UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☑   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

 

☐   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

 

Commission File Number 000-51726

 

Magyar Bancorp, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		20-4154978
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)
400 Somerset Street, New Brunswick, New Jersey		08901
(Address of Principal Executive Office)		(Zip Code)

 

(732) 342-7600

(Issuer’s Telephone Number including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class	Trading symbol	Name of each exchange on which registered
Common Stock, $.01 per share	MGYR	The NASDAQ Global Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑   No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☑   No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act:

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☑	Smaller reporting company	☑
Emerging growth company	☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐   No ☑

 

The number of shares outstanding of the issuer's common stock at August 1, 2023 was 6,662,098.

 

MAGYAR BANCORP, INC.

 

Form 10-Q Quarterly Report

 

Table of Contents

 

 

PART I. FINANCIAL INFORMATION

 

	Page Number
Item 1.	Consolidated Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	34
Signature Pages		35

 

PART I. FINANCIAL INFORMATION

 

Item 1. Consolidated Financial Statements

 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Consolidated Balance Sheets

(In Thousands, Except Share and Per Share Data)

 

		June 30,				September 30,
		2023				2022
		(Unaudited)
Assets
Cash		$	3,064			$	2,869
Interest earning deposits with banks			19,340				28,067
Total cash and cash equivalents			22,404				30,936
Investment securities available-for-sale, at fair value			8,734				9,229
Investment securities held-to-maturity, at amortized cost (fair value of $73,337 and $79,914 at June 30, 2023 and September 30, 2022, respectively)			83,720				91,646
Federal Home Loan Bank of New York stock, at cost			3,051				1,447
Loans receivable, net of allowance for loan losses of $8,378 and $8,433 at June 30, 2023 and September 30, 2022, respectively			693,308				619,843
Bank owned life insurance			17,938				17,660
Accrued interest receivable			4,143				3,478
Premises and equipment, net			13,483				13,880
Other real estate owned ("OREO")			291				281
Other assets			10,377				10,143
Total assets		$	857,449			$	798,543
Liabilities and Stockholders' Equity
Liabilities
Deposits		$	693,472			$	667,733
Escrowed funds			3,907				3,407
Borrowings			45,534				15,625
Accrued interest payable			213				85
Accounts payable and other liabilities			11,566				13,191
Total liabilities			754,692				700,041
Stockholders' equity
Preferred stock: $.01 Par Value, 500,000 shares authorized; at June 30, 2023 and September 30, 2022, none issued			—				—
Common stock: $.01 Par Value, 14,000,000 shares authorized; 7,097,825 shares issued; 6,668,572 and 6,745,128 shares outstanding at June 30, 2023 and September 30, 2022, respectively, at cost			71				71
Additional paid-in capital			63,023				63,734
Treasury stock: 429,253 and 465,693 shares at June 30, 2023 and September 30, 2022, respectively, at cost			(5,478	)			(5,793	)
Unearned Employee Stock Ownership Plan shares			(3,113	)			(3,169	)
Retained earnings			50,182				45,773
Accumulated other comprehensive loss			(1,928	)			(2,114	)
Total stockholders' equity			102,757				98,502
Total liabilities and stockholders' equity		$	857,449			$	798,543

 

The accompanying notes are an integral part of these consolidated financial statements.

 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Income

(In Thousands, Except Share and Per Share Data)

 

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2023				2022				2023				2022
		(Unaudited)
Interest and dividend income
Loans, including fees		$	9,033			$	7,018			$	25,610			$	20,281
Investment securities and interest earning deposits
Taxable			692				428				1,707				1,023
Tax-exempt			14				11				43				27
Federal Home Loan Bank of New York stock			38				19				92				58
Total interest and dividend income			9,777				7,476				27,452				21,389
Interest expense
Deposits			2,648				420				6,132				1,286
Borrowings			239				92				594				323
Total interest expense			2,887				512				6,726				1,609
Net interest and dividend income			6,890				6,964				20,726				19,780
Provision (credit) for loan losses			(81	)			205				432				376
Net interest and dividend income after provision (credit) for loan losses			6,971				6,759				20,294				19,404
Other income
Service charges			392				284				957				860
Income on bank owned life insurance			92				94				278				275
Interest rate swap fees			—				76				57				76
Other operating income			34				21				75				67
Gains on sales of SBA loans			103				134				485				553
Gains on sale of OREO			—				67				—				67
Total other income			621				676				1,852				1,898
Other expenses
Compensation and employee benefits			2,966				2,701				8,773				8,096
Occupancy expenses			803				750				2,355				2,255
Professional fees			188				198				572				856
Data processing expenses			148				136				443				409
Marketing and business development			101				143				344				353
OREO expenses			3				6				28				54
FDIC deposit insurance premiums			96				55				243				161
Loan servicing expenses			67				2				138				86
Other expenses			514				441				1,368				1,293
Total other expenses			4,886				4,432				14,264				13,563
Income before income tax expense			2,706				3,003				7,882				7,739
Income tax expense			788				886				2,358				2,250
Net income		$	1,918			$	2,117			$	5,524			$	5,489
Earnings per share - basic		$	0.30			$	0.31			$	0.86			$	0.81
Earnings per share - diluted		$	0.30			$	0.31			$	0.86			$	0.81
Weighted average shares outstanding - basic			6,412,536				6,799,800				6,426,978				6,797,691
Weighted average shares outstanding - diluted			6,412,536				6,799,800				6,426,978				6,797,691

 

The accompanying notes are an integral part of these consolidated financial statements.

 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Comprehensive Income

(In Thousands)

 

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2023				2022				2023				2022
		(Unaudited)
Net income		$	1,918			$	2,117			$	5,524			$	5,489
Other comprehensive income (loss)
Unrealized gain (loss) on securities available for sale			(137	)			(490	)			247				(1,285	)
Other comprehensive income (loss), before tax			(137	)			(490	)			247				(1,285	)
Deferred income tax effect			34				120				(61	)			316
Total other comprehensive income (loss)		$	(103	)		$	(370	)		$	186			$	(969	)
Total comprehensive income		$	1,815			$	1,747			$	5,710			$	4,520

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 MAGYAR BANCORP, INC. AND SUBSIDIARY

 Consolidated Statements of Changes in Stockholders' Equity

 For the Three and Nine Months Ended June 30, 2023 and 2022

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

 

 

																										Accumulated
		Common Stock								Additional								Unearned								Other
		Shares				Par				Paid-In				Treasury				ESOP				Retained				Comprehensive
		Outstanding				Value				Capital				Stock				Shares				Earnings				Loss				Total
		(Unaudited)
Balance, March 31, 2023		$	6,689,790			$	71			$	64,096			$	(6,504	)		$	(3,129	)		$	48,456			$	(1,825	)		$	101,165
Net income			—				—				—				—				—				1,918				—				1,918
Dividends paid on common stock ($0.03 per share)			—				—				—				—				—				(192	)			—				(192	)
Other comprehensive loss			—				—				—				—				—				—				(103	)			(103	)
ESOP shares allocated			—				—				8				—				16				—				—				24
Retirement of 112,996 treasury shares			—				—				(1,242	)			1,242				—				—				—				—
Purchase of treasury stock			(21,218	)			—				—				(216	)			—				—				—				(216	)
Stock-based compensation expense			—				—				161				—				—				—				—				161
Balance, June 30, 2023		$	6,668,572			$	71			$	63,023			$	(5,478	)		$	(3,113	)		$	50,182			$	(1,928	)		$	102,757
Balance, September 30, 2022		$	6,745,128			$	71			$	63,734			$	(5,793	)		$	(3,169	)		$	45,773			$	(2,114	)		$	98,502
Net income			—				—				—				—				—				5,524				—				5,524
Dividends paid on common stock ($0.17 per share)			—				—				—				—				—				(1,115	)			—				(1,115	)
Other comprehensive loss			—				—				—				—				—				—				186				186
Treasury stock used for restricted stock plan			1,000				—				(13	)			13				—				—				—				—
ESOP shares allocated			—				—				42				—				56				—				—				98
Retirement of 112,996 treasury shares			—				—				(1,242	)			1,242				—				—				—				—
Purchase of treasury stock			(77,556	)			—				—				(940	)			—				—				—				(940	)
Stock-based compensation expense			—				—				502				—				—				—				—				502
Balance, June 30, 2023		$	6,668,572			$	71			$	63,023			$	(5,478	)		$	(3,113	)		$	50,182			$	(1,928	)		$	102,757

 

																										Accumulated
		Common Stock								Additional								Unearned								Other
		Shares				Par				Paid-In				Treasury				ESOP				Retained				Comprehensive
		Outstanding				Value				Capital				Stock				Shares				Earnings				Loss				Total
		(Unaudited)
Balance, March 31, 2022		$	7,097,825			$	71			$	63,697			$	(1,242	)		$	(3,216	)		$	41,634			$	(1,546	)		$	99,398
Net income			—				—				—				—				—				2,117				—				2,117
Dividends paid on common stock ($0.03 per share)			—				—				—				—				—				(204	)			—				(204	)
Other comprehensive loss			—				—				—				—				—				—				(370	)			(370	)
ESOP shares allocated			—				—				15				—				24				—				—				39
Balance, June 30, 2022			7,097,825			$	71			$	63,712			$	(1,242	)		$	(3,192	)		$	43,547			$	(1,916	)		$	100,980
Balance, September 30, 2021			7,097,825			$	71			$	63,713			$	(1,242	)		$	(3,235	)		$	39,281			$	(947	)		$	97,641
Net income			—				—				—				—				—				5,489				—				5,489
Dividends paid on common stock ($0.18 per share)			—				—				—				—				—				(1,223	)			—				(1,223	)
Other comprehensive loss			—				—				—				—				—				—				(969	)			(969	)
Common stock acquired by ESOP			—				—				—				—				(98	)			—				—				(98	)
ESOP shares allocated			—				—				(1	)			—				141				—				—				140
Balance, June 30, 2022			7,097,825			$	71			$	63,712			$	(1,242	)		$	(3,192	)		$	43,547			$	(1,916	)		$	100,980

 

The accompanying notes are an integral part of these consolidated financial statements.

 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

(In Thousands)

 

		Nine Months Ended
		June 30,
		2023				2022
		(Unaudited)
Operating activities
Net income		$	5,524			$	5,489
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense			628				627
Premium amortization on investment securities, net			112				148
Provision for loan losses			432				376
Originations of SBA loans held for sale			(5,450	)			(4,903	)
Proceeds from the sales of SBA loans			5,935				5,456
Gains on sale of SBA loans			(485	)			(553	)
Gains on the sales of other real estate owned			—				(67	)
Gains on the sale of premises and equipment			(9	)			—
ESOP compensation expense			98				140
Stock-based compensation expense			502				—
Deferred income tax (benefit) expense			(237	)			86
Increase in accrued interest receivable			(665	)			(17	)
Increase in surrender value of bank owned life insurance			(278	)			(275	)
Increase in other assets			(57	)			(1,015	)
Increase (decrease) in accrued interest payable			128				(29	)
(Decrease) increase  in accounts payable and other liabilities			(1,625	)			1,119
Net cash provided by operating activities			4,553				6,582
Investing activities
Net increase in loans receivable			(60,547	)			(31,731	)
Purchases of loans receivable			(13,350	)			—
Purchases of investment securities held-to-maturity			—				(39,535	)
Principal repayments on investment securities held-to-maturity			7,858				5,886
Principal repayments on investment securities available-for-sale			698				1,523
Purchases of bank owned life insurance			—				(3,000	)
Purchases of premises and equipment			(241	)			(246	)
Proceeds from the sale of premises and equipment			19				—
Investment in other real estate owned			(11	)			(12	)
Proceeds from other real estate owned			—				434
Purchase of Federal Home Loan Bank stock			(5,747	)			(56	)
Redemption of Federal Home Loan Bank stock			4,143				363
Net cash used in investing activities			(67,178	)			(66,374	)
Financing activities
Net increase in deposits			25,739				20,007
Purchase of common stock for ESOP			—				(98	)
Net increase in escrowed funds			500				298
Proceeds from long-term advances			17,000				—
Repayments of long-term advances			(3,091	)			(8,072	)
Proceeds from short-term advances			16,000				—
Cash dividends paid on common stock			(1,115	)			(1,223	)
Purchase of treasury stock			(940	)			—
Net cash provided by financing activities			54,093				10,912
Net decrease in cash and cash equivalents			(8,532	)			(48,880	)
Cash and cash equivalents, beginning of year			30,936				75,201
Cash and cash equivalents, end of year		$	22,404			$	26,321
Supplemental disclosures of cash flow information
Cash paid for
Interest		$	6,597			$	1,638
Income taxes		$	2,800			$	2,180

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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 nine months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending September 30, 2023. The September 30, 2022 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 loan 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 June 30, 2023 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 and Exchange Commission’s (“SEC”) Securities Exchange Act of 1934, 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.

 

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses. ASU 2016-13 (“CECL”) requires entities to report “expected” credit losses on financial instruments and other commitments to extend credit rather than the current “incurred loss” model. These expected credit losses for financial assets held at the reporting date are to be based on historical experience, current conditions, and reasonable and supportable forecasts. The CECL will also require enhanced disclosures to help investors and other financial statement users better understand significant management’s estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements.

 

In October 2019, the FASB voted to defer the effective date of ASU 2016-13 for smaller reporting companies to fiscal years beginning after December 15, 2022 (October 1, 2023 for the Company), and interim periods within those fiscal years. The Company continues to evaluate the impact the new standard will have on the accounting for credit losses. The Company may recognize a one-time cumulative-effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, consistent with regulatory expectations set forth in interagency guidance issued at the end of 2016.

 

The Company will adopt CECL related to Financial Instruments -Credit Losses (Topic 326) on of October 1, 2023, using a modified retrospective approach. The Company’s implementation process includes scoping, segmentation and the design of a methodology appropriate for each respective financial instrument.  The process also includes the development of loss forecasting models as well as the incorporation of qualitative adjustments. Evaluation of technical accounting topics, updates to our allowance policy documentation, model validation, governance and reporting, processes and related internal controls, as well as overall operational readiness will be completed throughout September 30, 2023 in preparation for adoption.

 

Based on analyses performed during the quarter ending June 30, 2023, as well as an implementation analysis utilizing exposures and forecasts of economic conditions as of June 30, 2023, the Company currently expects the adoption of CECL will result in an adjustment to the allowance for credit losses amount at October 1, 2023 in the range of $630,000 to $950,000, which includes unfunded commitments and held to maturity debt securities. The impact will be reflected as a cumulative effect adjustment, net of taxes. At June 30, 2023, the allowance for loan losses totaled $8.4 million. As the Company is currently finalizing the execution of its implementation controls and processes, the ultimate impact of the adoption of CECL as of October 1, 2023 could differ from our current expectation as it is largely dependent on the economic conditions and forecasts determined at the date of adoption, but the cumulative effect adjustment to retained earnings for the change in the allowance for credit losses upon CECL adoption will not have a material effect on the Company’s capital and regulatory capital amounts and ratios.

 

In March 2022, the FASB issued ASU 2022-02, Troubled Debt Restructurings (“TDRs”) and Vintage Disclosures as an update to Financial Instruments—Credit Losses (Topic 326). The amendments in this ASU eliminate the TDR recognition and measurement guidance and, instead, require that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan. The amendments enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. In addition, ASU 2022-02 requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost. The amendments in ASU 2022-02 will be effective for the Company with its adoption of ASU 2016-13.

 

 

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.

 

 

NOTE D - EARNINGS PER SHARE

 

The following table presents a calculation of basic and diluted earnings per share for the three and nine months ended June 30, 2023 and 2022. Basic and diluted earnings per share were calculated by dividing net income by the weighted-average number of shares outstanding for the periods.

 

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2023				2022				2023				2022
		(Dollars in thousands, except share and per share data)
Income applicable to common shares		$	1,918			$	2,117			$	5,524			$	5,489
Weighted average shares outstanding - basic			6,412,536				6,799,800				6,426,978				6,797,691
Weighted average shares outstanding - diluted			6,412,536				6,799,800				6,426,978				6,797,691
Earnings per share - basic		$	0.30			$	0.31			$	0.86			$	0.81
Earnings per share - diluted		$	0.30			$	0.31			$	0.86			$	0.81

 

Options to purchase 293,200 shares of common stock at a weighted average strike price of $12.58 and 155,400 shares of restricted shares at a weighted average price of $12.63 were outstanding at June 30, 2023 but were not included in the calculation of diluted EPS because they were anti-dilutive. There were no outstanding stock awards or options to purchase common stock at June 30, 2022.

 

 

NOTE E – STOCK-BASED COMPENSATION AND STOCK REPURCHASE PROGRAM

 

On August 25, 2022, the Company adopted the 2022 Equity Compensation Plan which provided for grants of up to 547,400 shares to be allocated between incentive and non-qualified stock options and restricted stock awards to officers, employees and directors of the Company and Magyar Bank. At June 30, 2023, 293,200 options and 155,400 shares of restricted stock had been awarded from the plan.

 

The following is a summary of the status of the Company’s stock option activity and related information for its option plan for the nine months ended June 30, 2023:

 

		Shares				Weighted Average Exercise Price				Weighted Average Remaining Contractual Life in Years				Aggregate Intrinsic Value
Balance at September 30, 2022			293,200			$	12.58				10.0			$	—
Granted			—				—				—				—
Exercised			—				—				—				—
Forfeited			—				—				—				—
Expired			—				—				—				—
Balance at June 30, 2023			293,200			$	12.58				9.2				—
Exercisable at June 30, 2023			—			$	—				—				—

 

The following is a summary of the status of the Company’s non-vested restricted shares for the nine months ended June 30, 2023:

 

		Shares				Weighted Average Grant Date Fair Value
Balance at September 30, 2022			156,400				12.63
Granted			—				—
Vested			(1,000	)			12.70
Forfeited			—				—
Balance at June 30, 2023			155,400			$	12.63

 

Stock option and stock award expenses included with compensation expense were $63,000 and $98,000 for the three months ended June 30, 2023 and $195,000 and $307,000 for the nine months ended June 30, 2023, respectively. There were no stock option or stock award expenses for the nine months ended June 30, 2022. The Company had no other stock-based compensation plans as of June 30, 2023 except as disclosed below.

 

On December 8, 2022, the Company announced the completion of its third stock repurchase program, under which 354,891 shares had been repurchased at an average price of $12.90. The Company also announced the authorization of an additional stock repurchase plan pursuant to which the Company intends to repurchase up to an additional 5% of its outstanding shares, or up to 337,146 shares, under which 75,362 shares had been repurchased at an average price of $12.11. Under this stock repurchase program, 261,784 shares of the 337,146 shares authorized remained available for repurchase as of June 30, 2023. The Company’s intended use of the repurchased shares is for general corporate purposes. The Company held treasury stock shares totaling 429,253 at June 30, 2023. 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.

 

In connection with the Company’s second-step stock offering during its fiscal year ending September 30, 2021, the ESOP trustees purchased 312,800 shares of the Company’s common stock for $3.4 million, reflecting an average cost per share of $10.77. The ESOP loan bears a variable interest rate that adjusts annually to Prime Rate (7.50% on January 1, 2023) with principal and interest payable annually in equal installments over thirty years.

 

At June 30, 2023, ESOP shares allocated to participants totaled 22,487. Unallocated ESOP shares held in suspense totaled 290,313 at June 30, 2023 and the aggregate fair value was $3.0 million. The Company's contribution expense for the ESOP was $98,000 and $140,000 for the nine months ended June 30, 2023 and 2022, respectively.

 

 

NOTE F – OTHER COMPREHENSIVE INCOME (LOSS)

 

The Company recorded no reclassification adjustments during the three and nine month periods ending June 30, 2023. The components of other comprehensive income (loss) and the related income tax effects are as follows:

 

		Three Months Ended June 30,
		2023												2022
						Tax				Net of								Tax				Net of
		Before Tax				(Benefit)				Tax				Before Tax				(Benefit)				Tax
		Amount				Expense				Amount				Amount				Expense				Amount
		(In thousands)
Unrealized holding gain (loss) arising during period on:
Available-for-sale investments		$	(137	)		$	34			$	(103	)		$	(490	)		$	120			$	(370	)
Other comprehensive income (loss), net		$	(137	)		$	34			$	(103	)		$	(490	)		$	120			$	(370	)

 

 

		Nine Months Ended June 30,
		2023												2022
						Tax				Net of								Tax				Net of
		Before Tax				(Benefit)				Tax				Before Tax				(Benefit)				Tax
		Amount				Expense				Amount				Amount				Expense				Amount
		(In thousands)
Unrealized holding gain (loss) arising during period on:
Available-for-sale investments		$	247			$	(61	)		$	186			$	(1,285	)		$	316			$	(969	)
Other comprehensive income (loss), net		$	247			$	(61	)		$	186			$	(1,285	)		$	316			$	(969	)

 

 

 

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:

 

Level 1 -	Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2 -	Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3 -	Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques. The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability.

 

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

Magyar 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.

 

June 30, 2023		Total				Level 1				Level 2				Level 3
Assets:		(In thousands)
Securities available for sale:
Obligations of U.S. government agencies:
Mortgage-backed securities - residential		$	100			$	—			$	100			$	—
Obligations of U.S. government-sponsored enterprises:
Mortgage-backed securities-residential			8,634				—				8,634				—
Total securities available for sale		$	8,734			$	—			$	8,734			$	—
Derivative assets			2,383				—				2,383				—
Total assets		$	11,117			$	—			$	11,117			$	—
Liabilities:
Derivative liabilities		$	2,383			$	—			$	2,383			$	—
Total Liabilities		$	2,383			$	—			$	2,383			$	—

 

September 30, 2022		Total				Level 1				Level 2				Level 3
Assets:
Securities available for sale:
Obligations of U.S. government agencies:
Mortgage-backed securities - residential		$	107			$	—			$	107			$	—
Obligations of U.S. government-sponsored enterprises:
Mortgage-backed securities-residential			9,122				—				9,122				—
Total securities available for sale		$	9,229			$	—			$	9,229			$	—
Derivative assets			2,487				—				2,487				—
Total assets		$	11,716			$	—			$	11,716			$	—
Liabilities:
Derivative liabilities		$	2,487			$	—			$	2,487			$	—
Total Liabilities		$	2,487			$	—			$	2,487			$	—

 

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

 

Impaired Loans

Loans which meet certain criteria are evaluated individually for impairment. A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. All amounts due according to the contractual terms means that both the contractual interest and principal payments of a loan will be collected as scheduled in the loan agreement. Three impairment measurement methods are used, depending upon the collateral securing the asset: 1) the present value of expected future cash flows discounted at the loan’s effective interest rate (the rate of return implicit in the loan); 2) the asset’s observable market price; or 3) the fair value of the collateral, less anticipated selling and disposition costs, if the asset is collateral dependent. The regulatory agencies require the last method for loans from which repayment is expected to be provided solely by the underlying collateral. The Company’s impaired loans are generally collateral dependent and, as such, are carried at the estimated fair value of the collateral less estimated selling costs. Fair value is estimated through current appraisals, and adjusted by management as necessary, to reflect current market conditions and, as such, are generally classified as Level 3.

 

Appraisals of collateral securing impaired loans are conducted by approved, qualified, and independent third-party appraisers. Such appraisals are ordered via the Company’s credit administration department, independent from the lender who originated the loan, once the loan is deemed impaired, as described in the previous paragraph. Impaired loans are generally re-evaluated with an updated appraisal within one year of the last appraisal. The Company discounts the appraised “as is” value of the collateral for estimated selling and disposition costs and compares the resulting fair value of collateral to the outstanding loan amount. If the outstanding loan amount is greater than the discounted fair value, the Company requires a reduction in the outstanding loan balance or additional collateral before considering an extension to the loan. If the borrower is unwilling or unable to reduce the loan balance or increase the collateral securing the loan, it is deemed impaired and the difference between the loan amount and the fair value of collateral, net of estimated selling and disposition costs, is charged off through a reduction of the allowance for loan loss.

 

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 non-recurring basis at June 30, 2023 and September 30, 2022.

 

June 30, 2023		Total				Level 1				Level 2				Level 3
		(In thousands)
Impaired loans		$	777			$	—			$	—			$	777
Total		$	777			$	—			$	—			$	777

 

September 30, 2022		Total				Level 1				Level 2				Level 3
		(In thousands)
Impaired loans		$	5,659			$	—			$	—			$	5,659
Total		$	5,659			$	—			$	—			$	5,659

 

The following tables present additional quantitative information about assets measured at fair value on a nonrecurring 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)
		Fair Value				Valuation
June 30, 2023		Estimate				Techniques		Unobservable Input		Range (Weighted Average)
Impaired loans		$	777			Appraisal of collateral (1)		Appraisal adjustments (2)		-50% to -8.0% (-19.4%)

 

		Fair Value				Valuation
September 30, 2022		Estimate				Techniques		Unobservable Input		Range (Weighted Average)
Impaired loans		$	5,659			Appraisal of collateral (1)		Appraisal adjustments (2)		0% to -31.7% (-9.9%)

 

 

(1)

Fair value is generally determined through independent appraisals for the underlying collateral, which generally include various level 3 inputs which are not identifiable.

(2)

Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

 

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 June 30, 2023 and September 30, 2022.  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.

 

		Carrying				Fair				Fair Value Measurement Placement
		Value				Value				(Level 1)				(Level 2)				(Level 3)
		(In thousands)
June 30, 2023
Financial instruments - assets
Investment securities held to maturity		$	83,720			$	73,337			$	—			$	73,337			$	—
Loans			693,308				666,752				—				—				666,752
Financial instruments - liabilities
Certificates of deposit including retirement certificates			103,375				102,959				—				102,959				—
Borrowings			45,534				44,567				—				44,567				—
September 30, 2022
Financial instruments - assets
Investment securities held-to-maturity		$	91,646			$	79,914			$	—			$	79,914			$	—
Loans			619,843				592,804				—				—				592,804
Financial instruments - liabilities
Certificates of deposit			82,609				81,289				—				81,289				—
Borrowings			15,625				14,762				—				14,762				—

 

 

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 June 30, 2023:

 

						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
June 30, 2023		Cost				Gains				Losses				Value
		(In thousands)
Securities available-for-sale:
Obligations of U.S. government agencies:
Mortgage-backed securities - residential		$	109			$	—			$	(9	)		$	100
Obligations of U.S. government-sponsored enterprises:
Mortgage-backed securities-residential			10,296				—				(1,662	)			8,634
Total securities available-for-sale		$	10,405			$	—			$	(1,671	)		$	8,734
Securities held-to-maturity:
Obligations of U.S. government agencies:
Mortgage-backed securities - residential		$	5,197			$	—			$	(731	)		$	4,466
Mortgage-backed securities - commercial			584				—				(2	)			582
Obligations of U.S. government-sponsored enterprises:
Mortgage-backed-securities - residential			46,422				—				(7,093	)			39,329
Debt securities			24,835				—				(1,954	)			22,881
Private label mortgage-backed securities - residential			211				—				(11	)			200
Obligations of state and political subdivisions			3,471				3				(398	)			3,076
Corporate securities			3,000				—				(197	)			2,803
Total securities held-to-maturity		$	83,720			$	3			$	(10,386	)		$	73,337
Total investment securities		$	94,125			$	3			$	(12,057	)		$	82,071

 

The contractual maturities of debt securities, municipal bonds and certain information regarding mortgage-backed securities available-for-sale and held-to-maturity at June 30, 2023 are summarized in the following table:

 

		June 30, 2023
		Amortized				Fair
Securities available-for-sale		Cost				Value
		(In thousands)
Due within 1 year		$	—			$	—
Due after 1 but within 5 years			—				—
Due after 5 but within 10 years			—				—
Due after 10 years			—				—
Total debt securities			—				—
Mortgage-backed securities:
Residential			10,405				8,734
Commercial			—				—
Total		$	10,405			$	8,734

 

 

		June 30, 2023
		Amortized				Fair
Securities held-to-maturity		Cost				Value
		(In thousands)
Due within 1 year		$	7,836			$	7,652
Due after 1 but within 5 years			18,527				16,926
Due after 5 but within 10 years			4,943				4,182
Due after 10 years			—				—
Total debt securities			31,306				28,760
Mortgage-backed securities:
Residential			51,830				43,995
Commercial			584				582
Total		$	83,720			$	73,337

 

The following table summarizes the amortized cost and fair values of securities classified as available-for-sale and held-to-maturity at September 30, 2022:

 

						Gross				Gross
		Amortized				Unrealized				Unrealized				Fair
September 30, 2022		Cost				Gains				Losses				Value
		(In thousands)
Securities available-for-sale:
Obligations of U.S. government agencies:
Mortgage backed securities - residential		$	118			$	—			$	(11	)		$	107
Obligations of U.S. government-sponsored enterprises:
Mortgage-backed securities-residential			11,029				—				(1,907	)			9,122
Total securities available for sale		$	11,147			$	—			$	(1,918	)		$	9,229
Securities held-to-maturity:
Obligations of U.S. government agencies:
Mortgage-backed securities - residential		$	5,525			$	—			$	(717	)		$	4,808
Mortgage-backed securities - commercial			631				—				—				631
Obligations of U.S. government-sponsored enterprises:
Mortgage backed securities - residential			48,961				12				(7,548	)			41,425
Debt securities			24,821				—				(2,395	)			22,426
Private label mortgage-backed securities - residential			224				—				(10	)			214
Obligations of state and political subdivisions			3,484				—				(638	)			2,846
Corporate securities			8,000				—				(436	)			7,564
Total securities held to maturity		$	91,646			$	12			$	(11,744	)		$	79,914
Total investment securities		$	102,793			$	12			$	(13,662	)		$	89,143

 

As of June 30, 2023 investment securities having an estimated fair value of approximately $12.8 million were pledged to secure public deposits.

 

 

NOTE I – IMPAIRMENT OF INVESTMENT SECURITIES

 

The Company recognizes credit-related other-than-temporary impairment on debt securities in earnings while noncredit-related other-than-temporary 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 impairment. This review includes analyzing the length of time and the extent to which the fair value has been lower than the 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 other-than-temporary impairment 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 securities with unrealized losses at June 30, 2023 and September 30, 2022 are as follows:

 

						Less Than 12 Months								12 Months Or Greater								Total
		Number of				Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Securities				Value				Losses				Value				Losses				Value				Losses
June 30, 2023						(Dollars in thousands)
Obligations of U.S. government agencies:
Mortgage-backed securities - residential			6			$	—			$	—			$	4,567			$	(740	)		$	4,567			$	(740	)
Mortgage-backed securities - commercial			1				—				—				582				(2	)			582				(2	)
Obligations of U.S. government-sponsored enterprises
Mortgage-backed securities - residential			50				442				(18	)			47,521				(8,737	)			47,963				(8,755	)
Debt securities			14				—				—				22,881				(1,954	)			22,881				(1,954	)
Private label mortgage-backed securities residential			1				—				—				200				(11	)			200				(11	)
Obligations of state and political subdivisions			6				522				(6	)			2,245				(392	)			2,767				(398	)
Corporate securities			1				—				—				2,804				(197	)			2,804				(197	)
Total			79			$	964			$	(24	)		$	80,800			$	(12,033	)		$	81,764			$	(12,057	)
September 30, 2022
Obligations of U.S. government agencies:
Mortgage-backed securities - residential			6			$	2,364			$	(140	)		$	2,551			$	(588	)		$	4,915			$	(728	)
Mortgage-backed securities - commercial			1				631				—				—				—				631				—
Obligations of U.S. government-sponsored enterprises
Mortgage-backed securities - residential			49				21,180				(2,795	)			29,088				(6,660	)			50,268				(9,455	)
Debt securities			14				11,664				(660	)			10,763				(1,735	)			22,427				(2,395	)
Private label mortgage-backed securities residential			1				215				(10	)			—				—				215				(10	)
Obligations of state and political subdivisions			7				1,268				(181	)			1,577				(457	)			2,845				(638	)
Corporate securities			2				2,646				(353	)			4,917				(83	)			7,563				(436	)
Total			80			$	39,968			$	(4,139	)		$	48,896			$	(9,523	)		$	88,864			$	(13,662	)

 

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. Management has considered factors regarding other than temporarily impaired securities and determined that there are no securities with impairment that is other than temporary as of June 30, 2023 and September 30, 2022.

 

 

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

 

Loans receivable, net were comprised of the following:

 

		June 30,				September 30,
		2023				2022
		(In thousands)
One-to-four family residential		$	236,633			$	214,377
Commercial real estate			402,349				342,791
Construction			19,249				15,230
Home equity lines of credit			18,737				18,704
Commercial business			23,129				34,672
Other			2,433				3,130
Total loans receivable			702,530				628,904
Net deferred loan fees			(844	)			(628	)
Allowance for loan losses			(8,378	)			(8,433	)
Total loans receivable, net		$	693,308			$	619,843

 

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 classes: 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 classes: loans secured by multifamily structures, loans secured by owner-occupied commercial structures, and loans secured by non-owner occupied nonresidential properties. The construction 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 primarily of revolving lines of credit. 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 evaluates individual loans in all segments for possible impairment if the loan either is in nonaccrual status, or is risk rated Substandard and is 90 days or more past due.  Loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.  

 

Once the determination has been made that a loan is impaired, the recorded investment in the loan is compared to the fair value of the loan using one of three methods: (a) the present value of expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s current observable market price; or (c) the fair value of the collateral securing the loan, less anticipated selling and disposition costs. The method is selected on a loan-by loan basis, with management primarily utilizing the fair value of collateral method. If there is a shortfall between the fair value of the loan and the recorded investment in the loan, the Company charges the difference to the allowance for loan loss as a charge-off and carries the impaired loan on its books at fair value. It is the Company’s policy to evaluate impaired loans on an annual basis to ensure the recorded investment in a loan does not exceed its fair value.

 

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary for the periods presented:

 

										Impaired
										Loans with
		Impaired Loans with								No Specific
		Specific Allowance								Allowance				Total Impaired Loans
																		Unpaid
		Recorded				Related				Recorded				Recorded				Principal
		Investment				Allowance				Investment				Investment				Balance
June 30, 2023		(In thousands)
One-to-four family residential		$	—			$	—			$	1,788			$	1,788			$	1,788
Commercial real estate			—				—				1,138				1,138				1,138
Construction			—				—				777				777				842
Commercial business			—				—				148				148				148
Total impaired loans		$	—			$	—			$	3,851			$	3,851			$	3,916
September 30, 2022
One-to four-family residential		$	—			$	—			$	1,512			$	1,512			$	1,512
Commercial real estate			—				—				1,159				1,159				1,159
Construction			2,835				114				—				2,835				2,900
Commercial business			—				—				153				153				153
Total impaired loans		$	2,835			$	114			$	2,824			$	5,659			$	5,724

 

The Company’s impaired loans include delinquent non-accrual loans and performing Troubled Debt Restructurings (“TDRs”), as TDRs remain impaired loans until fully repaid. There was one TDR loan totaling $106,000 during the nine months ended June 30, 2023 and there were two TDR loans totaling $373,000 during the nine months ended June 30, 2022.

 

The following tables present the average recorded investment in impaired loans and the interest income recognized on impaired loans for the three and nine months ended June 30, 2023 and 2022.

 

 

		Three Months Ended				Nine Months Ended
		June 30, 2023				June 30, 2023
		(In thousands)
One-to-four family residential		$	1,777			$	1,645
Commercial real estate			1,142				1,220
Construction			1,806				2,149
Commercial business			342				312
Average investment in impaired loans		$	5,067			$	5,326
Interest income recognized on
an accrual basis on impaired loans
One-to-four family residential		$	22			$	64
Commercial real estate			13				39
Commercial business			2				5
Total		$	37			$	108

 

 

		Three Months Ended				Nine Months Ended
		June 30, 2022				June 30, 2022
		(In thousands)
One-to-four family residential		$	1,531			$	1,760
Commercial real estate			1,174				1,516
Construction			4,580				4,580
Commercial business			829				1,055
Average investment in impaired loans		$	8,114			$	8,911
Interest income recognized on
an accrual basis on impaired loans
One-to-four family residential		$	21			$	63
Commercial real estate			23				71
Commercial business			2				5
Total		$	46			$	139

 

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 $500,000 and/or criticized relationships greater than $250,000. Detailed reviews, including plans for resolution, are performed on loans classified as Substandard on a monthly basis. 

 

The following table presents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the Company’s internal risk rating system for the periods presented:

 

						Special
		Pass				Mention				Substandard				Doubtful				Total
		(In  thousands)
June 30, 2023
One-to-four family residential		$	235,248			$	962			$	423			$	—			$	236,633
Commercial real estate			401,962				—				387				—				402,349
Construction			16,752				—				2,497				—				19,249
Home equity lines of credit			18,737				—				—				—				18,737
Commercial business			23,129				—				—				—				23,129
Other			2,433				—				—				—				2,433
Total		$	698,261			$	962			$	3,307			$	—			$	702,530
September 30, 2022
One-to-four family residential		$	213,173			$	980			$	224			$	—			$	214,377
Commercial real estate			342,593				198				—				—				342,791
Construction			10,652				—				4,578				—				15,230
Home equity lines of credit			18,704				—				—				—				18,704
Commercial business			34,672				—				—				—				34,672
Other			3,130				—				—				—				3,130
Total		$	622,924			$	1,178			$	4,802			$	—			$	628,904

 

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 following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans for the periods presented:

 

						30-59				60-89
						Days				Days				90 Days +				Total				Non-				Total
		Current				Past Due				Past Due				Past Due				Past Due				Accrual				Loans
		(Dollars in  thousands)
June 30, 2023
One-to-four family residential		$	236,093			$	—			$	369			$	171			$	540			$	171			$	236,633
Commercial real estate			399,621				—				116				2,612				2,728				2,612				402,349
Construction			18,472				—				—				777				777				777				19,249
Home equity lines of credit			18,737				—				—				—				—				—				18,737
Commercial business			23,109				—				20				—				20				—				23,129
Other			2,433				—				—				—				—				—				2,433
Total		$	698,465			$	—			$	505			$	3,560			$	4,065			$	3,560			$	702,530
September 30, 2022
One-to four-family residential		$	213,903			$	300			$	174			$	—			$	474			$	—			$	214,377
Commercial real estate			342,404				—				387				—				387				—				342,791
Construction			12,395				—				—				2,835				2,835				2,835				15,230
Home equity lines of credit			18,704				—				—				—				—				—				18,704
Commercial business			34,672				—				—				—				—				—				34,672
Other			3,130				—				—				—				—				—				3,130
Total		$	625,208			$	300			$	561			$	2,835			$	3,696			$	2,835			$	628,904

 

An allowance for loan losses (“ALL”) is maintained to absorb losses from the loan portfolio.  The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of non-performing loans.

 

The Company’s methodology for determining the ALL is based on the requirements of ASC Section 310-10-35 for loans individually evaluated for impairment (discussed above) and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance.  

 

Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. For general allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified by other qualitative and economic factors.

 

The loans are segmented into classes based on their inherent varying degrees of risk, as described above. Management tracks the historical net charge-off activity by segment and utilizes this figure, as a percentage of the segment, as the general reserve percentage for pooled, homogenous loans that have not been deemed impaired. Typically, an average of losses incurred over five historical years is used.

 

Non-impaired credits are segregated for the application of qualitative factors. Management has identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources include: national and local economic trends and conditions; levels of and trends in delinquency rates and non-accrual loans; trends in volumes and terms of loans; effects of changes in lending policies; experience, ability, and depth of lending staff; value of underlying collateral; and concentrations of credit from a loan type, industry and/or geographic standpoint.

 

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 ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL. Since loans individually evaluated for impairment are promptly written down to their fair value, typically there is no portion of the ALL for loans individually evaluated for impairment.

 

The following table summarizes the ALL by loan category and the related activity for the nine months ended June 30, 2023 and 2022:

  

		One-to-Four												Home Equity
		Family				Commercial								Lines of				Commercial
		Residential				Real Estate				Construction				Credit				Business				Other				Unallocated				Total
		(In thousands)
Balance- September 30, 2022		$	1,223			$	4,612			$	461			$	263			$	1,484			$	1			$	389			$	8,433
Charge-offs			—				—				—				—				—				—				—				—
Recoveries			—				—				—				—				—				—				—				—
Provision (credit)			12				518				65				(7	)			(109	)			—				(162	)			317
Balance- December 31, 2022		$	1,235			$	5,130			$	526			$	256			$	1,375			$	1			$	227			$	8,750
Charge-offs			—				—				—				—				(102	)			—				—				(102	)
Recoveries			—				—				—				—				—				—				—				—
Provision (credit)			35				280				(58	)			(10	)			62				—				(113	)			196
Balance- March 31, 2023		$	1,270			$	5,410			$	468			$	246			$	1,335			$	1			$	114			$	8,844
Charge-offs			—				—				—				—				(386	)			—				—				(386	)
Recoveries			1				—				—				—				—				—				—				1
Provision (credit)			(102	)			(318	)			(21	)			(15	)			(41	)			—				416				(81	)
Balance- June 30, 2023		$	1,169			$	5,092			$	447			$	231			$	908			$	1			$	530			$	8,378

 

		One-to-Four												Home Equity
		Family				Commercial								Lines of				Commercial
		Residential				Real Estate				Construction				Credit				Business				Other				Unallocated				Total
		(In thousands)
Balance- September 30, 2021		$	1,136			$	3,744			$	594			$	232			$	2,046			$	15			$	308			$	8,075
Charge-offs			—				—				—				—				—				—				—				—
Recoveries			—				53				—				—				—				—				—				53
Provision (credit)			(43	)			(90	)			130				—				83				(14	)			35				100
Balance- December 31, 2021		$	1,093			$	3,706			$	724			$	232			$	2,129			$	1			$	343			$	8,228
Charge-offs			—				—				—				—				—				—				—				—
Recoveries			1				—				—				—				—				—				—				1
Provision (credit)			19				376				79				(12	)			(290	)			1				(102	)			71
Balance- March 31, 2022		$	1,113			$	4,082			$	803			$	220			$	1,839			$	2			$	241			$	8,300
Charge-offs			—				—				—				—				—				—				—				—
Recoveries			—				—				—				—				—				—				—				—
Provision (credit)			35				334				(196	)			5				(62	)			(1	)			90				205
Balance- June 30, 2022		$	1,148			$	4,416			$	607			$	225			$	1,777			$	1			$	331			$	8,505

 

The following tables summarize the ALL by loan category, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of June 30, 2023 and September 30, 2022:  

 

		One-to-Four												Home Equity
		Family				Commercial								Lines of				Commercial
		Residential				Real Estate				Construction				Credit				Business				Other				Unallocated				Total
		(In  thousands)
Allowance for Loan Losses:
Balance - June 30, 2023		$	1,169			$	5,092			$	447			$	231			$	908			$	1			$	530			$	8,378
Individually evaluated for impairment			—				—				—				—				—				—				—				—
Collectively evaluated for impairment			1,169				5,092				447				231				908				1				530				8,378
Loans receivable:
Balance - June 30, 2023		$	236,633			$	402,349			$	19,249			$	18,737			$	23,129			$	2,433			$	—			$	702,530
Individually evaluated for impairment			1,788				1,138				777				—				148				—				—				3,851
Collectively evaluated for impairment			234,845				401,211				18,472				18,737				22,981				2,433				—				698,679

 

		One-to-Four												Home Equity
		Family				Commercial								Lines of				Commercial
		Residential				Real Estate				Construction				Credit				Business				Other				Unallocated				Total
		(In  thousands)
Allowance for Loan Losses:
Balance - September 30, 2022		$	1,223			$	4,612			$	461			$	263			$	1,484			$	1			$	389			$	8,433
Individually evaluated for impairment			—				—				114				—				—				—				—				114
Collectively evaluated for impairment			1,223				4,612				347				263				1,484				1				389				8,319
Loans receivable:
Balance - September 30, 2022		$	214,377			$	342,791			$	15,230			$	18,704			$	34,672			$	3,130			$	—			$	628,904
Individually evaluated for impairment			1,512				1,159				2,835				—				153				—				—				5,659
Collectively evaluated for impairment			212,865				341,632				12,395				18,704				34,519				3,130				—				623,245

 

 

The allowance for loan losses is based on estimates, and actual losses will vary from current estimates. Management believes that the segmentation of the loan portfolio into homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALL that is representative of the risk found in the components of the portfolio at any given date.

 

A TDR is a loan that has been modified whereby the Bank has agreed to make certain concessions to a borrower to meet the needs of both the borrower and the Bank to maximize the ultimate recovery of a loan. TDR occurs when a borrower is experiencing, or is expected to experience, financial difficulties and the loan is modified using a modification that would otherwise not be granted to the borrower. The types of concessions granted generally include, but are not limited to, interest rate reductions, limitations on the accrued interest charged, term extensions, and deferment of principal.

 

A default on a TDR loan for purposes of this disclosure occurs when a borrower is 90 days past due or a foreclosure or repossession of the applicable collateral has occurred within twelve months of the restructure. The Company did not have any TDR loans default during the three or nine months ended June 30, 2023.

 

There was one TDR loan modification totaling $106,000 during the nine months ended June 30, 2023. Information on the TDR is summarized as follows:

 

Three Months Ended June 30, 2023

Number of

Investment Before

Investment After

Loans

TDR Modification

TDR Modification

(Dollars in thousands)

One-to four-family residential

—

$

—

$

—

Total

—

$

—

$

—

 

 

		Nine Months Ended June 30, 2023
		Number of				Investment Before				Investment After
		Loans				TDR Modification				TDR Modification
		(Dollars in thousands)
One-to four-family residential			1			$	97			$	106
Total			1			$	97			$	106

 

There was one TDR loan totaling $124,000 for the three months ended June 30, 2022, and there were two TDR loans totaling $373,000 during the nine months ended June 30, 2022. Information on the TDR loans are summarized as follows:

 

 

		Three Months Ended June 30, 2022
		Number of				Investment Before				Investment After
		Loans				TDR Modification				TDR Modification
		(Dollars in thousands)
One-to four-family residential			1				112				124
Total			1			$	112			$	124

 

		Nine Months Ended June 30, 2022
		Number of				Investment Before				Investment After
		Loans				TDR Modification				TDR Modification
		(Dollars in thousands)
One-to four-family residential			2				330				373
Total			2			$	330			$	373

 

 

NOTE K - DEPOSITS

 

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

 

		June 30,				September 30,
		2023				2022
		(In thousands)
Demand accounts		$	182,924			$	182,417
Savings accounts			65,470				81,850
NOW accounts			93,833				98,643
Money market accounts			247,870				222,214
Certificates of deposit			91,528				69,929
Retirement certificates			11,847				12,680
Total deposits		$	693,472			$	667,733

 

Included in Company’s deposits at June 30, 2023 were $18.8 million in brokered certificates of deposits and $15.5 million in certificate of deposits through a national deposit listing service. At September 30, 2022 the Company had $6.0 million in brokered certificates of deposits and $14.6 million in certificate of deposits obtained from a national deposit listing service.

 

The current FDIC insurance limit on bank deposit accounts is $250,000 per separately insured deposit account. The aggregate amount of deposit accounts with a denomination of $250,000 or more was approximately $388.5 million at June 30, 2023 compared with $399.9 million at September 30, 2022. The portion of these accounts included in the Company’s total deposits was an estimated $95.4 million that exceeded the Federal Deposit Insurance Corporation’s insurance coverage limit of $250,000 at June 30, 2023 compared to $129.4 million at September 30, 2022.

 

The aggregate amount of deposit accounts of State and local municipalities was $200.9 million at June 30, 2023 compared with $140.6 million at September 30, 2022. There were $194.4 million and $139.3 million State and local municipality deposits in excess of $250,000 at June 30, 2023 and September 30, 2022, which are collateralized by investment securities and municipal letters of credit with the Federal Home Loan Bank of New York (FHLBNY”).

 

 

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 June 30, 2023, 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. The Company was not required to pledge any collateral for its interest rate swaps with financial institutions at June 30, 2023 and September 30, 2022.

 

The following table presents summary information regarding these derivatives as of June 30, 2023 and September 30, 2022.

 

		Notional Amount				Average Maturiy (Years)				Weighted Average Fixed Rate				Weighted Average Variable Rate		Fair Value
		(Dollars in thousands)
June 30, 2023
Classified in Other Assets:
Customer interest rate swaps		$	36,294				4.4				4.95	%		1 Mo. BSBY + 2.44		$	2,383
Total		$	36,294				4.4				4.95	%				$	2,383
Classified in Other Liabilities:
3rd Party interest rate swaps		$	36,294				4.4				4.95	%		1 Mo. BSBY + 2.44		$	2,383
Total		$	36,294				4.4				4.95	%				$	2,383
September 30, 2022
Classified in Other Assets:
Customer interest rate swaps		$	19,512				5.9				3.63	%		1 Mo. LIBOR + 2.50		$	2,275
		$	6,940				4.6				6.13	%		1 Mo. BSBY + 3.00		$	212
Total		$	26,452				5.2				4.88	%				$	2,487
Classified in Other Liabilities:
3rd Party interest rate swaps		$	19,512				5.9				3.63	%		1 Mo. LIBOR + 2.50		$	2,275
		$	6,940				4.6				6.13	%		1 Mo. BSBY + 3.00		$	212
Total		$	26,452				5.2				4.88	%				$	2,487

 

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.

 

		June 30,				September 30,
		2023				2022
		(In thousands)
Financial instruments whose contract amounts represent credit risk (in thousands)
Letters of credit		$	663			$	740
Unused lines of credit			89,182				73,825
Fixed rate loan commitments			13,235				2,550
Variable rate loan commitments			300				49,913
Totals		$	103,380			$	127,028

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

When used in this filing and in future filings by the Company with the Securities and Exchange Commission, in the Company’s press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases, “anticipate,” “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimated,” “projected,” “believes”, or similar expressions are intended to identify “forward looking statements.” Forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, those risks previously disclosed by the Company in Item 1A of its Annual Report on Form 10-K as may be supplemented by Quarterly Reports on Form 10-Q filed with the SEC, general economic conditions, changes in interest rates, regulatory considerations, competition, technological developments, retention and recruitment of qualified personnel, and market acceptance of the Company’s pricing, products and services, and with respect to the loans extended by the Company and real estate owned, the following: risks related to the economic environment in the market areas in which the Bank operates, particularly with respect to the real estate market in New Jersey; the risk that the value of the real estate securing these loans may decline in value; and the risk that significant expense may be incurred by the Company in connection with the resolution of these loans.

 

The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and advises readers that various factors, including regional and national economic conditions, substantial changes in levels of market interest rates, credit and other risks of lending and investing activities, and competitive and regulatory factors, could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from those anticipated or projected.

The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

 

Critical Accounting Policies

 

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. Critical accounting policies may involve complex subjective decisions or assessments. Please refer to the Company’s Form 10-K for the Company’s critical accounting policies. There were no significant changes to the Company’s critical accounting policies during the nine months ended June 30, 2023.

 

Comparison of Financial Condition at June 30, 2023 and September 30, 2022

 

Total Assets. Total assets increased $58.9 million, or 7.4%, to $857.4 million at June 30, 2023 from $798.5 million at September 30, 2022. The increase was attributable to higher balances of loans receivable, net of allowance for loan loss, partially offset by lower interest-earning deposits with banks and investment securities.

 

Cash and Interest-Earning Deposits. Cash and interest-earning deposits with banks decreased $8.5 million, or 27.6% to $22.4 million at June 30, 2023 from $30.9 million at September 30, 2022 resulting primarily from deployment of these funds into loans receivable during the nine months ended June 30, 2023.

 

Investment Securities. Investment securities totaled $92.5 million at June 30, 2023, reflecting a decrease of $8.4 million, or 8.3%, from $100.9 million at September 30, 2022.

 

The decrease resulted from the maturity of a $5.0 million corporate note and payments from mortgage-backed securities totaling $3.7 million during the nine months while the market value of the Company’s available-for-sale investment securities increased $247,000. The Company did not purchase or sell any investment securities during the nine months ended June 30, 2023. In addition, there were no other-than-temporary-impairment charges for the Company’s investment securities for the nine months ended June 30, 2023.

 

Loans Receivable. Total loans receivable increased $73.6 million, or 11.7%, to $702.5 million at June 30, 2023 from $628.9 million at September 30, 2022. The increase in total loans receivable during the nine months ended June 30, 2023 occurred in commercial real estate loans, which increased $59.6 million, or 17.4%, to $402.3 million, one-to four-family residential mortgage loans (including home equity lines of credit), which increased $22.3 million, or 9.6%, to $255.4 million, and in construction loans, which increased $4.0 million, or 26.4%, to $19.2 million. Partially offsetting these increases were commercial business loans, which decreased $11.5 million, or 33.3%, to $23.1 million and other loans, which decreased $697,000, or 22.3%, to $2.4 million during the nine months period.

 

During the three months ended June 30, 2023, the Company originated 57 loans receivable and lines of credit totaling $47.1 million at a weighted average interest rate of 7.35% The Company originated 181 loans receivable and lines of credit totaling $155.3 million at a weighted average interest rate of 7.14% during the nine months ended June 30, 2023.

 

Total non-performing loans increased $725,000, or 25.6%, to $3.6 million at June 30, 2023 from $2.8 million at September 30, 2022. The increase was attributable to two commercial real estate loans totaling $2.6 million and one residential mortgage loan totaling $171,000, partially offset by repayments totaling $2.1 million on a non-performing construction loan. The ratio of non-performing loans to total loans increased to 0.51% at June 30, 2023 from 0.45% at September 30, 2022.

 

The allowance for loan losses decreased $55,000 during the nine months ended June 30, 2023 to $8.4 million. The Company provisioned $432,000 for loan losses and recorded $487,000 in net loan charge-offs during the nine months ended June 30, 2023. Higher provisions for growth in the Company’s loan portfolio were largely offset by a lower risk profile in the loan composition (specifically lower commercial business loan and home equity line of credit balances) and improving economic data used to determine the allowance for loan losses.

 

The allowance for loan losses as a percentage of non-performing loans decreased to 235.3% at June 30, 2023 from 297.5% at September 30, 2022. The Company’s allowance for loan losses as a percentage of total loans was 1.19% at June 30, 2023 compared with 1.34% at September 30, 2022. Future increases in the allowance for loan losses may be necessary based on possible future increases in non-performing loans and charge-offs, the possible deterioration of collateral values, and the possible deterioration of the current economic environment.

 

Bank-Owned Life Insurance. The Company’s carrying value of its life insurance policies held for directors and officers of Magyar Bank increased $278,000, or 1.6%, to $17.9 million at June 30, 2023 from $17.7 million at September 30, 2022. The increase was attributable to an increase in the cash surrender value of the policies during the nine months ended June 30, 2023.

 

Other Real Estate Owned. Other real estate owned increased $10,000, or 3.6%, to $291,000 at June 30, 2023 from capital improvements to one property in order to market it for sale.

 

Deposits. Total deposits increased $25.7 million, or 3.9%, to $693.5 million at June 30, 2023 from $667.7 million at September 30, 2022.

 

The increase in deposits during the nine months ended June 30, 2023 occurred in money market accounts, which increased $25.6 million, or 11.6%, to $247.9 million, in certificates of deposit (including individual retirement accounts), which increased $20.8 million, or 25.1%, to $103.4 million, and in non-interest bearing checking accounts, which increased $507,000, or 0.3%, to $182.9 million. Partially offsetting these increases were decreases in savings accounts, which decreased $16.4 million, or 20.0%, to $65.5 million and in interest-bearing checking accounts (NOW), which decreased $4.8 million, or 4.9%, to $93.8 million. Included in the Company’s total deposits was an estimated $95.4 million that exceeded the Federal Deposit Insurance Corporation’s insurance coverage limit of $250,000 at June 30, 2023 compared to $129.4 million at September 30, 2022.

 

Borrowed Funds. Borrowings increased $29.9 million, or 191.4%, to $45.5 million at June 30, 2023 from $15.6 million at September 30, 2022. The Company borrowed $17.0 million in long term advances, borrowed $16 million in overnight line of credit advances and repaid $3.1 million in matured advances from the FHLBNY during the nine month period. Long term advances were used to fund growth in the Company’s loans receivable and overnight line of credit advances were used to replace seasonal deposit outflows that occurred in June and returned in July.

 

Stockholders’ Equity. Stockholders’ equity increased $4.3 million, or 4.3%, to $102.8 million at June 30, 2023 from $98.5 million at September 30, 2022. The increase was due to the Company’s results from operations, partially offset by $1.1 million in dividends paid and 77,556 shares repurchased during the nine months ended June 30, 2023 at a weighted average share price of $12.12. The Company’s book value per share increased to $15.41 at June 30, 2023 from $14.60 at September 30, 2022, based on the 6,668,572 shares that were outstanding at June 30, 2023.

 

Average Balance Sheet for the Three and Nine Months Ended June 30, 2023 and 2022

 

The following tables present certain information regarding the Company’s financial condition and net interest income for the three and nine months ended June 30, 2023 and 2022. The tables present the annualized average yield on interest-earning assets and the annualized average cost of interest-bearing liabilities. We derived the yields and costs by dividing annualized income or expense by the average balance of interest-earning assets and interest-bearing liabilities, respectively, for the periods shown. We derived average balances from daily balances over the period indicated. Interest income includes fees that we consider adjustments to yields.

 

		Three Months Ended June 30,
		2023												2022
		Average Balance				Interest Income/ Expense				Yield/Cost (Annualized)				Average Balance				Interest Income/ Expense				Yield/Cost (Annualized)
		(Dollars in thousands)
Interest-earning assets:
Interest-earning deposits		$	24,976			$	294				4.73	%		$	34,574			$	67				0.77	%
Loans receivable, net			674,985				9,033				5.37	%			615,634				7,018				4.57	%
Securities
Taxable			94,049				398				1.70	%			96,452				361				1.50	%
Tax-exempt (1)			3,370				18				2.17	%			2,957				14				1.94	%
FHLBNY stock			2,204				38				6.84	%			1,466				19				5.17	%
Total interest-earning assets			799,584				9,781				4.91	%			751,083				7,479				3.99	%
Noninterest-earning assets			48,283												47,204
Total assets		$	847,867											$	798,287
Interest-bearing liabilities:
Savings accounts (2)		$	68,648				86				0.50	%		$	86,729				36				0.17	%
NOW accounts (3)			339,784				2,023				2.39	%			291,308				172				0.24	%
Time deposits (4)			92,855				539				2.33	%			92,152				212				0.92	%
Total interest-bearing deposits			501,287				2,648				2.12	%			470,189				420				0.36	%
Borrowings			27,967				239				3.43	%			16,136				92				2.30	%
Total interest-bearing liabilities			529,254				2,887				2.19	%			486,325				512				0.42	%
Noninterest-bearing liabilities			219,291												214,084
Total liabilities			748,545												700,409
Retained earnings			99,322												97,878
Total liabilities and retained earnings		$	847,867											$	798,287
Tax-equivalent basis adjustment							(4	)											(3	)
Net interest and dividend income						$	6,890											$	6,964
Interest rate spread											2.72	%											3.57	%
Net interest-earning assets		$	270,330											$	264,758
Net interest margin (5)											3.46	%											3.72	%
Average interest-earning assets to average interest-bearing liabilities			151.08	%											154.44	%

 

(1)    Calculated using the Company's 21% federal tax rate.

(2)    Includes passbook savings, money market passbook and club accounts.

(3)    Includes interest-bearing checking and money market accounts.

(4)    Includes certificates of deposits and individual retirement accounts.

(5)    Calculated as annualized net interest income divided by average total interest-earning assets.  

 

		Nine Months Ended June 30,
		2023												2022
		Average Balance				Interest Income/ Expense				Yield/Cost (Annualized)				Average Balance				Interest Income/ Expense				Yield/Cost (Annualized)
		(Dollars In Thousands)
Interest-earning assets:
Interest-earning deposits		$	17,175			$	513				4.00	%		$	63,646			$	137				0.29	%
Loans receivable, net			661,320				25,610				5.18	%			593,248				20,281				4.57	%
Securities
Taxable			95,780				1,194				1.67	%			85,682				886				1.38	%
Tax-exempt (1)			3,370				55				2.17	%			2,567				34				1.77	%
FHLBNY stock			1,926				92				6.42	%			1,585				58				4.86	%
Total interest-earning assets			779,571				27,464				4.71	%			746,728				21,396				3.83	%
Noninterest-earning assets			48,319												45,729
Total assets		$	827,890											$	792,457
Interest-bearing liabilities:
Savings accounts (2)		$	73,798			$	258				0.47	%		$	86,244			$	109				0.17	%
NOW accounts (3)			331,024				4,764				1.92	%			281,193				457				0.22	%
Time deposits (4)			86,682				1,110				1.71	%			100,048				720				0.96	%
Total interest-bearing deposits			491,504				6,132				1.67	%			467,485				1,286				0.37	%
Borrowings			24,515				594				3.24	%			19,436				323				2.22	%
Total interest-bearing liabilities			516,019				6,726				1.74	%			486,921				1,609				0.44	%
Noninterest-bearing liabilities			208,451												203,490
Total liabilities			724,470												690,411
Retained earnings			103,420												102,046
Total liabilities and retained earnings		$	827,890											$	792,457
Tax-equivalent basis adjustment							(12	)											(7	)
Net interest and dividend income						$	20,726											$	19,780
Interest rate spread											2.97	%											3.39	%
Net interest-earning assets		$	263,552											$	259,807
Net interest margin (5)											3.55	%											3.54	%
Average interest-earning assets toaverage interest-bearing liabilities			151.07	%											153.36	%

 

(1)    Calculated using the Company's 21% federal tax rate.

(2)    Includes passbook savings, money market passbook and club accounts.

(3)    Includes interest-bearing checking and money market accounts.

(4)    Includes certificates of deposits and individual retirement accounts.

(5)    Calculated as annualized net interest income divided by average total interest-earning assets.

 

 

Comparison of Operating Results for the Three Months Ended June 30, 2023 and 2022

 

Net Income. Net income decreased $199,000, or 9.4%, to $1.9 million for the three month period ended June 30, 2023 compared with net income of $2.1 million for the three month period ended June 30, 2022. The decrease was due to lower net interest and dividend income, lower other income, and higher other expenses, partially offset by lower provisions for loan loss.

 

Net Interest and Dividend Income. Net interest and dividend income decreased $74,000, or 1.1%, to $6.9 million for the three months ended June 30, 2023 from $7.0 million for the three months ended June 30, 2022. The decrease was attributable to a 26 basis point decrease in the Company’s net interest margin to 3.46% for the three months ended June 30, 2023 from 3.72% for the three months ended June 30, 2022, partially offset by a $59.4 million increase in the average balance of loans receivable, net, between the periods.

 

Interest and Dividend Income. Interest and dividend income increased $2.3 million, or 30.8%, to $9.8 million for the three months ended June 30, 2023 compared with $7.5 million for the three months ended June 30, 2022. The increase was attributable to a 92 basis point increase in the yield on interest-earning assets to 4.91% for the three months ended June 30, 2023 from 3.99% for the three months ended June 30, 2022 as well as a $48.5 million, or 6.5%, increase in the average balance of interest-earning assets. Higher balances of higher-yielding loans receivable funded with lower yielding interest-earning deposits with the Federal Reserve Bank as well as higher market interest rates contributed to the increase in the Company’s interest and dividend income between periods. Partially offsetting the increases were no Paycheck Protection Program loan fees included in interest income on loans receivable for the three months ended June 30, 2023, compared with $98,000 for the three months ended June 30, 2022.

 

The interest earned on loans receivable, net of allowance for loan loss, increased $2.0 million, or 28.7%, to $9.0 million for the three months ended June 30, 2023 from $7.0 million for the same period prior year. The increase resulted from an 80 basis point increase in the yield on loans receivable, net to 5.37% for the three months ended June 30, 2023 from 4.57% for the three months ended June 30, 2022 as well as a $59.4 million, or 9.6%, increase in the average balance of loans receivable to $675.0 million during the three months ended June 30, 2023 from $615.6 million during the three months ended June 30, 2022.

 

Interest earned on investment securities, including interest-earning deposits and excluding FHLBNY stock, increased $267,000, or 60.8%, to $706,000 for the three months ended June 30, 2023 from $439,000 for the three months ended June 30, 2022. The increase was attributable to a 101 basis point increase in the average yield on such assets to 2.33% for the three months ended June 30, 2023 from 1.32% for the three months ended June 30, 2022, partially offset by an $11.6 million, or 8.6%, decrease in the average balance of investment securities and interest-earning deposits to $122.4 million for the three months ended June 30, 2023 from $134.0 million for the three months ended June 30, 2022.

 

Interest Expense. Interest expense increased $2.4 million, or 463.9%, to $2.9 million for the three months ended June 30, 2023 from $512,000 for the three months ended June 30, 2022. The cost of interest-bearing liabilities increased 177 basis points to 2.19% for the three months ended June 30, 2023 compared with 0.42% for the three months ended June 30, 2022 resulting primarily from higher cost interest-bearing deposits. In addition, the average balance of interest-bearing liabilities increased $42.9 million, or 8.8%, to $529.3 million during the three months ended June 30, 2023 from $485.3 during the three months ended June 30, 2022.

 

The cost of interest-bearing deposits increased 176 basis points to 2.12% for the quarter ended June 30, 2023 from 0.36% for the quarter ended June 30, 2022 due to the higher market interest rate environment while the average balance increased $31.1 million, or 6.6%, to $501.3 million from $470.2 million. As a result, interest paid on interest-bearing deposits increased $2.2 million to $2.6 million for the three months ended June 30, 2023 compared with $420,000 for the three months ended June 30, 2022.

 

Interest expense on borrowings increased $147,000, or 159.8%, to $239,000 for the three months ended June 30, 2023 from $92,000 at June 30, 2022. Higher market interest rates resulted in a 113 basis point increase in the cost of borrowings to 3.43% for the three months ended June 30, 2023 from 2.30% for the three months ended June 30, 2022. The average balance of borrowings increased $11.8 million to $28.0 million for the quarter ended June 30, 2023 from $16.1 million for the quarter ended June 30, 2022 to fund the growth in the Company’s loans receivable.

 

Provision for Loan Losses. We establish provisions for loan losses, which are charged to earnings, at a level necessary to absorb known and inherent losses that are both probable and reasonably estimable at the date of the consolidated financial statements. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, peer group information and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events occur.

 

After an evaluation of these factors, the Company recorded an $81,000 credit for loan losses for the three months ended June 30, 2023 compared with a $205,000 provision for loan losses for the three months ended June 30, 2022. The lower provision for loan losses resulted from improving economic conditions. The Company recorded $386,000 in loan charge-offs and $1,000 in loan recoveries during the three months ended June 30, 2023 compared with no charge-offs or recoveries during the three months ended June 30, 2022. The Company is pursuing the guarantor of the one commercial business loan totaling $386,000 that was charged-off during the quarter.

 

Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Management reviews the level of the allowance on a quarterly basis, and establishes the provision for loan losses based on the factors set forth in the preceding paragraph. As management evaluates the allowance for loan losses, the increased risk associated with larger non-homogenous construction, commercial real estate and commercial business loans may result in larger additions to the allowance for loan losses in future periods.

 

Other Income. Other income decreased $55,000, or 8.1%, to $621,000 during the three months ended June 30, 2023 compared with $676,000 for the three months ended June 30, 2022. The Company did not record any interest rate swap fees or gains on the sale of OREO during the three months ended June 30, 2023, compared with $76,000 and $67,000, respectively, for the three months ended June 30, 2022. In addition, there were lower gains from the sale of Small Business Administration 7(a) loans, which decreased $31,000 to $103,000 for the three months ended June 30, 2023 from $134,000 for the three months ended June 30, 2022. Offsetting the decline was higher service charge income, which increased $108,000 to $392,000 for the three months ended June 30, 2023 from higher loan prepayment penalties received with the repayment of commercial loans.

 

Other Expenses. Other expenses increased $454,000, or 10.2%, to $4.9 million during the three months ended June 30, 2023 compared with $4.4 million for the three months ended June 30, 2022. The increase was primarily attributable to higher compensation and benefit expense, which increased $265,000, or 9.8%, to $3.0 million, due to stock award and stock option expenses related to the Company’s 2022 Equity Incentive Plan and increased director fees resulting from the addition of three new directors on September 22, 2022. Higher FDIC deposit insurance premiums, loan servicing expenses, occupancy expenses and other expenses were partially offset by lower marketing and business development expenses.

 

Income Tax Expense. The Company recorded tax expense of $788,000 on pre-tax income of $2.7 million for the three months ended June 30, 2023, compared to $886,000 on pre-tax income of $3.0 million for the three months ended June 30, 2022. The Company’s effective tax rate for the three months ended June 30, 2023 was 29.1% compared with 29.5% for the three months ended June 30, 2022.

 

 

Comparison of Operating Results for the Nine Months Ended June 30, 2023 and 2022

 

Net Income. Net income increased $35,000 or 0.6%, to $5.5 million during the nine month period ended June 30, 2023 compared with $5.5 million for the nine month period ended June 30, 2022. The increase was due to higher net interest and dividend income, partially offset by higher provisions for loan loss, lower other income and higher other expenses.

 

Net Interest and Dividend Income. Net interest and dividend income increased $946,000, or 4.8%, to $20.7 million for the nine months ended June 30, 2023 from $19.8 million for the nine months ended June 30, 2022. The increase was attributable to a $68.1 million increase in the average balance of loans receivable, net, as well as a one basis point increase in the Company’s net interest margin to 3.55% for the nine months ended June 30, 2023 from 3.54% for the nine months ended June 30, 2022.

 

Interest and Dividend Income. Interest and dividend income increased $6.1 million, or 28.3%, to $27.5 million for the nine months ended June 30, 2023 from $21.4 million for the nine months ended June 30, 2022. The increase was attributable to an 88 basis point increase in the yield on interest-earning assets, as well as a $32.8 million, or 4.4%, increase in the average balance of interest-earning assets. Higher balances of higher-yielding loans receivable funded by lower yielding interest-earning deposits with the Federal Reserve Bank as well as higher market interest rates contributed to the increase in the Company’s interest and dividend income between periods. Partially offsetting the increases were no Paycheck Protection Program loan fees included in interest income on loans receivable for the nine months ended June 30, 2023, compared with $828,000 for the nine months ended June 30, 2022.

 

Interest income earned on loans receivable, net of allowance for loan loss, increased $5.3 million, or 26.3%, to $25.6 million for the nine months ended June 30, 2023 from $20.3 million for the prior year period. The increase resulted from a 61 basis point increase in the yield on interest-earning assets to 5.18% for the nine months ended June 30, 2023 from 4.57% for the nine months ended June 30, 2022 as well as a $68.1 million, or 11.5%, increase in the average balance of loans receivable to $661.3 million during the nine months ended June 30, 2023 from $593.2 million during the nine months ended June 30, 2022.

 

Interest earned on investment securities, including interest-earning deposits and excluding FHLBNY stock, increased $700,000, or 66.7%, to $1.8 million for the nine months ended June 30, 2023 from $1.1 million for the nine months ended June 30, 2022. The increase was attributable to a 110 basis point increase in the average yield to 2.03% for the nine months ended June 30, 2023 from 0.93% for the nine months ended June 30, 2022, partially offset by a $35.6 million, or 23.4% decrease in the average balance of investment securities and interest-earning deposits to $116.3 million for the nine months ended June 30, 2023 from $151.9 million for the nine months ended June 30, 2022.

 

Interest Expense. Interest expense increased $5.1 million, or 318.0%, to $6.7 million for the nine months ended June 30, 2023 compared with $1.6 million for the nine months ended June 30, 2022. The cost of interest-bearing liabilities increased 130 basis points to 1.74% for the nine months ended June 30, 2023 compared with 0.44% for the nine months ended June 30, 2022 resulting primarily from higher cost interest-bearing deposits. In addition, the average balance of interest-bearing liabilities increased $29.1 million, or 6.0%, to $516.0 million during the nine months ended June 30, 2023 from $486.9 million during the nine months ended June 30, 2022.

 

The average cost of interest-bearing deposits increased 130 basis points to 1.67% for the nine months ended June 30, 2023 from 0.37% for the nine months ended June 30, 2022 due to the higher market interest rate environment while the average balance increased $24.0 million, or 5.1%, to $491.5 million for the nine months ended June 30, 2023 from $467.5 million for the nine months ended June 30, 2022. As a result, interest paid on interest-bearing deposits increased $4.8 million to $6.1 million for the nine months ended June 30, 2023 from $1.3 million for the nine months ended June 30, 2022.

 

Interest expense on borrowings increased $271,000, or 83.9%, to $594,000 for the nine months ended June 30, 2023 from $323,000 for the prior year period. Higher market interest rates resulted in a 102 basis point increase in the cost of borrowings to 3.24% for the nine months ended June 30, 2023 from 2.22% for the nine months ended June 30, 2022. The average balance of borrowings increased $5.1 million to $24.5 million for the nine months ended June 30, 2023 from $19.4 million for the nine months ended June 30, 2022 to fund the growth in the Company’s loans receivable.

 

Provision for Loan Losses. We establish provisions for loan losses, which are charged to earnings, at a level necessary to absorb known and inherent losses that are both probable and reasonably estimable at the date of the financial statements. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, peer group information and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events occur.

 

After an evaluation of these factors, the Company recorded a provision of $432,000 for the nine months ended June 30, 2023 compared to $376,000 for the nine months ended June 30, 2022. The higher provision for loan losses resulted from growth in the Company’s loan portfolio during the nine months ended June 30, 2023 as well as increased charge-offs. The Company recorded $487,000 in net loan charge-offs during the nine months ended June 30, 2023 compared with $54,000 in net recoveries during the nine months ended June 30, 2022. The Company charged off two commercial business loans totaling $488,000 during the nine months ended June 30, 2023 and is pursuing the guarantors on the loans for collection.

 

Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Management reviews the level of the allowance on a quarterly basis, and establishes the provision for loan losses based on the factors set forth in the preceding paragraph. As management evaluates the allowance for loan losses, the increased risk associated with larger non-homogenous construction, commercial real estate and commercial business loans may result in larger additions to the allowance for loan losses in future periods.

 

Other Income. Other income decreased $46,000, or 2.4%, to $1.9 million during the nine months ended June 30, 2023 compared to $1.9 million for the nine months ended June 30, 2022. The Company did not record any gains on the sale of OREO during the nine months ended June 30, 2023, compared with $67,000 for the nine months ended June 30, 2022. In addition, there were lower gains from the sale of Small Business Administration 7(a) loans, which decreased $68,000 to $485,000 for the nine months ended June 30, 2023 from $553,000 for the nine months ended June 30, 2022. Offsetting the decline was higher service charge income, which increased $97,000 to $957,000 for the nine months ended June 30, 2023 from higher loan prepayment penalties received with the repayment of commercial loans.

 

Other Expenses. Other expenses increased $701,000, or 5.2%, to $14.3 million during the nine months ended June 30, 2023 from $13.6 million during the nine months ended June 30, 2022. The increase was primarily attributable to higher compensation and benefit expense, which increased $677,000, or 8.4%, to $8.8 million, due to stock award and stock option expenses related to the Company’s 2022 Equity Incentive Plan and increased director fees resulting from the addition of three new directors on September 22, 2022. Higher occupancy expenses, FDIC deposit insurance premiums, loan servicing expenses and other expenses were partially offset by lower professional fees.

 

Income Tax Expense. The Company recorded tax expense of $2.4 million on pre-tax income of $7.9 million for the nine months ended June 30, 2023, compared to $2.3 million on pre-tax income of $7.7 million for the nine months ended June 30, 2022. The Company’s effective tax rate for the nine months ended June 30, 2023 was 29.9% compared with 29.1% for the nine months ended June 30, 2022.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Liquidity

 

The Company’s liquidity is a measure of its ability to fund loans, pay withdrawals of deposits, and other cash outflows in an efficient, cost-effective manner. The Company’s short-term sources of liquidity include maturity, repayment and sales of assets, excess cash and cash equivalents, new deposits, other borrowings, and new advances from the FHLBNY. Based on eligible loan collateral pledged to the FHLBNY at June 30, 2023, we had an aggregate borrowing capacity of $112.2 million. There has been no material adverse change during the nine months ended June 30, 2023 in the ability of the Company and its subsidiaries to fund their operations.

 

At June 30, 2023, the Company had commitments outstanding under letters of credit totaling $663,000, commitments to originate loans totaling $13.5 million, and commitments to fund undisbursed balances of closed loans and unused lines of credit totaling $89.2 million. There has been no material change during the nine months ended June 30, 2023 in any of the Company’s other contractual obligations or commitments to make future payments.

 

Capital Requirements

 

At June 30, 2023, the Bank’s Tier 1 capital as a percentage of the Bank’s total assets was 11.21%, and total qualifying capital as a percentage of risk-weighted assets was 15.92%.

 

Item 3- Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable to smaller reporting companies.

 

 

Item 4 – Controls and Procedures

Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.

 

There has been no change in the Company's internal control over financial reporting during the nine months ended June 30, 2023 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

 

 

PART II - OTHER INFORMATION

 

Item 1.

Legal proceedings

None.

 

Item 1A.

Risk Factors

Except for the additional risk factors below, there were no material changes to the risk factors relevant to the Company’s operations as described in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2022 filed on December 22, 2022.

 

Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by financial institutions or transactional counterparties, could adversely affect our financial condition and results of operations.

 

Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. For example, on May 1, 2023, First Republic Bank went into receivership and its deposits and substantially all of its assets were acquired by JPMorgan Chase Bank, National Association. Similarly, on March 10, 2023, Silicon Valley Bank went into receivership, and on March 12, Signature Bank went into receivership.

 

Inflation and rapid increases in interest rates have led to a decline in the trading value of previously issued government securities with interest rates below current market interest rates. Although the Treasury, FDIC and Federal Reserve Board have announced a program to provide up to $25 billion of loans to financial institutions secured by certain of such government securities held by financial institutions to mitigate the risk of potential losses on the sale of such instruments, widespread demands for customer withdrawals or other liquidity needs of financial institutions for immediately liquidity may exceed the capacity of such program. Additionally, there is no guarantee that the Treasury, FDIC and Federal Reserve Board will provide access to uninsured funds in the future in the event of the closure of other banks or financial institutions, or that they would do so in a timely fashion.

 

 

Rising Interest Rates Have Decreased the Value of the Company’s Securities Portfolio, and the Company Would Realize Losses if it Was Required to Sell Such Securities to Meet Liquidity Needs

 

As a result of inflationary pressures and the resulting rapid increases in interest rates over the last year, the trading value of previously issued government and other fixed income securities has declined significantly. These securities make up a majority of the securities portfolio of most banks in the U.S., including the Company’s, resulting in unrealized losses embedded in the securities portfolios. While the Company does not currently intend to sell these securities, if the Company were required to sell such securities to meet liquidity needs, it may incur losses, which could impair the Company’s capital, financial condition, and results of operations and require the Company to raise additional capital on unfavorable terms, thereby negatively impacting its profitability. While the Company has taken actions to maximize its funding sources, there is no guarantee that such actions will be successful or sufficient in the event of sudden liquidity needs. Furthermore, while the Federal Reserve Board has announced a Bank Term Funding Program available to eligible depository institutions secured by U.S. treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral at par, to mitigate the risk of potential losses on the sale of such instruments, there is no guarantee that such programs will be effective in addressing liquidity needs as they arise.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

a.)

Not applicable.

 

b.)

Not applicable.

 

c.)

The Company repurchased 77,556 shares of its common stock during the nine months ended June 30, 2023. Through June 30, 2023, the Company held 429,253 shares in treasury that were repurchased at a weighted average price of $11.96 pursuant to stock repurchase plans. On December 8, 2022, the Company announced a stock repurchase program of up to 5% of its outstanding shares of common stock, or 337,146 shares, 261,784 shares of which remained subject to repurchase under the plan.

The following table reports information regarding repurchases of our common stock during the nine months ended June 30, 2023.

						Weighted				Remaining Number
		Total Number				Average				of Shares That
		of Shares				Price Paid				May be Purchased
Period		Purchased				Per Share				Under the Plan
October 1, 2022 through December 31, 2022			2,194			$	12.54				337,146
January 1, 2023 through March 31, 2023			54,144			$	12.64				283,002
April 1, 2023 through June 30, 2023			21,218			$	10.15				261,784
Total for the nine months ended June 30, 2023			77,556				11.96

 

Item 3.

Defaults Upon Senior Securities

None

Item 4.

Mine Safety Disclosures

Not applicable.

 

Item 5.

Other Information

a.)

Not applicable.

 

b.)

None.

 

 

Item 6.

Exhibits

31.1

Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)

31.2

Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)

32.1

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101

Interactive data file containing the following financial statements formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets at June 30, 2023 and September 30, 2022; (ii) the Consolidated Statements of Income for the three and nine months ended June 30, 2023 and 2022; (iii) the Consolidated Statements of Comprehensive Income for the three and nine months ended June 30, 2023 and 2022; (iv) the Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended June 30, 2023 and 2022; (v) the Consolidated Statements of Cash Flows for the nine months ended June 30, 2023 and 2022; and (vi) the Notes to Consolidated Financial Statements, tagged as blocks of text.

104

Cover Page Interactive Data File (embedded within Inline XBRL document contained in Exhibit 101).

 

 

Signatures

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

	MAGYAR BANCORP, INC.
	(Registrant)
Date: August 14, 2023	/s/ John S. Fitzgerald
	John S. Fitzgerald
	President and Chief Executive Officer
Date: August 14, 2023	/s/ Jon R. Ansari
	Jon R. Ansari
	Executive Vice President and Chief Financial Officer