SR Bancorp's fiscal 2026 net income fell 35% to $3.4M ($0.44/share) as a one-off insurance gain and merger accretion faded and stock pay rose, even though loans grew 13%, margin rose to 3.04% and credit losses stayed at zero.
Net interest income
$31M
+5.6% YoY
Net interest margin
3.04%
Net income
$3.4M
-34.7% YoY
Diluted EPS
$0.44
-27.9% YoY
Net charge-off ratio
0.00%
Net interest margin (NIM): what a bank earns on its loans and securities minus what it pays for deposits and borrowing, as a share of those assets. Efficiency ratio: operating costs per dollar of revenue (lower is better). Net charge-off (NCO) ratio: loans written off as unrecoverable, net of recoveries, as a share of average loans. CET1: the bank's core capital cushion against losses, as a share of risk-weighted assets.
Overview
SR Bancorp, the holding company for Somerset Regal Bank (14 branches in central and northern New Jersey), earned $3.35 million, or $0.44 per diluted share, in fiscal 2026 (the year ended June 30, 2026), down from $5.14 million, or $0.61, a year earlier. The drop looks worse than the underlying business: fiscal 2025 was flattered by two items that did not repeat — a $1.5 million tax-free life-insurance payout after the death of a former employee, and $2.8 million of "accretion" income tied to its 2023 merger with Regal Bank, which shrank to $749,000 this year.
Accretion is a bookkeeping effect: when SR Bancorp bought Regal, it marked Regal's loans and deposits to market value, and the gap is gradually recognized as income as those loans pay down. It is real income, but it runs off over time and says little about how the bank is performing today.
Setting those items aside, the core lending business grew: the loan book rose 13%, net interest income rose 5.6%, and the bank again had no loan losses at all. What held profit back was higher staff costs and the fading merger accounting.
Key figures
Metric
FY2026 (to Jun 30, 2026)
FY2025
YoY Change
Total revenue (net interest income + noninterest income)
$33.4M
$33.3M
+0.4%
Net interest income
$31.2M
$29.6M
+5.6%
Net interest margin
3.04%
2.93%
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+0.11 pts
Noninterest income
$2.2M
$3.7M
-40.7%
Noninterest expense
$28.5M
$27.1M
+5.2%
Provision for credit losses
$0.58M
$0.13M
+332%
Net income
$3.35M
$5.14M
-34.7%
Diluted EPS
$0.44
$0.61
-27.9%
Total loans (gross, period-end)
$904.5M
$800.2M
+13.0%
Total deposits (period-end)
$926.4M
$846.0M
+9.5%
Net charge-off ratio
0.00%
0.00%
—
Tier 1 leverage ratio (bank)
13.81%
15.51%
-1.70 pts
Revenue is our sum of net interest income and noninterest income from the income statement. EPS fell less than net income because share buybacks cut the diluted share count by about 10%.
Lending: growth came mostly from mortgages and apartment loans
A bank like this makes money mainly from net interest income — the interest it earns on loans and securities minus the interest it pays depositors and lenders. That line rose $1.6 million to $31.2 million, driven by a bigger loan book rather than better loan pricing:
Gross loans grew $104.2 million to $904.5 million. Per the 10-K, the growth came from residential mortgages (+$48.5 million), multi-family (apartment building) loans (+$33.0 million) and other commercial real estate (+$20.1 million), partly offset by a $6.2 million decline in owner-occupied commercial real estate.
Much of the mortgage growth was bought, not originated. The filing says the residential increase was "principally due to the purchase of $40.5 million in loans through a third-party mortgage broker." Buying loans is a quick way to put spare cash to work, but it is not the same as winning new customers.
Average loan yield was flat at 5.39% vs. 5.40%. The overall yield on earning assets rose from 4.59% to 4.83% because the bank moved money out of low-yielding cash balances (average "other" earning assets fell from $85.8 million to $45.6 million) and into loans.
The net interest margin — net interest income as a share of the bank's interest-earning assets, a key gauge of lending profitability — improved 11 basis points (0.11 percentage points) to 3.04%. Management attributes this to asset yields "increasing at a faster rate than the cost of interest-bearing liabilities."
Funding costs: deposits cost more to keep
Interest expense rose 9.6% to $18.3 million. The biggest driver was interest-bearing checking-type ("demand") accounts, where the average rate paid rose from 1.68% to 1.98% and average balances rose $60.2 million, because, in the filing's words, the company "raised rates on certain interest-bearing deposits in an effort to remain competitive in the market area." That added $2.1 million of interest expense. Partly offsetting it, the average rate paid on certificates of deposit (CDs) fell from 3.83% to 3.41% as market rates declined, cutting CD interest by about $1.0 million.
Deposits rose $80.4 million (9.5%) to $926.4 million, led by a $70.0 million increase in interest-bearing demand accounts. The bank also borrowed an extra $35.0 million from the Federal Home Loan Bank of New York (total $65.0 million) to fund loans. Two funding points worth watching:
CDs were $279.7 million (30.2% of deposits), and $257.4 million of them mature within a year — they will reprice at whatever rates prevail then.
$191.6 million, or 20.7%, of deposits were uninsured at year-end; noninterest-bearing deposits were 13.8% of the total.
Costs: stock compensation drove the expense increase
Noninterest expense rose $1.4 million (5.2%) to $28.5 million. Almost all of the increase was salaries and benefits (+$1.8 million, +12.9%), which the 10-K attributes to "a full year of stock-based compensation expense" (versus a partial year in fiscal 2025) plus annual merit raises. Professional fees, insurance and other expenses were each down modestly.
This is a high-cost bank relative to its revenue. By our calculation, noninterest expense consumed about 85 cents of every dollar of revenue in fiscal 2026 (the "efficiency ratio"; lower is better), up from about 81 cents in fiscal 2025. The company does not report this ratio itself. Return on average equity — profit as a share of shareholders' capital — was about 1.7% by our calculation, which is very low. The 10-K flags this as a risk factor itself: return on equity "will be low until we are able to profitably leverage the additional capital we received from the offering."
The effective tax rate also rose to 23.8% from 16.2%, because last year's life-insurance payout was tax-free.
Credit quality: still spotless
No charge-offs (loans written off as uncollectible) in fiscal 2026 or 2025, and no non-performing loans at either year-end.
The provision for credit losses — money set aside for expected future loan losses — rose to $575,000 from $133,000. The filing ties it to loan growth; last year's figure was held down by a $155,000 model-related release.
The allowance for credit losses was 0.65% of loans vs. 0.67% a year earlier. Less than 1% of the commercial portfolio is secured by office buildings.
Capital returned to shareholders
Equity fell $12.0 million to $181.8 million, even though the bank was profitable, because it returned more than it earned:
Buybacks: 978,778 shares repurchased for $16.3 million. The prior plan was completed in May 2026, and on May 21, 2026 the board approved a new plan for up to 801,320 shares (about 10% of outstanding), running to May 21, 2027.
Dividends: $1.6 million paid; dividends declared were $0.21 per share in fiscal 2026, vs. $0.10 in fiscal 2025.
Book value per share still rose to about $22.91 from $21.83 (our calculation from total equity and shares outstanding), because shares were retired for less than book value. The bank's Tier 1 leverage ratio (core capital as a share of average assets) of 13.81% remains far above the 9% needed to be "well capitalized" under the simplified community-bank framework it uses, so it still has plenty of spare capital.
Takeaway: SR Bancorp's core engine is improving — loans up 13%, margin up to 3.04%, zero credit losses — but reported earnings fell 35% because last year's one-off life-insurance gain and merger accretion income faded while stock-compensation costs rose. With an efficiency ratio near 85% and a return on equity under 2%, the bank is still over-capitalized and under-earning; share buybacks are currently doing more for per-share value than profits are.
Outlook
The 10-K gives no numeric earnings guidance. Our read, based on the filing:
Accretion runoff is mostly done. With merger accretion down to $749,000, it will be a much smaller drag on year-over-year comparisons from here, so net interest income growth should show up more directly in earnings.
Deposit pricing is the swing factor. The bank is paying up to keep checking-type balances, and most of its CD book reprices within a year. If rates keep falling, CD costs should keep easing; if competition for deposits stays intense, margin gains could stall.
Costs are the lever. Compensation now includes a full year of stock-award expense, so fiscal 2027's expense growth should be slower unless headcount rises. Without better cost control or faster revenue growth, return on equity will stay low.
The new buyback authorization (up to about 10% of shares) should keep supporting EPS and book value per share even if net income only edges up.
The next update will be the first quarter of fiscal 2027 (quarter ending September 30, 2026). Based on last year's pattern, an earnings release is likely around late October and the 10-Q around mid-November.