What changed in this filing

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Item 1A. Risk Factors

2025-09-29 compared with 2024-10-16 · 48 added, 53 removed, 220 unchanged (31% of the section changed)

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You should consider carefully the following risk factors in evaluating an investment in the shares of common stock.

Risks Related to Recent Acquisition

The Company must successfully integrate the former Regal Bank operations and retain the former Regal Bank employees and customers.

The Company completed its acquisition of Regal Bancorp and its wholly owned subsidiary Regal Bank in September 2023.

Future results of operations will depend in large part on the Company’s ability to successfully integrate the operations of Regal Bank and retain Regal Bank’s employees and customers.

If the Company is unable to successfully manage the integration of the Regal Bank cultures, employee and customer bases and operating systems and achieve the synergies and costs savings it anticipated, the Company’s results of operations may be adversely affected.

Risks Related to Economic Conditions

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Local economic conditions have a significant impact on the ability of our borrowers to repay loans and the value of the collateral securing loans.

A deterioration in economic conditions, especially local conditions, could have the following consequences, any of which could have a material adverse effect on our business, financial condition, liquidity and results of operations, and could more negatively affect us compared to a financial institution that operates with more geographic diversity:

A deterioration in economic conditions, especially local conditions, could

have the following consequences, any of which could have a material adverse effect on our business, financial condition, liquidity and results of operations, and could more negatively affect us compared to a financial institution that operates with more geographic diversity:

• demand for our products and services may decline;

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• the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us.

Moreover, a significant decline in general economic conditions caused by inflation, recession, acts of terrorism, civil unrest, an outbreak of hostilities or other international or domestic calamities, an epidemic or pandemic, unemployment or other factors beyond our control could further impact these local economic conditions and could further negatively affect the financial results of our banking operations.

Moreover, a significant decline in general economic conditions caused by inflation, tariffs, recession, acts of terrorism, civil unrest, an outbreak of hostilities or other international or domestic calamities, an epidemic or pandemic, unemployment or other factors beyond our control could further impact these local economic conditions and could further negatively affect the financial results of our banking operations.

In addition, deflationary pressures, while possibly lowering our operating costs, could have a significant negative effect on our borrowers, especially our business borrowers, and the values of underlying collateral securing loans, which could negatively affect our financial performance.

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Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money.

Inflation has remained elevated and, in response the Federal Reserve Board raised certain benchmark interest rates.

As discussed below under “—Risks Related to Interest Rates – Changes in interest rates or the shape of the yield curve may adversely affect our profitability and financial condition,” as inflation increases and market interest rates rise the value of our investment securities, particularly those with longer maturities, decrease, although this effect can be less pronounced for floating rate instruments.

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Sustained higher interest rates by the FRB to tame persistent inflationary pressures could decrease asset prices and weaken economic activity.

Changes to trade policies and tariffs can have an adverse impact on our business and our customers.

Changes in trade policies, including the imposition of tariffs or the escalation of a trade war, could negatively impact the economic conditions in the markets we serve.

Our customers—particularly local businesses engaged in manufacturing and retail—may face higher costs for imported goods and materials, reduced export demand and supply chain disruptions due to increased tariffs.

These challenges could lead to lower revenues, reduced profitability and potential layoffs, all of which may impair our customers’ ability to meet their financial obligations.

Furthermore, prolonged trade tensions and economic uncertainty could lead to market volatility, declining asset values and weakened consumer confidence.

If our customers experience financial stress, we could see loan delinquencies and credit losses, negatively affecting our asset quality and overall financial performance.

Additionally, any decline in local economic activity could reduce loan demand and deposit growth, which are critical to our long-term success.

While we actively monitor economic and policy developments, we cannot predict the outcome of trade negotiations or the full impact of tariffs and trade restrictions on our business, customers, and the broader economy.

Any adverse effects from tariffs or a trade war could materially and negatively impact our financial condition, results of operations, and future growth prospects.

A recession could result in increases in our level of non-performing loans and/or reduce demand for our products and services, which would lead to lower revenue, higher credit losses and lower earnings.

Our business activities and earnings are affected by general business conditions in the United States and in our local market area.

These conditions include short-term and long-term interest rates, inflation, unemployment levels, real estate values, monetary supply, consumer confidence and spending, fluctuations in both debt and equity capital markets, and the strength of the economy in the United States generally and in our market area in particular.

markets, and the strength of the economy in the United States generally and in our market area in particular.

If the national economy experiences a recession, which might include rising unemployment levels, declines in real estate values and/or an erosion in consumer confidence, the ability of our borrowers to repay their loans in accordance with their terms could be impaired.

Nearly all of our loans are secured by real estate or made to businesses in the counties in which we have offices in New Jersey.

Nearly all our loans are secured by real estate or made to businesses in the counties in which we have offices in New Jersey.

As a result of this concentration, a prolonged or more severe downturn in the local economy could result in significant increases in non-performing loans, negatively impacting our interest income and resulting in higher provisions for credit losses.

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This can cause decreases in our spread and can adversely affect our income.

In response to rising inflation, the Federal Reserve’s Federal Open Market Committee has significantly increased market interest rates, with the expectation of maintaining this level of market interest rates for the foreseeable future.

Our net interest spread and net interest margin may have decreased and may continue to decrease due to potential increases in our cost of funds that may outpace any increases in our yield on interest-earnings assets.

The rates we earn on our assets and the rates we pay on our liabilities are generally fixed for a contractual period of time.

Like many financial institutions, our liabilities generally have shorter contractual maturities than our assets.

This imbalance can create significant earnings volatility because market interest rates change over time.

In a period of rising interest rates, the interest income we earn on our assets may not increase as rapidly as the interest we pay on our liabilities.

For example, during the years ended June 30, 2024 and June 30, 2023, Somerset Regal Bank experienced an increase in certificates of deposits and a decrease in lower-cost savings accounts reflecting the decision of many depositors to take advantage of increased interest rates being paid on certificates of deposits.

Interest rates also affect how much money we lend.

For example, when interest rates rise, the cost of borrowing increases and loan originations tend to decrease.

In addition, changes in interest rates can affect the average life of loans and securities.

For example, an increase in interest rates generally results in decreased prepayments of loans and mortgage-backed securities, as borrowers are less likely to refinance their debt.

Furthermore, increases in interest rates may adversely affect our ability to originate loans and/or the ability of our borrowers to make loan repayments on adjustable-rate loans, as the interest owed on such loans would increase as interest rates increase.

In a period of declining interest rates, the interest income we earn on our assets may decrease more rapidly than the interest we pay on our liabilities, as borrowers prepay mortgage loans, and mortgage-backed securities and callable securities are called, requiring us to reinvest those cash flows at lower interest rates.

In addition, changes in interest rates can affect the average life of loans and mortgage-backed and related securities.

A decline in interest rates generally results in increased prepayments of loans and mortgage-backed and related securities as borrowers refinance their debt to reduce their borrowing costs.

This creates reinvestment risk, which is the risk that we may not be able to reinvest prepayments at rates that are comparable to the rates we earned on the prepaid loans or securities.

Furthermore, an inverted interest rate yield curve, where short-term interest rates (which are usually the rates at which financial institutions borrow funds) are higher than long-term interest rates (which are usually the rates at which financial institutions lend funds for fixed-rate loans) can reduce a financial institution’s net interest margin and create financial risk for financial institutions that originate longer-term, fixed-rate mortgage loans.

Risks Related to Strategy and Growth

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At June 30, 2025, approximately $787.9 million or 98.5% of our loan portfolio was secured by real estate, most of which is located in our primary lending market area of Essex, Hunterdon, Middlesex, Morris, Somerset and Union Counties, New Jersey and surrounding areas.

Future declines in real estate values in our primary lending

markets and surrounding markets because of an economic downturn could significantly impair the value of the collateral securing our loans and our ability to sell the collateral upon foreclosure for an amount necessary to satisfy the borrower’s obligations to us.

Future declines in real estate values in our primary lending markets and surrounding markets because of an economic downturn could significantly impair the value of the collateral securing our loans and our ability to sell the collateral upon foreclosure for an amount necessary to satisfy the borrower’s obligations to us.

This could require us to increase our allowance for credit losses to address the decrease in the value of the real estate securing our loans, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

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Similarly, we relied on third-party brokers to refer to us multi-family real estate loans.

Such referrals represented $16.7 million, or 57.6%, of Bank's multi-family loan originations for the year ended June 30, 2024.

Such referrals represented $50.5 million, or 100.0%, of the Bank's multi-family loan originations for the year ended June 30, 2025.

These third parties are used to supplement the originations made by in-house staff.

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Because the repayment of multi-family and commercial real estate and commercial loans depends on the successful management and operation of the borrower’s properties or related businesses, repayment of such loans can be affected by adverse conditions in the real estate market or the local economy.

Multi-family and commercial real estate and commercial loans may also involve relatively large loan balances to individual borrowers or groups of related borrowers.

Multi-family and

commercial real estate and commercial loans may also involve relatively large loan balances to individual borrowers or groups of related borrowers.

A downturn in the real estate market or the local economy could adversely impact the value of properties securing the loan or the revenues from the borrower’s business thereby increasing the risk of non-performing loans.

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We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for our loans.

In determining the amount of the allowance for credit losses, we review our loans and our loss and delinquency experience, and we evaluate other factors including, among other things, current economic conditions.

If our assumptions are incorrect, or if delinquencies or non-performing loans increase, our allowance for credit losses may not be sufficient to cover probable and incurred losses inherent in our loan portfolio, which would require additions

to our allowance, that could materially decrease our net income.

If our assumptions are incorrect, or if delinquencies or non-performing loans increase, our allowance for credit losses may not be sufficient to cover current expected losses in our loan portfolio, which would require additions to our allowance, that could materially decrease our net income.

Our allowance for credit losses was 0.65% and 0.71% of total loans at June 30, 2025 and June 30, 2024, respectively.

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CECL requires financial institutions to determine periodic estimates of lifetime expected credit losses on loans and recognize the expected credit losses as allowances for credit losses.

This changed the method of providing allowances for loan losses that are incurred or probable, which may require us to increase our allowance for credit losses in the future and will greatly increase the types of data we would need to collect and review to determine the appropriate level of the allowance for credit losses.

This changed the method of providing allowances for loan losses that are incurred or probable, which increased the types of data we need to collect and review to determine the appropriate level of the allowance for credit losses.

In addition, Somerset Regal Bank regulators periodically review our allowance for credit losses and, based on their judgments and information available to them at the time of their review, may require us to increase our allowance for credit losses or recognize further loan charge-offs.

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Competition in the banking and financial services industry is intense.

In our market area, we compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, and brokerage and investment banking firms operating locally and elsewhere.

Many of our competitors have greater name recognition, market presence and substantially more resources that benefit them in attracting business and offer certain services that we do not or cannot provide.

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The financial services industry could become even more competitive as a result of continuing legislative, regulatory and technological changes and continued industry consolidation.

Banks, securities firms and insurance companies can merge under the umbrella of a financial holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and

merchant banking.

Also, technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems.

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Mobile phishing, a means for identity thieves to obtain sensitive personal information through fraudulent e-mail, text or voice mail, is an emerging threat targeting the customers of financial entities.

A failure in or breach of our operational or information security systems, or those of our third-party service providers, as a result of cyber-attacks or information security breaches or due to employee error, malfeasance or other disruptions could adversely affect our business, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and/or cause losses.

Although we employ a variety of physical, procedural and technological safeguards to protect confidential and proprietary information from mishandling, misuse or loss, these safeguards do not provide absolute assurance that mishandling, misuse or loss of the information will not occur, and that if mishandling, misuse or loss of information does occur, those events will be promptly detected and addressed.

other disruptions could adversely affect our business, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and/or cause losses.

Although we employ a variety of safeguards to protect confidential and proprietary information from mishandling, misuse or loss, these safeguards do not provide absolute assurance that mishandling, misuse or loss of the information will not occur, and that if mishandling, misuse or loss of information does occur, those events will be promptly detected and addressed.

Similarly, when confidential or proprietary information is collected, compiled, processed, transmitted or stored by third parties on our behalf, our policies and procedures require that the third party agree to maintain the confidentiality of the information, establish and maintain policies and procedures designed to preserve the confidentiality of the information, and permit us to confirm the third party’s compliance with the terms of the agreement.

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We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a public company.

However, the measures we take may not be sufficient to satisfy our obligations as a public company.

Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes Oxley Act”) requires annual management assessments of the effectiveness of our internal control over financial reporting.

Section 404 of the Sarbanes-Oxley Act of 2002 requires annual management assessments of the effectiveness of our internal control

over financial reporting.

Any failure to achieve and maintain an effective internal control environment could have a material adverse effect on our business.

In addition, we may need to hire additional compliance, accounting and financial staff with appropriate public company experience and technical knowledge, and we may not be able to do so in a timely fashion.

As a result, we may need to rely on outside consultants to provide these services for us until qualified personnel are hired.

These obligations will increase our operating expenses and could divert our management’s attention from our operations.

At June 30, 2025, management identified a material weakness in our internal control over financial reporting related to the untimely recognition of income from life insurance contracts resulting from the death of a former employee, which originated from differences in the contract balances reported by our bank owned life insurance ("BOLI") administrator as compared to the underlying insurance carriers.

See Item 9A, ”Controls and Procedures.” If we neglect to implement and maintain effective internal control over financial reporting, it could result in material misstatements in our financial statements, which could result in a restatement of our financial statements or cause investors to lose confidence in our reported financial information, adversely affecting our stock price.

Any such failure could also adversely affect the results of periodic management evaluations regarding the effectiveness of our internal control over financial reporting required under Section 404 of the Sarbanes-Oxley Act of 2002 and the rules promulgated by the SEC under Section 404.

These obligations have increased our operating expenses and could divert our management’s attention from our operations.

We are a community bank and our ability to maintain our reputation is critical to the success of our business and the failure to do so may materially adversely affect our performance.

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This is done, in part, by recruiting, hiring and retaining employees who share our core values of being an integral part of the communities we serve, delivering superior service to our customers and caring about our customers.

If our reputation is negatively affected by the actions of our employees, by our inability to conduct our

operations in a manner that is appealing to current or prospective customers, or otherwise, our business and operating results may be materially adversely affected.

If our reputation is negatively affected by the actions of our employees, by our inability to conduct our operations in a manner that is appealing to current or prospective customers, or otherwise, our business and operating results may be materially adversely affected.

Our risk management framework may not be effective in mitigating risk and reducing the potential for significant losses.

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We seek to identify, measure, monitor, report and control our exposure to risk, including strategic, market, liquidity, compliance and operational risks.

While we use broad and diversified risk monitoring and mitigation techniques, these techniques are inherently limited because they cannot anticipate the existence or future development of currently unanticipated or unknown risks.

While we use broad and diversified risk monitoring and mitigation techniques, these techniques are limited because they cannot anticipate the existence or future development of currently unanticipated or unknown risks.

Recent economic conditions and heightened legislative and regulatory scrutiny of the financial services industry, among other developments, have increased our level of risk.

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Natural disasters can disrupt our operations, result in damage to our properties, reduce or destroy the value of the collateral for our loans and negatively affect the economies in which we operate, which could have a material adverse effect on our results of operations and financial condition.

A significant natural disaster, such as a tornado, hurricane, fire or flood, could have a material adverse impact on our ability to conduct business, and our insurance coverage may be insufficient to compensate for losses that may occur.

A significant natural disaster, such as a tornado,

hurricane, fire or flood, could have a material adverse impact on our ability to conduct business, and our insurance coverage may be insufficient to compensate for losses that may occur.

Acts of terrorism, war, civil unrest, violence or human error could cause disruptions to our business or the economy as a whole.

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Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the ability to impose restrictions on our operations, classify our assets and determine the level of our allowance for credit losses.

These regulations, along with the currently existing tax, accounting, securities, deposit insurance and monetary laws, rules, standards, policies, and interpretations, control

the methods by which financial institutions conduct business, implement strategic initiatives, and govern financial reporting and disclosures.

These regulations, along with the currently existing tax, accounting, securities, deposit insurance and monetary laws, rules, standards, policies, and interpretations, control the methods by which financial institutions conduct business, implement strategic initiatives, and govern financial reporting and disclosures.

As a smaller institution, we are disproportionately affected by the ongoing increased costs of compliance with banking and other regulations.

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Changes in accounting standards could affect reported earnings.

The bodies responsible for establishing accounting standards, including the Financial Accounting Standards Board, the Securities and Exchange Commission, periodically change the financial accounting and reporting guidance that govern the preparation of our financial statements.

The bodies responsible for establishing accounting standards, including the Financial Accounting Standards Board and the Securities and Exchange Commission, periodically change the financial accounting and reporting guidance that govern the preparation of our financial statements.

These changes can materially impact how we record and report our financial condition and results of operations.

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Materially different results may occur as circumstances change and additional information becomes known.

Areas requiring significant estimates and assumptions by management include our evaluation of the adequacy of our allowance for credit losses, and the determination of our deferred income taxes.

Areas requiring significant estimates and assumptions by management include our evaluation of the adequacy of our allowance for credit losses, the impairment of our goodwill and the determination of our deferred income taxes.

Risks Related to Our Common Stock

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Our return on equity will be low until we are able to profitably leverage the additional capital we received from the offering.

Our return on equity also will be negatively affected by added expenses associated with our employee stock ownership plan and the stock-based benefit plan we intend to adopt.

Our return on equity also will be negatively affected by added expenses associated with our employee stock ownership plan and the stock-based benefit plan.

Until we can increase our net interest income and noninterest income and leverage the capital raised in the offering, we expect our return on equity to be low, which may reduce our stock price.

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There also are provisions in our articles of incorporation and bylaws that may be used to delay or block a takeover attempt, including a provision that prohibits any person from voting more than 10% of our outstanding shares of common stock.

Taken as a whole, these statutory provisions and provisions in our articles of incorporation and bylaws could result in our being less attractive to a potential acquirer and thus could adversely affect the market price of our common stock.

Risks Related to COVID-19

The COVID-19 pandemic could continue to pose risks to our business, our results of operations and the future prospects of SR Bancorp.

The COVID-19 pandemic impacted the global and national economy and certain industries and geographies in which our clients operate.

Given its ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 pandemic on the business of SR Bancorp, its clients, employees and third-party service providers.

The extent of such an impact will depend on future developments, which are highly uncertain.

Additionally, the responses of various governmental and non-governmental authorities and consumers to the pandemic may negatively impact our business and results of operations.

Taken as a whole, these statutory and regulatory provisions and provisions in our articles of incorporation and bylaws could result in our being less attractive to a potential acquirer and thus could adversely affect the market price of our common stock.

Risks Related to the Somerset Regal Charitable Foundation

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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 1A. Risk Factors