Magyar Bancorp, Inc.: Form 10-Q for the period ended Jun 30, 2025

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, levels of uninsured deposits, the imposition of tariffs or other domestic or international governmental policies and retaliatory responses, 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.

Comparison of Financial Condition at June 30, 2025 and September 30, 2024

Total Assets. Total assets increased $35.6 million, or 3.7%, to $987.5 million at June 30, 2025 from $951.9 million at September 30, 2024. The increase was attributable to higher balances of loans receivable, partially offset by lower cash equivalents and investment securities.

Interest Earning Deposits. Total interest-earning deposits with banks decreased $18.5 million, or 72.5%, to $7.1 million at June 30, 2025 from $25.6 million at September 30, 2024 resulting from deployment of these funds into loans receivable during the nine months ended June 30, 2025. The Company’s cash balance reflects seasonal deposit outflows from municipal accounts that historically return the following calendar quarter.

Loans Receivable. Total loans receivable increased $64.2 million, or 8.2%, to $845.4 million at June 30, 2025 from $781.2 million at September 30, 2024. The increase in total loans receivable during the nine months ended June 30, 2025 occurred in commercial real estate loans, which increased $62.7 million, in one-to four-family residential real estate loans (including home equity lines of credit), which increased $3.7 million, and in construction and land loans, which increased $3.2 million. Partially offsetting these increases were commercial business loans, which decreased $4.9 million and other loans, which decreased $530 thousand.

Given the significance of commercial real estate (“CRE”) loans to our total loan portfolio, the following table further disaggregates these loans by occupied status and by collateral type as of June 30, 2025:

(In thousands)

23

The Company obtains an appraisal of the real estate collateral securing a CRE loan prior to originating the loan. The appraised value is used to calculate the ratio of the outstanding loan balance to the value of the real estate collateral, or loan-to-value ratio ("LTV"). The original appraisal is used to monitor the LTVs within the CRE portfolio unless an updated appraisal is received, which may happen for a variety of reasons including, but not limited to, payment delinquency, additional loan requests using the same collateral, and loan modifications. The following table presents the ranges in the LTVs of our CRE loans at June 30, 2025:

June 30, 2025

(Dollars in thousands)

As of June 30, 2025 and September 30, 2024, non-owner occupied commercial real estate loans (as defined by regulatory guidance) to total risk-based capital were estimated at approximately 266% and 270%, respectively. Management believes that Magyar Bank has implemented appropriate risk management practices, including risk assessments, board-approved underwriting policies and related procedures, which include monitoring loan portfolio performance and stressing of the commercial real estate portfolio under adverse economic conditions.

The Company’s asset quality with respect to commercial real estate loans has remained strong despite recent economic and market conditions. As of June 30, 2025 and September 30, 2024, we had $288 thousand and $116 thousand of non-performing commercial real estate loans, respectively.

Total non-performing loans increased $688 thousand, or 296.6%, to $920 thousand at June 30, 2025 from $232 thousand at September 30, 2024. The ratio of non-performing loans to total loans increased to 0.11% at June 30, 2025 from 0.03% at September 30, 2024.

The allowance for credit losses increased $283 thousand to $8.3 million, or 0.98% of total loan receivable during the nine months ended June 30, 2025. Growth in loans receivable during the nine months ended June 30, 2025 resulted in additional provisions for credit losses totaling $172 thousand and the Company recorded $111 thousand in net loan recoveries. The Company’s allowance for on-balance sheet credit losses increased to $8.1 million at June 30, 2025 from $7.5 million at September 30, 2024 while its reserve for off-balance sheet commitments decreased to $222 thousand at June 30, 2025 from $449 thousand at September 30, 2024. The decrease in our reserves for off balance sheet commitments resulted from contraction in our construction loan commitments during the nine months ended June 30, 2025.

Future increases in the allowance for credit 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.

Investment Securities. At June 30, 2025, investment securities totaled $91.1 million, reflecting a decrease of $4.3 million, or 4.5%, from September 30, 2024. The decrease resulted from matured and called bonds totaling $8.5 million and payments from mortgage-backed securities totaling $5.2 million during the nine months ended June 30, 2025. Offsetting these decreases were purchases of mortgage-backed securities totaling $6.9 million and corporate notes totaling $2.5 million.

Investment securities at June 30, 2025 consisted of $67.4 million in mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises, $10.5 million in U.S. government-sponsored enterprise debt securities, $9.6 million in corporate notes, $3.4 million in municipal bonds, and $179 thousand in “private-label” mortgage-backed securities. There was no allowance for credit losses for the Company’s investment securities at June 30, 2025 and September 30, 2024.

Bank Owned Life Insurance. Bank owned life insurance (“BOLI”) decreased $2.7 million, or 11.8%, to $20.6 million at June 30, 2025 from $23.3 million at September 30, 2024.

In August 2024, the Company restructured approximately $7.9 million of its BOLI portfolio with the simultaneous purchase and surrender/exchange of BOLI policies. During the nine months ended June 30, 2025, the Company received $3.2 million from policy surrenders and recorded a $501 thousand increase in the cash surrender value of the BOLI policies. The restructure increased the yield on the BOLI portfolio from 2.59% (3.71% tax-equivalent) to 3.36% (4.81% tax-equivalent) at June 30, 2025.

Deposits. Total deposits increased $23.3 million, or 2.9%, to $820.0 million at June 30, 2025. The inflow in deposits occurred in money market accounts, which increased $26.3 million, or 8.6%, to $330.9 million, in certificates of deposit (including individual retirement accounts), which increased $20.9 million, or 13.1%, to $180.5 million, and in savings accounts, which increased $424 thousand, or 0.8%, to $53.3 million. Partially offsetting these increases were a $16.5 million, or 12.4%, decrease in non-interest bearing checking accounts to $116.3 million, and a $7.8 million, or 5.3%, decrease in interest-bearing checking accounts to $138.9 million.

Included with total deposit at June 30, 2025 were $41.3 million in brokered deposits, compared with $29.6 million at September 30, 2024. The Company issued $14.1 million of five-year term brokered certificates of deposit during the nine months ended June 30, 2025.

Borrowed Funds. Borrowings increased $7.5 million, or 26.2%, to $36.1 million at June 30, 2025 from $28.6 million at September 30, 2024.

During the nine months ended June 30, 2025, the Company borrowed $9.0 million from the Federal Home Loan Bank of New York, of which $4.0 million were a zero-cost advances for three-year terms and $5.0 million was for a four-year advance with an initial rate of 4.468% and an embedded 5.0% SOFR interest rate cap. The borrowings were used to fund the Company’s loan growth and were offset by $1.5 million in principal repayments.

Stockholders’ Equity. Stockholders’ equity increased $5.8 million, or 5.2%, to $116.3 million at June 30, 2025 from $110.5 million at September 30, 2024. The increase was primarily due to the Company’s results from operations, which increased $7.2 million, partially offset by dividends paid totaling $1.3 million at $0.21 per share and $869 thousand stock repurchase of 60,410 shares during the nine months ended June 301, 2025. The Company’s book value per share increased to $18.03 at June 30, 2025 from $16.98 at September 30, 2024.

Average Balance Sheets for the Three and Nine Months Ended June 30, 2025 and 2024

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, 2025 and 2024. 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.

(Dollars in thousands)

(1) The average balance of loans receivable, net includes non-accrual loans.

(2) Interest income and yield are calculated using the Company's 21% federal tax rate.

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

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

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

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

(Dollars In Thousands)

(1) The average balance of loans receivable, net includes non-accrual loans.

(2) Interest income and yield are calculated using the Company's 21% federal tax rate.

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

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

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

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

Comparison of Operating Results for the Three Months Ended June 30, 2025 and 2024

Net Income. Net income increased $779 thousand, or 46.1%, to $2.5 million for the three months ended June 30, 2025 compared with net income of $1.7 million for the three months ended June 30, 2024. The increase was due to higher net interest income and other income, partially offset by higher provisions for credit loss, other expenses and income tax expense.

Net Interest and Dividend Income. Net interest and dividend income increased $1.4 million, or 20.5%, to $8.2 million for the three months ended June 30, 2025 from $6.8 million for the three months ended June 30, 2024. The increase was attributable to a 33-basis point increase in the Company’s net interest margin to 3.35% for the three months ended June 30, 2025 from 3.02% for the three months ended June 30, 2024, as well as a $78.4 million increase in the average balance of interest-earning assets between the periods.

Interest and Dividend Income. Interest and dividend income increased $1.7 million, or 13.5%, to $14.0 million for the three months ended June 30, 2025 compared with $12.3 million for the three months ended June 30, 2024. The increase was attributable to a 24-basis point increase in the yield on interest-earning assets to 5.74% for the three months ended June 30, 2025 from 5.50% for the three months ended June 30, 2024, as well as a $77.6 million, or 10.4%, increase in the average balance of interest-earning assets.

The average balance of loans receivable, net of allowance for credit losses, increased $76.6 million, or 10.4%, to $822.5 million during the three months ended June 30, 2025 from $744.9 million during the three months ended June 30, 2024, while the yield on loans receivable increased 25 basis points to 6.15% for the three months ended June 30, 2025 from 5.90% for the three months ended June 30, 2024. The higher average balance and yield accounted for a $1.6 million, or 15.0%, increase in loan interest income between periods.

Interest Expense. Interest expense increased $267 thousand, or 4.8%, to $5.8 million for the three months ended June 30, 2025 from $5.5 million for the three months ended June 30, 2024. The average balance of interest-bearing liabilities increased $85.5 million, or 12.4%, to $772.1 million from $686.6 million, while the cost of interest-bearing liabilities decreased 22 basis points to 3.02% for the three months ended June 30, 2025 compared with 3.24% for the three months ended June 30, 2024.

The average balance of interest-bearing deposits increased $79.9 million, or 12.1%, to $738.1 million for the three months ended June 30, 2025 from $658.2 million for the three months ended June 30, 2024, while the average cost of such deposits decreased 24 basis points to 3.01% from 3.25%. Interest paid on interest-bearing deposits increased $211 thousand, or 4.0%, to $5.5 million for the three months ended June 30, 2025 compared with $5.3 million for the three months ended June 30, 2024.

Interest paid on borrowings increased $56 thousand, or 27.2%, to $262 thousand for the three months ended June 30, 2025 from $206 thousand for the three months ended June 30, 2024. The average balance of borrowings increased $5.5 million to $34.0 million for the three months ended June 30 2025 from $28.5 million for the three months ended June 30, 2024, and the cost of the borrowings increased by 18 basis points to 3.08% for the three months ended June 30, 2025 from 2.90% for the three months ended June 30, 2024.

Provision for Credit Losses. The Company recorded a net provision for credit losses totaling $101 thousand for the three months ended June 30, 2025 compared with a net recovery of credit losses totaling $54 thousand for the three months ended June 30, 2024. The higher provision for credit losses resulted from growth in commercial real estate, residential mortgage and commercial business loans, partially offset by lower construction loan balances, which require higher provisions for credit loss. The Company recorded $3 thousand in net loan recoveries during the three months ended June 30, 2025 compared with $1 thousand in net loan recoveries during the three months ended June 30, 2024.

Other Income. Other income increased $227 thousand, or 55.5%, to $636 thousand during the three months ended June 30, 2025 compared to $409 thousand for the three months ended June 30, 2024. The increase was primarily due to higher income on bank owned life insurance, which increased $79 thousand, or 84.9%, to $172 thousand for the three months ended June 30, 2025 from $93 thousand for the three months ended June 30, 2024 resulting from the restructure of policies totaling $7.9 million. In addition, the Company recorded higher service fee income, which increased $58 thousand, or 20.6%, to $340 thousand for the three months ended June 30, 2025 from $282 thousand for the three months ended June 30, 2024 primarily from higher commercial loan prepayment charges and late charges on loans.

Other Expenses. Other expenses increased $184 thousand, or 3.6%, to $5.2 million during the three months ended June 30, 2025 compared to $5.1 million for the three months ended June 30, 2024. The increase was primarily attributable to higher compensation and benefit expense, which increased $211 thousand, or 7.3%, to $3.1 million for the three months ended June 30, 2025 from $2.9 million for the three months ended June 30, 2024. The increase was attributable to higher employee medical benefits and incentive accruals as well as annual merit increases.

Income Tax Expense. The Company recorded income tax expense of $1.0 million on pre-tax income of $3.5 million for the three months ended June 30, 2025, compared with $501 thousand on pre-tax income of $2.2 million for the three months ended June 30, 2024. The increase in income tax expense was driven by higher pre-tax income as well as changes in deferred tax items that lowered the Company’s tax expense during the three months ended June 30, 2024. The Company’s effective tax rate for the three months ended June 30, 2025 was 28.9% compared with 22.9% for the three months ended June 30, 2024.

Comparison of Operating Results for the Nine Months Ended June 30, 2025 and 2024

Net Income. Net income increased $2.0 million, or 38.1%, to $7.2 million during the nine months ended June 30, 2025 compared with $5.2 million for the nine months ended June 30, 2024. The increase was due to higher net interest income, lower provisions for credit loss, and higher other income, partially offset by higher other expenses and income tax expense.

Net Interest and Dividend Income. Net interest and dividend income increased $2.5 million, or 12.2%, to $23.5 million for the nine months ended June 30, 2025 from $21.0 million for the nine months ended June 30, 2024. The increase was attributable to a $67.0 million, or 7.6%, increase in the average balance of interest-earning assets to $953.3 million for the nine months ended June 30, 2025 from $886.3 million for the same period at June 30, 2024, as well as a 14-basis point increase in the Company’s net interest margin to 3.30% for the nine months ended June 30, 2025 from 3.16% for the nine months ended June 30, 2024.

Interest and Dividend Income. Interest and dividend income increased $4.6 million, or 12.9%, to $40.4 million for the nine months ended June 30, 2025 from $35.8 million for the nine months ended June 30, 2024. The increase was attributable to a 27-basis point increase in the yield on interest-earning assets to 5.67% for the nine months ended June 30, 2025 from 5.40% for the nine months ended June 30, 2024, as well as a $79.0 million, or 10.9%, increase in the average balance of net loan receivable.

The average balance of loans receivable, net of allowance for credit losses, increased $79.0 million, or 10.9%, to $803.8 million during the nine months ended June 30, 2025 from $724.8 million during the nine months ended June 30, 2024, while the yield on loans receivable increased 26-basis points to 6.09% for the nine months ended June 30, 2025 from 5.83% for the nine months ended June 30, 2024. The higher average balance and yield accounted for a $5.0 million, or 15.9%, increase in loan interest income between periods.

Interest earned on investment securities, including interest-earning deposits and excluding FHLBNY stock, decreased $402 thousand, or 9.9%, to $3.7 million for the nine months ended June 30, 2025 from $4.1 million for the nine months ended June 30, 2024. The average balance of investment securities and interest-earning deposits decreased by $12.3 million, or 7.7%, to $146.9 million for the nine months ended June 30, 2025 from $159.2 million for the nine months ended June 30, 2024, and the yield of such assets decreased 7-basis points to 3.34% for the nine months ended June 30, 2025 from 3.41% for the nine months ended June 30, 2024.

Interest Expense. Interest expense increased $2.1 million, or 13.9%, to $16.9 million for the nine months ended June 30, 2025 compared with $14.9 million for the nine months ended June 30, 2024. The average balance of interest-bearing liabilities increased $100.2 million, or 15.5%, to $746.9 million from $646.6 million, while the cost of interest-bearing liabilities decreased 4-basis points to 3.03% for the nine months ended June 30, 2025 compared with 3.07% for the nine months ended June 30, 2024.

The average balance of interest-bearing deposits increased $97.3 million, or 15.8%, to $715.0 million for the nine months ended June 30, 2025 from $617.7 million for the nine months ended June 30, 2024, while the average cost of such deposits decreased 4-basis points to 3.03% from 3.07%. Interest paid on interest-bearing deposits increased $2.0 million, or 14.3%, to $16.2 million for the nine months ended June 30, 2025 from $14.2 million for the nine months ended June 30, 2024. A 29-basis point decrease in the cost of the Company’s $494.2 million average balance in money market and interest-bearing checking account balances more than offset a 43-basis point increase in the Company’s $166.7 million average balance of time deposits.

Interest expense on borrowings increased $30 thousand, or 4.5%, to $693 thousand for the nine months ended June 30, 2025 from $663 thousand for the nine months ended June 30, 2024. The average balance of borrowings increased $2.9 million, or 10.1%, to $31.9 million for the nine months ended June 30, 2025 from $28.9 million for the nine months ended June 30, 2024, while the cost of borrowings decreased 16 basis points to 2.90% for the nine months ended June 30, 2025 compared with 3.06% for the nine months ended June 30, 2024.

Provision for Credit Losses. The Company recorded provisions for credit losses of $172 thousand for the nine months ended June 30, 2025 compared with $441 thousand for the nine months ended June 30, 2024. The lower provision for credit losses resulted from lower construction loan commitments, which require higher provisions for credit loss, that more than offset growth in commercial real estate, residential mortgage and commercial business loans. In addition, the Company recorded $111 thousand in net loan recoveries during the nine months ended June 30, 2025 compared with $67 thousand in net loan recoveries during the nine months ended June 30, 2024.

Other Income. Other income increased $1.2 million, or 74.5%, to $2.9 million during the nine months ended June 30, 2025 compared to $1.6 million for the nine months ended June 30, 2024. The increase was primarily due to higher gains from the sale of Small Business Administration 7(a) loans, which increased $506 thousand to $848 thousand for the nine months ended June 30, 2025 from $342 thousand for the nine months ended June 30, 2024. In addition, the Company recorded higher gains from the sale of OREO, commercial loan prepayment charges, late charges on loans and income from its bank-owned life insurance policies.

Other Expenses. Other expenses increased $863 thousand, or 5.7%, to $16.0 million during the nine months ended June 30, 2025 from $15.2 million during the nine months ended June 30, 2024. The increase was primarily attributable to higher compensation and benefit expense, which increased $663 thousand, or 7.6%, to $9.4 million during the nine months ended June 30, 2025 from $8.7 million for the year ended June 30, 2024, and higher medical benefits and incentive accruals as well as annual merit increases. In addition, occupancy expense increased $222 thousand, or 9.2%, to $2.6 million from $2.4 million due to lease termination expenses related to the closure of the Bank’s Bridgewater office.

Income Tax Expense. The Company recorded tax expense of $2.9 million on pre-tax income of $10.1 million for the nine months ended June 30, 2025, compared to $1.7 million on pre-tax income of $7.0 million for the nine months ended June 30, 2024. The increase in income tax expense was driven by higher pre-tax income as well as changes in deferred tax items that lowered the Company’s tax expense during the nine months ended June 30, 2024. The Company’s effective tax rate for the nine months ended June 30, 2025 was 28.6% compared with 24.8% for the nine months ended June 30, 2024.

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, 2025, we had an aggregate net borrowing capacity of $133.2 million. There has been no material adverse change during the nine months ended June 30, 2025 in the ability of the Company and its subsidiaries to fund their operations.

At June 30, 2025, the Company had commitments outstanding under letters of credit totaling $785 thousand, commitments to originate loans totaling $37.6 million, and commitments to fund undisbursed balances of closed loans and unused lines of credit totaling $85.5 million. There has been no material change during the nine months ended June 30, 2025 in any of the Company’s other contractual obligations or commitments to make future payments.

Capital Requirements

At June 30, 2025, the Bank’s Tier 1 capital as a percentage of the Bank’s total assets was 10.97%, and total qualifying capital as a percentage of risk-weighted assets was 15.71%.

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 quarter ended June 30, 2025 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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, 2024 filed with the U.S. Securities and Exchange Commission on December 19, 2024.