative loss factor based on updated information related to historical loss factors of both Somerset Savings Bank, SLA and Regal Bank. The BankCompany had no charge-offs during the years ended June 30, 20252026 and 20242025 and no non-performing loans at June 30, 20252026 compared to $50,000 of non-performing loans ator June 30, 2024.2025. The Company’s allowance for credit losses as a percentage of total loans was 0.65% at June 30, 2026 compared to 0.67% at June 30, 2025 compared to 0.71% at June 30, 2024.2025.

Income Tax Expense. The provision for income taxes was $1.0 million for the year ended June 30, 2026 compared to $991,000 for the year ended June 30, 2025,2025. comparedThe toCompany’s aeffective benefittax ofrate $909,000was 23.8% for the year ended June 30, 2024.2026 Thecompared Company's effective tax rate wasto 16.2% for the year ended June 30, 2025. The lower effective tax rate in 2025 comparedwas attributable to 7.7%$1.5 formillion theof yeartax-exempt endedincome Junefrom 30,life 2024.insurance proceeds.

We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. We have implemented the following strategies to manage our interest rate risk:

The table above indicates that at June 30, 2025,2026, after one year, we would have experienced an 6.50%3.15% decrease in NII in the event of an instantaneous parallel 200 basis point increase in market interest rates and an 0.95%0.81% increasedecrease in NII in the event of an instantaneous 200 basis point decrease in market interest rates.

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The table above table assumes that the composition of our interest sensitive assets and liabilities existing at the date indicated remains constant uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the table provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our NPV and will differ from actual results.

Liquidity is the ability to fund assets and meet obligations as they come due. Our primary sources of funds consist of deposit inflows, loan repayments, and repayments from investment securities. In addition, we have the ability to borrow in the wholesale markets or from the Federal Home Loan Bank of New York. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. Our ALCO/Investment Committee is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We seek to maintain a ratio of liquid assets (including cash and federal funds sold) as a percentage of total deposits ranging between 4% and 30%.15%. At June 30, 2025,2026, this ratio was 6.8%.7.7%. We believe that we havehad sufficient sources of liquidity to satisfy our short- and long-term liquidity needs as of June 30, 2025.2026.

At June 30, 2025,2026, we had $41.0$30.2 million in outstanding loan commitments and $38.0$40.8 million of unused lines of credit. Certificates of deposit due within one year of June 30, 20252026 totaled $239.1$257.4 million, or 28.3%,27.8% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including loan sales, other deposit products, including replacement certificates of deposit, securities sold under agreements to repurchase (repurchase agreements) or advances from the Federal Home Loan Bank of New York and other borrowing sources. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or after June 30, 2025.2026. We believe, however, based on past experience that a significant portion of such deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Our primary investing activities are originating and purchasing loans and purchasing mortgage-backed securities. During the year ended June 30, 2025,2026, we originated $97.6$155.1 million of loans and purchased $41.2$40.5 million. WeThe hadCompany nopurchased purchasesa of$6.0 securitiesmillion duringfixed-to-floating rate subordinated note at 7.75% per annum for the yearsfirst endedfive Juneyears, 30,which 2025then orfloats Junebased 30,on 2024.a benchmark rate (as defined) for the remaining five years.

We had outstanding borrowings of $65.0 million as of June 30, 2026 and $30.0 million as of June 30, 2025 and none as of June 30, 2024.2025. We had $70.0$135.0 million of additional borrowing capacity at FHLB as of June 30, 2025.2026.

We repurchased 936,991978,778 shares of our common stock during the year ended June 30, 20252026 at a cost of $11.3$16.0 million and paid dividends on common stock of $444,000.$1.6 million.

The following management discussion and analysis of the Company’s consolidated financial condition as of DecemberMarch 31, 20252026 and the results of operations for the three and sixnine months ended DecemberMarch 31, 20252026 and 20242025 should be read in conjunction with the Consolidated audited Financial Statements, including notes thereto, and the other information therein included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2025, as filed with the Securities and Exchange Commission, and in conjunction with the Consolidated Statements of Financial Condition as of DecemberMarch 31, 2025,2026, the Consolidated Statements of Income, the Consolidated Statements of Comprehensive Income, the Consolidated Statements of Changes in Stockholders’ Equity and the Consolidated Statements of Cash Flows for the sixnine months ended DecemberMarch 31, 20252026 and 2024.2025. The Consolidated Statement of Financial Condition as of June 30, 2025 was derived from the audited Consolidated Statements of Financial Condition that was included in the Company's Annual Report on Form 10-K for the year ended June 30, 2025. As used in this Quarterly Report on Form 10-Q, “we,” “us,” “our,” and the “Company” refer to SR Bancorp, Inc., and its consolidated subsidiaries, unless otherwise noted.

Management believes our most critical accounting policies, which involve the most complex or subjective decisions or assessments, are the determination of the allowance for credit losses, the assessment of the impairment of goodwill and intangible assets and the valuation of our deferred tax assets.asset.

During the year ended June 30, 2025, we performed a qualitative assessment of goodwill. Based on that assessment, we determined that it was more likely than not that the reporting unit’s fair value was not less than its carrying amount. We concluded that our goodwill was not impaired as of June 30, 2025. As of DecemberMarch 31, 2025,2026, no triggering events were identified and therefore, we did not perform an interim impairment evaluation.

Comparison of Financial Condition at DecemberMarch 31, 20252026 and June 30, 2025

Total Assets. Total assets increased $58.6$59.0 million, or 5.4%, to $1.14 billion at DecemberMarch 31, 20252026 from $1.08 billion at June 30, 2025. The increase was driven by new loan originations, resulting in a net increase of $38.2$61.9 million in loans receivable, as well as an increase in cash and cash equivalents of $24.1$5.9 million primarily due to an increase in deposits and borrowings.borrowings, partially offset by a decrease of $7.0 million in securities held-to-maturity.

Cash and Cash Equivalents. Cash and cash equivalents increased $24.1$5.9 million, or 41.6%,10.2%, to $81.8$63.7 million at DecemberMarch 31, 20252026 from $57.8 million at June 30, 2025 due to an increase in deposits and borrowings from the Federal Home Loan Bank of New York.

Securities. Securities held-to-maturity decreased $1.0$7.0 million, or 0.7%,5.0%, to $140.8$134.8 million at DecemberMarch 31, 20252026 from $141.8 million at June 30, 2025. The decrease was primarily due to principal repayments and maturities, partially offset by the purchase of a $6.0 million subordinated note.note issued by another financial institution.

Loans. Loans receivable, net, increased $38.2$61.9 million, or 4.8%,7.8%, to $835.4$859.1 million at DecemberMarch 31, 20252026 from $797.2 million at June 30, 2025, driven by commercial loan growth of $24.2$33.9 million, residential mortgage loan growth of $12.7$27.0 million and consumer loan growth of $1.3$1.0 million as a result of strong market demand.

Bank Owned Life Insurance. Bank owned life insurance increased $532,000,$1.5 million, or 1.5%,4.1%, to $37.1$38.1 million at DecemberMarch 31, 20252026 from $36.6 million at June 30, 2025 due to an increase in the cash surrender value of the underlying assets.

Goodwill and Intangible Assets. Goodwill and the core deposit intangible asset recognized from the acquisition of Regal Bancorp in September 2023 totaled $26.1$25.8 million at DecemberMarch 31, 20252026 compared to $26.7 million at June 30, 2025. The decrease was due to the amortization of the core deposit intangible asset.

Total Liabilities. Total liabilities increased $63.9$68.4 million, or 7.2%,7.7%, to $954.5$959.0 million at DecemberMarch 31, 20252026 from $890.6 million at June 30, 2025. The increase was primarily due to a $45.5$48.3 million increase in deposits and a $20.0 million increase in borrowings from the Federal Home Loan Bank of New York.

Deposits. Deposits increased $45.5$48.3 million, or 5.4%,5.7%, to $891.5$894.3 million at DecemberMarch 31, 20252026 from $846.0 million at June 30, 2025. Increases in interest-bearing deposit accounts resultedwere fromdriven by the Bank having raised rates on timecertain interest-bearing deposit accounts in an effort to remain competitive in the market area.area, resulting in increases in the balances of demand deposits and certificates of deposit, while the balance of savings and club accounts decreased. At DecemberMarch 31, 2025,2026, $121.7$111.3 million, or 13.7%,12.4%, of total deposits consisted of noninterest-bearing deposits. At March 31, 2026, $164.6 million, or 18.4%, of total deposits were uninsured.

Borrowings. At June 30, 2025, the Company had a $30.0 million advance at a fixed rate of 4.42%, which matured on July 7, 2025. During the sixnine months ended DecemberMarch 31, 2025,2026, the BankCompany borrowed an additional $20.0 million from the Federal Home Loan Bank of New York to provide additional liquidity to fund new loans. At DecemberMarch 31, 20252026 and 2024,2025, the BankCompany had $50.0 million and $30.0 million in outstanding borrowings, respectively.

Total Equity. Total equity decreased $5.3$9.3 million, or 2.8%,4.8%, to $188.5$184.5 million at DecemberMarch 31, 20252026 from $193.8 million at June 30, 2025. The decrease was primarily due to the repurchase of 465,702761,229 shares of common stock at a cost of $7.1$12.3 million and cash dividends of $0.15 per share at a cost of $1.2 million, partially offset by net earnings of $1.5$2.4 million.

We offer a variety of loans, including residential, commercial real estate, multi-family, commercial and industrial and consumer loans. Historically, a significant portion of our loan portfolio was concentrated in residential loans. The acquisition of Regal Bancorp in September 2023 greatly expanded our commercial loan portfolio and commercial lending capabilities. At DecemberMarch 31, 2025,2026, residential mortgage loans comprised 52.5%52.7% of our total loan portfolio and commercial loans comprised 45.8%,45.7%, which consisted largely of multi-family loans.

Contractual Maturities. The following tables set forth the contractual maturities of our total loan portfolio at DecemberMarch 31, 2025.2026. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. The tables present contractual maturities and do not reflect repricing or the effect of prepayments. Actual maturities may differ.

Fixed Versus Adjustable-Rate Loans. The following tables set forth our fixed and adjustable-rate loans at DecemberMarch 31, 20252026 that are contractually due after DecemberMarch 31, 2026.2027.

The Bank had no loan modifications to borrowers experiencing financial difficulty as of DecemberMarch 31, 20252026 or June 30, 2025.

Non-Performing Assets. The following table sets forth information regarding our non-performing assets. The Bank had oneno non-performing asset of $176,000assets as of DecemberMarch 31, 20252026 and none as of June 30, 2025.

Our allowance for credit losses ("ACL") is maintained at a level necessary to absorb the lifetime expected credit losses. Management, in determining the allowance for credit losses, considers historic losses and changes in the nature and volume of loan activities, along with the general economic and real estate market conditions. A description of our methodology in establishing our allowance for credit losses is set forth in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations of SR Bancorp—Critical Accounting Policies-Allowance for Credit Losses” in our Form 10-K for the year ended June 30, 2025 and in this Form 10-Q. The allowance for credit losses as of DecemberMarch 31, 20252026 and June 30, 2025 were maintained at levels that represent management’s best estimate of current expected losses in the loan portfolio. However, this analysis process is inherently subjective, as it requires us to make estimates that are susceptible to revisions as more information becomes available. Although we believe that we have established the allowance at levels to absorb current expected losses, future additions may be necessary if economic or other conditions in the future differ from the current environment.

At DecemberMarch 31, 20252026 and June 30, 2025, our investment portfolio consisted entirely of securities held-to-maturity, primarily of securities and obligations issued by U.S. government-sponsored enterprises, subordinated debentures issued by financial institutions in the Mid-Atlantic region, collateralized mortgage obligations and foreign government bonds.

The following table presents the maturity distribution and weighted average yields of our investment securities portfolio on a contractual maturity basis and our residential mortgage-backed securities at DecemberMarch 31, 20252026:

Deposit Accounts. Deposits are primarily attracted from within our market area through the offering of a broad selection of deposit instruments, including noninterest-bearing demand deposits (such as checking accounts), interest-bearing demand accounts (such as NOW accounts), savings accounts, money market accounts and certificates of deposit. At DecemberMarch 31, 20252026 and June 30, 2025, we held $30.3$28.9 million and $31.8 million, respectively, of accounts from a variety of local municipal relationships, which are protected under a New Jersey supplemental insurance program with collateralized assets. At DecemberMarch 31, 20252026 and June 30, 2025, we had no brokered deposits.

As of DecemberMarch 31, 20252026 and June 30, 2025, the aggregate amount of uninsured deposits (deposits in amounts greater than $250,000, which is the maximum amount for federal deposit insurance) was $172.6$164.6 million and $145.3 million, respectively. In addition, as of DecemberMarch 31, 20252026 and June 30, 2025, the aggregate amount of all our uninsured certificates of deposit was $31.4$31.1 million and $24.9 million, respectively. We have no deposits that are uninsured for any reason other than being in excess of the maximum amount for federal deposit insurance. Uninsured deposits totaling $30.3$26.5 million and $31.8 million at DecemberMarch 31, 2025,2026, and June 30, 2025, respectively, of municipalities and local government agencies are protected under a New Jersey supplemental insurance program with collateralized assets.

Comparison of Operating Results for the Three Months Ended DecemberMarch 31, 20252026 and 20242025

General. Net income decreasedincreased $187,000,$349,000, or 18.3%,65.0%, to $834,000$886,000 for the three months ended DecemberMarch 31, 20252026 compared to net income of $1.0 million$537,000 for the three months ended DecemberMarch 31, 2024.2025. Net income for the three months ended DecemberMarch 31, 20252026 and 20242025 included $202,000$142,000 and $791,000,$575,000, respectively, of net accretion income related to fair value adjustments resulting from the acquisition of Regal Bancorp in September 2023.

Interest Income. Interest income increased $765,000,$992,000, or 6.6%,8.6%, to $12.3$12.5 million for the three months ended DecemberMarch 31, 20252026 from $11.5 million for the three months ended DecemberMarch 31, 20242025, due to a $13.4$21.5 million increase in the average balance of interest-earning assets and a 2429 basis point increase in the yield. TheThese increaseincreases resulted from a $857,000,$1.0 million, or 8.2%,9.9%, increase in interest income on loans,loans partly offset byand a $52,000,$43,000, or 8.9%,7.2%, decreaseincrease in interest income on securities, andpartly offset by a $40,000,$77,000, or 7.7%,14.3%, decrease in interest income on interest-bearing deposits at other banks. The increase in interest income on loans was primarily due to a $61.4$70.0 million increase in the average balance of loans from $770.6$778.5 million for the three months ended DecemberMarch 31, 20242025 to $832.0$848.5 million for the three months ended DecemberMarch 31, 2025.2026. The decreaseincrease in interest income on securities was primarily due to a $14.323 basis point increase in the yield, partially offset by a $9.4 million decrease in the average balance of securities resulting from maturities and repayments, offset by the purchase of a $6.0 million subordinated note.balance. The decrease in interest income on interest-bearing deposits at other banks was due to a $33.7$39.0 million decrease in the average balance of deposits.

Interest Expense. Interest expense increased $213,000,$363,000, or 4.9%,8.4%, to $4.5$4.7 million for the three months ended DecemberMarch 31, 20252026 from $4.3 million for the three months ended DecemberMarch 31, 2024,2025, due to a $59.6$68.4 million increase in the average balance of interest-bearing liabilities partially offset by a seven basis point decrease in the cost.liabilities. The increase in the average balance was primarily due to an increase of $68.1$61.0 million, or 24.0%,20.0%, in the average balance of interest-bearing demand deposits and a $18.3$20.0 million, or 74.3%,66.7%, increase in the average balance of borrowings for the three months ended DecemberMarch 31, 20252026 compared to the three months ended DecemberMarch 31, 2024.2025, partially offset by a decrease of $23.2 million in the average balance of savings and club accounts. The increase in interest expense was offset by a one basis point decrease in yieldthe average cost of interest-bearing deposits, which was primarily due to a 4940 basis point decrease in the average rate of certificates of deposit,deposit offset by an increase of 2022 basis pointspoint increase in the costaverage rate of interest-bearing demand deposits to 1.95%1.97% for the three months ended DecemberMarch 31, 20252026 from 1.75% for the three months ended DecemberMarch 31, 2024,2025, asresulting thefrom Bankcompetitively offeredpriced competitive rates on certain interest-bearing deposit products in the market area.rates.

Net Interest Income. Net interest income increased $552,000,$629,000, or 7.6%,8.8%, to $7.8 million for the three months ended DecemberMarch 31, 2025,2026 from $7.2 million for the three months ended DecemberMarch 31, 2024.2025. Net interest rate spread increased 30 basis points to 2.57%2.55% for the three months ended DecemberMarch 31, 20252026 from 2.27%2.25% for the three months ended DecemberMarch 31, 2024.2025. Net interest margin increased 18 basis points to 3.06%3.00% for the three months ended DecemberMarch 31, 20252026 from 2.88%2.82% for the three months ended DecemberMarch 31, 2024.2025. Net interest-earning assets decreased $46.3$46.9 million, or 17.4%,18.1%, to $219.1$211.9 million for the three months ended DecemberMarch 31, 20252026 from $265.4$258.8 million for the three months ended DecemberMarch 31, 2024.2025. The increase in the Company’s net interest rate spread and net interest margin were primarily a result of aan increase in the yield on interest-earning assets and the decrease in the cost of interest-bearing liabilities while the yield on interest-earning assets increased. Net interest income includes loan prepayment penalty fees and amortization and accretion of premiums and discounts from fair value adjustments. For the three months ended December 31, 2025, loan prepayment penalty fees totaled $115,000 compared to $34,000 for the three months ended December 31, 2024. The net interest income impact of amortization and accretion of premiums and discounts from fair value measurements of assets acquired and liabilities assumed due to acquisition totaled $501,000 during the quarter ended December 31, 2025, compared to $1.2 million in the quarter ended December 31, 2024.liabilities.

The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Deferred loan fees totaled $118,000$59,000 and $101,000 for the three months ended DecemberMarch 31, 20252026 and 2024,2025, respectively.