SR Bancorp, Inc.

Previous wording

The following management discussion and analysis of the Company’s consolidated financial condition as of September 30, 2024 and the results of operations for the three months ended September 30, 2024 and 2023 (“MD&A”) should be read in conjunction with the consolidated audited financial statements, including notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2024, as filed with the Securities and Exchange Commission, and the other information therein. The Consolidated Statements of Financial Condition as of September 30, 2024, the Consolidated Statements of Income (Loss), the Consolidated Statements of Comprehensive Income (Loss), the Consolidated Statements of Changes in Stockholders’ Equity and the Consolidated Statements of Cash Flows for the three months ended September 30, 2024 and 2023, are unaudited. The Consolidated Statement of Financial Condition as of June 30, 2024 was derived from the audited Consolidated Statements of Financial Condition that was included in the Company's Annual Report on Form 10-K for the year ended June 30, 2024. The consolidated financial statements include, in the opinion of management, all adjustments considered necessary for a fair presentation of such data. As used in this Quarterly Report on Form 10-Q, “we,” “us,” “our,” “the Bank” and “the Company” refer to SR Bancorp, Inc., and its consolidated subsidiaries, unless otherwise noted.

Current wording

The following management discussion and analysis of the Company’s consolidated financial condition as of December 31, 2024 and the results of operations for the three and six months ended December 31, 2024 and 2023 (“MD&A”) should be read in conjunction with the consolidated audited financial statements, including notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2024, as filed with the Securities and Exchange Commission, and the other information therein. The Consolidated Statements of Financial Condition as of December 31, 2024, the Consolidated Statements of Income (Loss), the Consolidated Statements of Comprehensive Income (Loss), the Consolidated Statements of Changes in Stockholders’ Equity and the Consolidated Statements of Cash Flows for the three months ended December 31, 2024 and 2023, are unaudited. The Consolidated Statement of Financial Condition as of June 30, 2024 was derived from the audited Consolidated Statements of Financial Condition that was included in the Company's Annual Report on Form 10-K for the year ended June 30, 2024. The consolidated financial statements include, in the opinion of management, all adjustments considered necessary for a fair presentation of such data. As used in this Quarterly Report on Form 10-Q, “we,” “us,” “our,” “the Bank” and “the Company” refer to SR Bancorp, Inc., and its consolidated subsidiaries, unless otherwise noted.

Previous wording

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

Current wording

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

Previous wording

Income Taxes: Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. 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.

Current wording

Deferred Tax Assets: Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. 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.

Previous wording

Total Assets. Total assets increased $32.1 million, or 3.1%, to $1.05 billion at September 30, 2024 from $1.02 billion at June 30, 2024. The increase was primarily driven by new loan originations, resulting in a net increase of $35.9 million in loans receivable.

Current wording

Total Assets. Total assets increased $43.7 million, or 4.3%, to $1.06 billion at December 31, 2024 from $1.02 billion at June 30, 2024. The increase was primarily driven by new loan originations, resulting in a net increase of $43.9 million in loans receivable and a $7.5 million increase in cash and cash equivalents.

Previous wording

Cash and Cash Equivalents. Cash and cash equivalents increased $1.4 million, or 3.0%, to $47.3 million at September 30, 2024 from $45.9 million at June 30, 2024 due to the increases in deposits and borrowings.

Current wording

Cash and Cash Equivalents. Cash and cash equivalents increased $7.5 million, or 16.4%, to $53.4 million at December 31, 2024 from $45.9 million at June 30, 2024, due to the maturity of securities.

Previous wording

Securities. Securities held-to-maturity decreased $3.6 million, or 2.3%, to $152.5 million at September 30, 2024 from $156.1 million at June 30, 2024. The decrease was primarily due to principal repayments and maturities.

Current wording

Securities. Securities held-to-maturity decreased $7.3 million, or 4.7%, to $148.8 million at December 31, 2024 from $156.1 million at June 30, 2024. The decrease was primarily due to principal repayments and maturities.

Previous wording

Loans. Loans receivable, net, increased $35.9 million, or 4.9%, to $767.7 million at September 30, 2024 from $731.9 million at June 30, 2024, primarily due to a $25.6 million, or 14.2%, increase in multi-family loans and a $11.5 million, or 2.9%, increase in residential mortgage loans. Commercial loans (consisting of multi-family and commercial real estate loans and commercial and industrial loans) accounted for 45.8% of loans at September 30, 2024. For further information about our loans, see "Lending Activities" below.

Current wording

Loans. Loans receivable, net, increased $43.9 million, or 6.0%, to $775.8 million at December 31, 2024 from $731.9 million at June 30, 2024, primarily driven by an increase in residential mortgage loans of $19.7 million and an increase in commercial loans of $23.4 million. Commercial loans (consisting of multi-family and commercial real estate loans and commercial and industrial loans) accounted for 45.2% of loans at December 31, 2024. For further information about our loans, see "Lending Activities" below.

Previous wording

Bank Owned Life Insurance. Bank owned life insurance increased $260,000, or 0.7%, to $37.4 million at September 30, 2024 from $37.1 million at June 30, 2024.

Current wording

Bank Owned Life Insurance. Bank owned life insurance increased $524,000, or 1.4%, to $37.6 million at December 31, 2024 from $37.1 million at June 30, 2024.

Previous wording

Goodwill and Intangible Assets. Goodwill and the core deposit intangible asset recognized from the Merger totaled $27.8 million at September 30, 2024 compared to $28.1 million at June 30, 2024. The decrease was due to the amortization of the core deposit intangible.

Current wording

Goodwill and Intangible Assets. Goodwill and the core deposit intangible asset recognized from the Merger totaled $27.4 million at December 31, 2024 compared to $28.1 million at June 30, 2024. The decrease was due to the amortization of the core deposit intangible.

Previous wording

Total Liabilities. Total liabilities increased $31.1 million, or 3.8%, to $852.4 million at September 30, 2024 from $821.4 million at June 30, 2024. The increase was primarily due to a $20.0 million advance borrowing with the Federal Home Loan Bank of New York and a $12.7 million increase in deposits.

Current wording

Total Liabilities. Total liabilities increased $45.0 million, or 5.5%, to $866.4 million at December 31, 2024 from $821.4 million at June 30, 2024. The increase was primarily due to a $30.0 million advance from the Federal Home Loan Bank of New York and a $17.0 million increase in deposits.

Previous wording

Deposits. Deposits increased $12.3 million, or 1.5%, to $819.4 million at September 30, 2024 from $807.1 million at June 30, 2024 due primarily to increases in interest-bearing checking accounts that offset decreases in non-maturity savings accounts due in part to the Bank having raised rates on certain interest-bearing deposit products in an effort to remain competitive in the market area. At September 30, 2024, $102.5 million, or 12.5%, of total deposits consisted of noninterest-bearing deposits. At September 30, 2024, $137.6 million, or 16.8%, of total deposits were uninsured.

Current wording

Deposits. Deposits increased $17.0 million, or 2.1%, to $824.1 million at December 31, 2024 from $807.1 million at June 30, 2024 due primarily to increases in interest-bearing checking accounts that were offset by decreases in non-maturity savings accounts due in part to the Bank having raised rates on certain interest-bearing deposit products in an effort to remain competitive in the market area. At December 31, 2024, $95.0 million, or 11.5%, of total deposits consisted of noninterest-bearing deposits. At December 31, 2024, $128.3 million, or 15.6%, of total deposits were uninsured.

Previous wording

Borrowings. During the three months ended September 30, 2024, the Bank borrowed $20.0 million from the Federal Home Loan Bank of New York to provide for additional liquidity in order to fund new loans. Such borrowing remained outstanding at September 30, 2024. At June 30, 2024, there were no outstanding borrowings.

Current wording

Borrowings. During the six months ended December 31, 2024, the Bank borrowed $30.0 million from the Federal Home Loan Bank of New York to provide additional liquidity to fund new loans. Such borrowings remained outstanding at December 31, 2024. At June 30, 2024, there were no outstanding borrowings.

Previous wording

Total Equity. Total equity increased $1.1 million, or 0.5%, to $200.5 million at September 30, 2024 from $199.5 million at June 30, 2024. The increase was primarily due to net earnings of $1.4 million and a decrease in accumulated other comprehensive loss related to the funded status of the Company's pension plan of $337,000, or 27.7%, partially offset by a decrease of $737,000 due to the repurchase of 66,288 shares of Company common stock.

Current wording

Total Equity. Total equity decreased $1.3 million, or 0.7%, to $198.1 million at December 31, 2024 from $199.5 million at June 30, 2024. The decrease was primarily due to the repurchase of 347,057 shares of common stock at a cost of $3.9 million, partially offset by net earnings of $2.4 million.

Previous wording

We offer a variety of loans, including residential, commercial real estate, multi-family, commercial and industrial and consumer loans. Historically, we have had a significant portion of our loan portfolio concentrated in residential loans, including one- to four-family residential loans. The Merger greatly expanded our commercial loan portfolio and commercial lending capabilities. At September 30, 2024, residential mortgage loans comprised 52.7% of our total loan portfolio and commercial loans comprised 45.8%, which largely consisted of multi-family loans.

Current wording

We offer a variety of loans, including residential, commercial real estate, multi-family, commercial and industrial and consumer loans. Historically, a significant portion of our loan portfolio was concentrated in residential loans. The Merger greatly expanded our commercial loan portfolio and commercial lending capabilities. At December 31, 2024, residential mortgage loans comprised 53.2% of our total loan portfolio and commercial loans comprised 45.2%, which largely consisted of multi-family loans.

Previous wording

Non-Performing Assets. The following table sets forth information regarding our non-performing assets. The Bank had no loan modifications to borrowers experiencing financial difficulty as of September 30, 2024 and June 30, 2024.

Current wording

Non-Performing Assets. The following table sets forth information regarding our non-performing assets. The Bank had no loan modifications to borrowers experiencing financial difficulty as of December 31, 2024 or June 30, 2024.

Previous wording

Our allowance for credit losses ("ACL") is maintained at a level necessary to absorb credit losses that are both probable and reasonably estimable. Management, in determining the allowance for credit losses, considers the losses in our loan portfolio and changes in the nature and volume of loan activities, along with the general economic and real estate market conditions. A description of our methodology in establishing our allowance for credit losses is set forth in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations of SR Bancorp—Critical Accounting Policies-Allowance for Credit Losses” in our Form 10-K as of and for the year ended June 30, 2024. The allowance for credit losses as of September 30, 2024 and June 30, 2024 was maintained at levels that represents management’s best estimate of losses in the loan portfolio, and such losses were both probable and reasonably estimable. However, this analysis process is inherently subjective, as it requires us to make estimates that are susceptible to revisions as more information becomes available. Although we believe that we have established the allowance at levels to absorb probable and estimable losses, future additions may be necessary if economic or other conditions in the future differ from the current environment.

Current wording

Our allowance for credit losses ("ACL") is maintained at a level necessary to absorb credit losses that are both probable and reasonably estimable. Management, in determining the allowance for credit losses, considers the losses in our loan portfolio and changes in the nature and volume of loan activities, along with the general economic and real estate market conditions. A description of our methodology in establishing our allowance for credit losses is set forth in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations of SR Bancorp—Critical Accounting Policies-Allowance for Credit Losses” in our Form 10-K as of and for the year ended June 30, 2024. The allowance for credit losses as of December 31, 2024 and June 30, 2024 were maintained at levels that represent management’s best estimate of current expected losses in the loan portfolio. However, this analysis process is inherently subjective, as it requires us to make estimates that are susceptible to revisions as more information becomes available. Although we believe that we have established the allowance at levels to absorb current expected losses, future additions may be necessary if economic or other conditions in the future differ from the current environment.

Previous wording

General. The goals of our investment policy are to maximize portfolio yield over the long term in a manner that is consistent with minimizing risk, and meeting liquidity needs, pledging requirements, and asset/liability management and interest rate risk strategies. Subject to loan demand and our interest rate risk analysis, we will increase the balance of our investment securities portfolio when we have excess liquidity.

Current wording

General. The goals of our investment policy are to maximize portfolio yield over the long term in a manner that is consistent with minimizing risk, and to meet liquidity needs, pledging requirements, and asset/liability management and interest rate risk strategies. We monitor the balance of our investment securities portfolio based on loan demand, our interest rate risk analysis and our liquidity needs.

Previous wording

At September 30, 2024 and June 30, 2024, our investment portfolio consisted solely of securities held-to-maturity, primarily of securities and obligations issued by U.S. government-sponsored enterprises, subordinated debentures issued by financial institutions in the Mid-Atlantic region, collateralized mortgage obligations and foreign government bonds.

Current wording

At December 31, 2024 and June 30, 2024, our investment portfolio consisted of securities held-to-maturity, primarily of securities and obligations issued by U.S. government-sponsored enterprises, subordinated debentures issued by financial institutions in the Mid-Atlantic region, collateralized mortgage obligations and foreign government bonds.

Previous wording

Deposit Accounts. Deposits are primarily attracted from within our market area through the offering of a broad selection of deposit instruments, including noninterest-bearing demand deposits (such as checking accounts), interest-bearing demand accounts (such as NOW accounts), savings accounts, money market accounts and certificates of deposit. At September 30, 2024 and June 30, 2024, we also held $34.5 million and $22.2 million, respectively, of accounts from a variety of local municipal relationships. At September 30, 2024 and June 30, 2024, we had no brokered deposits.

Current wording

Deposit Accounts. Deposits are primarily attracted from within our market area through the offering of a broad selection of deposit instruments, including noninterest-bearing demand deposits (such as checking accounts), interest-bearing demand accounts (such as NOW accounts), savings accounts, money market accounts and certificates of deposit. At December 31, 2024 and June 30, 2024, we held $30.0 million and $22.2 million, respectively, of accounts from a variety of local municipal relationships. At December 31, 2024 and June 30, 2024, we had no brokered deposits.

Previous wording

As of September 30, 2024 and June 30, 2024, the aggregate amount of uninsured deposits (deposits in amounts greater than $250,000, which is the maximum amount for federal deposit insurance), was $137.6 million and $109.7 million, respectively. In addition, as of September 30, 2024 and June 30, 2024, the aggregate amount of all our uninsured certificates of deposit was $24.0 million and $21.9 million, respectively. We have no deposits that are uninsured for any reason other than being in excess of the maximum amount for federal deposit insurance. The following table sets forth the maturity of the uninsured certificates of deposit as of the dates indicated.

Current wording

As of December 31, 2024 and June 30, 2024, the aggregate amount of uninsured deposits (deposits in amounts greater than $250,000, which is the maximum amount for federal deposit insurance), was $128.3 million and $109.7 million, respectively. In addition, as of December 31, 2024 and June 30, 2024, the aggregate amount of all our uninsured certificates of deposit was $25.4 million and $21.9 million, respectively. We have no deposits that are uninsured for any reason other than being in excess of the maximum amount for federal deposit insurance. The following table sets forth the maturity of the uninsured certificates of deposit as of the dates indicated.

Previous wording

Interest Expense. Interest expense increased $2.5 million or 177.0%, to $3.9 million for the three months ended September 30, 2024 from $1.4 million for the three months ended September 30, 2023 due to a $2.6 million increase in interest expense on deposits, offset in part by a $77,000 decrease in interest expense on borrowings. The decrease in interest expense was due to a $20.0 million borrowing with the Federal Home Loan Bank being outstanding for only a portion of the three months ended September 30, 2024 compared to a $20.0 million Federal Reserve advance being outstanding for the full three months ended September 30, 2023, offset by a higher rate on the Federal Home Loan Bank borrowing. Interest expense on interest-bearing demand deposits increased $879,000 due to an increase of $132.9 million in the average balance and an increase of 123 basis points in the cost of interest-bearing deposits to 1.36% for the three months ended September 30, 2024 from 0.13% for the three months ended September 30, 2023. Interest expense on certificates of deposit increased $1.7 million as the average rate on certificates of deposit increased 152 basis points to 3.99% for the three months ended September 30, 2024 from 2.47% for the three months ended September 30, 2023 due to the highly competitive interest rate environment in our market area. The average balance of certificates of deposit also increased $100.9 million, or 57.3%, to $276.9 million for the three months ended September 30, 2024 from $176.1 million for the three months ended September 30, 2023.

Current wording

Interest Expense. Interest expense increased $1.0 million or 31.8%, to $4.3 million for the three months ended December 31, 2024 from $3.3 million for the three months ended December 31, 2023 due to a $984,000 increase in interest expense on deposits, and a $55,000 increase in interest expense on borrowings. Interest expense on interest-bearing demand deposits increased $908,000 due to an increase of $89.3 million, or 46.0%, in the average balance and an increase of 106 basis points in the cost of interest-bearing deposits to 1.75% for the three months ended December 31, 2024 from 0.69% for the three months ended December 31, 2023 as the Bank raised rates on certain interest-bearing deposit products in an effort to remain competitive in the market area. Interest expense on certificates of deposit increased $96,000 as the average rate on certificates of deposit increased 10 basis points to 3.96% for the three months ended December 31, 2024 from 3.86% for the three months ended December 31, 2023 due to the highly competitive interest rate environment in our market area. The average balance of certificates of deposit also increased $2.9 million, or 1.1%, to $277.0 million for the three months ended December 31, 2024 from $274.1 million for the three months ended December 31, 2023.

Previous wording

Net Interest Income. Net interest income increased $3.4 million, or 83.2%, to $7.6 million for the three months ended September 30, 2024 from $4.1 million for the three months ended September 30, 2023. Net interest rate spread increased 58 basis points to 2.70% for the three months ended September 30, 2024 from 2.12% for the three months ended September 30, 2023. Net interest margin increased 80 basis points to 3.21% for the three months ended September 30, 2024 from 2.41% for the three months ended September 30, 2023. Net interest-earning assets increased $41.8 million, or 23.0%, to $223.5 million for the three months ended September 30, 2024 from $181.7 million for the three months ended September 30, 2023. The increases in the Bank’s net interest rate spread and net interest margin were primarily a result of the cost of interest-bearing liabilities increasing at a slower rate than the yield on interest-earning assets.

Current wording

Net Interest Income. Net interest income decreased $1.8 million, or 19.7%, to $7.2 million for the three months ended December 31, 2024 from $9.0 million for the three months ended December 31, 2023. Net interest rate spread decreased 81 basis points to 2.27% for the three months ended December 31, 2024 from 3.08% for the three months ended December 31, 2023. Net interest margin decreased 68 basis points to 2.88% for the three months ended December 31, 2024 from 3.56% for the three months ended December 31, 2023. Net interest-earning assets decreased $9.9 million, or 3.6%, to $265.4 million for the three months ended December 31, 2024 from $275.2 million for the three months ended December 31, 2023. The decrease in the Bank’s net interest rate spread and net interest margin were primarily a result of the cost of interest-bearing liabilities increasing while the yield on interest-earning assets decreased.

Previous wording

The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Deferred loan fees totaled $67,000 and $24,000 for the three months ended September 30, 2024 and 2023, respectively.

Current wording

The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Deferred loan fees totaled $101,000 and $134,000 for the three months ended December 31, 2024 and 2023, respectively.

Previous wording

Noninterest income increased $288,000, or 56.1%, to $801,000 for the three months ended September 30, 2024 from $513,000 for the three months ended September 30, 2023, primarily as a result of an increase of $125,000 in service charges and fees, due to the increase in volume as a result of the Merger, as well as an increase of $85,000 in the cash surrender value of bank owned life insurance, resulting from an increase in the average balance of the related assets.

Current wording

Noninterest income increased $262,000, or 71.8%, to $627,000 for the three months ended December 31, 2024 from $365,000 for the three months ended December 31, 2023, primarily as a result of an increase of $161,000 in other noninterest income, an increase of $44,000 in service charges and fees and an increase of $31,000 in the cash surrender value of bank owned life insurance, resulting from an increase in the average balance of the underlying assets.

Previous wording

Income Tax Expense. The provision for income taxes was $363,000 for the three months ended September 30, 2024, compared to a tax benefit of $1.9 million for the three months ended September 30, 2023. The Bank’s effective tax rate was 21.0% for the three months ended September 30, 2024 compared to 15.6% for the three months ended September 30, 2023, respectively, reflecting lower state income tax liabilities due to the application of net operating loss carryforwards and a lower state income tax rate applied to the net investment income derived by Somerset Regal Bank’s investment company subsidiary.

Current wording

Income Tax Expense. The provision for income taxes was $324,000 for the three months ended December 31, 2024, compared to an expense of $408,000 for the three months ended December 31, 2023. The Bank’s effective tax rate was 24.1% for the three months ended December 31, 2024 compared to 20.2% for the three months ended December 31, 2023.

Previous wording

General. Net income increased $11.9 million to $1.4 million for the three months ended September 30, 2024 from a net loss of $10.5 million for the three months ended September 30, 2023. Net income for the three months ended September 30, 2024 included $1.0 million of net accretion income related to fair value adjustments resulting from the Merger. The net loss for the three months ended September 30, 2023 included $3.9 million of merger-related costs, a $4.2 million provision for credit losses related to the Merger and a $5.4 million charitable contribution, offset by $161,000 of net accretion income related to the fair value adjustments. Excluding these items, net income would have been $586,000 for the three months ended September 30, 2023.

Current wording

General. Net income increased $11.3 million, or 126.9%, to $2.4 million for the six months ended December 31, 2024 from a net loss of $8.9 million for the six months ended December 31, 2023. Net income for the six months ended December 31, 2024 included $1.8 million of net accretion income related to fair value adjustments resulting from the Merger. Net income for the six months ended December 31, 2023 included a $5.4 million charitable contribution and $3.9 million of merger-related costs, offset by $1.6 million of net accretion income related to fair value adjustments.

Previous wording

Interest Income. Interest income increased $5.9 million, or 106.9%, to $11.5 million for the three months ended September 30, 2024 from $5.5 million for the three months ended September 30, 2023 primarily due to a 163 basis point increase in the yield on interest-earning assets and a $343.2 million increase in the average balance of loans. The increase resulted from a $6.5 million, or 173.9%, increase in interest income on loans due to the increased size of the loan portfolio as a result of the Merger as well as a higher average yield on the loan portfolio due to higher market rates and an increased proportion of higher-yielding commercial real estate loans, offset by a $197,000 decrease in interest income on securities, and a $410,000 decrease in interest income from other interest-earnings assets. The decrease in interest income on securities was due to a $48.8 million decrease in the average balance of securities resulting primarily from the sale of $35.4 million of lower-yielding securities in the fourth quarter of fiscal year 2024 as part of a balance sheet repositioning. The decrease in interest income from other interest-earning assets was due to a decrease in the average balance of those assets of $36.9 million, or 44.1%, which were used primarily to originate new loans.

Current wording

Interest Income. Interest income increased $5.2 million, or 29.1%, to $23.0 million for the six months ended December 31, 2024 from $17.8 million for the six months ended December 31, 2023 due to a $144.9 million increase in the average balance of interest-earning assets and a 43 basis point increase in the yield on interest-earning assets. The increase resulted from a $6.8 million, or 48.7%, increase in interest income on loans due to the increased size of the loan portfolio as a result of the Merger as well as a higher average yield on the loan portfolio due to higher market rates and increased proportion of higher-yielding commercial real estate loans. The increase in interest on loans was offset by a $463,000 decrease in interest income on securities, and a $1.1 million decrease in interest income from other interest-earning assets due to a lower average yield and lower average balance. The decrease in interest income on securities was primarily due to a $48.5 million decrease in the average balance of securities resulting primarily from the sale of $35.4 million of lower-yielding securities in the fourth quarter of fiscal year 2024 as part of a balance sheet repositioning.

Previous wording

The Bank recorded a recovery for credit losses of $154,000 for the three months ended September 30, 2024 as compared to a provision for credit losses of $4.2 million for the three months ended September 30, 2023, as a full reserve was required to be established on the Regal Bank loan portfolio in connection with the Merger. The recovery reflects updates made to model assumptions in the calculation of the Bank's allowance for credit losses to reflect the change in the loan composition following the Merger. The Bank had no charge-offs for the three months ended September 30, 2024 and $9,000 of non-performing loans at September 30, 2024 compared to no charge-offs for the three months ended September 30, 2023 and $144,000 of non-performing loans at September 30, 2023. The Bank’s allowance for credit losses as a percentage of total loans was 0.66% at September 30, 2024 compared to 0.77% at September 30, 2023.

Current wording

Provision for Credit Losses. The Bank recorded a recovery for credit losses of $142,000 for the six months ended December 31, 2024 as compared to a provision for credit losses of $4.1 million for the six months ended December 31, 2023. The recovery reflects updates made to model assumptions in the calculation of the Bank's allowance for credit losses. The Bank had no charge-offs during the six months ended December 31, 2024 and no non-performing loans at December 31, 2024 compared to no charge-offs for the six months ended December 31, 2023 and $145,000 of non-performing loans at December 31, 2023. The Bank’s allowance for credit losses as a percentage of total loans was 0.65% at December 31, 2024 compared to 0.74% at December 31, 2023.

Previous wording

Noninterest expense decreased $6.1 million, or 47.3%, to $6.8 million for the three months ended September 30, 2024 from $12.9 million for the three months ended September 30, 2023, primarily as a result of a $5.4 million charitable contribution one-time charge during the three months ended September 30, 2023, as well as a $1.3 million, or 28.7%, decrease in salaries and employee benefits resulting from one-time change in control payments incurred during the three months ended September 30, 2023.

Current wording

Noninterest expense decreased $7.2 million, or 35.4%, to $13.2 million for the six months ended December 31, 2024 from $20.4 million for the six months ended December 31, 2023, primarily as a result of a $5.4 million decrease in other expenses due to the $5.4 million charitable contribution made during the six months ended December 31, 2023, a $1.8 million, or 21.5%, decrease in salaries and employee benefits resulting from one-time change in control payments incurred during the six months ended December 31, 2023 and a $352,000 decrease in data processing expense due to a $414,000 early termination fee incurred during the six months ended December 31, 2023, all related to the Merger.

Previous wording

rebalancing our loan portfolio through the Merger to include higher-yielding, shorter-term commercial real estate loans;

Current wording

rebalancing our loan portfolio to include higher-yielding, shorter-term commercial real estate loans;

Previous wording

utilizing our investment securities portfolio as part of our balance sheet asset and liability and interest rate risk management strategy to reduce the impact of movements in interest rates on net interest income and economic value of equity, which can create temporary valuation adjustments to equity in Accumulated Other Comprehensive Income; and

Current wording

utilizing our investment securities portfolio as part of our balance sheet asset and liability and interest rate risk management strategy to reduce the impact of movements in interest rates on net interest income and economic value of equity; and

Previous wording

Economic Value of Equity. We compute amounts by which the net present value of our cash flow from assets, liabilities and off-balance sheet items (economic value of equity “EVE”) would change in the event of a range of assumed changes in market interest rates. We measure potential change in our EVE through the use of a financial model. This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. Historically, the model estimated the economic value of each type of asset, liability and off-balance sheet contract under the assumption that the United States Treasury yield curve increases or decreases instantaneously by 100 to 300 basis points in 100 basis point increments. However, given the current level of market interest rates, an EVE calculation for an interest rate decrease of greater than 100 basis points has not been prepared. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100-basis point increase in the “Basis Point Change in Interest Rates” column below.

Current wording

Economic Value of Equity. We compute amounts by which the net present value of our cash flow from assets, liabilities and off-balance sheet items (economic value of equity “EVE”) would change in the event of a range of assumed changes in market interest rates. We measure potential change in our EVE through the use of a financial model. This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100-basis point increase in the “Basis Point Change in Interest Rates” column below.

Previous wording

The table above indicates that at September 30, 2024, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 17.87% decrease in EVE, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 6.50% increase in EVE.

Current wording

The table above indicates that at December 31, 2024, in the event of an instantaneous parallel 200 basis point increase in interest rates, we would experience a 20.10% decrease in EVE, and in the event of an instantaneous 200 basis point decrease in interest rates, we would experience a 8.68% increase in EVE.

Previous wording

The table above indicates that at September 30, 2024, we would have experienced an 8.21% decrease in NII in the event of an instantaneous parallel 200 basis point increase in market interest rates and an 6.64% decrease in NII in the event of an instantaneous 200 basis point decrease in market interest rates.

Current wording

The table above indicates that at December 31, 2024, we would have experienced an 8.05% decrease in NII in the event of an instantaneous parallel 200 basis point increase in market interest rates and an 7.85% decrease in NII in the event of an instantaneous 200 basis point decrease in market interest rates.

Previous wording

Liquidity is the ability to fund assets and meet obligations as they come due. Our primary sources of funds consist of deposit inflows, loan repayments, and repayments from investment securities. In addition, we have the ability to borrow in the wholesale markets or from the Federal Home Loan Bank of New York. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. Our Asset/Liability Management Committee is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We seek to maintain a ratio of liquid assets (including cash and federal funds sold) as a percentage of total deposits ranging between 4% and 30%. At September 30, 2024, this ratio was 5.8% We believe that we have sufficient sources of liquidity to satisfy our short- and long-term liquidity needs as of September 30, 2024.

Current wording

Liquidity is the ability to fund assets and meet obligations as they come due. Our primary sources of funds consist of deposit inflows, loan repayments, and repayments from investment securities. In addition, we have the ability to borrow in the wholesale markets or from the Federal Home Loan Bank of New York. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. Our Asset/Liability Management Committee is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We seek to maintain a ratio of liquid assets (including cash and federal funds sold) as a percentage of total deposits ranging between 4% and 30%. At December 31, 2024, this ratio was 6.5% We believe that we have sufficient sources of liquidity to satisfy our short- and long-term liquidity needs as of December 31, 2024.

Previous wording

Our most liquid assets are cash and cash equivalents. The levels of these assets depend on our operating, financing and investing activities during any given period. At September 30, 2024, cash and cash equivalents totaled $47.3 million.

Current wording

Our most liquid assets are cash and cash equivalents. The levels of these assets depend on our operating, financing and investing activities during any given period. At December 31, 2024, cash and cash equivalents totaled $53.4 million.

Previous wording

At September 30, 2024, we had $64.2 million in outstanding loan commitments and $36.1 million of unused lines of credit. Certificates of deposit due within one year of September 30, 2024 totaled $245.7 million, or 88.4%, of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including loan sales, other deposit products, including replacement certificates of deposit, securities sold under agreements to repurchase (repurchase agreements) or advances from the Federal Home Loan Bank of New York and other borrowing sources. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or after September 30, 2024. We believe, however, based on past experience that a significant portion of such deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Current wording

At December 31, 2024, we had $58.6 million in outstanding loan commitments and $36.5 million of unused lines of credit. Certificates of deposit due within one year of December 31, 2024 totaled $250.3 million, or 30.4%, of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including loan sales, other deposit products, including replacement certificates of deposit, brokered deposits, securities sold under agreements to repurchase (repurchase agreements) or advances from the Federal Home Loan Bank of New York and other borrowing sources. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or after December 31, 2025. We believe, however, based on past experience that a significant portion of such deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Previous wording

Our primary investing activities are originating and purchasing loans and purchasing mortgage-backed securities. During the three months ended September 30, 2024, we originated $37.7 million of loans and purchased $14.2 million. We had no purchases of securities classified as held-to-maturity during the three months ended September 30, 2024.

Current wording

Our primary investing activities are originating and purchasing loans and purchasing mortgage-backed securities. During the six months ended December 31, 2024, we originated $61.3 million of loans and purchased $25.2 million. We had no purchases of securities classified as held-to-maturity during the six months ended December 31, 2024.

Previous wording

Financing activities consist primarily of activity in deposit accounts. Deposits increased $12.3 million, or 1.5%, to $819.4 million at September 30, 2024 from $807.1 million at June 30, 2024 due primarily to increases in interest-bearing checking accounts that offset decreases in non-maturity savings accounts due in part to the Bank having raised rates on certain interest-bearing deposit products in an effort to remain competitive in the market area.

Current wording

Financing activities consist primarily of activity in deposit accounts, borrowings and repurchases of common stock. Deposits increased $17.0 million, or 2.1%, to $824.1 million at December 31, 2024 from $807.1 million at June 30, 2024 due primarily to increases in interest-bearing checking accounts that were offset by decreases in non-maturity savings accounts due in part to the Bank having raised rates on certain interest-bearing deposit products in an effort to remain competitive in the market area.

Previous wording

We had outstanding borrowings of $20.0 million as of September 30, 2024. At June 30, 2024, there were no outstanding borrowings.

Current wording

We had outstanding borrowings of $30.0 million as of December 31, 2024. At June 30, 2024, there were no outstanding borrowings. We repurchased $3.9 million of our common stock in the six-month period ended December 31, 2024.