Business Overview and History SR Bancorp, Inc. (NASDAQ: SRBK) is a community banking institution that has served the residents and businesses of New Jersey for over 130 years. The company's journey has been marked by strategic growth, prudent risk management, and a steadfast commitment to its local communities. As the holding company for Somerset Regal Bank, SR Bancorp has navigated the evolving banking landscape with a keen eye on preserving its financial strength and upholding its reputation as a trusted financial partner.
SR Bancorp, Inc. traces its roots back to 1887 when it was founded as Somerset Savings Bank, SLA, a mutual savings bank. The institution operated as a mutual institution until September 2023 when it underwent a conversion to the stock form of organization and held a related stock offering. Concurrently, the company merged with Regal Bancorp, Inc., a New Jersey-based bank holding company, and its wholly-owned subsidiary, Regal Bank. This transformative merger expanded SR Bancorp's geographic reach and commercial banking capabilities, solidifying its position as a leading community bank in the Garden State.
The merger with Regal Bank significantly diversified SR Bancorp's loan portfolio. Prior to the merger, the company had a significant concentration in residential loans, particularly one- to four-family residential loans. Following the merger, commercial loans comprised 45.8% of the total loan portfolio as of September 30, 2024, with a large portion consisting of multi-family loans.
During the merger process, SR Bancorp faced some financial challenges. In 2023, the company incurred $3.9 million in one-time merger-related expenses and a $4.2 million provision for credit losses related to the acquisition of Regal Bancorp. Additionally, SR Bancorp made a $5.4 million charitable contribution to establish the Somerset Regal Charitable Foundation in connection with the conversion and merger. Despite these costs, the company successfully integrated Regal Bank's operations and expanded its commercial lending capabilities.
Today, SR Bancorp operates as the holding company for Somerset Regal Bank, a New Jersey chartered commercial bank. It serves customers across Essex, Hunterdon, Middlesex, Morris, Somerset, and Union counties through a network of 14 full-service branch locations. The company's diverse loan portfolio includes commercial real estate, multi-family, commercial and industrial, residential mortgage, and consumer loans. As of September 30, 2024, SR Bancorp reported total assets of $1.05 billion, a testament to its steady growth and financial strength.
Financial Performance and Ratios SR Bancorp's financial performance has been marked by a combination of stability and strategic initiatives. For the fiscal year ended June 30, 2024, the company reported net income of -$10.86 million and total revenue of $26.88 million. The company's annual operating cash flow stood at -$1.74 million, while its free cash flow reached -$2.84 million.
The most recent quarter ending September 30, 2024, showed significant improvement with revenue of $11.47 million, net income of $1.37 million, operating cash flow of $1.79 million, and free cash flow of $1.79 million. The year-over-year revenue growth was an impressive 106.9%, primarily attributed to a $6.5 million increase in interest income on loans due to the increased size of the loan portfolio resulting from the merger and a higher average yield on the loan portfolio.
The company's financial ratios paint a picture of a well-capitalized and efficiently managed institution. As of September 30, 2024, SR Bancorp's leverage ratio, a key measure of capital adequacy, stood at 16.06%, well above the 9.00% regulatory requirement for well-capitalized banks. The company's net interest margin, a crucial metric for banks, was 3.21% for the third quarter of 2024, reflecting its ability to generate strong net interest income.
Liquidity and Solvency SR Bancorp's liquidity position remains robust, with cash and cash equivalents totaling $47.30 million as of September 30, 2024. The company's loan-to-deposit ratio, a measure of liquidity, stood at 94.00%, indicating a healthy balance between lending activities and deposit funding.
In terms of solvency, SR Bancorp's total debt stood at $2.4 million as of September 30, 2024, representing a debt-to-equity ratio of just 0.012. This low leverage ratio demonstrates the company's financial discipline and its ability to maintain a strong balance sheet. The company's current ratio and quick ratio both stand at 287.26, indicating a strong ability to meet short-term obligations.
SR Bancorp has significant borrowing capacity, with the ability to borrow up to $100 million from the Federal Home Loan Bank and up to $25 million from the Federal Reserve Bank of New York, providing additional liquidity if needed.
Strategic Initiatives and Outlook SR Bancorp has undertaken several strategic initiatives to position itself for long-term growth and profitability. The company's acquisition of Regal Bancorp in 2023 has expanded its commercial lending capabilities and geographic footprint, allowing it to better serve the evolving needs of its customers.
Looking ahead, SR Bancorp remains focused on prudent risk management, digital transformation, and the enhancement of its product and service offerings. The company's management team has expressed confidence in its ability to navigate the changing banking landscape and capitalize on opportunities for organic growth and strategic partnerships.
Risks and Challenges As with any financial institution, SR Bancorp faces a range of risks and challenges. These include interest rate risk, credit risk, regulatory changes, and competition from larger regional and national banks. The company's ability to maintain its strong asset quality, optimize its funding mix, and adapt to technological advancements will be crucial in the years to come.
Product Segments SR Bancorp operates through several key product segments:
Lending Activities: The company's primary lending activities consist of a diverse loan portfolio. As of September 30, 2024, the loan portfolio composition was 52.7% residential mortgage loans, 45.8% commercial loans, and 1.5% consumer and other loans. The commercial loan portfolio is primarily concentrated in multi-family and commercial real estate loans. SR Bancorp originates both fixed-rate and adjustable-rate loans, with the majority being adjustable-rate. The bank focuses on conservative underwriting practices to manage credit risk.
Investment Activities: SR Bancorp's investment portfolio primarily consists of securities held-to-maturity, including securities and obligations issued by U.S. government-sponsored enterprises, subordinated debentures, collateralized mortgage obligations, and foreign government bonds. As of September 30, 2024, the amortized cost of the securities held-to-maturity portfolio was $152.52 million, with a fair value of $129.12 million.
Deposit Accounts: The company offers various deposit products, including noninterest-bearing demand deposits, interest-bearing demand accounts, savings accounts, money market accounts, and certificates of deposit. As of September 30, 2024, total deposits were $819.38 million, with 12.5% in noninterest-bearing demand deposits and 33.9% in time deposits.
Conclusion SR Bancorp, Inc. has a rich history of serving the needs of its local communities in New Jersey. The company's strategic merger with Regal Bancorp, coupled with its strong financial position and prudent risk management, position it well to continue its legacy of success. As SR Bancorp navigates the evolving banking landscape, investors will be closely watching the company's ability to capitalize on growth opportunities while maintaining its commitment to financial stability and customer service. The recent financial performance, particularly the strong year-over-year revenue growth, suggests that the company is on a positive trajectory despite the challenges faced during the merger process.