What changed in this filing

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Item 9A. Controls and Procedures

2024-10-16 compared with 2023-09-28 · 1043 added, 916 removed, 518 unchanged (79% of the section changed)

1 unchanged sentence

(a) Evaluation of disclosure controls and procedures.

Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the fiscal year (the “Evaluation Date”).

Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective.

(b) Management’s Annual Report on Internal Control over Financial Reporting.

This annual report does not include a management report regarding internal control over financial reporting due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.

(b) Management’s Annual Report on Internal Control over Financial Reporting.

Not applicable because the Company is an emerging growth company.

(d) Changes in internal controls.

There were no changes in our internal control over financial reporting that occurred during the fourth quarter of fiscal 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There were no changes in our internal control over financial reporting that occurred during the fourth quarter of fiscal 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other Information.

3 unchanged sentences

Directors, Executive Officers and Corporate Governance.

Executive Officers of SR Bancorp and Somerset Savings Bank

The following table lists the individuals who are the current executive officers of SR Bancorp and Somerset Savings Bank, their ages as of June 30, 2023 and the positions they hold at Somerset Regal Bank.

Chief Executive Officer

Christopher J.

President and Chief Operating Officer

Executive Vice Chairman

Senior Vice President –

Mortgage Lending

Vice President and Chief Financial Officer

Orbach began serving as Executive Chairman of the Board of Directors of SR Bancorp and as Executive Vice Chairman of the Board of Directors of Somerset Regal Bank effective as of the closing of the Merger on September 19, 2023.

Taylor continues as Chief Executive Officer and Chairman of the Board of Directors of Somerset Regal Bank and serves as Chief Executive Officer and a director of SR Bancorp.

The executive officers of Somerset Savings Bank are, and the executive officers of Somerset Regal Bank will be, elected annually.

Directors of Somerset Savings Bank and SR Bancorp

Composition of our Board .

SR Bancorp has nine directors.

Directors serve three-year staggered terms so that approximately one-third of the directors are elected at each annual meeting.

Directors of Somerset Savings Bank are elected by SR Bancorp as its sole shareholder.

The following table states our current directors’

names, their ages as of June 30, 2023, and the years when they began serving as directors of Somerset Savings Bank and SR Bancorp and when their current term expires:

Position(s) Held With

Somerset Savings Bank

Chairman and Chief Executive Officer

Marc Lebovitz (1)

Thomas Lupo (1)

Executive Vice Chairman

Christopher J.

Director, President and Chief Operating Officer

Lebovitz, Lupo and Orbach became directors of Somerset Regal Bank and SR Bancorp effective as of the closing of the Merger on September 19, 2023.

As of that date, Mr.

Orbach began serving as Executive Chairman of the Board of Directors of SR Bancorp and as Executive Vice Chairman of the Board of Directors of Somerset Regal Bank.

Taylor continues as Chief Executive Officer and Chairman of the Board of Directors of Somerset Regal Bank and serves as Chief Executive Officer and a director of SR Bancorp.

Christopher J.

Pribula continues as President, Chief Operating Officer and a director of Somerset Regal Bank and SR Bancorp.

The Business Background of Our Directors and Executive Officers .

The business experience for the past five years of each of our directors and executive officers is set forth below.

Unless otherwise indicated, directors and executive officers have held their positions for the past five years.

Taylor has served as Chairman of the Board of Somerset Regal Bank, and its predecessor, Somerset Savings Bank, since 2018.

Taylor has been Chief Executive Officer of Somerset Savings Bank since 2013 and prior to that, served as President since 2009.

Taylor holds a Bachelor’s of Science degree from Wake Forest University in accounting.

Taylor joined Somerset Savings Bank in 1983 as assistant vice president and controller.

Taylor serves on the Board of the New Jersey Bankers Association and the Somerset County Business Partnership.

Taylor’s extensive executive leadership and banking experience and knowledge of our market area enhances the breadth of experience of the Board of Directors.

Davey has over 45 years of experience in upper management of non-profit organizations with responsibility for projects such as special needs housing, budget development and management, state and federal government grants, programmatic oversight and work with external auditors and outside funding bodies.

Her profession includes membership in the National Association of Social Workers, Children’s Interagency Coordinating Council of Bergen County Executive Board and Chair of the Mental Health –

Education Partnership/Subcommittee and a member of the Suicide Prevention and Education Committee for Bergen County and the Ridgewood Stigma-free Committee.

Davey holds a Bachelor’s Degree in Sociology from Anna Maria College and a Master’s Degree in Social Work from Rutgers University.

Davey is a civic leader with deep management and budgeting experience.

Marc Lebovitz is the owner and President of Romark Logistics, a full-service tech-focused logistics company offering innovative and customized supply chain solutions nationwide.

He currently oversees the executive team responsible for strategic planning, financial management, operations, and business development.

He also serves as a Principal of Woodmont Industrial Partners which owns and manages a portfolio of industrial properties.

He graduated from Wagner College with a Bachelor of Science in Business Management and serves on numerous boards and committees within the real estate, education, leadership, and commercial business fields.

Lebovitz’s extensive business and board experience provides the board of directors with valuable insight into business and operational matters.

Thomas Lupo is a retired banking professional with a career spanning over 50 years in bank management.

He most recently served, since its inception in 2007, as President and Chief Executive Officer of Regal Bank, and also as President and Chief Executive Officer of Regal Bancorp since its inception, until the merger with Somerset Regal Bank and SR Bancorp in 2023.

Lupo has held executive management positions at several community commercial banks and gained extensive experience in commercial lending, having served as Chief Lending Officer at several banks.

Lupo received his BS degree in Accounting and Economics from Upsala College and his MBA in Bank Management from Fairleigh Dickinson University.

He has served on numerous boards including, most recently, Bankers Cooperative Group and NJ Bankers.

He also served as President of the Community Bankers Association of New Jersey.

Lupo’s extensive commercial banking and lending experience provides a valuable resource to the Board of Directors.

Mooney is a retired Specialty Chemical Executive with 35 years of experience, progressing through manufacturing, marketing, business development and general management.

He received a BS in Chemical Engineering from Rutgers University and an MBA from Rider University.

He spent 33 years with National Starch and Chemical Company including seven years in a general manager position with global P&L responsibility for an $80 million unit supplying specialty chemicals to the Personal Care industry in the U.S., Europe and Asia.

He spent the last few years of his career as Vice President of Business Development.

Mooney serves on two non-profit boards:

(1) The Central Jersey Housing Resource Center, where he also spent eight years as President;

and (2) the Samaritan Homeless Interim Program.

Mooney’s business experience is of significant benefit to the Board of Directors.

Orbach has served as Executive Chairman of the Board of Regal Bancorp since its formation and of Regal Bank since 2011.

Orbach acted as the lead organizer in founding Regal Bank in 2007.

Prior to joining Regal, from 2005 to 2011, Mr.

Orbach was the Managing Partner and Founder of Gallant Funding, L.P., a private mezzanine and bridge lending company for commercial real estate in the New Jersey and New York regions.

Before starting Gallant, he served as Vice President and General Counsel, as well as a Director and Corporate Secretary, of NorCrown Bank, a community bank based in Livingston, New Jersey.

Prior to joining NorCrown, Mr.

Orbach was an associate in the real estate department of the law firm of Pryor Cashman Sherman & Flynn LLP, located in New York City.

Orbach is involved with numerous charitable and non-profit organizations and serves as a board member within several of these organizations.

Orbach earned his B.A.

in Economics from the City University of New York at Queens College and his J.D.

from the Benjamin N.

Cardozo School of Law.

Orbach’s extensive banking experience and commercial real estate experience is of significant benefit to the Board of Directors.

Christopher J.

Pribula has been President and Chief Operating Officer of Somerset Regal Bank, and its predecessor, Somerset Savings Bank, since 2019, having previously served as Executive Vice President and Chief Operating Officer beginning in 2013.

Pribula worked in several community banks, including The Chatham Trust Company, West Jersey Community Bank, Prestige State Bank and Somerset Hills Bank, prior to joining Somerset Savings Bank in 2006 as Vice President –

Operations Division Manager.

Pribula serves on the Board of Raritan Valley Habitat for Humanity as Treasurer.

Pribula is a graduate of Kean University with a degree in accounting.

Pribula’s extensive banking and accounting experience provides expertise to the Board of Directors.

Silkensen is a graduate of Pacific University and received an MBA from Oregon State University .

Silkensen worked at the Federal Home Loan Bank Board for 12 years and at the New Jersey League of Community Bankers for 25 years, serving the last few years as President.

Silkensen served as Co-President and Chief Executive Officer of the New Jersey Bankers Association for the last two years of his career.

He has served in various volunteer leadership positions at the Cranford United Methodist Church and currently serves on the Board of Trustees of the Charitable Foundation of the New Jersey Bankers Association.

Silkensen brings significant banking and regulatory experience to the Board of Directors.

Sonier is a graduate from Rider University with a BS in Accounting.

He began his career with the accounting and advisory firm of WithumSmith+Brown where he was a partner for over 40 years and is currently an Emeritus Partner.

His experience is primarily with privately held and not-for-profit businesses in the manufacturing, professional service, retail, and wholesale/distribution sectors.

Sonier’s accounting experience benefits our Board of Directors in its oversight of audit and financial reporting matters.

Executive Officers of Somerset Regal Bank Who Are Not Also Directors

Viotto has served as Senior Vice President, Mortgage Lending and CRA Officer since October 2022, having previously served as Vice President Mortgage Originations Manager from 2011-2021.

Viotto had served as Senior Vice President Director of Residential and Consumer Lending at Peapack Gladstone Bank from May 2021 through October 2022 before returning to the Somerset Savings Bank.

Viotto currently serves on the Land Use Board for the Town of Clinton since November 2015.

Viotto is a graduate of Kean University with a degree in Accounting.

Faqueri has served as Vice President/Chief Financial Officer since March 2021.

Faqueri served as Vice President, Accounting at Investors Bank, Short Hills, New Jersey where he was responsible for the management and oversight of various accounting and reporting functions, including facets of financial reporting and compliance.

Faqueri is a graduate of Rutgers University with a Bachelor’s degree in Economics and an MBA in Professional Accounting .

He currently serves as the Treasurer on the board of the Central Jersey Housing Resource Center.

Audit Committee

SR Bancorp maintains an Audit Committee the members of which are Douglas M.

Sonier (Chair), Mary Davey, Marc Lebovitz, John W.

Mooney and James R.

The Board of Directors believes that Mr.

Sonier qualifies as an “audit committee financial expert”

as such term is defined by the rules and regulations of the Securities and Exchange Commission.

Code of Ethics

SR Bancorp has adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions.

The code of ethics is designed to deter wrongdoing and to promote honest and ethical conduct, the avoidance of conflicts of interest, full and accurate disclosure and compliance with all applicable laws, rules and regulations.

A copy of the Code of Ethics for Senior Officers is available to shareholders on the “Investor Relations”

portion of the Bank’s website of www.somersetsavingsbank.com .

Information regarding directors, executive officers and corporate governance of the Company is presented under the headings “Other Information Relating to Directors and Executive Officers — Delinquent Section 16(a) Reports Compliance,” “Proposal 1 — Election of Directors,” “Corporate Governance — Code of Ethics for Senior Officers,” “Corporate Governance — Insider Trading Policy” and “— Committees of the Board of Directors — Audit Committee” in the Company’s definitive Proxy Statement for the 20243 Annual Meeting of Stockholders (the “Proxy Statement”) and is incorporated herein by reference.

A copy of the Code of Ethics for Senior Officers is available to shareholders in the “Corporate Governance Documents” section of the “Investor Relations” portion of Somerset Regal Bank’s website of www.somersetregalbank.com .

Executive Compensation.

Summary Compensation Table

The following information is furnished for our principal executive officer and the two most highly compensated executive officers (other than the principal executive officer) whose total compensation exceeded $100,000 for the fiscal year ended June 30, 2023.

These individuals are sometimes referred to in this document as the “named executive officers.”

Name and Principal Position

Incentive Plan

Compensation (1)

Chief Executive Officer

Christopher J.

President and Chief Operating Officer

Vice President and Chief Financial Officer

(1) The compensation represented by the amounts for 2023 set forth in the “All Other Compensation”

column for the Named Executive Officers is detailed in the following table.

Contributions

Retirement Plan (2)

Total All Other

Christopher J.

_______________

(2) Represents the contribution made to the Supplemental Executive Retirement Plan for the benefit of Messrs.

Taylor and Pribula.

Employment Agreements.

Somerset Regal Bank has entered into employment agreements with Messrs.

Taylor and Pribula, which become effective as of the effective date of the mutual-to-stock conversion.

The term of the employment agreement with Mr.

Taylor will begin as of the effective date of the conversion and end on the third anniversary of that date.

Upon notice to Mr.

Taylor of at least 30 days prior to the expiration of the term of the agreement, Somerset Regal Bank may extend the term of the agreement for an additional twelve months.

The initial term of the employment agreement with Mr.

Pribula will begin as of the effective date of the conversion and end on the third anniversary of that date.

Commencing on the first anniversary of the effective date of the agreement with Mr.

Pribula and on each anniversary date thereafter, the term of the agreement will extend automatically for one additional year, so that the remaining term is again three years, unless either Somerset Regal Bank or Mr.

Pribula gives notice to the other party of non-renewal.

If either party provides a notice of non-renewal, the term will become fixed at that time and expire at the end of the then current term.

Notwithstanding the foregoing, in the event SR Bancorp or Somerset Regal Bank enters into a transaction that would constitute a change in control, as defined under the employment agreements, the term of the agreements would automatically extend so that they would expire no less than two years following the effective date of the change in control.

The employment agreements specify the base salaries of Messrs.

Taylor and Pribula, which initially will be $460,000 and $400,000, respectively.

The Board of Directors or the Compensation Committee of the Board of Directors of Somerset Regal Bank may increase, but not decrease, the executives’

base salaries.

In addition to base salary, the agreements provide that each executive will participate in any bonus plan or arrangement of Somerset Regal Bank in which senior management is eligible to participate and/or may receive a bonus on a discretionary basis, as determined by the Board of Directors or the Compensation Committee.

Somerset Regal Bank will provide a target cash bonus opportunity for Mr.

Taylor of at least 25% of his base salary and for Mr.

Pribula of at least 20% of his base salary.

Each executive is also entitled to participate in all employee benefit plans, arrangements and perquisites offered to employees and officers of Somerset Regal Bank and the reimbursement of reasonable travel and other business expenses incurred in the performance of his duties for Somerset Regal Bank.

Somerset Regal Bank will also provide each executive with the use of an automobile and reimburse the executive for automobile-related expenses.

Somerset Regal Bank may terminate the executives’

employment, or the executives may resign from their employment, at any time with or without good reason.

Under the employment agreements, in the event Somerset Regal Bank terminates an executive’s employment without cause or the executive voluntary resigns for “good reason”

(i.e., a “qualifying termination event”), Somerset Regal Bank will pay the executive a severance payment equal to the greater of (i) the remaining base salary and total annual bonus opportunity (based on the highest annual bonus earned during the three most recent calendar years prior to his date of termination) he would have received during the remaining term of the employment agreement or (ii) two time the sum of the executive’s base salary and the average annual incentive bonus paid to the executive for the three most recently completed calendar years prior to the date of termination.

In addition, the executives will be reimbursed for their monthly COBRA premium payments for up to 18 months.

If a qualifying termination event occurs at or within two years following a change in control of SR Bancorp or Somerset Regal Bank (or Somerset Regal Bank), the executive would be entitled to (in lieu of the payments and benefits described in the previous paragraph) a severance payment equal to three times the sum of (i) his base salary in effect as of the date of termination (or during the three preceding years, if higher) and (ii) and average annual total incentive bonus earned by the executive for the three most recently completed calendar years prior to the change in control (or, if greater, the annual total incentive bonus that would have been earned in the year of the change in control at target bonus opportunity).

In addition, the executive would receive a lump sum payment equal to the value of 36 month’s health care cost (based on COBRA premium payments).

For purposes of the employment agreements, the term “good reason”

includes (i) a material reduction in the executive’s base salary and/or aggregate incentive compensation opportunities (unless the reduction is part of a non-discriminatory reduction applicable to all executive officers), (ii) a material reduction in the executive’s authority, duties or responsibilities, (iii) the failure to re-appoint the executive to his executive position or the failure to nominate and recommend the election of the executive to the Board of Directors of SR Bancorp or to appoint or nominate and elect the executive to the Board of Directors of Somerset Regal Bank, (iv) a relocation of the executive’s principal place of employment by more than twenty miles or (v) a material breach of the employment agreement by the Bank.

The employment agreements terminate upon the executive’s death or disability.

Upon termination of employment (other than a termination in connection with a change in control), the executive will be required to adhere to one-year non-competition and non-solicitation restrictions set forth in his or her employment agreement.

The non-competition and non-solicitation covenants apply following a change in control for a period mutually to be agreed to by the parties, which will be no less than six months nor exceed two years.

In the event payments and benefits provided to the executive become subject to Sections 280G and 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), and after considering the value of the non-competition and non-solicitation covenants, the payments will be reduced if the reduction would leave the executive financially better off on an after-tax basis than if the executive received the entire payment and was obligated to pay the excise tax under Section 4999 of the Code.

In addition, David M.

Orbach entered into a new employment agreement with Somerset Regal Bank, effective as of the effective date of the Merger between Regal Bancorp and SR Bancorp.

The employment agreement has a three-year term.

Commencing on the first anniversary of the agreement and on each anniversary thereafter, the agreement will automatically renew for an additional year, so that the remaining term will again be three years, unless either party gives notice of non-renewal to the other, in which case the agreement will terminate at the end of the then current term.

Notwithstanding the foregoing, if SR Bancorp or Somerset Regal Bank enters into a transaction that would constitute a change in control, as defined under the employment agreement, the term of the agreement would automatically extend so that it would expire no less than two years following the effective date of the change in control.

During the term of the agreement, Mr.

Orbach will serve as Executive Chairman of SR Bancorp and Executive Vice Chairman of Somerset Regal Bank.

The initial base salary under the agreement is $375,000.

The Board of Directors or the Compensation Committee of the Board of Directors of Somerset Regal Bank may increase, but not decrease, Mr.

Orbach’s base salary.

In addition to base salary, the agreement provides that Mr.

Orbach will participate in any bonus plan or arrangement of Somerset Regal Bank in which senior management is eligible to participate and/or may receive a bonus on a discretionary basis, as determined by the Board of Directors or the Compensation Committee of the Board of Directors.

Somerset Regal Bank will provide a target cash bonus opportunity for Mr.

Orbach of at least 20% of his base salary.

Orbach is also entitled to participate in all employee benefit plans, arrangements and perquisites offered to employees and officers of Somerset Regal Bank and the reimbursement of reasonable travel and other business expenses incurred in the performance of his duties for Somerset Regal Bank.

Somerset Regal Bank will also provide him with the use of an automobile and reimburse him for automobile-related expenses.

Somerset Regal Bank may terminate Mr.

Orbach’s employment, or Mr.

Orbach may resign from his employment, at any time with or without good reason.

Under the employment agreement, if Somerset Regal Bank terminates Mr.

Orbach’s employment without cause or Mr.

Orbach voluntary resigns for “good reason”

(i.e., a “qualifying termination event”), Somerset Regal Bank will pay him a severance payment equal to the greater of (1) the remaining base salary and total annual bonus opportunity (based on the highest annual bonus earned during the three most recent calendar years before his date of termination) he would have received during the remaining term of the employment agreement or (2) two times the sum of his base salary and the average annual incentive bonus paid to him for the three most recently completed calendar years before the date of termination.

In addition, he will be reimbursed for his monthly COBRA premium payments for up to 18 months.

If a qualifying termination event occurs at or within two years following a change in control of SR Bancorp or Somerset Regal Bank, Mr.

Orbach would be entitled to (in lieu of the payments and benefits described in the previous paragraph) a severance payment equal to three times the sum of (1) his base salary in effect as of the date of termination (or during the three preceding years, if higher) and (2) and average annual total incentive bonus earned by him for the three most recently completed calendar years before the change in control (or, if greater, the annual total incentive bonus that would have been earned in the year of the change in control at target bonus opportunity).

In addition, he will receive a lump sum payment equal to the value of 36 months’

health care cost (based on COBRA premium payments).

For purposes of the employment agreement, the term “good reason”

generally includes:

(1) a material reduction in Mr.

Orbach’s base salary and/or aggregate incentive compensation opportunities under Somerset Regal Bank’s annual and long-term incentive plans or programs, as applicable;

(2) a material reduction in Mr.

Orbach’s

authority, duties or responsibilities;

(3) the failure to re-appoint Mr.

Orbach to his executive position or to nominate and recommend his election to SR Bancorp’s Board of Directors or to appoint or nominate and elect him to the Somerset Regal Bank’s Board of Directors;

(4) a relocation of his principal place of employment by more than 20 miles from his primary place of business;

or (5) a material breach of the employment agreement.

The employment agreement terminates upon Mr.

Orbach’s death or disability.

Upon termination of employment (other than a termination in connection with a change in control), Mr.

Orbach will be required to adhere to one-year non-competition and non-solicitation restrictions set forth in the employment agreement.

If payments and benefits provided to Mr.

Orbach becomes subject to Sections 280G and 4999 of the Internal Revenue Code, and after considering the value of the non-competition and non-solicitation covenants, the payments will be reduced if the reduction would leave him financially better off on an after-tax basis than if he received the entire payment and was obligated to pay the excise tax under Section 4999 of the Internal Revenue Code.

Bonus Policy.

The independent members of the Board of Directors of Somerset Regal Bank annually approve discretionary employee bonuses pursuant to a written bonus policy.

The Board of Directors recognizes that the net income of Somerset Regal Bank is tied to employee contributions and has developed the policy to reflect the contributions of employees.

The guidelines are based on the return on assets of Somerset Regal Bank, which are verified by an independent accounting firm, and, for senior executive officers, the bonus amounts may range from 4% to 14% of the executive’s base salary.

The Board of Directors may also take into consideration other factors, such as asset quality, liquidity, expense controls and personnel issues in determining the amount of a bonus award.

It is anticipated that the bonus policy will be re-evaluated by the Board of Directors of SR Bancorp and Somerset Regal Bank upon completion of the Merger.

Deferred Compensation Plan.

Somerset Regal Bank sponsors the Somerset Regal Bank, SLA Deferred Compensation Plan (the “Deferred Compensation Plan”) for the benefit of certain employees (including the Named Executive Officers) and directors.

Taylor and Pribula participate in the Deferred Compensation Plan.

Participants in the Deferred Compensation Plan are eligible to defer the receipt of a portion of their compensation each year.

At least semi-annually, Somerset Regal Bank credits each participant’s account under the Deferred Compensation Plan with earnings equal to the greater of (i) the highest certificate of deposit rate in effect on each June 30 and December 31 or (ii) the weighted average cost of all deposits of the Bank as of June 30 and December 31.

Benefits under the Deferred Compensation Plan are paid to participants within 60 days of the earlier of the participants’

separation from service, death or disability or a fixed date elected by the participant.

Distributions are normally made in equal quarterly installments over 10 years, unless the participant elects an available alternative method of distribution.

Distributions upon a participant’s death are paid in a lump sum, unless the participant has already begun receiving benefits under the plan, in which case the payments will continue to be made to the participant’s beneficiary at the same time they would have been paid to the participant.

Upon a participant’s disability, all benefits (or remaining benefits) will be paid to the participant in a lump sum.

A participant may also take earlier distributions in the event of certain unforeseeable emergencies.

Participants must make any elections regarding the time and form of distributions at the time they elect to defer compensation under the Deferred Compensation Plan and can only modify those elections in accordance with the terms of the plan.

Supplemental Executive Retirement Plan.

Somerset Regal Bank sponsors the Somerset Regal Bank Supplemental Executive Retirement Plan (the “Supplemental Plan”) for certain employees, including Messrs.

Taylor and Pribula.

Under the Supplemental Plan, on each May 1, Somerset Regal Bank will credit to each participant’s account under the plan an amount equal to a “designated percentage”

of the participant’s compensation for the year.

Somerset Regal Bank determines the “designated percentage”

each year based on calculations provided by their benefits consultant.

However, the “designated percentage”

is intended to replace the benefits the participant may not receive under the Pension Plan as a result of the limit on compensation that may be considered for purposes of tax-qualified plan, which for 2023 is $330,000.

At least semi-annually, Somerset Regal Bank credits each participant’s account under the Supplemental Plan with earnings equal to the greater of (i) the highest certificate of deposit rate in effect on each May 1 and November 1 or (ii) the weighted average cost of all deposits of the Bank as of May 1 and November 1.

Benefits are normally distributed under the Supplemental Plan in quarterly installments over five years within 90 days following the participant’s separation from service or disability.

Alternatively, participants may elect (at the time of becoming eligible to participate in the plan) that benefits be distributed in either quarterly installments

over 10 years or in a lump sum.

Upon a participant’s death prior to the participant’s separation from service or disability, benefits will be distributed over five years with 90 days following the participants’

death, unless the participant has elected a lump sum payment.

A participant may also take earlier distributions in the event of certain unforeseeable emergencies.

In connection with the freezing of the Pension Plan (see “—

Pension Plan ”

below) and the implementation of the ESOP, Somerset Regal Bank is exploring appropriate changes to the Supplemental Plan.

Somerset Regal Bank maintains the Somerset Savings Bank, SLA Savings and Investment Plan, a tax-qualified defined contribution plan for eligible employees (the “401(k) Plan”).

The named executive officers are eligible to participate in the 401(k) Plan on the same terms as other eligible employees of Somerset Regal Bank.

Eligible employees who are at least 21 years of age become participants in the 401(k) Plan after they have been employed for six consecutive months.

Under the 401(k) Plan, a participant may elect to defer, on a pre-tax basis, between 2% and 100% of their eligible compensation.

For 2023, the salary deferral contribution limit is $22,500, provided, however, that a participant over age 50 may contribute an additional $7,500 to the 401(k) Plan for a total of $30,000.

In addition to salary deferral contributions, Somerset Regal Bank makes contributions equal to 3% of the participant’s plan compensation.

A participant is immediately 100% vested in his or her salary deferral contributions and employer contributions.

Somerset Regal Bank intends to allow participants in the 401(k) plan to use up to 50% of their account balances in the 401(k) Plan to subscribe for stock in the offering.

The expense recognized in connection with the 401(k) Plan totaled $124,294 for the fiscal year ended June 30, 2023.

Pension Plan.

Somerset Regal Bank sponsors the Somerset Savings Bank, SLA Pension Plan (the “Pension Plan”).

The named executive officers are eligible to participant in the Pension Plan on the same basis as other eligible employees of Somerset Regal Bank.

Employees become participants in the plan on the May 1 following the attainment of age 20-1/2 and the completion of one year of service.

The normal annual retirement benefit (after attaining age 65) under the Pension Plan equals 1.54% of the participant’s average compensation (as defined in the plan) up to the participant’s “covered compensation”

(i.e., the amount of compensation that may be taxed each year for purposes of social security) plus 2% of the participant’s compensation in excess of his or her covered compensation, multiplied by the participant’s years of credit service (up to a maximum of 27 years).

The early retirement benefit (generally available after a participant has attained age 55 and completed 15 years of service) payable under the Pension Plan upon a participant’s termination of employment prior to his or her normal retirement age equals the normal retirement benefit reduced by 3-1/3% for each year between ages 55 and 57 and 6-2/3% for each year between ages 57 and 62.

Participants vest in their retirement benefits under the Pension Plan after earning five years of credited service after age 18.

The expense recognized in connection with the Pension Plan totaled $900,432 for the fiscal year ended June 30, 2023.

Somerset Regal Bank has taken steps to freeze the Pension Plan with respect to participation and benefit accounts effective as of April 30, 2023.

Employee Stock Ownership Plan.

In connection with the conversion, Somerset Regal Bank adopted an employee stock ownership plan (or “ESOP”) for eligible employees.

The named executive officers will be eligible to participate in the ESOP on the same terms as other eligible employees.

Eligible employees will begin participation in the ESOP on the later of the effective date of the conversion or upon the first entry date commencing on or after the eligible employee’s completion of six months of service and attainment of age 21.

The ESOP trustee purchased, on behalf of the ESOP, 8.0% of the total number of shares of SR Bancorp, Inc.

common stock sold in the conversion and contributed to the charitable foundation.

The ESOP funded its stock purchase with a loan from SR Bancorp, Inc.

equal to the aggregate purchase price of the common stock.

The trustee will repay the loan principally through contributions to the ESOP by Somerset Regal Bank and any dividends payable on common stock held by the ESOP over the anticipated 20-year term of the loan.

The interest rate for the ESOP loan is equal to the prime rate, as published in The Wall Street Journal , on the closing date of the offering.

The trustee will hold the shares purchased by the ESOP in an unallocated suspense account, and shares will be released from the suspense account on a pro-rata basis as the trustee repays the loan.

The trustee will allocate the shares released among participants’

accounts based on each participant’s proportional share of compensation relative to all participants.

A participant will vest in his or her account balance based on his or her years of service with the bank, at the rate of 25% per year after two years of service, so that the participant will be 100% vested after completing five years of service.

Participants who were employed by Somerset Regal Bank immediately prior to the

closing of the offering will receive credit for vesting purposes for years of service prior to adoption of the ESOP.

Participants also will automatically become fully vested upon attainment of their normal retirement age (age 65), death or disability, a change in control, or termination of the ESOP.

Generally, participants will receive distributions from the ESOP upon terminating employment in accordance with the terms of the plan document.

The ESOP reallocates any unvested shares forfeited upon a participant’s termination of employment among the remaining participants.

The ESOP will permit participants to direct the trustee as to how to vote the shares of common stock allocated to their accounts.

The trustee will vote unallocated shares and allocated shares for which participants do not timely provide instructions on any matter in the same ratio as those shares for which participants provide timely instructions, subject to fulfillment of the trustee’s fiduciary responsibilities.

Under applicable accounting requirements, Somerset Regal Bank will record a compensation expense for the ESOP at the fair market value of the shares as they are committed to be released from the unallocated suspense account, which may be more or less than the original issue price.

The compensation expense resulting from the release of the common stock from the suspense account and allocation to the accounts of plan participants will result in a corresponding reduction in the earnings of SR Bancorp, Inc.

Directors’

The following table sets forth for the year ended June 30, 2023, certain information as to the total remuneration we paid to our non-employee directors.

Fees Earned or Paid

Compensation ($)

Director Fees.

Directors of Somerset Savings Bank receive a per meeting fee of $4,200 and a per committee meeting fee of $750.

The chairman of the Audit Committee receives an additional $200 per month.

Each individual who serves as a director of Somerset Savings Bank also serves as a director of SR Bancorp, Inc.

Initially, each director will receive director fees only in his or her capacity as a director of Somerset Savings Bank.

Following the completion of the conversion and related stock offering, SR Bancorp, Inc.

may also determine to pay director fees but has not determined to do so at this time.

Deferred Compensation Plan.

Directors are eligible to defer a portion of their board compensation under the Deferred Compensation Plan, as described above.

For the year ended June 30, 2023, Ms.

Davey elected to defer a portion of her board compensation.

Information regarding executive compensation is presented under the headings “Executive Compensation” and “Director Compensation” in the Proxy Statement and is incorporated herein by reference.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Stock Ownership

The following table provides information as of September 28, 2023 about the beneficial owners known to SR Bancorp that own more than 5% of our outstanding common stock and the shares of common stock beneficially owned by each director, by each named executive officer and by all directors and executive officers as a group.

A person may be considered to beneficially own any shares of common stock over which he or she has, directly or indirectly, sole or shared voting or investment power.

Unless otherwise indicated, each of the named individuals has sole voting power and sole investment power with respect to the shares shown and none of the named individuals has pledged his or her shares.

Outstanding (1)

Marc Lebovitz

Christopher J.

Named Executive Officer Who Is Not A Director:

All directors and executive officers as a group

* Less than 1%.

(1) Based on 9,507,930 shares outstanding as of September 28, 2023.

(2) Includes 1,000 shares held by his spouse and 500 shares held by his children.

(3) Includes 5,000 shares held by his parent.

Equity Compensation Plans

SR Bancorp did not have any equity compensation plans at June 30, 2023.

Information regarding security ownership of certain beneficial owners and management is presented under the heading “Stock Ownership” in the Proxy Statement and is incorporated herein by reference.

Securities Authorized for Issuance Under Equity Compensation Plans

Other than our employee stock ownership plan, SR Bancorp did not have any equity compensation plans at June 30, 2024.

Certain Relationships and Related Transactions, and Director Independence.

Board Independence

The Board of Directors has determined that each of our directors, other than Messrs.

Orbach, Taylor and Pribula, would be considered independent under the Nasdaq Stock Market corporate governance listing standards.

In determining the independence of our directors, the Board of Directors considered relationships between Somerset Savings Bank and our directors that are not required to be reported under “Executive Compensation—Transactions With Certain Persons,”

consisting of deposit accounts that our directors maintain at Somerset Savings Bank.

Transactions with Certain Persons

Federal law generally prohibits publicly traded companies from making loans to their executive officers and directors, but it contains a specific exemption from the prohibition for loans made by federally insured financial institutions, such as Somerset Regal Bank, to their executive officers and directors in compliance with federal banking regulations.

Somerset Regal Bank had no outstanding loans or extensions of credit to its executive officers and directors, and members of their immediate families, at June 30, 2023.

Somerset Regal Bank has a policy that no extension of credit will be granted to its directors, officers or employees on terms more favorable than to those

available to the general public.

For information about restrictions on our ability to make loans to insiders, see “Regulation and Supervision—Federal Bank Regulation—Transactions with Affiliates and Loans to Insiders.”

In accordance with the listing standards of the Nasdaq Stock Market, any transactions that would be required to be reported under this section of this document must be reviewed by our audit committee or another independent body of the Board of Directors.

In addition, any transaction with a director is reviewed by and subject to approval of the members of the Board of Directors who are not directly involved in the transaction to confirm that the transaction is on terms that are no less favorable as those that would be available to us from an unrelated party through an arms’

length transaction.

Information regarding certain relationships and related transactions, and director independence is presented under the heading “Corporate Governance — Director Independence” and “Other Information Relating to Directors and Executive Officers — Transactions with Certain Related Persons” in the Proxy Statement and is incorporated herein by reference.

Principal Accounting Fees and Services.

The following table sets forth the fees that Baker Tilly US, LLP billed to Somerset Savings Bank for the years ended June 30, 2023 and 2022.

Audit Fees (1)

Audit-Related Fees (2)

All Other Fees

(1) Consists of fees for the audits of Somerset Savings Bank’s financial statements, and for services normally provided by the independent auditor in connection with statutory and regulatory filings or engagements.

(2) Includes fees related to the initial public offering and audits of employee benefit plans.

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm.

The Audit Committee is responsible for appointing, setting compensation and overseeing the work of the independent registered public accounting firm.

In accordance with its charter, the Audit Committee approves, in advance, all audit and permissible non-audit services to be performed by the independent registered public accounting firm.

This approval process ensures that the firm does not provide any non-audit services to us prohibited by law or regulation.

Information regarding principal accounting fees and services is presented under the heading “Proposal 3 — Ratification of the Appointment of Independent Registered Public Accountants” in the Proxy Statement and is incorporated herein by reference.

Exhibits, Financial Statement Schedules.

(a) Financial Statements and Schedules:

Consolidated Financial Statements of Somerset Savings Bank, SLA and Subsidiaries

Consolidated Financial Statements of SR Bancorp and Subsidiaries

Report of Independent Registered Public Accounting Firm

Consolidated Statements of Financial Condition as of June 30, 2024 and 2023

Consolidated Statements of Income for the years ended June 30, 2023 and 2022

Consolidated Statements of Comprehensive Income (Loss) for the years ended June 30, 2023 and 2022

Consolidated Statements of (Loss) Income for the years ended June 30, 2024 and 2023

Consolidated Statements of Comprehensive (Loss) Income for the years ended June 30, 2024 and 2023

Consolidated Statements of Changes in Equity for the years ended June 30, 2024 and 2023

1 unchanged sentence

Notes to Consolidated Financial Statements.

The Consolidated Financial Statements of Somerset Savings Bank, SLA and Subsidiaries beginning on page F-1 of this Form 10-K for the year ended June 30, 2023 are incorporated by reference herein.

The Consolidated Financial Statements of SR Bancorp and Subsidiaries beginning on page F-1 of this Form 10-K for the year ended June 30, 2024 are incorporated by reference herein.

All financial statement schedules are omitted because they are either inapplicable or not required, or because the required information is included in the Consolidated Financial Statements or notes thereto contained in this 2024 Annual Report.

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Exhibit Index

Agreement and Plan of Merger, and Amendment thereto, By and Among SR Bancorp, Inc., Somerset Savings Bank, SLA, Regal Bancorp, Inc., and Regal Bank (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No.

Agreement and Plan of Merger, and Amendment thereto, By and Among SR Bancorp, Inc., Somerset Regal Bank, SLA, Regal Bancorp, Inc., and Regal Bank (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No.

333-270489) as initially filed on March 13, 2023)

Amended and Restated Articles of Incorporation of SR Bancorp, Inc.

(Incorporated by reference to the Registrant’s Registration Statement on Form S-1/A (File No.

333-270489) as filed on July 10, 2023)

Amended and Restated Bylaws of SR Bancorp, Inc.

(Incorporated by reference to the Registrant's Annual Report on Form 10-K (File No.

001-41808) filed on September 28, 2023)

Form of Common Stock Certificate of SR Bancorp, Inc.

(Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No.

333-270489) as initially filed on March 13, 2023)

Employment Agreement, dated July 25, 2022, by and between Somerset Savings Bank, SLA and William P.

Taylor (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No.

Description of Registrant's Securities*

Employment Agreement, dated July 25, 2022, by and between Somerset Regal Bank, SLA and William P.

Taylor (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No.

333-270489) as initially filed on March 13, 2023)

Employment Agreement, dated July 25, 2022, by and between Somerset Savings Bank, SLA and Christopher J.

Pribula (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No.

Employment Agreement, dated July 25, 2022, by and between Somerset Regal Bank, SLA and Christopher J.

Pribula (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No.

333-270489) as initially filed on March 13, 2023)

Employment Agreement, dated July 25, 2022, by and between Somerset Savings Bank, SLA and David Orbach (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No.

Employment Agreement, dated July 25, 2022, by and between Somerset Regal Bank, SLA and David Orbach (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No.

333-270489) as initially filed on March 13, 2023)

Somerset Savings Bank Supplemental Executive Retirement Plan (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No.

333-270489) as initially filed on March 13, 2023)

Somerset Savings Bank, SLA Deferred Compensation Plan (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No.

Somerset Regal Bank, SLA Deferred Compensation Plan (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No.

333-270489) as initially filed on March 13, 2023)

Subsidiaries*

SR Bancorp, Inc.

Policy Regarding Insider Trading*

Somerset Regal Bank Supplemental Executive Retirement Plan (Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No.

001-41808) as filed on April 26, 2024)

Subsidiaries (Incorporated by reference to the Registrant's Annual Report on Form 10-K (File No.

001-41808) filed on September 28, 2023) *

Consent of Baker Tilly US, LLP*

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Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

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Inline XBRL Taxonomy Extension Schema Document

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Inline XBRL Taxonomy Extension Definition Linkbase Document

Inline XBRL Taxonomy Extension Label Linkbase Document

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

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Cover Page Interactive Data File (embedded within the Inline XBRL document)

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SR Bancorp, Inc.

September 28, 2023

October 15, 2024

/s/ William P.

5 unchanged sentences

(Principal Executive Officer)

September 28, 2023

October 15, 2024

/s/ Harris M.

1 unchanged sentence

(Principal Financial and Accounting Officer)

September 28, 2023

October 15, 2024

/s/ Christopher J.

Director, President and Chief Operating Officer

September 28, 2023

October 15, 2024

Christopher J.

Director (Executive Chairman)

September 28, 2023

October 15, 2024

/s/ Douglas M.

September 28, 2023

October 15, 2024

/s/ Thomas Lupo

September 28, 2023

October 15, 2024

/s/ Marc Lebovitz

September 28, 2023

October 15, 2024

Marc Lebovitz

2 unchanged sentences

Consolidated Statements of Financial Condition as of June 30, 2024 and 2023

Consolidated Statements of Income for the years ended June 30, 2023 and 2022

Consolidated Statements of Comprehensive Income (Loss) for the years ended June 30, 2023 and 2022

Consolidated Statements of (Loss) Income for the years ended June 30, 2024 and 2023

Consolidated Statements of Comprehensive (Loss) Income for the years ended June 30, 2024 and 2023

Consolidated Statements of Changes in Equity for the years ended June 30, 2024 and 2023

2 unchanged sentences

REPORT OF INDEPENDENT REGIS TERED PUBLIC ACCOUNTING FIRM

To the stakeholders and the Board of Directors of Somerset Savings Bank, S.L.A.

and Subsidiaries:

To the stockholders and Board of Directors of SR Bancorp Inc:

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial condition of Somerset Savings Bank, S.L.A.

and Subsidiaries (the "Company") as of June 30, 2023 and 2022, the related consolidated statements of income, comprehensive income (loss), changes in equity, and cash flows for the years then ended, and the related notes (collectively referred to as the "consolidated financial statements").

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2023 and 2022, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated statements of financial condition of SR Bancorp Inc.

and Subsidiaries (the "Company") as of June 30, 2024 and June 30, 2023, the related consolidated statements of income, comprehensive income (loss), changes in equity, and cash flows for the years then ended, and the related notes (collectively referred to as the "consolidated financial statements").

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2024 and June 30, 2023, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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/s/ Baker Tilly US, LLP

We have not been able to determine the specific year that we began serving as the Company’s auditor;

however, we are aware that we have served as the Company’s auditor since at least 1994.

We have not been able to determine the specific year that we began serving as the Company’s auditor;

however, we are aware that we have served as the Company’s auditor since at least 1994.

Iselin, New Jersey

September 28, 2023

Somerset Savings Bank, SLA and Subsidiaries

October 15, 2024

SR Bancorp, Inc.

and Subsidiaries

Consolidated Statements of Financial Condition

June 30, 2023 and 2022

June 30, 2024 and June 30, 2023

(Dollars in thousands)

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Securities available-for-sale, at fair value

Securities held-to-maturity

Securities held-to-maturity, at amortized cost

Equity securities, at fair value

Loans receivable, net of allowance for loan losses of $ 1,116

and $ 1,116 , respectively

Loans receivable, net of allowance for credit losses of $ 5,229

and allowance for loan losses of $ 1,116 , respectively

Premises and equipment, net

3 unchanged sentences

Bank owned life insurance

Goodwill and intangible assets

Liabilities and Equity

3 unchanged sentences

Advance payments by borrowers for taxes and insurance

Accrued interest payable

Lease liability

1 unchanged sentence

Total liabilities

Common stock, $ 0.01 par value, 55,000,000 authorized;

9,507,930 shares issued and outstanding at June 30, 2024

and no ne at June 30, 2 0 23

Additional paid-in capital

Retained earnings

Unearned compensation ESOP

Accumulated other comprehensive loss

Total liabilities and equity

Total stockholders' equity

Total liabilities and stockholders' equity

The accompanying notes are an integral part of these consolidated financial statements.

Somerset Savings Bank, SLA and Subsidiaries

Consolidated Statem ents of Income

SR Bancorp, Inc.

and Subsidiaries

Consolidated Statem ents of (Loss) Income

For the Years Ended June 30, 2024 and 2023

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Securities, taxable

Federal funds sold

Interest bearing deposits at other banks

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Net Interest Income

Provision for Loan Losses

Net Interest Income After Provision For Loan Losses

Noninterest Income

Provision for Credit Losses

Net Interest Income After Provision For Credit Losses

Noninterest (Loss) Income

Service charges and fees

1 unchanged sentence

Fees and service charges on loans

Unrealized gain (loss) on equity securities

Realized (loss) gain on sale of securities

Total noninterest income

Unrealized gain on equity securities

Realized loss on sale of securities

Gain on sale of loans

Total noninterest (loss) income

Noninterest Expense

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Furniture and equipment

Data Processing

FDIC premiums

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Total noninterest expense

Income Before Income Tax Expense

Income Tax Expense

Net (Loss) Income Before Income Tax Expense

Income Tax (Benefit) Expense

Net (Loss) Income

Basic (loss) earnings per share

Diluted (loss) earnings per share

Weighted average number of common shares outstanding - basic

Weighted average number of common shares outstanding - diluted

The accompanying notes are an integral part of these consolidated financial statements.

Somerset Savings Bank, SLA and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

SR Bancorp, Inc.

and Subsidiaries

Consolidated Statements of Comprehensive (Loss) Income

For the Years Ended June 30, 2024 and 2023

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Year Ended June 30,

Net (Loss) Income

Other Comprehensive Income (Loss)

Unrealized (losses) gains on securities available-for-sale, net of income tax (benefit) expense of $( 344 ) and $( 1,353 ), respectively (1)

Change in defined pension plan for unrealized actuarial gains (losses) net of income tax expense (benefit) of $ 1,280 and $( 561 ), respectively (2)

Total other comprehensive income (loss)

Total comprehensive income (loss)

(1) Income tax amounts on unrealized holding (losses) gains on securities available-for-sale are included in the net deferred tax asset described in Note 9.

(2) Income tax amounts on the change in the defined benefit pension plan for unrealized actuarial gains (losses) are included in the net deferred tax asset described in Note 9.

Somerset Savings Bank, SLA and Subsidiaries

Unrealized holding gains (losses) on securities available-for-sale

arising during the year, net of income tax (expense) benefit of

$( 119 ) and $ 386 , respectively (a)

Reclassification adjustment for losses on sale of securities included in

net loss, net of income tax (expense) benefit of $( 1,154 ) and $( 42 ),

Total change in unrealized gains (losses)

Change in defined pension plan for unrealized actuarial gains net

of income tax (expense) of $( 58 ) and $( 1,280 ), respectively (b)

Total other comprehensive income

Total comprehensive (loss) income

(a) Income tax amounts on unrealized holding gains (losses) on securities available-for-sale are included in the net deferred tax asset described in Note 13.

(b) Income tax amounts on the change in the defined benefit pension plan for unrealized actuarial gains (losses) are included in the net deferred tax asset described in Note 13.

The accompanying notes are an integral part of these consolidated financial statements.

SR Bancorp, Inc.

and Subsidiaries

Consolidated Statements of Changes in Equity

2 unchanged sentences

Comprehensive

Balance, July 1, 2021

Other comprehensive loss, net of tax

Balance, June 30, 2022

Other comprehensive loss, net of tax

Other comprehensive income,

Balance, June 30, 2023

Somerset Savings Bank, SLA and Subsidiaries

Cumulative adjustment for

change in accounting principle

Common stock issued,

9,507,930 shares

Initial funding of ESOP,

760,634 shares

ESOP shares allocated or

committed for allocation to

participants, 57,048 shares

Other comprehensive income,

Balance, June 30, 2024

The accompanying notes are an integral part of these consolidated financial statements.

SR Bancorp, Inc.

and Subsidiaries

Consolidated Statements of Cash Flows

3 unchanged sentences

Cash Flows from Operating Activities

Adjustments to reconcile net income to net cash provided by operating activities:

Provision for loan losses

Deferred income tax (benefit) expense

Net (loss) income

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Provision for credit losses

Deferred income tax benefit

Accretion of acquisition fair value adjustments, net

Amortization of core deposit intangible asset

Net amortization of premiums and discounts on securities

Net amortization of deferred loan fees, costs and discounts

Increase in cash surrender value of bank owned life insurance

Unrealized (gain) loss on equity securities

Gain on sale of securities, net

Loss on sale of loans, net

Amortization of right to use asset

Income from cash surrender value of bank owned life insurance

Stock-based compensation expense

Unrealized gain on equity securities

Loss on sale of investments, net

Gain on sale of loans held for sale

Proceeds from sales of loans held for sale

Originations of loans held for sale

Gain on sale of premises and equipment

Noncash expense - contribution to Somerset Regal Bank Charitable Foundation

(Increase) decrease in:

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Other liabilities

Amortization of right-of-use asset

Net cash provided by operating activities

Net cash (used in) provided by operating activities

Cash Flows from Investing Activities

Proceeds from maturities and principal repayments of securities available-for-sale

Purchase of securities held-to-maturity

Purchase of securities available-for-sale

Proceeds from maturities and principal repayments of securities held-to-maturity

Proceeds from maturities, calls and principal repayments of securities available-for-sale

Proceeds from maturities, calls and principal repayments of securities held-to-maturity

Proceeds from sale of securities available-for-sale

Proceeds from sale of securities held-to-maturity

Purchases of securities held-to-maturity

Proceeds from time deposits in other financial institutions

Net increase in loans receivable

Purchase of premises and equipment

Purchase of restricted equity securities

Net cash provided by (used in) investing activities

Purchases of premises and equipment

Proceeds from sale of premises and equipment

Redemption (purchase) of restricted equity securities

Cash paid for acquisition

Cash received from acquisition

Net cash provided by investing activities

Cash Flows from Financing Activities

Proceeds from borrowings

Net (decrease) increase in interest bearing deposits

Net (decrease) increase in non-interest bearing deposits

Net decrease in interest bearing deposits

Net decrease in non-interest bearing deposits

Net increase in advance payments by borrowers for taxes and insurance

Net cash provided by financing activities

Proceeds from short-term borrowings

Repayment of short-term borrowings

Cash proceeds from issuance of common stock

Net cash (used in) provided by financing activities

Net increase (decrease) in cash and cash equivalents

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Supplementary Cash Flow Information

Cash paid during the period for:

Interest paid

Income taxes paid

Somerset Savings Bank, SLA and Subsidiaries

Fair value of assets acquired, net of cash and cash equivalents acquired

Goodwill recorded at merger

Fair value of liabilities assumed

Fair values of 452,758 common shares contributed to Somerset Regal Bank Charitable Foundation

The accompanying notes are an integral part of these consolidated financial statements.

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024 and 2023

(Dollars in thousands)

Summary of Significant Accounting Policies

Somerset Savings Bank, SLA has been serving the communities of Somerset, Middlesex, Hunterdon and Essex counties in New Jersey since 1887.

The bank is a New Jersey chartered savings bank subject to the laws and regulations of federal and state agencies.

A locally managed community bank, Somerset Savings Bank, SLA provides customary retail and commercial banking services to individuals, businesses and local municipalities through its 7 full-service branch locations.

Summary of Sig nificant Accounting Policies

Conversion, Stock Offering and Merger

The conversion of Somerset Savings Bank, SLA from the mutual to stock form of organization and related stock offering by SR Bancorp, Inc.

(the "Company"), the holding company for Somerset Savings Bank, SLA, was completed on September 19, 2023.

The Company’s common stock began trading on the Nasdaq Capital Market under the trading symbol “SRBK” on September 20, 2023.

The Company sold 9,055,172 shares of its common stock at a price of $ 10.00 per share, which included 760,634 shares sold to Somerset Regal Bank’s Employee Stock Ownership Plan.

Additionally, the Company contributed 452,758 shares and $ 905,517 in cash to the Somerset Regal Charitable Foundation, Inc., a charitable foundation formed in connection with the conversion.

Upon the completion of the conversion and offering, 9,507,930 shares of Company common stock were outstanding.

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.

The Company, a Maryland corporation, is the holding company for Somerset Regal Bank.

The Bank, which was formed in 1887, serves Essex, Hunterdon, Middlesex, Morris, Somerset and Union counties in New Jersey.

The Bank is a New Jersey chartered commercial bank subject to the laws and regulations of federal and state agencies.

As a locally managed community bank, the Bank provides retail and commercial banking services to individuals, businesses and local municipalities through its 15 full-service branch locations.

Principles of Consolidation

The consolidated financial statements include the accounts of Somerset Savings Bank, SLA and its wholly owned subsidiaries Somerset Investment Co.

(the “Investment Co.”) and Somerset Consumer Service Corp.

(“SCS”) (collectively, the “Savings Bank”).

The consolidated financial statements include the accounts of SR Bancorp, Inc.

and its wholly owned subsidiary the Bank, and its wholly-owned subsidiaries, Somerset Investment Co.

(the “Investment Co.”), RB Properties, LLC and Somerset Consumer Service Corp.

All significant intercompany accounts and transactions have been eliminated in consolidation.

1 unchanged sentence

is a special purpose entity subject to the investment company provisions of the New Jersey Corporation Business Tax Act whose activities are limited to holding investment securities and recognizing income and other gains/losses thereon.

RB Properties, LLC was formed to own and manage real estate property acquired through foreclosure or in lieu of foreclosure in connection with loans.

RB Properties, LLC is currently inactive.

SCS has had limited activity.

Basis of Presentation and Use of Estimates

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S.

GAAP”).

The financial information contained in this Annual Report on Form 10-K as of and for the year ended June 30, 2024 is for the Company and the Bank, unless indicated otherwise.

However, due to the timing of the Merger, the statement of (loss) income and related disclosures only includes operations of Regal Bancorp and Regal Bank since September 19, 2023.

Financial information as of June 30, 2023, and for the year then ended, is for Somerset Savings Bank, SLA, on a stand-alone basis.

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S.

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities as of the date of the consolidated statement of financial condition and revenues and expenses for the periods then ended.

Actual results could differ significantly from those estimates.

Prior period amounts have been reclassified when necessary to conform to the current year’s presentation.

Such reclassifications did not have a material impact on the operating results or financial position of the Savings Bank.

Material estimates that are particularly susceptible to significant changes relate to the identification of other-than-temporary impairment on securities, the allowance for loan losses and the valuation of deferred tax assets.

Management believes that the evaluations of other-than-temporary impairment on securities, the allowance for loan losses and the valuation of deferred tax assets are adequate.

While management uses available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions in the market area.

Prior period amounts have been reclassified when necessary to conform to the current year’s presentation.

Such reclassifications did not have a material impact on the operating results or financial position of the Company.

Material estimates that are particularly susceptible to change are:

the allowance for credit losses;

the evaluation of goodwill for impairment;

fair value measurements of assets and liabilities;

and income taxes.

Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are deemed necessary.

While management uses its best judgment, actual results could differ from those estimates.

Segment Reporting

Accounting Standards Codification ("ASC") Topic 280, Segment Reporting, establishes standards for the way business enterprises report information about operating segments in annual consolidated financial statements.

The Company has one reportable segment, "Community Banking." Community Banking encompasses the Company's primary business, which includes providing a wide range of commercial, retail and related banking services.

The Company's primary focus within Community Banking is to grow loans using deposits generated by the Company's branches.

Our business is generated principally in central and northern New Jersey.

Concentrations of Credit Risk

The Savings Bank’s lending activity is concentrated in loans secured by real estate located primarily in the State of New Jersey.

Credit risk exposure in this area of lending are mitigated by adhering to conservative underwriting practices and policies, and close monitoring of the loan portfolio.

Residential mortgage loans originated with a loan-to-value ratio in excess of 80 % are generally insured by private mortgage insurance.

The Savings Bank does not have any significant concentrations to any one industry or customer.

Notes 2 and 3 discuss the types of investment securities in which the Savings Bank invests.

The Company's lending activity is concentrated in loans secured by real estate located primarily in the State of New Jersey.

Credit risk exposure in this area of lending is mitigated by adhering to conservative underwriting practices and policies, and close monitoring of the loan portfolio.

The Company does not have any significant concentrations to any one industry or customer.

Notes 4 and 5 discuss the types of investment securities in which the Company invests.

Credit risk as it relates to investment activities is mitigated through the monitoring of ratings and the purchase of government-sponsored agency securities, backed by the full faith and credit of the United States.

The Savings Bank maintains accounts with other financial institutions with balances in excess of federal deposit insurance limits.

The Savings Bank has not experienced any loss in such accounts and management believes that these accounts do not expose the Savings Bank to any significant credit risk.

Somerset Savings Bank, SLA and Subsidiaries

Notes to Consolidated Financial Statements —

June 30, 2023 and 2022

(Dollars in thousands)

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, amounts due from banks and interest-earning deposits in other banks with original maturities of three months or less.

The Savings Bank maintains accounts at other financial institutions with balances in excess of federal deposit insurance limits.

The Savings Bank has not experienced any loss in such accounts.

Investments in debt securities that the Savings Bank has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost.

Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized holding gains and losses included in earnings.

The Company maintains accounts at other financial institutions with balances in excess of federal deposit insurance limits.

The Company has not experienced any loss in such accounts.

Adoption of Accounting Standards Codification Topic 326:

Financial Instruments - Credit Losses ("ASC 326")

On July 1, 2023, the Company adopted ASC 326 ("CECL"), which requires the earlier recognition of credit losses on loans and other financial instruments based on an expected loss model, replacing the incurred loss model that was in use through June 30, 2023.

Under this guidance, an entity measures all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts.

The CECL model applies to loans and leases, unfunded lending commitments, held-to-maturity debt securities and other debt instruments measured at amortized cost.

The Company recorded the effect of implementing CECL using a modified-retrospective approach through a cumulative effect adjustment through retained earnings as of July 1, 2023, the beginning of the reporting period in which CECL became effective.

The adoption of the new standard resulted in an increase to the allowance for credit losses on loans of $ 34,000 , net of

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

No allowances were recorded for investment securities or unfunded lending commitments at adoption, as the estimates of those losses were de minimus.

Investments in debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost.

Debt and equity securities that are bought and held principally to sell in the near term are classified as trading securities and reported at fair value, with unrealized holding gains and losses included in earnings.

Debt and equity securities not classified as trading securities or as held-to-maturity securities are classified as available-for-sale securities and reported at fair value, with unrealized holding gains or losses, net of deferred income taxes, reported in the accumulated other comprehensive income/loss component of equity.

1 unchanged sentence

Gain or loss on sales of securities is based on the specific identification method.

Sales or dispositions of securities whose fair value exceed amortized cost are recognized in earnings.

On a quarterly basis, the Company assesses investments with unrealized losses in its available-for-sale and held-to-maturity portfolios regarding its ability and intent to hold those investments until fair value equals or exceeds amortized cost.

Equity securities with readily determinable fair values are measured at fair value.

1 unchanged sentence

Dividends are included in interest income.

Individual securities are considered impaired when fair value is less than amortized cost.

On a quarterly basis, management evaluates all securities with unrealized losses to determine if such impairments are “temporary”

or “other than temporary”

in accordance with applicable accounting guidance.

As part of its evaluation, management considers many factors including, but not limited to, (1) the length of time and extent of impairment, (2) any adverse industry or macroeconomic conditions, (3) any changes to the financial condition or credit worthiness of the issuer, and (4) whether the Savings Bank has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery.

Accordingly, the Savings Bank accounts for temporary impairments based upon security classification as either trading, available-for-sale or held-to-maturity.

Temporary impairments on “available-for-sale”

securities are recognized, on a tax-effected basis, through other comprehensive income/loss with offsetting entries adjusting the carrying value of the security and the balance of deferred taxes.

Temporary impairments of “held-to-maturity”

securities are not recognized in the consolidated financial statements;

however, information concerning the amount and duration of impairments on held-to-maturity securities is disclosed in the notes to the consolidated financial statements.

Other-than-temporary impairments on securities that the Savings Bank has decided to sell or will more likely than not be required to sell prior to the full recovery of their fair value to a level equal to or exceeding amortized cost are recognized in earnings.

Otherwise, the other-than-temporary impairment is bifurcated into credit-related and noncredit-related components.

The credit-related impairment generally represents the amount by which the present value of the cash flows expected to be collected on a debt security falls below its amortized cost.

The noncredit-related component represents the remaining portion of the impairment not otherwise designated as credit-related.

Credit-related other-than-temporary impairments are recognized in earnings while noncredit-related other-than-temporary impairments are recognized, net of deferred income taxes, in other comprehensive income/loss.

In compliance with ASC 326, the Company conducted a review of its investment portfolio to determine the appropriate level of credit losses to reserve for.

The Company did no t record an allowance for credit losses ("ACL") on its available-for-sale ("AFS") securities during the year ended June 30, 2024 or upon implementation of CECL on July 1, 2023.

As of both periods, the Company considered the unrealized losses on the AFS securities to be related to fluctuations in market conditions, primarily interest rates, and not reflective of deterioration in credit.

As of June 30, 2024, the Company had no AFS securities.

As of June 30, 2023, the Company's AFS securities consisted primarily of highly-rated government sponsored agency (GSE) residential mortgage-backed securities.

The unrealized losses were higher due to market uncertainty resulting from inflation and rising interest rates from the time of the security purchase.

The Company's held-to-maturity ("HTM") portfolio consists principally of highly-rated GSE residential mortgage-backed securities.

The Company segments its HTM into GSE, residential mortgage-backed securities, collateralized mortgage obligations ("CMOs"), and other debt securities to determine the ACL.

The ACL is determined based on the security's historical losses and the ratings of major investment securities rating services, adjusted for certain qualitative factors.

The Company has determined that for GSE residential mortgage-backed securities, it would be appropriate to assume the expected credit loss to be zero.

At both June 30, 2024 and 2023, the Company had no HTM securities that were past due 30 days or more as to principal or interest payments.

Based on its review of HTM securities, the Company deemed no ACL reserve was necessary for the years ended June 30, 2024 and 2023.

Loans Receivable

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any deferred fees and costs.

Interest income is accrued on the unpaid principal balance and credited to income.

1 unchanged sentence

Discounts and premiums on purchased loans are amortized to income using the interest method over the expected lives of the loans.

Somerset Savings Bank, SLA and Subsidiaries

Notes to Consolidated Financial Statements —

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

(Dollars in thousands)

The loans receivable portfolio is segmented into two segments, mortgage and consumer.

Mortgage loans consist of the following classes:

residential and non-residential.

Consumer loans consist of the following classes:

equity, passbook or certificate and personal.

Following the completion of the Merger, the loans receivable portfolio was segmented as follows:

multi-family real estate loans, owner occupied commercial real estate loans, other commercial real estate loans, commercial and industrial loans, residential mortgage loans and consumer loans.

The accrual of interest is generally discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even when the loan is currently performing.

A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured.

When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan losses.

Interest received on nonaccrual loans generally is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal.

Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally six months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

The past due status of all classes of loans receivable is determined based on contractual due dates for loan payments.

Allowance for Loan Losses

The allowance for loan losses represents management’s estimate of losses inherent in the loan portfolio as of the statement of financial condition date and is recorded as a reduction to loans.

The allowance for loan losses is increased by the provision for loan losses, and decreased by charge-offs, net of recoveries.

Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance.

All, or part, of the principal balance of loans receivable are charged off to the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely.

Because all identified losses are immediately charged off, no portion of the allowance for loan losses is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all loan losses.

The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be reasonably anticipated.

Management performs a quarterly evaluation of the adequacy of the allowance.

The allowance is based on the Savings Bank’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors.

This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revision as more information becomes available.

The allowance consists of specific and general components.

The specific component relates to loans that are classified as impaired.

For loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.

The general component covers pools of homogeneous loans by loan class, excluding loans classified as impaired.

These pools of loans are evaluated for loss exposure based upon historical loss rates for each of these categories of loans, adjusted for qualitative factors.

These qualitative risk factors include:

Lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices.

National, regional, and local economic and business conditions as well as the condition of various market segments.

Nature and volume of the portfolio and terms of loans.

Volume and severity of past due, classified and nonaccrual loans as well as other loan modifications.

Existence and effect of any concentrations of credit and changes in the level of such concentrations.

Effect of external factors, such as competition and legal and regulatory requirements.

Somerset Savings Bank, SLA and Subsidiaries

Notes to Consolidated Financial Statements —

June 30, 2023 and 2022

(Dollars in thousands)

Value of underlying collateral for collateral dependent loans.

The experience, ability, and depth of lending management and other relevant staff.

Quality of the institution’s loan review system.

Each factor is assigned a value to reflect improving, stable or declining conditions based on management’s best judgment using relevant information available at the time of the evaluation.

Adjustments to the factors are supported through documentation of changes in conditions in a narrative accompanying the allowance for loan loss calculation.

Mortgage loans are secured by the borrower’s residential or non-residential real estate in a first lien position.

Allowance for Credit Losses

The allowance for credit losses ("ACL") is a significant accounting estimate used in the preparation of the Company's consolidated financial statements.

Upon adoption of ASC 326 on July 1, 2023, the Company replaced the incurred loss impairment model with a requirement to recognize lifetime expected credit losses on loans and other financial instruments immediately when a financial asset is originated or purchased.

The ACL is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans.

Loans, or portions thereof, are charged off against the allowance when they are deemed uncollectible.

The allowance is comprised of reserves measured on a collective (pool) basis based on a lifetime loss-rate model when similar risk characteristics exist.

Loans that do not share risk characteristics are evaluated on an individual basis.

Arriving at an appropriate level of ACL involves a high degree of judgment.

While management uses available information to recognize losses on loans, changing economic conditions and the economic prospects of the borrowers may necessitate future additions or reductions to the allowance.

The Company estimates expected credit losses using a combination of the cohort method and weighted average remaining maturities method.

The loan portfolio is segmented into pools of loans by similar attributes and risk characteristics, as of a particular point in time, to which expected losses are calculated over their remaining lives, or until sufficiently attrited (i.e., have reached an acceptable stage at which a significant majority of all losses are expected to have been recognized).

Each model factors historical loss rates into quantitative adjustments, to which management applies qualitative adjustments.

The various risks that may be considered in making qualitative factor adjustments include, among other things:

the impact of changes in lending policies and procedures, including changes in underwriting standards and practices for collections, write-offs, and recoveries;

actual and expected changes in national, regional, and local economic and business conditions and developments that affect the collectability of the loan pools;

changes in the composition and size of the loan portfolio and in the terms of the underlying loans;

changes in the experience, ability, and depth of our lending management and staff;

changes in volume and severity of past due and nonaccrual assets;

changes to the quality of our internal loan review system;

the existence, growth, and effect of any concentrations of credit;

and regulatory, legal and environmental events.

The ACL is increased by the provision for credit losses, and decreased by charge-offs, net of recoveries.

Loans deemed to be uncollectible are charged against the ACL, and subsequent recoveries, if any, are credited to the allowance.

All, or part, of the principal balance of loans receivable are charged off against the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely.

Because all identified losses are immediately charged off, no portion of the allowance for credit losses is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all credit losses.

Mortgage loans are secured by the borrower’s residential or non-residential real estate in a first lien position.

Mortgage loans have varying loan rates depending on the financial condition of the borrower and the loan to value ratio.

Consumer loans are primarily home equity loans and are generally secured by the borrower’s personal residence in a second lien position.

A loan is considered impaired when, based on current information and events, it is probable that the Savings Bank will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.

Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due.

Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed.

Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent.

A specific allowance is established for an impaired loan if its carrying value exceeds its estimated fair value.

The estimated fair values of substantially all of the Savings Bank’s impaired loans are measured based on the estimated fair value of the loan’s collateral.

For loans secured by real estate, estimated fair values are determined primarily through third-party appraisals.

When a real estate secured loan becomes impaired, a decision is made regarding whether an updated certified appraisal of the real estate is necessary.

This decision is based on various considerations, including the age of the most recent appraisal, the loan-to-value ratio based on the original appraisal and the condition of the property.

Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value.

The discounts also include estimated costs to sell the property.

A loan is categorized as a troubled debt restructuring (“TDR”) if a concession to contractual terms is granted to the borrower due to deterioration in the financial condition of the borrower.

In situations where, for economic or legal reasons related to a borrower’s financial difficulties, management may grant a concession for other than an insignificant period of time to the borrower that would not otherwise be considered, the related loan is classified as a TDR.

Management strives to identify borrowers in financial difficulty early and work with them to modify to more affordable terms before their loan reaches nonaccrual status.

These modified terms may include rate reductions, principal forgiveness, payment forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral.

In cases where borrowers are granted new terms that provide for a reduction of either interest or principal, management measures any impairment on the restructuring as noted above for impaired loans.

Generally, a nonaccrual loan that is restructured remains on nonaccrual until the obligation is brought current and has performed for a period of time (generally nine months) to demonstrate that the borrower can meet the restructured terms.

If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains classified as a nonaccrual loan.

TDRs are considered impaired loans for purposes of calculating the Savings Bank’s allowance for loan loss until they are ultimately repaid in full or foreclosed and sold.

Somerset Savings Bank, SLA and Subsidiaries

Notes to Consolidated Financial Statements —

Commercial real estate loans consist of multi-family real estate, owner-occupied, mixed use and other

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

(Dollars in thousands)

The allowance calculation methodology includes further segregation of loan classes into risk rating categories.

The borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated when credit deficiencies arise, such as delinquent loan payments, for residential and consumer loans.

Credit quality risk ratings include regulatory classifications of special mention, substandard, doubtful and loss.

Loans classified as special mention have potential weaknesses that deserve management’s close attention.

If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects.

Loans classified substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.

They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any.

Loans classified doubtful have all the weaknesses inherent in loans classified substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable.

Loans classified as a loss are considered uncollectible and are charged to the allowance for loan losses.

Loans not classified are rated pass.

In addition, Federal regulatory agencies, as an integral part of their examination process, periodically review the Savings Bank’s allowance for loan losses and may require the Savings Bank to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management.

Based on management’s comprehensive analysis of the loan portfolio, management believes the current level of the allowance for loan losses is adequate.

Premises and Equipment

commercial real estate, as well as other commercial loans.

Commercial and industrial loans are extended to businesses as either unsecured or secured by various types of collateral, such as accounts receivable, inventory, equipment and/or real estate.

Consumer loans are primarily home equity loans and are generally secured by the borrower’s personal residence in a second lien position.

From time to time, we may modify certain loans to borrowers who are experiencing financial difficulty.

In some cases, these modifications may result in new loans.

Loan modifications to borrowers experiencing financial difficulty may be in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, or a term extension, or a combination thereof, among other things.

Our policies, consistent with regulatory guidelines, provide for the classification of loans and other assets that are considered to be of lesser quality as substandard, doubtful, or loss assets.

An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.

Substandard assets include those assets characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected.

Assets classified as doubtful have all of the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

Assets (or portions of assets) classified as loss are those considered uncollectible and are charged to the ACL as their continuance as assets is not warranted.

Assets that do not expose us to risk sufficient to warrant classification in one of the aforementioned categories, but which possess potential weaknesses that deserve our close attention, are required to be designated as special mention.

As of June 30, 2024, we had no assets designated as special mention.

Prior to the adoption of ASC 326 on July 1, 2023, a loan was individually evaluated when the loan was considered impaired.

A loan was considered individually impaired when, based on current information and events, it was probable that the Bank would be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.

Factors considered by management in determining whether a loan was individually impaired include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due.

Loans that experienced insignificant payment delays and payment shortfalls generally were not classified as individually impaired.

Management determined the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed.

Impairment was measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan was collateral dependent.

With the adoption of ASC 326, loans that do not share risk characteristics with existing pools are evaluated on an individual basis, such as collateral dependent loans.

The Company considers a loan to be collateral dependent when management has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and repayment of the financial asset is expected to be provided substantially through the operation or sale of the collateral.

When repayment is expected to be from the operation of the collateral, the specific credit loss reserve is calculated as the amount by which the amortized cost basis of the financial asset exceeds the net present value from the operation of the collateral.

When repayment is expected to be from the sale of the collateral, the specific credit loss reserve is calculated as the amount by which the amortized cost basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell.

The allowance may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.

In addition, Federal and state regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for credit losses and may require the Company to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management.

Based on management’s comprehensive analysis of the loan portfolio, management believes the current level of the allowance for credit losses is adequate.

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

Upon adoption of ASC 326 on July 1, 2023, the Company made the following elections regarding accrued interest receivable:

(i) present accrued interest receivable balances separately on the consolidated statements of financial condition;

(ii) exclude accrued interest from the measurement of the ACL, including investments and loans;

and (iii) continue to write-off accrued interest receivable by reversing interest income when a loan is placed on non-accrual.

The Company's policy is to write-off accrued interest when a loan is placed on non-accrual.

Historically, the Company has not experienced uncollectible accrued interest receivable on investment debt securities.

The exposure for unfunded commitments is a component of other liabilities on the Company's consolidated statement of financial condition and represents the estimate for current expected credit losses inherent in unfunded commitments to extend credit.

Unfunded commitments to extend credit include unused portions of lines of credit, unfunded loan commitments, availability on construction and land development loans and standby and commercial letters of credit.

The process used to determine the ACL for these exposures is consistent with the process for determining the allowance for loans, as adjusted for estimated funding probabilities or loan equivalency factors.

A charge (credit) to the provision for unfunded commitments on the consolidated statements of income is made to account for the change in the ACL on unfunded commitment exposures between reporting periods.

Premises and Equipment, net

Bank premises and equipment are stated at cost less accumulated depreciation.

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The right-of-use asset for operating leases is measured as the amount of the lease liability, plus any unamortized initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received, and any impairment recognized.

The discount rate used to compute the lease liability is the implicit rate in the lease contract, if readily determinable, or the Savings Bank’s incremental borrowing rate.

The implicit rates of our operating leases are not readily determinable, therefore the Savings Bank uses its incremental borrowing rate at the commencement date of each lease.

The Savings Bank’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms and in a similar economic environment.

For all underlying classes of assets, the Company has elected to not recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less at lease commencement.

Leases containing termination clauses in which either party may terminate the lease without cause and the notice period is less than 12 months are deemed short-term leases.

The Savings Bank recognizes short-term lease costs on a straight-line basis over the lease term.

Restricted Equity Securities

Federal law requires a member institution of the Federal Home Loan Bank (“FHLB”) system to hold stock of its district bank according to a predetermined formula.

The restricted stock is carried at cost.

At June 30, 2023 and 2022 , the Savings Bank held $ 726 and $ 702 , respectively, in stock of the FHLB of New York.

Somerset Savings Bank, SLA and Subsidiaries

Notes to Consolidated Financial Statements —

The discount rate used to compute the lease liability is the implicit rate in the lease contract, if readily determinable, or the Company's incremental borrowing rate.

The implicit rates of the Company's operating leases are not readily determinable, therefore the Company uses its incremental borrowing rate at the commencement date of each lease.

The Company's incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms and in a similar economic environment.

For all underlying classes of assets, the Company has elected to not recognize right-of-use assets and lease liabilities for leases that have a term of 12 months or less at lease commencement.

Leases containing termination clauses in which either party may terminate the lease without cause and the notice period is less than 12 months are also deemed short-term leases.

The Company recognizes short-term lease costs on a straight-line basis over the lease term.

Leases acquired in a business combination are evaluated as of the acquisition date to determine if the terms of the acquired leases are more or less favorable than the market terms of similar agreements on the acquisition date.

If the lease terms are favorable as compared to the market, the Company records an asset.

If the lease terms are unfavorable as compared to the market, the Company records a liability.

The Company acquired $ 3.4 million of operating leases in the acquisition of Regal Bancorp.

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

(Dollars in thousands)

Restricted Equity Securities

Restricted stock, which represents a required investment in the capital stock of correspondent banks related to available credit facilities, are carried at cost.

As of those dates, restricted stock may include investments in the capital stock of the Federal Home Loan Bank of New York, Atlantic Community Bankers Bank (“ACBB”) and Bankers Compliance Group (“BCG”).

Federal law requires a member institution of the Federal Home Loan Bank ("FHLB") system to hold stock of its district bank according to a predetermined formula.

At June 30, 2024 and 2023, the Bank held $ 1.1 million and $ 726,000 , respectively, in stock of the FHLB of New York.

At June 30, 2024, the Company held $ 120,000 in stock of ACBB and BCG combined.

The Company held no investments in ACBB or BCG at June 30, 2023.

Management evaluates the stock for impairment in accordance with guidance on accounting by certain entities that lend or finance the activities of others.

Management’s determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value.

The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted;

Management’s determination of whether these investments are impaired is based on its assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value.

The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as:

(1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted;

(2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB;

and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB.

Management believes no impairment charge is necessary related to the FHLB stock as of June 30, 2023 or 2022 .

Management believes no impairment charge was necessary related to the FHLB, ACBB or BCG stock as of June 30, 2024 or June 30, 2023 .

Bank Owned Life Insurance

The Savings Bank invests in bank owned life insurance (“BOLI”) as a source of funding for employee benefit expenses.

BOLI involves the purchasing of life insurance by the Savings Bank on a chosen group of employees.

The Savings Bank is the owner and beneficiary of the policies.

The Company invests in bank owned life insurance (“BOLI”) as a source of funding for employee benefit expenses.

BOLI involves the purchasing of life insurance by the Company on a chosen group of employees.

The Company is the owner and beneficiary of the policies.

This investment is carried as an asset in the consolidated statement of financial condition at the cash surrender value of the underlying policies.

Increases in the cash surrender value of the policies, as well as proceeds, are recorded as income in the consolidated statement of income and are not subject to income tax so long as the policies are held for the life of the covered employees.

For any policies surrendered, the death benefits will no longer be tax exempt.

Increases in the cash surrender value of the policies, as well as proceeds, are recorded as income in the consolidated statement of income (loss).

Goodwill and Other Intangible Assets

The Company acquired goodwill through the acquisition of Regal Bancorp that it tests for impairment at least annually and more frequently as conditions warrant.

As of June 30, 2024, goodwill amounted to $ 20.4 million.

The Company evaluated and concluded that goodwill was no t impaired as of that date.

The Company acquired a core deposit premium intangible through the acquisition of Regal Bancorp that is amortized on an accelerated basis over ten years .

At June 30, 2024, the core deposit premium intangible asset had a gross carrying amount of $ 9.1 million and accumulated amortization of $ 1.3 million.

Revenue Recognition

The Savings Bank earns income from various sources, including loans, investment securities, bank-owned life insurance, deposit accounts, and sales of assets.

The Company earns income from various sources, including loans, investment securities, BOLI, deposit accounts, and sales of assets.

The revenue is recognized as it is earned and when collectability is reasonably assured.

2 unchanged sentences

Other loan fees, including late charges, are recognized as the transactions occur.

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

Interest income on debt securities, including purchase premiums and discounts, is also accrued using the interest method over the term of the securities.

Income from dividends on equity securities are recorded when declared.

Noninterest income is accounted for under ASC 606, Revenue from Contracts with Customers , and is discussed in greater detail below.

Fees and service charges related to deposit accounts are largely based on contracts with customers that are short-term in nature and where the performance obligations are satisfied as services are rendered.

Fees are either fixed at a specific amount or assessed as a percentage of the transaction amount.

No judgements or estimates are required by management to determine the amount and timing of the related revenue.

No judgments or estimates are required by management to determine the amount and timing of the related revenue.

Descriptions of the primary revenue contracts included as components of noninterest income are as follows:

3 unchanged sentences

Fees are received at the time of transaction execution concurrent with the fulfillment of performance obligations.

ATM debit card fees - include interchange fees from debit cardholder transactions or ATM surcharges for non-customer usage of Somerset Savings Bank, SLA ATMs.

• ATM debit card fees - include interchange fees from debit cardholder transactions or ATM surcharges for non-customer usage of Somerset Regal Bank ATMs.

These fees are recognized as earned at the time of the transaction occurrence.

Other income items are transactional in nature and are recorded as they occur.

Somerset Savings Bank, SLA and Subsidiaries

Notes to Consolidated Financial Statements —

June 30, 2023 and 2022

(Dollars in thousands)

Gains or losses on sales of assets are generally recognized when the asset has been legally transferred to the buyer and the Savings Bank has no continuing involvement with the asset.

The Savings Bank does not generally finance the sale of foreclosed assets.

Comprehensive Income

GAAP require comprehensive income and its components to be reported when a company presents a full set of financial statements.

The term comprehensive income (loss) refers to net income plus other comprehensive income (loss), that is, certain revenues, expenses, gains, and losses that are reported as separate components of equity instead of net income.

For the Savings Bank, the primary components of other comprehensive income (loss) are the unrealized gains or losses on available-for-sale investment securities and the unrealized actuarial gains or losses in the defined pension plan.

The Savings Bank has elected to report these effects on the consolidated statement of comprehensive income (loss).

Gains or losses on sales of assets are recorded in accordance with ASC 860, "Transfers and Servicing," and are generally recognized when the asset has been legally transferred to the buyer and the Company has no continuing involvement with the asset.

The Company does not generally finance the sale of foreclosed assets.

Comprehensive (Loss) Income

GAAP requires comprehensive income (loss) and its components to be reported when a company presents a full set of financial statements.

The term comprehensive income (loss) refers to net income (loss) plus other comprehensive income, that is, certain revenues, expenses, gains, and losses that are reported as separate components of equity instead of net income.

For the Company, the primary component of other comprehensive income (loss) is the unrealized holding gains or losses on available-for-sale investment securities.

The Company has elected to report these effects on the consolidated statements of comprehensive income (loss).

Advertising Costs

Advertising costs are expensed in the period in which they are incurred and recorded as a non-interest expense in the consolidated statement of income.

Advertising expense was approximately $ 198 and $ 266 for the years ended June 30, 2023 and 2022 , respectively.

Somerset Savings Bank, SLA and its subsidiaries file a consolidated federal income tax return.

Income taxes are allocated to Somerset Savings Bank, SLA and its subsidiaries based on their respective income or loss included in the consolidated income tax return.

Separate state income tax returns are filed by Somerset Savings Bank, SLA and its subsidiaries.

Advertising costs are expensed in the period in which they are incurred and recorded as non-interest expense in the consolidated statement of income (loss).

Advertising expense was approximately $ 301,000 and $ 198,000 for years ended June 30, 2024 and 2023, respectively.

SR Bancorp, Inc.

and its subsidiaries file a consolidated federal income tax return.

Income taxes are allocated to SR Bancorp, Inc.

and its subsidiaries based on their respective income or loss included in the consolidated income tax return.

Separate state income tax returns are filed by SR Bancorp, Inc.

and its subsidiaries.

Federal and state income taxes have been provided on the basis of reported income.

The amounts reflected on Somerset Savings Bank, SLA and subsidiaries’

tax returns differ from these provisions due principally to temporary differences in the reporting of certain items for financial reporting and income tax reporting purposes.

The Savings Bank accounts for income taxes using the asset and liability method in accordance with accounting guidance ASC Topic 740, Income Taxes.

Under this guidance, deferred income tax expense or benefit is determined by recognizing deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.

The amounts reflected on SR Bancorp, Inc.

and subsidiaries’ tax returns differ from these provisions due principally to temporary differences in the reporting of certain items for financial reporting and income tax reporting purposes.

The Company accounts for income taxes using the asset and liability method in accordance with accounting guidance ASC Topic 740, Income Taxes .

Under this guidance, deferred income tax expense or benefit is determined

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

by recognizing deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

2 unchanged sentences

Management believes, based upon current facts, that it is more likely than not that there will be sufficient taxable income in future years to realize the deferred tax assets.

The Savings Bank accounts for uncertainty in income taxes recognized in the consolidated financial statements in accordance with accounting guidance which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

As a result of the Savings Bank’s evaluation, no significant income tax uncertainties were identified.

Therefore, the Savings Bank recognized no adjustment for unrecognized tax benefits at June 30, 2023 or 2022.

The Savings Bank’s policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the consolidated statement of income.

No interest and penalties were recorded during the years ended June 30, 2023 or 2022 .

Somerset Savings Bank, SLA and Subsidiaries

Notes to Consolidated Financial Statements —

June 30, 2023 and 2022

(Dollars in thousands)

The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements in accordance with accounting guidance which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

As a result of the Company’s evaluation, no significant income tax uncertainties were identified.

Therefore, the Company recognized no adjustment for unrecognized tax benefits at June 30, 2024 or June 30, 2023.

The Company’s policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the consolidated statements of income.

No interest and penalties were recorded during year ended June 30, 2024 or 2023.

Retirement Benefits

Substantially all employees are covered by a defined benefit pension plan and participate in a 401(k) profit sharing plan.

The Bank has a funded noncontributory defined benefit pension plan that covered substantially all employees meeting certain eligibility requirements as of April 30, 2023.

The cost of the pension plan is based on actuarial computations of current and future benefits for employees.

It is the Savings Bank’s policy to fund the recommended required contribution determined under the Employee Retirement Income Security Act.

The 401(k) profit sharing plan’s annual contribution is determined by matching part of the employee’s contribution.

The Savings Bank follows the accounting guidance applicable to a defined benefit pension plan that requires an employer to:

(a) recognize in its statement of financial condition an asset for a plan’s overfunded status or a liability for a plan’s underfunded status;

(b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year (with limited exceptions);

The Bank froze the pension plan with respect to participation and benefit accounts effective as of April 30, 2023.

The Bank follows the accounting guidance applicable to a defined benefit pension plan that requires an employer to:

(a) recognize in its statement of financial condition an asset for a plan’s overfunded status or a liability for a plan’s underfunded status;

(b) measure a plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year (with limited exceptions);

and (c) recognize changes in the funded status of a defined benefit postretirement plan in the year in which the changes occur.

The Bank also maintains a 401(k) Plan.

Eligible employees who are at least 21 years old become participants in the 401(k) Plan after they have been employed for six consecutive months.

Under the 401(k) Plan, a participant may elect to defer, on a pre-tax basis, between 2 % and 100 % of their eligible compensation.

In addition to salary deferral contributions, the Bank makes contributions equal to 3 % of the participant’s plan compensation.

A participant is immediately 100 % vested in his or her salary deferral contributions and employer contributions.

Employee Stock Ownership Plan (the “ESOP”)

As part of the conversion and stock offering, the Bank established the Somerset Regal Bank Employee Stock Ownership Plan to provide eligible employees of the Bank the opportunity to own Company stock.

The ESOP is a tax-qualified retirement plan for the benefit of Bank employees.

The ESOP was funded through the purchase of 760,634 shares through a loan from the Company.

The cost of shares issued to the ESOP, but not yet allocated to participants, is shown as a reduction of stockholders' equity.

The Company records compensation expense for the ESOP equal to fair market value of shares when they are committed to be released from the suspense account to participants' accounts under the plan.

Accounting Pronouncements Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2014-09, Revenue from Contracts with Customers (Topic 606) .

2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services.

ASU 2014-09 was adopted by the Savings Bank in 2022.

The Savings Bank adopted the guidance using the modified retrospective method.

The adoption did no t have a significant effect on the Saving Bank’s consolidated financial statements as the recognition of interest income has been scoped out of the guidance and noninterest income recognition is similar to previous revenue recognition practices.

The Savings Bank expanded its disclosures with respect to its noninterest income as a result of this guidance.

See the “Revenue Recognition”

section in Note 1.

In February 2016, the FASB issued ASU 2016-02 Leases (Topic 842) which requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases with lease terms of more than 12 months.

In February 2016, the FASB issued ASC 326 Leases (Topic 842), which requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

with lease terms of more than 12 months.

Consistent with current U.S.

GAAP, the recognition, measurement and presentation of expenses and cash flows arising from a lease by the lessee will primarily depend on its classification as a finance or operating lease.

However, unlike current U.S.

However, unlike previous U.S.

GAAP, which requires only capital leases to be recognized on the balance sheet, the new ASU will require both types of leases to be recognized on the balance sheet.

ASU 2016-02 will also require disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases.

ASC 326 will also require disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases.

The new disclosures will include both qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements.

ASU 2016-02 and all subsequent amendments (collectively, “ASC 842”) required adoption by the Savings Bank on July 1, 2022, though early adoption was permitted.

The Savings Bank adopted ASC 842 during the first quarter of the fiscal year ended June 30, 2023.

The Savings Bank maintains only one equipment lease with an initial term greater than 12 months and has determined that the impact on its consolidated financial statements is no t material.

As of June 30, 2023, the Savings Bank had not entered into any material leases that have not yet commenced.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No.

2016-13, Measurement of Credit Losses on Financial Instruments.

2016-13 requires financial assets measured at amortized cost to be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis.

The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.

2016-13 was adopted by the Savings Bank on July 1, 2023 .

The adoption did no t have a material impact on the Savings Bank's operations, cash flows or capital ratios.

ASC 326 and all subsequent amendments (collectively, “ASC 842”) required adoption by the Company on July 1, 2022, though early adoption was permitted.

The Company adopted ASC 842 during the first quarter of the fiscal year ended June 30, 2023 , at which time the Company maintained only one equipment lease with an initial term greater than 12 months and had determined that the impact on its consolidated financial statements was no t material.

Upon completion of the Merger, the Company acquired 10 operating leases for office space.

As of June 30, 2024, the Company had not entered into any material leases that have not yet commenced.

The Company adopted ASC 326 on July 1, 2023.

The transition to the new ASU resulted in a cumulative effect adjustment to the allowance for credit losses of $ 47,000 , an increase in deferred tax assets of $ 13,000 , and a decrease in retained earnings of $ 34,000 as of the adoption date.

The impact of the reserve for unfunded liabilities to the consolidated financial statements was not material.

The Company did not record an allowance for held-to-maturity securities on July 1, 2023 as the investment portfolio consists almost entirely of debt securities backed by the full faith of the U.S.

Government for which credit risk is deemed negligible.

The impact of this ASU could change in the future depending on the composition, characteristics, and credit quality of the securities portfolio as well as the economic conditions at future reporting periods

The following table below presents the impact of ASC 326 on the consolidated balance sheet:

As reported under

(Dollars in thousands)

ACL on loans:

Other commercial real estate

Total ACL on loans

Deferred income taxes

Liability for credit losses for unfunded commitments

Shareholders' equity

Retained earnings

In March 2022, the FASB issued ASU No.

2022-02, Financial Instruments—Credit Losses—Troubled Debt Restructurings and Vintage Disclosures.

This standard eliminates the recognition and measurement guidance for troubled debt restructurings (TDRs) by creditors and enhances disclosure requirements for certain loan restructurings when a borrower is experiencing financial difficulty.

In addition, the standard requires the disclosure

Somerset Savings Bank, SLA and Subsidiaries

Notes to Consolidated Financial Statements —

2022-02, Financial Instruments—Credit Losses—Troubled Debt Restructurings and Vintage Disclosures .

This standard eliminates the recognition and measurement guidance for troubled debt restructurings by creditors and enhances disclosure requirements for certain loan restructurings when a borrower is experiencing financial difficulty.

For public business entities, these amendments require that an entity disclose current-period gross charge-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20.

Gross charge-off information must be included in the vintage disclosures required for public business entities in accordance with paragraph 326-20-50-6, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination.

2022-02 was effective for the Company on July 1, 2023.

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

(Dollars in thousands)

of gross write-offs by year of origination.

2022-02 was adopted by the Savings Bank on July 1, 2023 .

The adoption had no impact on the Savings Bank's operations, cash flows or capital ratios.

Recent Accounting Standards Not Yet Adopted

2023-02, Investments - Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures.

The FASB issued ASU 2023-02 using the Proportional Amortization Method.

The amendments in t his update permit exporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met.

A reporting entity may make an accounting policy election to apply the proportional amortization method on a tax-credit-program-by-tax-credit-program basis rather than electing to apply the proportional amortization method at the reporting entity level or to individual investments.

The amendments in this update also remove certain guidance for Qualified Affordable Housing Project investments and require the application of the delayed equity contribution guidance to all tax equity investments.

The amendments in this update will be effective for fiscal years beginning after December 15, 2023 must be applied on either a modified retrospective or a retrospective basis

In November 2023, FASB issued ASU 2023-07, "Segment Reporting (Topic 280) :

I mprovements to Reportable Segment Disclosures".

The amendments in this ASU require improved reportable segment information on an annual and interim basis, primarily through enhanced disclosures about significant segment expenses .

This update will be effective for financial stat em ents issued for fiscal years beginning after December 15, 2023, and interim periods for fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The Company is currently evaluating the impact of this standard on our consolidated financial s tate ments and is not expected to have a significant impact on our financial statements.

In December 2023, FASB issued ASU 2023-09, "Income Taxes (Topic 740):

Improvements to Income Tax Disclosures".

The amendments in this ASU require improved annual income tax disclosures surrounding rate reconciliation, income taxes paid, and other disclosures.

This update will be effective for financial statements issued for fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The Company is currently evaluating the impact of this standard on our consolidated financial statements .

Accounting Standards Update 2024-01 "Compensation - Stock Compensation (Topic 718) - Scope Application of Profits Interest and Similar Awards" ("ASU 2024-01 ") clarifies how an entity determines whether a profits interest or similar award is within the scope of Topic 718 or is not a share-based payment arrangement and therefore within the scope of other guidance.

ASU 2024-01 provides an illustrative example with multiple fact patterns and also amends certain language in the "Scope" and "Scope Exceptions" sections of Topic 718 to improve its clarity and operability without changing the guidance.

Entities can apply the amendments either retrospectively to all prior periods presented in the financial statements or prospectively to profits interest and similar awards granted or modified on or after the date of adoption.

If prospective application is elected, an entity must disclose the nature of and reason for the change in accounting principle.

ASU 2024-01 is effective January 1 , 2025, including interim periods, and is not expected to have a significant impact on our financial statements.

Accounting Standards Update 2024-02 "Codification Improvements" ("ASU 2024-02") amends the Codification to remove references to various concepts statements and impacts a variety of topics in the Codification.

The amendments apply to all reporting entities within the scope of the affected accounting guidance, but in most instances the references removed are extraneous and not required to understand or apply the guidance.

Generally, the amendments in ASU 2024-02 are not intended to result in significant accounting changes for most entities .

ASU 2024-02 is effective January 1, 2025 and is not expected to have a significant impact on our financial statements.

Subsequent Events

The Savings Bank has evaluated subsequent events for recognition or disclosure through September 28, 2023, the date the financial statements were available to be issued.

Mutual to Stock Conversion.

The Company has evaluated subsequent events for recognition or disclosure through October 15, 2024, the date consolidated financial statements were available to be issued.

Business Combination

On September 19, 2023 , the Company completed its acquisition of Regal Bancorp, Inc.

and its wholly-owned subsidiary Regal Bank, under which Regal Bancorp merged with and into the Company, with the Company as the

SR Bancorp, Inc.

(“SR Bancorp”), a new Maryland corporation, was formed by the Savings Bank to be the holding company of the Savings Bank upon completion of its conversion from the mutual to stock form of organization (the “Conversion”), which occurred on September 19, 2023.

In connection with the Conversion, SR Bancorp, Inc.

sold 9,055,172 shares of its common stock at a price of $ 10.00 per share, which included 760,364 shares sold to the Somerset Savings Bank Employee Stock Ownership Plan.

Additionally, SR Bancorp contributed 452,758 shares and $ 905,517 in cash to the Somerset Regal Charitable Foundation, Inc., a charitable foundation formed in connection with the Conversion.

Upon the completion of the conversion and offering, 9,507,930 shares of SR Bancorp, Inc.

common stock are outstanding.

SR Bancorp’s common stock began trading on the Nasdaq Capital Market under the trading symbol “SRBK”

on September 20, 2023.

On July 25, 2022 , the Savings Bank and SR Bancorp entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Regal Bancorp, Inc.

(“Regal Bancorp”), a New Jersey corporation, and Regal Bank, a New Jersey commercial bank and wholly-owned subsidiary of Regal Bancorp.

The Merger Agreement was subsequently amended on March 7, 2023 and July 10, 2023.

Pursuant to the Merger Agreement, as amended, promptly following the completion of the Conversion and related stock offering, SRB Interim Corporation, a wholly-owned subsidiary of SR Bancorp formed solely to facilitate the merger, merged with and into Regal Bancorp after which Regal Bancorp merged with and into SR Bancorp, with SR Bancorp as the surviving entity (collectively, the “Merger”).

In connection with the Merger, Regal Bancorp shareholders received the right to exchange each of their shares of Regal Bancorp common stock for $ 23.00 in cash.

The aggregate cash consideration was approximately $ 69.5 million.

Immediately following the Merger, Regal Bank merged with and the Savings Bank, which was converted to a New Jersey commercial bank charter and renamed Somerset Regal Bank.

Upon closing of the Merger, three directors of Regal Bancorp became directors of SR Bancorp and Somerset Regal Bank.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

resulting entity.

Immediately following the Merger, Regal Bank merged with and into Somerset Bank, which had converted to a commercial bank charter, with Somerset Bank as the surviving entity, and was renamed Somerset Regal 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 assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting.

The assets and liabilities, both tangible and intangible, were recorded at their fair values as of September 19, 2023 based on management’s best estimate using the information available as of the merger date.

The application of the acquisition method of accounting resulted in the recognition of goodwill of $ 20.5 million and a core deposit intangible of $ 9.1 million.

At June 30, 2024 , the Company finalized its review of the acquired assets and liabilities making modest adjustments to assets and liabilities reducing previously reported goodwill from $ 20.5 million to $ 20.4 million .

The following table sets forth assets acquired and liabilities assumed in the acquisition of Regal Bancorp, at their estimated fair values as of the closing date of the transaction:

at acquisition

(Dollars in thousands)

Consideration paid ( 3,023,369 Regal Bancorp shares

at $ 23.00 per share)

Assets Acquired

Cash and cash equivalents

Time deposits in other financial institutions

Securities available-for-sale, at fair value

Securities held-to-maturity, at amortized cost

Federal Home Loan Bank stock and other

restricted stock

Loans receivable, net

Allowance for credit losses

Accrued interest receivable

Premises and equipment, net

Right-of-use asset

Core deposit intangible

Deferred costs

Bank owned life insurance

Net deferred tax asset

Total assets acquired

Liabilities assumed

Lease liability

Deferred compensation

Accrued expenses and other liabilities

Total liabilities assumed

Net assets acquired

Goodwill recorded at merger

(a) Adjustment for interest rate and credit risk to reduce loans to fair value, to be amortized as an increase to interest income over their remaining term

(b) Elimination of Regal Bank allowance for credit losses.

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

(d) Recording of new intangible asset for the fair value of core deposits, to be amortized on an accelerated basis over the estimated average life of the deposit base.

(e) Elimination of pre-existing intangible asset for the fair value of core deposits.

(f) Elimination of deferred costs

(g) Recording of the deferred income tax effects of fair value adjustments.

(h) Adjustment to reduce time deposits to fair value, to be amortized as an increase to interest expense over their remaining term.

(i) Final adjustments of income taxes, other assets and other liabilities.

During the year ended June 30, 2024, the Company recorded one-time merger-related expenses of $ 3.9 million, consisting of $ 2.6 million for change in control payments, $ 612,000 for investment banking services, $ 414,000 related to the termination of a data processing contract, $ 99,000 for legal-related expenses, $ 42,000 for severance payments, $ 17,000 in other professional services and $ 30,000 in other miscellaneous expenses.

In addition, the Company recorded a $ 5.4 million charitable contribution expense for the establishment of the Somerset Regal Charitable Foundation, as well as a $ 4.2 million provision for estimated credit losses in connection with the acquired loan portfolio.

The fair value of loans acquired from Regal Bank was estimated using cash flow projections based on the remaining maturity and repricing terms.

Cash flows were adjusted by estimating future credit losses and the rate of prepayments.

Projected monthly cash flows were then discounted to present value using a risk-adjusted market rate for similar loans.

There was no carryover of Regal Bank’s allowance for credit losses associated with the loans that were acquired.

The core deposit intangible asset recognized is being amortized over its estimated useful life of approximately 10 years utilizing the sum-of-the-years digits method.

The acquisition was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations.

Accordingly, the Company recognizes amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair value.

Fair value estimates are based on the information available, and are subject to change for up to one year after the closing date of the acquisition as additional information relative to the closing date fair values becomes available.

The fair value of retail demand and interest-bearing deposit accounts was assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand.

The fair value of time deposits was estimated by discounting the contractual future cash flows using market rates offered for time deposits of similar remaining maturities.

The fair value of borrowings was based on the FHLB calculation to prepay borrowings with associated penalties.

The following table presents unaudited pro forma results as if the Merger occurred on July 1, 2022 and includes the effects of the amortization and accretion of certain estimated purchase accounting adjustments such as intangible assets, as well as fair value adjustments to loans and deposits.

The pro forma financial information includes merger-related expenses but does not reflect any cost savings.

The table has been prepared for comparative purposes only and is not necessarily indicative of actual results that would have been attained had the Merger occurred at the beginning of the periods presented, nor is it indicative of future results.

The table also includes financial information related to the operations of the Company for the remainder of the fiscal year following the Merger.

September 19, 2023

to June 30, 2024

Pro Forma Combined

June 30, 2024

Pro Forma Combined

June 30, 2023

(Dollars in thousands)

Net interest income before provision for credit losses

Net (loss) income

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

Earnings (Loss) Per Share

Basic earnings (loss) per share represent income or loss available to common stockholders divided by the weighted-average number of common shares outstanding.

Unallocated ESOP shares are not deemed outstanding for earnings (loss) per share calculations.

There were no potentially dilutive common stock equivalents outstanding for the year ended June 30, 2024.

Earnings (loss) per share data is not applicable for the year ended June 30, 2023 because the Company had not yet been formed and had no shares outstanding.

The following table presents the composition of the weighted average common shares used in the earnings per share calculation:

(Dollars in thousands, except per share data)

Net (loss) income applicable to common shares

Weighted average number of common shares outstanding

average unallocated ESOP shares

Weighted average number of common shares outstanding, net

Basic (loss) per common share

Diluted (loss) earnings per share

Securities Available-for-Sale

2 unchanged sentences

Federal National Mortgage Association

Government National Mortgage Association

Federal Home Loan Mortgage Corporation

Total securities available-for-sale

Somerset Savings Bank, SLA and Subsidiaries

Notes to Consolidated Financial Statements —

June 30, 2023 and 2022

(Dollars in thousands)

June 30, 2023

(Dollars in thousands)

Federal National Mortgage Association

4 unchanged sentences

Securities are assigned to categories based on contractual maturity except for mortgage-backed securities which are based on the estimated average life of the securities.

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

June 30, 2024

5 unchanged sentences

Total securities available-for-sale

The unrealized losses as of June 30, 2023 and 2022, categorized by the length of time of continuous loss position, and the fair value of related available-for-sale are as follows:

The unrealized losses as of June 30, 2024 and June 30, 2023, categorized by the length of time of continuous loss position, and the fair value of related available-for-sale are as follows:

June 30, 2024

1 unchanged sentence

More than 12 Months

Federal National Mortgage Association

Federal Home Loan Mortgage Corporation

Federal National Mortgage

Government National Mortgage

Federal Home Loan Mortgage

June 30, 2023

1 unchanged sentence

More than 12 Months

(Dollars in thousands)

Federal National Mortgage Association

Federal Home Loan Mortgage Corporation

All mortgage-backed securities are U.S.

Government agency backed and collateralized by residential mortgages.

Federal Home Loan Mortgage

All mortgage-backed securities are collateralized by residential mortgages.

During the year ended June 30, 2024, gross gains of $ 0 and gross losses of $ 4.5 million resulting from sales of securities available-for-sale were realized.

During the year ended June 30, 2023 , gross gains of $ 0 and gross losses of $ 119,000 resulting from sales of securities available-for-sale were realized.

During the year ended June 30, 2022 , there were no sales of securities available-for-sale.

Somerset Savings Bank, SLA and Subsidiaries

Notes to Consolidated Financial Statements —

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

(Dollars in thousands)

Securities Held-to-Maturity

1 unchanged sentence

June 30, 2024

(Dollars in thousands)

Federal National Mortgage Association

2 unchanged sentences

Subordinated Debt

Foreign Government Bonds

Total securities held-to-maturity

June 30, 2023

(Dollars in thousands)

Federal National Mortgage Association

7 unchanged sentences

June 30, 2024

(Dollars in thousands)

Due within 1 year

4 unchanged sentences

Total securities held-to-maturity

Somerset Savings Bank, SLA and Subsidiaries

Notes to Consolidated Financial Statements —

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

(Dollars in thousands)

The unrealized losses as of June 30, 2024 and June 30, 2023, categorized by the length of time of continuous loss position and the fair value of related securities held-to-maturity, are as follows:

2 unchanged sentences

More than 12 Months

Federal National Mortgage Association

Federal Home Loan Mortgage Corporation

Government National Mortgage Association

(Dollars in thousands)

Federal National Mortgage

Federal Home Loan Mortgage

Government National

Mortgage Association

Subordinated Debt

June 30, 2023

Less than 12 Months

More than 12 Months

Federal National Mortgage Association

Federal Home Loan Mortgage Corporation

(Dollars in thousands)

Federal National Mortgage

Federal Home Loan Mortgage

Government National

Mortgage Association

Subordinated Debt

At June 30, 2023 and 2022 , the Savings Bank had $ 24 and $ 19 , respectively, in equity securities recorded at fair value.

The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities for the years ended June 30, 2023 and 2022:

Net gains (losses) recognized equity securities

Net gains (losses) recognized on equity

securities sold/acquired

Net unrealized gains (losses) recognized on

equity securities

Management does not believe that the unrealized losses represent an other-than-temporary impairment and believes these unrealized losses (which are related to four mortgage-backed securities issued by the Federal National Mortgage Association) are the result of market rates and not related to the underlying credit quality of the issuer of the securities.

The Savings Bank does not intend to sell these securities and it is not more-likely-than-not that the Savings Bank would be required to sell these securities prior to full recovery of fair value to a level which equals or exceeds amortized cost.

At June 30, 2023 and 2022 , a mortgage-backed security with a carrying value of approximately $ 1 and $ 3 were pledged as collateral to secure public funds on deposit, respectively.

At June 30, 2023 , mortgage-backed securities with a total carrying value of $ 32,652 was pledged as collateral to secure a $ 20,000 advance under the Federal Reserve’s Bank Term Funding Program.

Somerset Savings Bank, SLA and Subsidiaries

Notes to Consolidated Financial Statements —

June 30, 2023 and 2022

At June 30, 2024 and June 30, 2023, the Bank had $ 25,000 and $ 24,000 , respectively, in equity securities recorded at fair value.

The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities for the years ended June 30, 2024 and June 30, 2023:

(Dollars in thousands)

During the year ended June 30, 2023 , gross gains of $ 4 and gross losses of $ 117 resulting from sales of securities held-to-maturity were realized.

During the year ended June 30, 2022 , there were no sales of securities held-to-maturity.

Net gains recognized on equity securities

Net gains recognized on equity securities sold/acquired

Net unrealized gains recognized on equity securities

Upon adoption of ASC 326, management no longer evaluates securities for other than temporary impairment.

On a quarterly basis, management evaluates whether there is a credit loss associated with any declines in fair value.

Management considers the nature of the collateral, default rates, delinquency rates, credit ratings and interest rate changes, among other factors.

However, the Company has determined that highly-rated issues of mortgage-backed securities of government-sponsored agencies have a zero expected credit loss.

At June 30, 2024 and June 30, 2023, mortgage-backed securities with a carrying value of approximately $ 1.8 million and $ 1,000 , respectively, were pledged as collateral to secure public funds on deposit.

At June 30, 2023, mortgage-backed securities with a total carrying value of $ 32,652 were pledged as collateral to secure a $ 20,000 advance under the Federal Reserve's Bank Term Funding Program.

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

Loans Receivable

Loans at June 30, 2023 and 2022 are summarized as follows:

Mortgage loans:

Non-residential

Total mortgage

Passbook or certificate and personal

Total consumer

Allowance for loan losses

Deferred loan fees, net

Loans at June 30, 2024 and June 30, 2023 are summarized as follows:

(Dollars in thousands)

Owner occupied commercial real estate loans

Other commercial real estate loans

Multi-family loans

Commercial and industrial loans

Total commercial loans

Residential mortgage loans

Consumer and other loans

Allowance for credit losses

Deferred loan costs, net

Loans receivable, net

The Savings Bank engages primarily in the lending of residential real estate and consumer loans.

Lending activities are targeted to individuals within the Savings Bank’s geographic footprint.

Risks associated with lending activities include economic conditions and changes in interest rates, which can adversely impact both the ability of borrowers to repay their loans and the value of the associated collateral.

The Savings Bank engages primarily in the lending of fixed-rate and adjustable-rate real estate residential mortgage loans.

Lending activities are targeted to individuals within the Savings Bank’s geographic footprint.

The Company engages primarily in the lending of fixed-rate and adjustable-rate commercial real estate and residential mortgage loans.

Lending activities are targeted to individuals within the Company's geographic footprint.

Credit risk exposure in this area of lending is minimized by the evaluation of the credit worthiness of the borrower, including debt-to-income ratios, credit scores and conservative underwriting standards that emphasize conservative loan-to-value ratios of generally no more than 80 %.

Credit risk exposure in these areas of lending are minimized by the evaluation of the creditworthiness of the borrower, including debt-to-income ratios, credit scores and conservative underwriting standards that emphasize conservative loan-to-value ratios of generally no more than 75 % for commercial loans, 80 % for multifamily loans and 80 % for residential loans.

Residential mortgage loans granted in excess of the 80 % loan-to-value ratio criterion are generally insured by private mortgage insurance.

1 unchanged sentence

Risks associated with second lien loans secured by residential properties are generally lower than commercial loans and include general economic risks, such as the strength of the job market, employment stability and the strength of the housing market.

Management reviews all loans that are delinquent 90-days or more for possible impairment.

Loans are considered to be impaired when, based on current information and events, it is probable that the Savings Bank will be unable to collect the scheduled payments of principal or interest in accordance with the contractual terms of the loan agreement.

Factors considered by management in evaluating impairment include payment status, collateral value, and the likelihood of collecting scheduled principal and interest payments when due.

Management determines the significance of payment delays and shortfalls on a case-by-case basis, taking into consideration the unique facts and circumstances surrounding the loan and borrower, including the borrower’s payment history, the reasons for the delay and the amount of the shortfall in relation to the principal and interest owed.

Somerset Savings Bank, SLA and Subsidiaries

Notes to Consolidated Financial Statements —

At June 30, 2024, commercial loans represented 44.7 % of total loans receivable, net, while residential mortgage, consumer and other loans represented 55.3 % , nearly all of which was concentrated within our primary market area in New Jersey.

The Company holds 82.0 % of its commercial loan portfolio in commercial real estate, consisting of multi-family, mixed use and owner occupied loans, with less than 1 % secured by office buildings.

At June 30, 2024 , the Company had one non-accrual commercial loan in the amount of $ 50,000 .

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

(Dollars in thousands)

The following tables summarize the activity in the allowance for loan losses by loan class for the years ended June 30, 2023 and 2022, and information in regards to the allowance for loan losses and the recorded investment in loans receivable by loan class as of June 30, 2023 and 2022:

The Company adopted ASC 326 on July 1, 2023.

All disclosures are presented in accordance with ASC 326 as of June 30, 2024 .

The following tables summarize the activity in the allowance for credit losses by loan class for the year ended June 30, 2024.

Information in regards to activity in the allowance for credit losses for the year ended June 30, 2023 and the recorded investment in loans receivable by loan class as of June 30, 2023, occurred prior to the adoption of ASC 326:

June 30, 2024

Non-Residential

Allowance for Loan Losses:

(Dollars in thousands)

Allowance for Credit Losses:

Beginning balance

Impact of ASC 326

Provisions (credits)

1 unchanged sentence

Ending balance,

Individually evaluated for impairment

Individually evaluated

for impairment

Ending balance,

Collectively evaluated for impairment

Collectively evaluated

for impairment

Loans Receivable:

1 unchanged sentence

Ending balance,

Individually evaluated for impairment

Individually evaluated

for impairment

Ending balance,

Collectively evaluated for impairment

Collectively evaluated

for impairment

June 30, 2023

Non-Residential

Allowance for Loan Losses:

(Dollars in thousands)

Allowance for Credit Losses:

Beginning balance

(Credits) provisions

Ending balance

Ending balance,

Individually evaluated for impairment

Individually evaluated

for impairment

Ending balance,

Collectively evaluated for impairment

Collectively evaluated

for impairment

Loans Receivable:

1 unchanged sentence

Ending balance,

Individually evaluated for impairment

Individually evaluated

for impairment

Ending balance,

Collectively evaluated for impairment

Somerset Savings Bank, SLA and Subsidiaries

Notes to Consolidated Financial Statements —

Collectively evaluated

for impairment

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

The following table presents the credit risk profile of loans by class and fiscal year of origination as of June 30, 2024:

June 30, 2024

(Dollars in thousands)

The following tables present the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Savings Bank’s internal risk rating system as of June 30, 2023 and 2022:

Owner Occupied Commercial Real Estate

Special mention

Total Owner Occupied Commercial Real Estate

Other Commercial Real Estate

Special mention

Total Other Commercial Real Estate

Special mention

Total Multi-Family

Commercial and Industrial

Special mention

Total Commercial and Industrial

Residential Mortgage

Special mention

Total Residential Mortgage

Consumer and Other

Special mention

Total Consumer and Other

Special mention

Gross charge-offs

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

The following table presents the recorded investment in loans receivable by major category and credit quality indicators at June 30, 2023, prior to the adoption of ASC 326:

June 30, 2023

Non-residential

Passbook, certificate or personal

(Dollars in thousands)

Owner occupied commercial real estate

Other commercial real estate

Commercial and industrial

Residential mortgage

Consumer and Other

The following table presents the amortized cost basis of non-accrual loans and loans 90 days or more past due and still accruing, by loan portfolio class with related allowance, as of June 30, 2024:

June 30, 2024

Non-residential

Passbook, certificate or personal

The following tables provide a breakdown of impaired loans by loan portfolio class as of June 30, 2023 and 2022:

Non-Accrual Loans

With a Related Allowance

Without a Related Allowance

(Dollars in thousands)

Commercial and Industrial

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

The following tables provide a breakdown of impaired loans by loan portfolio class and related allowance as of June 30, 2023 prior to the adoption of ASC 326:

June 30, 2023

(Dollars in thousands)

With no related allowance recorded:

Non-residential

Passbook, certificate or personal

Owner occupied commercial real estate

Other commercial real estate

Commercial and industrial

Residential Mortgage

Consumer and Other

With an allowance recorded:

Non-residential

Passbook, certificate or personal

Non-residential

Passbook, certificate or personal

Somerset Savings Bank, SLA and Subsidiaries

Notes to Consolidated Financial Statements —

Owner occupied commercial real estate

Other commercial real estate

Commercial and industrial

Residential mortgage

Consumer and Other

Owner occupied commercial real estate

Other commercial real estate

Commercial and industrial

Residential mortgage

Consumer and Other

The following table presents the amortized cost of collateral-dependent non-accrual loans by portfolio segment and type of collateral as of June 30, 2024:

June 30, 2024

Type of Collateral

Commercial Real Estate

(Dollars in thousands)

Owner occupied commercial real estate

Other commercial real estate

Commercial and industrial

Residential Mortgage

Consumer and Other

Total collateral dependent loans

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

The following tables present the classes of loans summarized by the past due status as of June 30, 2024 and June 30, 2023:

June 30, 2024

90 Days or More Past Due and Still Accruing

Total Past Due

Total Current

Owner occupied commercial real

Other commercial real estate

Commercial and industrial

Residential mortgage

Consumer and Other

June 30, 2023

90 Days or More Past Due and Still Accruing

Total Past Due

Total Current

(Dollars in thousands)

Owner occupied commercial real

Other commercial real estate

Commercial and industrial

Residential mortgage

Consumer and Other

As of June 30, 2024 , the Bank had made no loan modifications to creditors experiencing financial difficulty nor had it made any troubled debt restructurings as of June 30, 2023 .

Premises and Equipment, net

Premises and equipment at June 30, 2024 and June 30, 2023 are summarized as follows:

(Dollars in thousands)

Buildings and leasehold improvements

Furniture, fixtures and equipment

Accumulated depreciation

Total premises and equipment, net

Depreciation expense amounted to $ 799,000 and $ 413,000 for the years ended June 30, 2024 and June 30, 2023 , respectively.

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

The Company accounts for its leases in accordance with ASC Topic 842.

The Company's right-of-use asset and operating lease liability are recognized at lease commencement based on the present value of the remaining lease payment obligations using discount rates that represent the Company’s incremental borrowing rate as of the lease commencement dates.

The Company leases only office space and equipment under operating leases, with original lease terms ranging from five to ten years .

The Company elected not to include short-term leases with initial terms of twelve months or less on the Consolidated Statements of Financial Condition.

The operating lease agreements recognized on the Consolidated Statements of Financial Condition as a right-of-use asset and a corresponding lease liability, as well as other information related to the Company's operating leases, are summarized in the table below.

Year Ended June 30,

(Dollars in thousands)

Right-of-use asset

Lease liability

Weighted-average remaining lease term, in years

Weighted-average discount rate

Future undiscounted minimum lease payments for operating leases with initial terms of one year or more as of June 30, 2024 are as follows:

(Dollars in thousands)

June 30, 2025

With no related allowance recorded:

Non-residential

Passbook, certificate or personal

With an allowance recorded:

Non-residential

Passbook, certificate or personal

Non-residential

Passbook, certificate or personal

The following tables present the classes of loans summarized by the past due status as of June 30, 2023 and 2022:

June 30, 2026

Non-residential

Passbook, certificate or personal

June 30, 2027

Non-residential

Passbook, certificate or personal

If nonaccrual loans had performed in accordance with their contractual terms, the Savings Bank would have recognized additional income of $ 3 and $ 0 on these loans during the years ended June 30, 2023 and 2022, respectively.

Somerset Savings Bank, SLA and Subsidiaries

Notes to Consolidated Financial Statements —

June 30, 2028

June 30, 2029

Total future minimum lease payments

imputed interest

Future undiscounted minimum lease payments for operating leases with initial terms of one year or more as of June 30, 2024 are as follows:

Year Ended June 30,

(Dollars in thousands)

Operating lease cost

Cash paid for amounts included in measurement of lease liabilities

Goodwill and Intangible Assets

Goodwill and core deposit intangibles resulted from the Company's acquisition of Regal Bancorp, which was accounted for under FASB ASC 805, Business Combinations .

In accordance with ASC 805, the Company recorded $ 20.4 million of goodwill along with $ 9.1 million of core deposit intangibles.

The intangible assets are related to core deposits and are being amortized over 10 years, using an accelerated method.

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

The changes in the carrying amount of goodwill and core deposit intangibles are summarized as follows:

Core Deposit Intangibles

(Dollars in thousands)

The Savings Bank may grant a concession or modification for economic or legal reasons related to a borrower’s financial condition that it would not otherwise consider resulting in a modified loan which is then identified as a TDR.

The Savings Bank may modify loans through rate reductions, extensions of maturity, interest only payments or payment modifications to better match the timing of cash flows due under the modified terms with the cash flows from the borrowers’

Loan modifications are intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral.

TDRs are generally considered impaired loans for purposes of calculating the Savings Bank’s allowance for loan losses.

The Savings Bank identifies loans for potential restructure primarily through direct communication with the borrower and evaluation of the borrower’s financial statements, revenue projections, tax returns and credit reports.

Even if the borrower is not presently in default, management will consider the likelihood that cash flow shortages, adverse economic conditions, and negative trends may result in a payment default in the near future.

As of and for the years ended June 30, 2023 and 2022 , the Savings Bank had no troubled debt restructurings outstanding and/or granted.

As of and for the years ended June 30, 2023 and 2022 , the Savings Bank had no foreclosed real estate owned.

Premises and Equipment

Premises and equipment at June 30, 2023 and June 30, 2022 are summarized as follows:

Buildings and improvements

Accumulated depreciation

Furnishings and equipment

Accumulated depreciation

Depreciation expense amounted to $ 413 and $ 395 for the years ended June 30, 2023 and 2022 , respectively.

Deposits at June 30, 2023 and 2022 consisted of the following:

Balance at June 30, 2023

Acquisition of Regal Bancorp

Amortization expense

Balance at June 30, 2024

As of June 30, 2024, the amortization of the core deposit intangibles in future fiscal years is as follows:

(In thousands)

Deposits at June 30, 2024 and June 30, 2023 consisted of the following:

(Dollars in thousands)

Demand accounts:

4 unchanged sentences

Certificates of deposit

Certificates of deposit with balances in excess of the FDIC insurance limit of $250 at June 30, 2023 and June 30, 2022 amounted to approximately $ 13,433 and $ 10,625 , respectively.

Somerset Savings Bank, SLA and Subsidiaries

Notes to Consolidated Financial Statements —

June 30, 2023 and 2022

Certificates of deposit with balances in excess of the FDIC insurance limit of $250,000 at June 30, 2024 and June 30, 2023 amounted to approximately $ 55.2 million and $ 13.4 million, respectively.

At June 30, 2024, the scheduled maturities of certificates of deposit are as follows:

(Dollars in thousands)

Scheduled maturities of certificates of deposit are as follows:

At June 30, 2023 and June 30, 2022 , there were no borrowings from the FHLB-NY.

At June 30, 2023 and June 30, 2022, the Savings Bank could borrow overnight funds from the FHLB-NY under a redesigned overnight advance program up to the Savings Bank’s maximum borrowing capacity based on the Savings Bank’s ability to collateralize such borrowings.

At June 30, 2023 , the Savings Bank’s maximum borrowing capacity was $ 100,000 .

At June 30, 2023 and June 30, 2022 , the Savings Bank’s Board of Directors has authorized borrowings of up to $ 25,000 from the Federal Reserve Bank of New York (“FRB-NY”).

All borrowings are secured by pledges of the Savings Bank’s qualifying loan portfolio and are generally on overnight terms with an interest rate quoted at the time of the borrowing.

In March 2023, the Federal Reserve established the Bank Term Funding Program (“BTFP”) to make available funding to eligible depository institutions in order to help assure they have the ability to meet the needs of their depositors following the recent events in the banking industry.

The program allows for advances for up to one year secured by eligible high-quality securities at par value extended at the one-year overnight index swap (“OIS”) rate, plus 10 basis points, as of the day the advance is made.

The interest rate is fixed for the term of the advance and there are no prepayment penalties.

At June 30, 2023 , the Savings Bank had outstanding borrowings of $ 20,000 under the BTFP at a borrowing rate of 4.76 % with a maturity date of March 29, 2024 .

Somerset Savings Bank, SLA and Subsidiaries

Notes to Consolidated Financial Statements —

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

(Dollars in thousands)

At June 30, 2024 there were no borrowings from the FHLB of New York.

At June 30, 2024 and June 30, 2023, the Bank could borrow overnight funds from the FHLB-NY under a redesigned overnight advance program up to the Bank’s maximum borrowing capacity based on the Bank’s ability to collateralize such borrowings.

At June 30, 2024, the Bank’s maximum borrowing capacity was $ 100.0 million .

At June 30, 2024 and June 30, 2023 , the Bank’s Board of Directors has authorized borrowings of up to $ 25.0 million from the Federal Reserve Bank of New York (“FRB-NY”).

All borrowings are secured by pledges of the Bank’s qualifying loan portfolio and are generally on overnight terms with an interest rate quoted at the time of the borrowing.

The program allowed for advances for up to one year secured by eligible high-quality securities at par value extended at the one-year overnight index swap rate, plus 10 basis points, as of the day the advance is made.

The interest rate was fixed for the term of the advance and there were no prepayment penalties.

At June 30, 2023 , the Bank had outstanding borrowings of $ 20.0 million under the BTFP at a borrowing rate of 4.76 % with a maturity date of March 29, 2024 .

At June 30, 2024, the Bank had no outstanding borrowings under the BTFP, nor any other outstanding borrowings.

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

Benefit Plans

Retirement Plan

The Savings Bank has a non-contributory pension plan covering all eligible employees.

The plan is a defined benefit plan that provides benefits based on a participant’s years of service and overall annual compensation.

The following tables set forth the plan’s funded status and components of net periodic pension:

The Bank has a non-contributory pension plan covering all eligible employees.

The plan is a defined benefit plan that provides benefits based on a participant’s years of service and overall annual compensation.

The following tables set forth the plan’s funded status and components of net periodic pension:

(Dollars in thousands)

Change in benefit obligation:

18 unchanged sentences

Rate of increase in compensation

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

The Company's mortality rate assumptions use the projected mortality improvement scale, Mortality Projection-2021 , as published by the Society of Actuaries.

The components of the pension and post-retirement net periodic benefit cost for the periods indicated are provided in the table below:

Somerset Savings Bank, SLA and Subsidiaries

Notes to Consolidated Financial Statements —

June 30, 2023 and 2022

(Dollars in thousands)

3 unchanged sentences

Net amortization

Net periodic pension cost included in salaries and

employee benefits

Net periodic pension cost included in salaries and employee benefits

Assumptions used to determine net periodic pension cost:

2 unchanged sentences

Rate of return on plan assets

For the years ended June 30, 2023 and 2022 , the plan’s assets realized an annual return of approximately - 24 % and - 24 %, respectively.

For the years ended June 30, 2024 and 2023, the plan’s assets realized an annual return of approximately - 2 % and - 24 % , respectively.

The weighted-average allocation by asset category is as follows:

2 unchanged sentences

Equity securities and mutual funds

The fair values of the Savings Bank’s pension plan assets at June 30, 2023 and June 30, 2022, by asset category (see Note 12 for the definitions of levels), are as follows:

The fair values of the Bank’s pension plan assets at June 30, 2024 and June 30, 2023, by asset category (see Note 17 for the definitions of levels), are as follows:

Assets at Fair Value as of June 30, 2024

Asset Category

(Dollars in thousands)

Equity securities

3 unchanged sentences

Asset Category

(Dollars in thousands)

Equity securities

1 unchanged sentence

Mutual funds - equity

Somerset Savings Bank, SLA and Subsidiaries

Notes to Consolidated Financial Statements —

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

(Dollars in thousands)

The Savings Bank does not expect to contribute to the pension plan during the year ending June 30, 2023.

The Bank did not contribute to the pension plan during the year ending June 30, 2024.

Benefit payments, which reflect expected future service, are expected to be paid as follows:

Year ending June 30:

As of June 30, 2023 and June 30, 2022 , unrecognized net loss of $ 1,920 and $ 6,472 , respectively, was included in accumulated other comprehensive income.

For the year ending June 30, 2023 , approximately $ 745 of the net loss is expected to be recognized as a component of net periodic pension cost.

(In thousands)

As of June 30, 2024 and June 30, 2023, unrecognized net loss of $ 1.7 million and $ 1.9 million , respectively, was included in accumulated other comprehensive income.

The Company maintains the Somerset Regal Bank Employee Stock Ownership Plan ("ESOP").

Coincident with its conversion on September 19, 2023, the Company loaned the ESOP $ 7.6 million and the ESOP trust purchased 760,634 shares of the Company's common stock at $ 10.00 per share.

Shares are allocated to eligible participants on the basis of compensation, subject to federal limits, as the loan from the Company is repaid.

Under applicable accounting requirements, the Company records compensation expense for the ESOP equal to the fair market value of shares when they are earned and committed to be released to participants' accounts under the plan.

Total compensation expense recognized in connection with the ESOP was $ 515,000 for the year ended June 30, 2024.

Shares held by the ESOP were as follows:

June 30, 2024

(Dollars in thousands)

Allocated to participants

Committed to be allocated

Total ESOP shares

Fair value of unearned shares

Savings and Investment Plan

The Savings Bank has a savings and investment plan, pursuant to Section 401(k) of the Internal Revenue Code, for all eligible employees.

The Bank has a savings and investment plan, pursuant to Section 401(k) of the Internal Revenue Code, for all eligible employees.

Under this plan, employees may make voluntary contributions in an amount equal to not less than 2 % of their eligible compensation during a plan year.

In addition, the Savings Bank will make contributions equal to 3 % of the plan year compensation for all eligible employees.

The Savings Bank, at its discretion, may make an additional matching contribution to those participants employed at each plan year end.

Plan contributions approximated $ 124 and $ 119 for the years ended June 30, 2023 and 2022 , respectively.

In addition, the Bank will make contributions equal to 3 % of the plan year compensation for all eligible employees.

The Bank, at its discretion, may make an additional matching contribution to those participants employed at each plan year end.

Plan contributions approximated $ 239,000 and $ 124,000 for the years ended June 30, 2024 and June 30, 2023 , respectively.

No additional matching contributions were made during the years ended June 30, 2024 and June 30, 2023.

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

Deferred Compensation

The Savings Bank has deferred compensation plans for directors and certain officers that permit the deferral of director fees and officer compensation.

Amounts deferred earn interest at rates comparable to rates the Savings Bank pays on deposit accounts.

At June 30, 2023 and June 30, 2022 , liabilities under the plans totaled approximately $ 993 and $ 754 , respectively.

Interest expense approximated $ 38 and $ 8 for the years ended June 30, 2023 and 2022 , respectively.

The Savings Bank qualifies as a Savings Institution under the provisions of the Internal Revenue Code and, therefore, prior to January 1, 1996, was permitted to calculate its bad debt deduction using either the experience method or the specific charge off method.

Retained earnings at June 30, 2023 and June 30, 2022 included approximately $ 5,300 of such bad debt allowance for which federal income taxes have not been provided.

After January 1, 1996, the Savings Bank was only permitted to deduct actual charge offs.

The Bank has deferred compensation plans for directors and certain officers that permit the deferral of director fees and officer compensation.

Amounts deferred earn interest at rates comparable to rates the Bank pays on deposit accounts.

At June 30, 2024 and June 30, 2023, liabilities under the plans totaled approximately $ 2.4 million and $ 993,000 , respectively.

Interest expense approximated $ 57,000 and $ 38,000 for the years ended June 30, 2024 and June 30, 2023 , respectively.

Prior to the year ended June 30, 2024, the Bank qualified as a Savings Institution under the provisions of the Internal Revenue Code and, therefore, prior to January 1, 1996, was permitted to calculate its bad debt deduction using either the experience method or the specific charge off method.

Retained earnings at June 30, 2024 and June 30, 2023 included approximately $ 5.3 million of such bad debt allowance for which federal income taxes have not been provided.

After January 1, 1996, the Bank was only permitted to deduct actual charge offs.

If such amount is used for purposes other than for bad debt losses, including distributions in liquidation, it will be subject to income tax at the then current rate.

Somerset Savings Bank, SLA and Subsidiaries

Notes to Consolidated Financial Statements —

June 30, 2023 and 2022

(Dollars in thousands)

The components of income tax expense are as follows for years ended June 30, 2024 and June 30, 2023:

(Dollars in thousands)

Current tax expense (benefit):

4 unchanged sentences

Total deferred

Change in valuation allowance

The following table presents a reconciliation between the effective income tax expense and the income tax expense which would be computed by applying the federal statutory tax rate of 21 % for the years ended June 30, 2024 and June 30, 2023:

Federal income tax, at the statutory rate

(Dollars in thousands)

Federal income tax (benefit) expense, at the statutory rate

Increases (decreases) in taxes resulting from:

1 unchanged sentence

Bank owned life insurance

Merger expenses

Other items, net

Effective income tax expense

Somerset Savings Bank, SLA and Subsidiaries

Notes to Consolidated Financial Statements —

Change in valuation allowance

Effective income tax (benefit) expense

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

(Dollars in thousands)

The tax effects of existing temporary differences that give rise to deferred income tax assets and liabilities are as follows:

(Dollars in thousands)

Deferred tax assets:

Capital loss carryover

Deferred compensation

1 unchanged sentence

Deferred loan fees

Allowance for loan loss

Allowance for credit loss

Unrealized loss on securities available-for-sale

Federal net operating loss

State net operating loss

1 unchanged sentence

Uncollected interest

Fair value adjustments related to acquisition

Total deferred tax assets

Deferred tax liabilities:

Core deposit intangible

Prepaid pension

2 unchanged sentences

Total deferred tax liabilities

Valuation allowance

Net deferred income tax asset included in other assets

2 unchanged sentences

The ultimate realization of the deferred tax asset is dependent upon the generation of future taxable income during the periods in which those temporary differences and carryforwards become deductible.

A valuation allowance is recorded for tax benefits which management has determined are not more likely than not to be realized.

At June 30, 2023 and June 30, 2022 , there was no valuation allowance.

At June 30, 2024 and 2023, there was a valuation allowance of $ 2.2 million and $ 0 , respectively.

A corporation may carry forward net operating losses to the succeeding 20 taxable years for New Jersey state tax purposes.

As of June 30, 2023 , the Savings Bank had total state net operating loss carryforwards of $ 2,950 .

Based upon projections of future taxable income and the ability to carry forward net operating losses, management believes it is more likely than not the Savings Bank will realize the remaining deferred tax asset.

As of June 30, 2024, the Bank had total state net operating loss carryforwards of approximately $ 7.2 million that expire beginning in tax year 2044 .

Management assesses the available evidence to estimate whether sufficient future taxable income will be generated to realize the existing deferred tax asset.

Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth.

On the basis of this evaluation, a valuation allowance of $ 2.2 million was established for the year ended June 30, 2024 attributable to the Company's 5-year charitable contribution and capital loss carryforwards.

The amount of the deferred tax asset considered realizable could be adjusted if estimates of future taxable income increased or if objective evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.

Net deferred tax assets are included in other assets on the Consolidated Statements of Financial Condition.

At June 30, 2023 , the Company had no valuation allowance.

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

Commitments and Contingencies

The Savings Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers.

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers.

These financial instruments include commitments to extend credit.

Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statement of financial position.

The Savings Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments.

The Savings Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

Somerset Savings Bank, SLA and Subsidiaries

Notes to Consolidated Financial Statements —

June 30, 2023 and 2022

(Dollars in thousands)

At June 30, 2023, total unfunded loan related commitments, including lines of credit, amounted to $ 30,461 , including $ 23,735 for unused equity lines of credit and $ 6,726 to originate and purchase loans, expiring within three months .

At June 30, 2022, total unfunded loan related commitments, including lines of credit, amounted to $ 28,904 , including $ 23,718 for unused equity lines of credit and $ 5,186 to originate and purchase loans, expiring within three months .

Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statements of financial condition.

The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments.

The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

At June 30, 2024, total unfunded loan-related commitments, including lines of credit, amounted to $ 72.1 million, comprised of $ 36.1 million for unused equity lines of credit and $ 36.0 million to originate and purchase loans, expiring within three months .

At June 30, 2023, total unfunded loan-related commitments, including lines of credit, amounted to $ 30.5 million , comprised of $ 23.7 million for unused equity lines of credit and $ 6.7 million to originate and purchase loans, expiring within three months .

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.

1 unchanged sentence

Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

The Savings Bank evaluates each customer’s creditworthiness on a case-by-case basis.

The amount of collateral obtained if deemed necessary by the Savings Bank upon extension of credit is based on management’s credit evaluation of the counterparty.

The Company evaluates each customer’s creditworthiness on a case-by-case basis.

The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on management’s credit evaluation of the counterparty.

A reserve for unfunded commitments is recognized and included in other liabilities on the consolidated statements of financial condition.

Periodic adjustments to either increase or decrease the reserve are recognized in non-interest expense in the consolidated statements of income, however the Company recorded no expense for the years ended June 30, 2024 and June 30, 2023.

The balance for unfunded commitments was $ 0 at both June 30, 2024 and 2023.

Regulatory Capital

The Savings Bank is subject to regulatory capital requirements administered by federal banking agencies.

The Bank is subject to regulatory capital requirements administered by federal banking agencies.

Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the consolidated financial statements.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Savings Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance sheet items calculated under regulatory accounting practices.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance sheet items calculated under regulatory accounting practices.

The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.

1 unchanged sentence

A capital conservation buffer of 2.50 % , comprised of common equity Tier I capital, is also established above the regulatory minimum capital requirements and must be maintained to avoid limitations on capital distributions.

In 2021, the Savings Bank adopted the new community bank leverage ratio framework.

This framework simplifies the regulatory capital requirements by requiring the Savings Bank to meet only the Tier 1 capital to average assets (leverage) ratio.

The Savings Bank must only maintain a leverage ratio greater than the 9 % required minimum to be considered well capitalized under this framework.

The Savings Bank can opt out of the new framework and return to the risk-weighting framework at any time.

Somerset Savings Bank, SLA and Subsidiaries

Notes to Consolidated Financial Statements —

In 2021, the Bank adopted the new community bank leverage ratio framework.

This framework simplifies the regulatory capital requirements by requiring the Bank to meet only the Tier 1 capital to average assets (leverage) ratio.

The Bank must only maintain a leverage ratio greater than the 9 % required minimum to be considered well capitalized under this framework.

The Bank can opt out of the new framework and return to the risk-weighting framework at any time.

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

(Dollars in thousands)

Market risk, credit risk, operational risk and deposits are some of the factors that can impact the capital adequacy ratio and in turn, adversely affect the performance of the Savings Bank.

As of June 30, 2023, management believes that the Savings Bank meets all capital adequacy requirements to which they are subject.

As of June 30, 2023 , the most recent notification from the Federal Deposit Insurance Corporation categorized the Savings Bank as well capitalized under the regulatory framework for prompt corrective action.

Market risk, credit risk, operational risk and deposits are some of the factors that can impact the capital adequacy ratio and in turn, adversely affect the performance of the Bank.

As of June 30, 2024, management believes that the Bank met all capital adequacy requirements to which it was subject.

As of June 30, 2024 , the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.

To be categorized as well capitalized, an institution must maintain minimum ratios as set forth in the following tables.

There are no conditions or events since that notification that management believes have changed the Savings Bank’s category.

The Bank’s actual capital amounts and ratios are as follows:

There are no conditions or events since that notification that management believes have changed the Bank’s category.

The Bank’s actual capital amounts and ratios are as follows:

To be Well Capitalized

7 unchanged sentences

Related-Party Transactions

In the ordinary course of business, the Savings Bank has engaged, and continues to engage, in banking transactions with its directors, officers and their related parties.

At June 30, 2023 , the Savings Bank had $ 532 in outstanding loans to directors, officers and their related parties.

Balance, beginning of period

Additions, new loans and advances

Balance, end of period

Deposits from directors, officers and their related parties held by the Savings Bank at June 30, 2023 and June 30, 2022 amounted to $ 829 and $ 798 , respectively.

In the ordinary course of business, the Bank has engaged, and continues to engage, in banking transactions with its directors, officers and their related parties.

At June 30, 2024, the Bank had 330,000 in outstanding loans to directors, officers and their related parties.

(Dollars in thousands)

Balance, beginning of year

New loans and advances

Balance, end of year

Deposits from directors, officers and their related parties held by the Bank at June 30, 2024 and June 30, 2023 amounted to $ 5.4 million and $ 829,000 , respectively.

The Company leases three branch facilities under agreements with companies directly or indirectly affiliated with a director, as a result of the Merger.

Lease expense recognized in connection with these leases since the Merger amounted to $ 272,000 for the year ended June 30, 2024.

Fair Value Measurements and Disclosures

The Savings Bank uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.

The Savings Bank’s securities available-for-sale are recorded at fair value on a recurring basis.

Additionally, from time to time, the Savings Bank may be required to record at fair value other assets or liabilities on a non-recurring basis.

The Bank uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.

The Bank’s securities available-for-sale are recorded at fair value on a recurring basis.

Additionally, from time to time, the Bank may be required to record at fair value other assets or liabilities on a non-recurring basis.

These non-recurring fair value adjustments involve the application of lower-of-cost-or-market accounting or write-downs of individual assets.

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

FASB ASC 820, Fair Value Measurements and Disclosures , defines fair value as an exit price representing the amount that would be received to sell an asset or settle a liability in an orderly transaction between market participants.

1 unchanged sentence

Level 1 - Valuation is based on quoted prices in active markets for identical assets or liabilities;

Somerset Savings Bank, SLA and Subsidiaries

Notes to Consolidated Financial Statements —

June 30, 2023 and 2022

(Dollars in thousands)

Level 2 - Valuation is determined from quoted prices for similar assets and liabilities in active markets;

1 unchanged sentence

or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument;

Level 3 - Valuation is derived from model-based and other techniques in which at least one significant input is unobservable and which may be based on the Company’s own estimates about the assumptions that a market participant would use to value the asset or liability.

The Savings Banks’

available-for-sale portfolio is carried at estimated fair value on a recurring basis, with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income or loss.

The Banks’ available-for-sale portfolio is carried at estimated fair value on a recurring basis, with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income or loss.

The securities available-for-sale portfolio consists of U.S.

4 unchanged sentences

June 30, 2024

(Dollars in thousands)

Securities available-for-sale:

Federal National Mortgage Association

Government National Mortgage Association

Federal Home Loan Mortgage Corporation

1 unchanged sentence

June 30, 2023

(Dollars in thousands)

Securities available-for-sale:

5 unchanged sentences

The estimated fair values of equity securities are determined by obtaining quoted prices on nationally recognized exchanges (Level 1 inputs).

All debt securities are measured at fair value using matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’

relationship to other benchmark quoted prices and are classified as Level 2 in the hierarchy.

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

The fair value of deposits with no defined maturities (e.g.

2 unchanged sentences

This approach to estimating fair value excludes the significant benefit that results from the low-cost funding provided by such deposit liabilities, as compared to alternative sources of funding.

Somerset Savings Bank, SLA and Subsidiaries

Notes to Consolidated Financial Statements —

June 30, 2023 and 2022

(Dollars in thousands)

Deposits with stated maturities (time deposits) have been valued using the present value of cash flows discounted at rates approximating the current market for similar deposits.

Financial Assets Measured at Fair Value on a Nonrecurring Basis

The following tables present those assets and liabilities measured at fair value on a non-recurring basis at June 30, 2023 and 2022, and additional quantitative information about the valuation techniques and inputs utilized to determine fair value.

The following tables present those assets and liabilities measured at fair value on a non-recurring basis at June 30, 2024 and June 30, 2023, and additional quantitative information about the valuation techniques and inputs utilized to determine fair value.

All such assets and liabilities were measured using Level 3 inputs:

5 unchanged sentences

Unobservable Inputs

Impaired loans

(Dollars in thousands)

Individually evaluated

Appraisal of collateral

6 unchanged sentences

Unobservable Inputs

(Dollars in thousands)

Impaired loans

2 unchanged sentences

Loans which meet certain criteria are evaluated individually for impairment.

A loan is impaired when, based on current information and events, it is probable that the Savings Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement.

The Savings Bank's impaired loans are generally collateral dependent whose fair value is estimated through current appraisals, and adjusted as necessary by management to reflect current market conditions.

A loan is impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement.

The Bank's impaired loans are generally collateral dependent whose fair value is estimated through current appraisals, and adjusted as necessary by management to reflect current market conditions.

Appraisals of collateral securing impaired loans are conducted by approved, qualified, and independent third-party appraisers.

1 unchanged sentence

Impaired loans are generally classified as Level 3 assets.

There were no transfers between levels within the fair value hierarchy during the years ended June 30, 2023 and 2022 .

There were no transfers between levels within the fair value hierarchy during the years ended June 30, 2024 and June 30, 2023.

Fair Value on a Nonrecurring Basis

The Company discloses fair value information about financial assets, whether or not recognized in the statements of financial condition, for which it is practicable to estimate that value.

The fair value of financial assets that are not measured at fair value in the financial statements were based on the exit price notion.

The following estimated fair value amounts have been determined using available market information and appropriate valuation methodologies.

However, the estimates below are not necessarily indicative of amounts that could be realized in the marketplace.

The use of different market assumptions or valuation methodologies may have a material effect on the estimated fair value amounts.

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2024 and June 30, 2023 were as follows:

June 30, 2024

(Dollars in thousands)

Financial Assets:

Cash and cash equivalents

Securities held-to-maturity, at amortized cost

Restricted equity securities, at cost

Loans receivable, net

Accrued interest receivable

Financial Liabilities:

June 30, 2023

(Dollars in thousands)

Financial Assets:

Cash and cash equivalents

Securities held-to-maturity, at amortized cost

Restricted equity securities, at cost

Loans receivable, net

Accrued interest receivable

Financial Liabilities:

Condensed Financial Statements of Parent Company

Financial information pertaining to SR Bancorp, Inc.

only is as follows:

June 30, 2024

(Dollars in thousands)

Cash held at Somerset Regal Bank

Loan to Somerset Regal Bank ESOP

Due from Somerset Regal Bank

Investment in Somerset Regal Bank

Shareholders' equity

Total liabilities and equity

SR Bancorp, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements — Continued

June 30, 2024 and 2023

(Dollars in thousands)

Income and Expense

Interest income on ESOP loan

Contribution expense

Income before income tax expense and equity in undistributed net loss of

Somerset Regal Bank

Income tax expense

Income before undistributed net loss of Somerset Regal Bank

Equity in undistributed net loss of Somerset Regal Bank

(Dollars in thousands)

Cash Flows From Operating Activities:

Adjustments to reconcile net loss to cash provided by operating activities:

Undistributed net loss of Somerset Regal Bank

Change in other assets

Noncash expense - contribution to Somerset Regal Bank

Charitable Foundation

Net cash used in operating activities

Cash Flows From Investing Activities:

Investment in Somerset Regal Bank

Dividend from Somerset Regal Bank

Principal payment received on ESOP loan

Cash paid for acquisition

Net cash used in investing activities

Cash Flows From Financing Activities:

Cash proceeds from issuance of common stock

Change in due from Somerset Regal Bank

Net cash provided from financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures