Magyar Bancorp Inc

Consolidated Balance Sheets

(In Thousands, Except Share and Per Share Data)

Consolidated Statements of Income

(In Thousands, Except Share and Per Share Data)

Consolidated Statements of Comprehensive Income

(In Thousands)

Consolidated Statements of Changes in Stockholders' Equity

For the Three Months Ended December 31, 2024 and 2023

(In Thousands, Except for Share and Per-Share Amounts)

Consolidated Statements of Cash Flows

(In Thousands)

MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

NOTE A – BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Magyar Bancorp, Inc. (the “Company”), its wholly owned subsidiary, Magyar Bank (the “Bank”), and the Bank’s wholly owned subsidiaries Magyar Service Corporation, Hungaria Urban Renewal, LLC, and Magyar Investment Company. All material intercompany transactions and balances have been eliminated. The Company prepares its consolidated financial statements on the accrual basis and in conformity with accounting principles generally accepted in the United States of America ("US GAAP"). The unaudited information furnished herein reflects all adjustments (consisting of normal recurring accruals) that are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented.

Operating results for the three months ended December 31, 2024 are not necessarily indicative of the results that may be expected for the year ending September 30, 2025 or for any other period. The September 30, 2024 information has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by US GAAP for complete consolidated financial statements.

The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses, the valuation of available-for-sale investment securities, the valuation of other real estate owned (“OREO”), and the assessment of realizability of deferred income tax assets.

The Company has evaluated events and transactions occurring subsequent to the balance sheet date of December 31, 2024 for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the date these consolidated financial statements were issued.

NOTE B - RECENT ACCOUNTING PRONOUNCEMENTS

In connection with the preparation of quarterly and annual reports in accordance with the Securities Exchange Act of 1934, Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin Topic 11.M requires the disclosure of the impact that recently issued accounting standards will have on consolidated financial statements when they are adopted in the future.

Accounting Standards Update (“ASU”) 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” requires public entities to disclose detailed information about a reportable segment’s expenses on both an annual and interim basis. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The amendments in ASU 2023-07 should be applied retrospectively to all periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The Company is in the process of completing its analysis of ASU 2023-07 and expects to incorporate additional disclosures in the financial statements on adoption.

NOTE C - CONTINGENCIES

The Company, from time to time, is a party to routine litigation that arises in the normal course of business. In the opinion of management, the resolution of this litigation, if any, would not have a material adverse effect on the Company’s consolidated financial position or results of operations as presented in this report.

NOTE D - EARNINGS PER SHARE

The following table presents a calculation of basic and diluted earnings per share for the three months ended December 31, 2024 and 2023. Basic and diluted earnings per share were calculated by dividing net income by the weighted-average number of shares outstanding for the periods.

Options to purchase 291,200 shares of common stock at a weighted average strike price of $12.58 and 93,240 shares of restricted shares at a weighted average price of $12.63 were outstanding at December 31, 2024 and included in the calculation of diluted earnings per share. Options to purchase 293,200 shares of common stock at a weighted average strike price of $12.58 and 124,300 shares of restricted shares at a weighted average price of $12.63 were outstanding at December 31, 2023 but were not included in the calculation of diluted EPS because they were anti-dilutive.

NOTE E – STOCK-BASED COMPENSATION AND STOCK REPURCHASE PROGRAM

The following is a summary of the status of the Company’s stock option activity and related information for the three months ended December 31, 2024:

The following is a summary of the status of the Company’s non-vested restricted shares for the three months ended December 31, 2024:

Stock option and stock award expenses included with compensation expense were $63 thousand and $98 thousand for the three months ended December 31, 2024 and $63 thousand and $98 thousand for the three months ended December 31, 2023, respectively.

At December 31, 2024, total compensation cost not yet recognized for the Company’s unvested stock options and stock awards was $1.7 million and will be recognized through September 2027. The Company had no other stock-based compensation plans as of December 31, 2024 except as disclosed below.

The Company maintains a stock repurchase plan pursuant to which the Company may repurchase up to 5% of its outstanding shares, or up to 337,146 shares, under which 328,473 shares had been repurchased at an average price of $12.10 through December 31, 2024. Under this stock repurchase program,8,673 shares of the 337,146 shares authorized remained available for repurchase as of December 31, 2024. The Company’s intended use of the repurchased shares is for general corporate purposes. The Company held treasury stock shares totaling 618,204 at December 31, 2024. The timing of the repurchases will depend on certain factors, including but not limited to, market conditions and prices, the Company’s liquidity requirements and alternative uses of capital.

The Company has an Employee Stock Ownership Plan ("ESOP") for the benefit of employees who meet certain eligibility requirements. The ESOP trust purchases shares of common stock in the open market using proceeds of a loan from the Company. The loan is secured by shares of the Company’s stock. The Bank makes cash contributions to the ESOP on an annual basis sufficient to enable the ESOP to make the required loan payments to the Company. As the debt is repaid, shares are released as collateral and allocated to qualified employees. Accordingly, the shares pledged as collateral are reported as unearned ESOP shares in the Consolidated Balance Sheets. The Company accounts for its ESOP in accordance with FASB ASC Topic 718, “Employer’s Accounting for Employee Stock Ownership Plans.” As shares are released from collateral, the Company reports compensation expense equal to the current market price of the shares, and the shares become outstanding for earnings per share computations.

At December 31, 2024, ESOP shares allocated to participants totaled 186,940. Unallocated ESOP shares held in suspense totaled 278,163 with an aggregate fair value of $4.1 million. The Company's contribution expense for the ESOP was $43 thousand and $50 thousand for the three months ended December 31, 2024 and 2023, respectively.

NOTE F – OTHER COMPREHENSIVE (LOSS) INCOME

Comprehensive (loss) income includes net income as well as certain other items which result in a change to equity during the period. The Company recorded no reclassification adjustments during the three months ended December 31, 2024 and 2023. The components of other comprehensive (loss) income and the related income tax effects are as follows:

NOTE G – FAIR VALUE DISCLOSURES

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The securities available-for-sale and the Company’s derivative assets and liabilities are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets or liabilities on a non-recurring basis, such as held-to-maturity securities, mortgage servicing rights, loans receivable and OREO. These non-recurring fair value adjustments involve the application of lower-of-cost-or-market accounting or write-downs of individual assets.

In accordance with ASC 820, the Company groups its assets and liabilities at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value. These levels are:

The Company based its fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The following is a description of valuation methodologies used for assets measured at fair value on a recurring basis.

Securities available-for-sale

The securities available-for-sale portfolio is carried at estimated fair value on a recurring basis, with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income/loss in stockholders’ equity. The securities available-for-sale portfolio consists of U.S government-sponsored mortgage-backed securities. The fair values of these securities are obtained from an independent nationally recognized pricing service. An independent pricing service provides the Company with prices which are categorized as Level 2, as quoted prices in active markets for identical assets are generally not available for the securities in the Company’s portfolio. Various modeling techniques are used to determine pricing for Company’s mortgage-backed securities, including option pricing and discounted cash flow models. The inputs to these models include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data.

Derivatives

The Bank executes interest rate swaps with commercial lending customers to facilitate their respective risk management strategies. The fair values of such derivatives are based on valuation models from a third party using current market terms (including interest rates and fees), the remaining terms of the agreements and the credit worthiness of the counter party as of the measurement date (Level 2).

The following tables provide the level of valuation assumptions used to determine the carrying value of the Company’s assets measured at fair value on a recurring basis.

The following is a description of valuation methodologies used for assets measured at fair value on a non-recurring basis.

Collateral Dependent Loans

Collateral dependent other real estate owned loans are measured and reported at fair value through specific allocations of the allowance for credit losses based on the fair value of the underlying collateral.

The following tables provide the level of valuation assumptions used to determine the carrying value of the other real estate owned loans measured at fair value on a non-recurring basis at December 31, 2024 and September 30, 2024.

The following tables present additional quantitative information about assets measured at fair value on a non-recurring basis and for which Company has utilized Level 3 inputs to determine fair value:

Quantitative Information about Level 3 Fair Value Measurements

(Dollars in thousands)

Quantitative Information about Level 3 Fair Value Measurements

(Dollars in thousands)

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments carried at cost or amortized cost as of December 31, 2024 and September 30, 2024. For short-term financial assets such as cash and cash equivalents and accrued interest receivable, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For financial liabilities such as interest-bearing demand, NOW, and money market savings deposits, the carrying amount is a reasonable estimate of fair value due to these products being payable on demand and having no stated maturity. The Company’s bank-owned life insurance is not a marketable asset and may generally only be redeemed with the insurance company and, therefore, is not included in the table below.

NOTE H - INVESTMENT SECURITIES

The following table summarizes the amortized cost and fair values of securities classified as available-for-sale and held-to-maturity at December 31, 2024:

The following table summarizes the amortized cost and fair values of securities classified as available-for-sale and held-to-maturity at September 30, 2024:

The Company monitors the credit quality of held-to-maturity debt securities, primarily through their credit ratings by nationally recognized statistical ratings organizations, on a quarterly basis. At December 31, 2024, there were no non-performing held-to-maturity debt securities and no allowance for credit losses were required. The majority of the investment securities are explicitly or implicitly guaranteed by the United States government, and any estimate of expected credit losses would be insignificant to the Company. The following tables summarize the amortized cost of held-to-maturity debt securities at December 31, 2024 and September 30, 2024, aggregated by credit quality indicator:

The contractual maturities of debt securities, municipal bonds and certain information regarding mortgage-backed securities available-for-sale at December 31, 2024 are summarized in the following table:

The contractual maturities of debt securities, municipal bonds and certain information regarding mortgage-backed securities held-to-maturity at December 31, 2024 are summarized in the following table:

As of December 31, 2024 and September 30, 2024, investment securities having a carrying amount of approximately $12.0 million and $12.5 million, respectively, were pledged to secure public deposits.

NOTE I – UNREALIZED LOSSES ON INVESTMENT SECURITIES AVAILABLE-FOR-SALE

The Company recognizes an allowance for credit loss (“ACL”) on debt securities in earnings through a provision for credit losses while non credit-related impairment on debt securities not expected to be sold are recognized in other comprehensive income.

The Company reviews its investment portfolio on a quarterly basis for indications of credit losses. This review includes analyzing the extent to which the fair value has been lower than the amortized cost, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer and the intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in the market. The Company evaluates its intent and ability to hold debt securities based upon its investment strategy for the particular type of security and its cash flow needs, liquidity position, capital adequacy and interest rate risk position. In addition, the risk of future credit losses may be influenced by prolonged recession in the U.S. economy, changes in real estate values and interest deferrals.

Investment securities with fair values greater than their amortized cost contain unrealized gains. Investment securities with fair values less than their amortized cost contain unrealized losses. Details of available-for-sale securities with unrealized losses at December 31, 2024 and September 30, 2024 are as following tables:

The investment securities listed above currently have fair values less than amortized cost and, therefore, contain unrealized losses. The Company evaluated these securities and determined that the decline in value was primarily related to fluctuations in the interest rate environment and were not related to any company or industry specific event.

The Company anticipates full recovery of amortized costs with respect to these securities. The Company does not intend to sell these securities and has determined that it is not more likely than not that the Company would be required to sell these securities prior to maturity or market price recovery. For individual debt securities classified as available-for-sale, we determine whether a decline in fair value below the amortized cost has resulted from a credit loss or other factors. If the decline in fair value is due to credit, we will record the portion of the impairment loss relating to credit through an ACL. Impairment that has not been recorded through an ACL is recorded through other comprehensive income, net of applicable taxes.

NOTE J – LOANS RECEIVABLE, NET AND RELATED ALLOWANCE FOR CREDIT LOSSES

Loans receivable, net were comprised of the following:

The segments of the Company’s loan portfolio are disaggregated to a level that allows management to monitor risk and performance. The residential mortgage loan segment is further disaggregated into two types: first lien, amortizing term loans, and the combination of second lien amortizing term loans and home equity lines of credit. The commercial loan segment is further disaggregated into three types: loans secured by multifamily structures, loans secured by owner-occupied commercial structures, and loans secured by non-owner occupied nonresidential properties. The construction and land loan segment consists primarily of developers or investors for the purpose of acquiring, developing and constructing residential or commercial structures and to a lesser extent one-to-four family residential construction loans made to individuals for the acquisition of and/or construction on a lot or lots on which a residential dwelling is to be built. Construction loans to developers and investors have a higher risk profile because the ultimate buyer, once development is completed, is generally not known at the time of the loan. The commercial business loan segment consists of loans made for the purpose of financing the activities of commercial customers and consists of revolving lines of credit and loans partially guaranteed by the U.S. Small Business Administration. The consumer loan segment consists primarily of stock-secured installment loans, but also includes unsecured personal loans and overdraft lines of credit connected with customer deposit accounts.

Management uses a ten point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized, and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. All loans greater than three months past due are considered Substandard. Any portion of a loan that has been charged off is placed in the Loss category.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as severe delinquency, bankruptcy, repossession, or death occurs to raise awareness of a possible credit event. The Company’s Commercial Loan Officers are responsible for the timely and accurate risk rating of the loans in their portfolios at origination and on an ongoing basis. The Company’s Asset Review Committee performs monthly reviews of all commercial relationships internally rated 6 (“Watch”) or worse. Confirmation of the appropriate risk grade is performed by an external loan review company that semi-annually reviews and assesses loans within the portfolio. Generally, the external consultant reviews commercial relationships greater than $500 thousand and/or criticized relationships greater than $250 thousand. Detailed reviews, including plans for resolution, are performed on loans classified as Substandard on a monthly basis.

The following tables present the classes of the loan portfolio by origination year summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful for loans subject to the Company’s internal risk rating system and by performing status for all other loans as of December 31, 2024 and September 30, 2024:

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The Bank was not accruing interest on any loans delinquent 90 days or greater as of December 31, 2024 or September 30, 2024. The following table presents the classes of the loan portfolio summarized by the aging categories of loans for the periods presented:

The following tables present our non-accrual loans and the related ACL by loan type as of December 31, 2024 and September 30, 2024.

The following table identifies our non-performing, collateral dependent loans by collateral type as of December 31, 2024 and September 30, 2024:

An ACL is maintained to absorb losses from the loan portfolio. Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ACL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ACL. Since loans individually evaluated for impairment are promptly written down to their fair value, typically there is no portion of the ACL for individually evaluated loans.

The following tables set forth the allocation of the Bank’s ACL by loan category at the dates indicated. The portion of the ACL allocated to each loan category does not represent the total available for future losses which may occur within the loan category since the total allowance for credit losses is a valuation allocation applicable to the entire loan portfolio. The Company generally charges-off the collateral or discounted cash flow deficiency on all loans at 90 days past due and all loans rated substandard or worse that are 90 days past due.

During the three months ended December 31, 2024, the changes in the ACL for each loan category were primarily due to fluctuations in the outstanding balance of each segment of loans collectively evaluated for impairment. Specifically, we experienced significant growth in our commercial real estate portfolio and, to a lesser extent, growth in our construction loan balances during the three months ended December 31, 2024.

The Company’s ACL increased $204 thousand to $8.2 million during the three months ended December 31, 2024. The ACL for on-balance sheet exposures increased to $7.9 million at December 31, 2024 from $7.5 million at September 30, 2024 resulting from additional net provisions for credit losses totaling $209 thousand and $103 thousand in loan recoveries. The Company’s ACL for off-balance sheet loan commitments decreased to $340 thousand at December 31, 2024 from $449 thousand at September 30, 2024 from lower unfunded construction lines of credit.

During the three months ended December 31, 2024, there were no loans modified to borrowers experiencing financial difficulty.

There was one residential loan and one home equity line of credit totaling $257 thousand that were in the process of foreclosure at December 31, 2024.

NOTE K - DEPOSITS

A summary of deposits by type of account are summarized as follows:

Included in the Company’s deposits at December 31, 2024 and September 30, 2024 were $29.6 million in brokered certificates of deposit and $20.0 million in certificates of deposit obtained through a national deposit listing service.

At December 31, 2024 and September 30, 2024, the aggregate deposits in amounts greater than $250 thousand, which is the maximum amount for federal deposit insurance, were $477.5 million and $380.0 million, respectively.

NOTE L - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

The Company may use derivative financial instruments, such as interest rate swaps and interest rate floors and caps, as part of its interest rate risk management. Interest rate caps and floors are agreements whereby one party agrees to pay or receive a floating rate of interest on a notional principal amount for a predetermined period of time if certain market interest rate thresholds are met. The Company considers the credit risk inherent in these contracts to be negligible. As of December 31, 2024, the Company did not hold any interest rate floors or collars.

The Company is a party to interest rate derivatives that are not designated as hedging instruments. Under a program, the Company executes interest rate swaps with commercial lending customers to facilitate their respective risk management strategies. These interest rate swaps with customers are simultaneously offset by interest rate swaps that the Company executes with a third-party financial institution, such that the Company minimizes its net risk exposure resulting from such transactions. Because the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. The changes in the fair value of the swaps offset each other, except for the credit risk of the counterparties, which is determined by taking into consideration the risk rating, probability of default and loss given default for all counterparties, and was not significant to the total fair value. The Company was not required to pledge any collateral for its interest rate swaps with financial institutions at December 31, 2024 and September 30, 2024.

The following table presents summary information regarding these derivatives as of December 31, 2024 and September 30, 2024.

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments are commitments to extend credit and are summarized in the below table. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the Consolidated Balance Sheets.