SR BANCORP, INC. ANNOUNCES BALANCE SHEET REPOSITIONING

Rhea-AI Summary

SR Bancorp, the holding company for Somerset Regal Bank, announced a balance sheet repositioning strategy.

The company sold $35.4 million of lower-yielding investment securities for a pre-tax realized loss of approximately $4.4 million. This sale represents most of the bank's available-for-sale portfolio.

The $30.9 million proceeds will be redeployed into residential and commercial real estate mortgages, anticipated to have a positive spread differential of about 465 basis points over the sold securities. This could result in $1.4 million in additional pre-tax earnings annually.

The loss is expected to be recouped within 3.27 years. The impact on shareholders' equity and book value per share is minimal. The bank’s capital levels remain well above required thresholds. The repositioning is projected to improve earnings, net interest margin, and return on assets.

Positive

• Sale proceeds of $30.9 million to be redeployed into higher-yielding mortgages.
• Anticipated positive spread differential of 465 basis points.
• Expected additional pre-tax earnings of $1.4 million annually.
• Loss on sale to be recouped within approximately 3.27 years.
• Minimal impact on shareholders' equity and book value per share.
• Capital levels remain well above required thresholds.
• Projected improvements in earnings, net interest margin, and return on assets.

Negative

• Realized a pre-tax loss of approximately $4.4 million from the sale of securities.

Insights

Financial Analyst

The decision by SR BANCORP, INC. to sell $35.4 million in lower-yielding investment securities, despite realizing a pre-tax loss of $4.4 million, reflects a strategic shift aimed at optimizing their balance sheet. By redirecting the $30.9 million proceeds into higher-yielding residential and commercial real estate mortgages, the company aims to enhance its net interest margin. Specifically, a spread differential of 465 basis points translates into higher potential earnings.

From a short-term perspective, the realized loss may appear concerning but is mitigated by the minimal impact on shareholders' equity and book value per share. In the long term, the anticipated annualized $1.4 million in additional pre-tax earnings and the recouped loss within 3.27 years suggest a prudent move, enhancing overall profitability.

Given the context, this repositioning strategy is likely to be viewed positively by investors, particularly due to the expected accretive effects on net interest margin and return on assets.

Market Research Analyst

This strategic repositioning comes at a time when banks are facing compressed net interest margins due to historically low interest rates. By reallocating assets into higher-yielding loans, SR BANCORP, INC. is leveraging a common industry tactic to bolster profitability. It is important to note the company's emphasis on maintaining well-capitalized status, signaling robust financial health.

The estimated recovery period of 3.27 years for the realized loss is relatively short, indicating that the strategic shift is expected to yield tangible benefits in a reasonable timeframe. For retail investors, this move signals a proactive management approach aimed at sustaining long-term growth and stability.

BOUND BROOK, N.J., May 23, 2024 /PRNewswire/ -- SR BANCORP, INC. (the "Company") (NASDAQ: SRBK), the holding company for Somerset Regal Bank (the "Bank"), announced the completion of a balance sheet repositioning strategy related to its investment securities portfolio.

The Company sold $35.4 million in book value of its lower-yielding investment securities for a pre-tax realized loss of approximately $4.4 million. These securities represented the vast majority of the Bank's available-for-sale portfolio. The Bank anticipates that the $30.9 million of proceeds from the sale of these securities will be redeployed into approximately the same amount of residential and commercial real estate mortgages. Assuming such loans are originated consistent with the rates existing on the Bank's current loan pipeline, it is anticipated that the loans will have a positive spread differential of approximately 465 basis points over the securities that were sold, which is expected to result in $1.4 million in additional pre-tax earnings, on an annualized basis. Under those assumptions, the Company estimates that the loss on the sale of securities will be recouped within approximately 3.27 years. 

The loss on the sale of securities had a minimal impact on shareholders' equity and the Company's book value per share. Somerset Regal Bank's capital levels remain well in excess of those required to be categorized as well-capitalized following the sale of securities. This repositioning is projected to be accretive to earnings, net interest margin and return on assets in future periods.

About Somerset Regal Bank

SR Bancorp, Inc. is the holding company for Somerset Regal Bank. Somerset Regal Bank is a full-service New Jersey commercial bank headquartered in Bound Brook, New Jersey that operates 15 branches in Essex, Hunterdon, Middlesex, Morris, Somerset and Union Counties, New Jersey. At March 31, 2024, Somerset Regal Bank had $1.05 billion in total assets, $698.9 million in net loans, $838.0 million in deposits and total equity of $199.3 million. Additional information about Somerset Regal Bank is available on its website, www.somersetregalbank.com.

Forward-Looking Statements

Certain statements contained herein are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements, which are based on certain current assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of the words "may," "will," "should," "could," "would," "plan," "potential," "estimate," "project," "believe," "intend," "anticipate," "expect," "target" and similar expressions. Forward-looking statements are based on current beliefs and expectations of management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. Certain factors that could cause actual results to differ materially from expected results include increased competitive pressures, changes in the interest rate environment, inflation, general economic conditions or conditions within the securities markets, our ability to successfully integrate acquired operations and realize the expected level of synergies and cost savings, potential recessionary conditions, real estate market values in the Bank's lending area changes in the quality of our loan and security portfolios, increases in non-performing and classified loans, economic assumptions that may impact our allowance for credit losses calculation, changes in liquidity, including the size and composition of our deposit portfolio, and the percentage of uninsured deposits in the portfolio, the availability of low-cost funding, monetary and fiscal policies of the U.S. Government including policies of the U.S. Treasury and the Board of Governors of the Federal Reserve System, a failure in or breach of the Company's operational or security systems or infrastructure, including cyber attacks, the failure to maintain current technologies, failure to retain or attract employees and legislative, accounting and regulatory changes that could adversely affect the business in which the Company and the Bank are engaged. Our actual future results may be materially different from the results indicated by these forward-looking statements. Except as required by applicable law or regulation, we do not undertake, and we specifically disclaim any obligation, to release publicly the results of any revisions that may be made to any forward-looking statement.

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SOURCE SR Bancorp, Inc.

FAQ

What is the balance sheet repositioning strategy announced by SR Bancorp?

SR Bancorp announced the sale of $35.4 million in lower-yielding investment securities for a pre-tax loss of $4.4 million. The proceeds will be redeployed into higher-yielding mortgages.

How much pre-tax loss did SR Bancorp incur from selling its investment securities?

SR Bancorp incurred a pre-tax realized loss of approximately $4.4 million.

What will SR Bancorp do with the proceeds from the sale of investment securities?

The $30.9 million proceeds will be redeployed into residential and commercial real estate mortgages.

How will the balance sheet repositioning affect SR Bancorp's future earnings?

The repositioning is expected to result in $1.4 million in additional pre-tax earnings annually.

What is the expected recoupment period for the loss from SR Bancorp's securities sale?

The company estimates it will recoup the loss within approximately 3.27 years.

Did the sale of securities impact SR Bancorp's shareholders' equity?

The loss had a minimal impact on shareholders' equity and the company's book value per share.

Are Somerset Regal Bank's capital levels affected by the securities sale?

Somerset Regal Bank's capital levels remain well above the required thresholds following the sale of securities.

How is SR Bancorp's repositioning projected to affect key financial metrics?

The repositioning is projected to be accretive to earnings, net interest margin, and return on assets.