MAGYAR BANCORP, INC. Discussion and analysis of the financial and earnings position by management (Form 10-K)

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overview

Magyar Bancorp, Inc. (the "Company") is a Delaware-chartered stock holding
company whose most significant business activity is ownership of 100% of the
common stock of Magyar Bank. Magyar Bank's principal business is attracting
retail deposits from the general public and investing those deposits, together
with funds generated from operations, principal repayments on loans and
securities and borrowed funds, into one-to four-family residential mortgage
loans, multi-family and commercial real estate mortgage loans, home equity loans
and lines of credit, commercial business loans and construction loans. Our
results of operations depend primarily on our net interest income which is the
difference between the interest we earn on our interest-earning assets and the
interest we pay on our interest-bearing liabilities. Our net interest income is
primarily affected by the market interest rate environment, the shape of the
U.S. Treasury yield curve, the timing of the placement of interest-earning
assets and interest-bearing liabilities, and the prepayment rate on our
mortgage-related assets. Other factors that may affect our results of operations
are general and local economic and competitive conditions, government policies
and actions of regulatory authorities.



During the year ended September 30, 2021, the Company's total assets grew $20.0
million, or 2.7%, to $774.0 million. The increase was attributable to a $25.6
million, or 56.8%, increase in investment securities and a $13.5 million, or
21.8%, increase in cash and cash equivalents, partially offset by a $17.8
million, or 3.0%, decrease in loans receivable, net of allowance for loan loss.
The increase in cash and investments resulted from a $21.5 million increase in
deposits during the year ended September 30, 2021 as well as a $30.9 million net
reduction in PPP loan balances to $25.1 million at September 30, 2021 from $56.0
million at September 30, 2020. Stockholders' equity increased $40.8 million, or
71.8%, to $97.6 million at September 30, 2021 from $56.9 million at September
30, 2020. The increase in stockholders' equity was primarily attributable to
$37.4 million raised from the Company's stock offering/second step conversion,
net of offering costs, as well as the Company's results of operations and for
the year ended September 30, 2021.



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Total deposits increased $21.5 million, or 3.5%, to $639.8 million during the
year ended September 30, 2021. The growth in deposits during the twelve months
ended September 30, 2021 occurred in non-interest checking account balances,
which increased $18.4 million, or 11.3%, to $182.0 million, in savings account
balances, which increased $6.8 million, or 9.1%, to $81.7 million, and in
interest-bearing checking account balances, which increased $5.9 million, or
9.0% to $71.3 million. Offsetting these increases was a $9.5 million, or 7.5%,
decrease in certificates of deposit (including individual retirement accounts),
to $116.9 million, and a $125,000, or 0.1%, decrease in money market account
balances to $187.9 million.


The Company's net income increased $3.9 million, or 179.5%, to $6.1 million
during the year ended September 30, 2021 compared with net income of $2.2
million for the year ended September 30, 2020. The increase in net income was
due to higher net interest and dividend income and higher non-interest income,
partially offset by higher non-interest expenses.



Throughout fiscal 2022, we expect to continue increasing our commercial real
estate and commercial business loans while managing non-interest expenses in an
effort to increase profitability of the Company.





Critical Accounting Policies


Critical accounting and valuation methods are defined as those that reflect significant judgments and uncertainties and, under different assumptions and conditions, can possibly lead to significantly different results. Critical accounting principles can involve complex subjective decisions or evaluations. We consider the following principles to be our critical accounting principles.

Allowance for Loan Loss. The allowance for loan losses is the amount estimated
by management as necessary to cover credit losses in the loan portfolio both
probable and reasonably estimable at the balance sheet date. The allowance is
established through the provision for loan losses which is charged against
income. In determining the allowance for loan losses, management makes
significant estimates and has identified this policy as one of our most
critical. Due to the high degree of judgment involved, the subjectivity of the
assumptions utilized and the potential for changes in the economic environment
that could result in changes to the amount of the recorded allowance for loan
losses, the methodology for determining the allowance for loan losses is
considered a critical accounting policy by management.

As a substantial amount of our loan portfolio is collateralized by real estate,
appraisals of the underlying value of property securing loans and discounted
cash flow valuations of properties are critical in determining the amount of the
allowance required for specific loans. Assumptions for appraisals and discounted
cash flow valuations are instrumental in determining the value of properties.
Overly optimistic assumptions or negative changes to assumptions could
significantly affect the valuation of a property securing a loan and the related
allowance determined. The assumptions supporting such appraisals and discounted
cash flow valuations are carefully reviewed by management to determine that the
resulting values reasonably reflect amounts realizable on the related loans.

Management performs a quarterly evaluation of the adequacy of the allowance for
loan losses. We consider a variety of factors in establishing this estimate
including, but not limited to, current economic conditions, delinquency
statistics, geographic and industry concentrations, the adequacy of the
underlying collateral, the financial strength of the borrower, results of
internal loan reviews and other relevant factors. This evaluation is inherently
subjective as it requires material estimates by management that may be
susceptible to significant change based on changes in economic and real estate
market conditions.

The evaluation has a specific and general component. The specific component
relates to loans that are delinquent or otherwise identified as impaired through
the application of our loan review process and our loan grading system. All such
loans are evaluated individually, with principal consideration given to the
value of the collateral securing the loan and discounted cash flows. Specific
impairment allowances are established as required by this analysis. However, the
Bank's Federal and State regulators generally require that the specific reserve
against impaired collateral-dependent loans be charged-off, reducing the
carrying balance of the loan and allowance for loan loss. The general component
is determined by segregating the remaining loans by type of loan, risk weighting
(if applicable) and payment history. We analyze historical loss experience,
delinquency trends, general economic conditions and geographic and industry
concentrations in establishing the general portion of the reserve. This analysis
establishes factors that are applied to the loan groups to determine the amount
of the general component of the allowance for loan losses.

The actual loan defaults can significantly exceed the value adjustments we have made, which could have a materially negative effect on our financial result.


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Deferred Income Taxes. The Company records income taxes using the asset and
liability method. Accordingly, deferred tax assets and liabilities: (i) are
recognized for the expected future tax consequences of events that have been
recognized in the financial statements or tax returns; (ii) are attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases; and (iii) are measured using
enacted tax rates expected to apply in the years when those temporary
differences are expected to be recovered or settled.



Deferred tax assets are expected to be realized and are therefore not written down.

Effects of the coronavirus / COVID-19 pandemic



During 2020 and continuing into 2021, the extraordinary impact of the COVID-19
pandemic has created an unprecedented environment for consumers and businesses
alike. To protect our employees and customers from potential exposure to the
virus, all Magyar Bank lobbies and operational areas continue to observe best
practice protocols to limit exposure and/or spread of the virus.



To assist our loan customers, Magyar Bank has offered loan payment deferrals to
borrowers unable to make their contractual payments due to COVID-19. Loan
payments are deferred until the contractual maturity of the loan. Deferral
requests are considered on a case-by-case basis and are initially approved for a
three-month period for principal and interest payments or for interest-only
payments depending on the borrower's circumstances. An additional three-month
period is available for businesses that remain unable to operate and for
consumers unable to make their mortgage or home equity payments due to COVID-19.
Additional deferrals were considered for businesses experiencing a prolonged
impact from the COVID-19 pandemic, such as the accommodation and food service
industries. Magyar Bank's loan portfolio does not have a significant exposure to
the travel or entertainment industry.



Through September 30, 2021, we had modified 284 loans aggregating $150.9 million
for the deferral of principal and/or interest payments. Of these loans, 56 loans
totaling $28.1 million repaid their deferred payments in full and 227 loans
aggregating $121.4 million had resumed making their contractual loan payments.
One loan totaling $1.4 million was past its deferral period and delinquent at
September 30, 2021. The Company was not deferring any additional loan payments
due to the COVID-19 pandemic at September 30, 2021. Details with respect to
loans with deferred payments as of September 30, 2021 and 2020 are as follows:



                                                                                        Weighted Average
                                                   Number of Loans       Balance         Interest Rate
September 30, 2021                                                      (Dollars in thousands)
One-to-four family residential real estate (1)                   75     $  
17,593                  4.09%
Commercial real estate                                          122         95,847                  4.69%
Construction                                                      3          2,305                  3.53%
Home equity lines of credit                                       6        
   896                  4.33%
Commercial business                                              22          6,172                  6.06%
Total                                                           228     $  122,813                  4.65%
September 30, 2020
One- to four-family residential real estate (1)                  94     $  
24,573                  4.05%
Commercial real estate                                          145        115,358                  4.76%
Construction                                                      4          2,630                  3.77%
Home equity lines of credit                                       8        
 1,238                  4.24%
Commercial business                                              32          6,892                  5.88%
Total                                                           283     $  150,691                  4.67%

(1) Includes home equity loans.




The Bank participated in the PPP to provide liquidity using the SBA platform to
small businesses and self-employed individuals to maintain their staff and
operations through the COVID-19 pandemic. This liquidity is in the form of a
loan, 100% guaranteed by the SBA, that is forgivable provided the funds are used
on qualifying payroll costs, and to a lesser extent, rent, utilities and
interest on qualifying mortgage payments. The loans bear a fixed rate of 1.0%
and loan payments are deferred for the first 10 months following the covered
period, which is eight to twenty-four weeks following the date the loan is made.
We originated 350 "First Draw" loans totaling $56.0 million through June 30,
2021 for which we received $2.0 million in origination fees from the SBA. These
fees are being amortized over the contractual term of the loans, which is two

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Years for loans prior to 4th June 2020 and five years for granted loans 5th June 2020 or later. Through September 30, 2021, all first draw loans totaling $ 56.0 million had been repaid.



On December 27, 2020 the Economic Aid to Hard-Hit Small Businesses, Nonprofits,
and Venues ("Economic Aid Act") was signed into law, extending the SBA's
authority to guarantee "Second Draw" PPP loans, under generally the same terms
and conditions available under the First Draw program, through March 31, 2021,
subsequently extended by the Paycheck Protection Program Extension Act of 2021
to May 31, 2021. In order to qualify for a Second Draw PPP loan, an applicant
must have experienced a revenue reduction of at least 25% in 2020 relative to
2019. As of September 30, 2021, the Company originated 212 PPP loans totaling
$35.3 million under the Economic Aid Act to its eligible customers, for which it
received $1.5 million in origination fees from the SBA. These fees are being
amortized over the contractual term of the loans, which is five years, or until
the loan is repaid. The Economic Aid Act also expanded the eligible expenditures
for which a business could use PPP proceeds for and provided for a simplified
forgiveness application for PPP loans $150,000 or less. Through September 30,
2021, 101 loans totaling $10.2 million had been forgiven by the SBA, leaving 111
PPP loans totaling $25.1 million outstanding at September 30, 2021.



The Board of Governors of the Federal Reserve System created the Paycheck
Protection Program Lending Facility ("PPPLF") to facilitate lending by eligible
financial institutions to small businesses under the PPP. Under the PPPLF, the
Federal Reserve Bank of New York provided advances with a fixed interest rate of
0.35% to Magyar Bank on a non-recourse basis, taking PPP loans as collateral. In
addition, the Federal Deposit Insurance Corporation allows Magyar Bank to
neutralize the effect of PPP loans financed under the PPPLF on Tier 1 leverage
capital ratios. The Bank repaid all $36.9 million in PPPLF advances to the
Federal Reserve Bank during the year ended September 30, 2021 that were used to
fund First Draw PPP loans. The Bank did not utilize the PPPLF to fund its Second
Draw PPP loans.

The health of the banking industry is highly correlated with that of the
economy. The temporary and/or partial closures of non-essential businesses in
our local and national economies increases the likelihood of recession, which
typically results in an increased level of credit losses. Accordingly, our
provisions for loan losses have increased and will be closely monitored
throughout the pandemic. In addition to utilizing quantitative loss factors, the
Company considers qualitative factors, such as changes in underwriting policies,
current economic conditions, delinquency statistics, the adequacy of the
underlying collateral, and the financial strength of the borrower. The impact of
the COVID-19 pandemic on the performance of our loan portfolio in future
quarters is unknown, however all of these factors are likely to be affected
by
the COVID-19 pandemic.




Comparison of the financial situation at September 30, 2021 and September 30, 2020



Total Assets. Total assets increased $20.0 million, or 2.7%, to $774.0 million
during the year ended September 30, 2021 compared with $754.0 million at
September 30, 202. The increase was attributable to a $25.6 million, or 56.8%,
increase in investment securities and a $13.5 million, or 21.8%, increase in
cash and cash equivalents, offset by a $17.8 million, or 3.0%, decrease in loans
receivable, net of allowance for loan loss. The increase in cash and investments
resulted from a $21.5 million increase in deposits during the year ended
September 30, 2021 as well as a $30.9 million net reduction in PPP loan balances
to $25.1 million at September 30, 2021 from $56.0 million at September 30, 2020.



Loans Receivable. Total loan receivable decreased $16.7 million, or 2.7%, to
$594.6 million at September 30, 2021 from $611.3 million at September 30, 2020.
Total loans receivable at September 30, 2021 were comprised of $280.8 million
(47.2%) in commercial real estate loans, $203.0 million (34.2%) in one- to four-
family residential mortgage loans, $68.7 million (11.6%) in commercial business
loans (including $25.1 million in PPP loans), $20.4 million (3.4%) in
construction loans, and $21.7 million (3.6%) in home equity lines of credit and
other loans. Total loans receivable at September 30, 2020 were comprised of
$248.1 million (40.6%) in commercial real estate loans, $210.4 million (34.4%)
in one- to four- family residential mortgage loans, $101.0 million (16.5%) in
commercial business loans (including $56.0 million in PPP loans), $28.2 million
(4.6%) in construction loans, and $23.5 million (3.9%) in home equity lines
of
credit and other loans.



Total non-performing loans decreased $1.5 million, or 16.2%, to $8.2 million at
September 30, 2021 from $9.7 million at September 30, 2020. At September 30,
2021 our OREO consisted of one commercial real estate property totaling $268,000
and one assemblage of approved real estate lots/land totaling $368,000. The
ratio of non-performing loans to total loans was 1.4% at September 30, 2021
compared to 1.6% at September 30, 2020.



Once a loan is deemed non-performing, the value of the collateral securing the
loan must be assessed, which is typically done by obtaining an updated
third-party appraisal. To the extent that the current appraised value of
collateral is insufficient to cover a collateral-dependent loan, the Company
reduces the balance of the loan via a charge to the allowance for loan loss.



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Non-performing loans secured by one-to four-family residential properties,
including home equity lines of credit and other consumer loans, increased
$247,000, or27.3%, to $1.2 million at September 30, 2021 from $905,000 at
September 30, 2020. Magyar Bank had begun foreclosure proceedings on the
properties securing these loans at September 30, 2021. During the year ended
September 30, 2021, there were no charge-offs against the allowance for loan
loss for residential real estate loans while $1,000 was recovered from prior
year charge-offs.



Non-performing commercial real estate loans decreased $1.1 million, or 51.4%, to
$1.1 million at September 30, 2021 from $2.2 million at September 30, 2020.
Magyar Bank had begun foreclosure proceedings on the properties securing these
loans at September 30, 2021. During the year ended September 30, 2021 there was
one charge-off totaling $51,000 against the allowance for loan loss and no
recoveries of prior year charge-offs.



Non-performing commercial business loans decreased $118,000, or 8.0%, to $1.3
million at September 30, 2021 from $1.5 million at September 30, 2020. Magyar
Bank had begun foreclosure proceedings on the collateral securing the $1.3
million loan at September 30, 2021.During the year ended September 30, 2021,
there were no charge-offs, but there were $96,000 in recoveries from a prior
year charge-off.



Non-performing construction loans decreased $561,000, or 10.9%, to $4.6 million
at September 30, 2021 from $5.1 million at September 30, 2020. Magyar Bank had
begun foreclosure proceedings on the properties securing these loans at
September 30, 2021. During the year ended September 30, 2021, there were no
charge-offs or recoveries on construction loans.



The ratio of non-performing loans and troubled debt restructurings to total
loans receivable decreased to 1.43% at September 30, 2021 from 1.63% at
September 30, 2020. The allowance for loan losses increased $1.7 million to $8.1
million, or 99.0% of non-performing loans, at September 30, 2021 compared with
$6.4 million, or 65.8% of non-performing loans, at September 30, 2020.
Provisions for loan loss during the year ended September 30, 2021 were $1.6
million while net recoveries were $46,000, compared with a provision of $1.7
million and net charge-offs of $154,000 for the prior year period. The allowance
for loan losses was 1.36% and 1.05% of gross loans outstanding at September 30,
2021 and 2020, respectively.



Investment Securities.Investment securities increased $25.6 million, or 56.8%,
to $70.6 million at September 30, 2021 from $45.0 million at September 30, 2020.
Investment securities at September 30, 2021 consisted of $52.8 million in
mortgage-backed securities issued by U.S. government agencies and U.S.
government-sponsored enterprises, $12.5 million in U.S. government-sponsored
enterprise debt securities, $3.0 million in corporate notes, $2.0 million in
municipal bonds and $242,000 in "private-label" mortgage-backed securities.
There were no other-than-temporary-impairment charges for the Company's
investment securities for the year ended September 30, 2021.



Securities available-for-sale decreased $1.6 million, or 11.2%, to $12.9 million
at September 30, 2021 from $14.6 million at September 30, 2020. The decrease was
attributable to $6.9 million in principal repayments, $5.0 million in bonds
called, and unrealized losses of $293,000, partially offset by purchases
totaling $10.6 million during the year ended September 30, 2021.



Securities held-to-maturity increased $27.2 million, or 89.4%, to $57.7 million
at September 30, 2021 from $30.4 million at September 30, 2020. The increase was
the result of $38.9 million in security purchases, partially offset by $9.7
million in principal repayments and $2.0 million in bonds called during the
year
ended September 30, 2021.


Bank’s own life insuranceThe surrender value of life insurance policies for directors and officers of Magyar Bank elevated $ 317,000, or 2.3%, too $ 14.3 million at the September 30, 2021 from $ 14.0 million at the September 30, 2020. The increase is solely due to the increase in the cash surrender value of the policies, as the company did not acquire any new life insurance policies of its own in the past financial year September 30, 2021.

Other Real Estate Owned. OREO decreased $2.0 million, or 75.5%, to $636,000 at
September 30, 2021 from $2.6 million at September 30, 2020. The decrease was due
to the sale of four properties totaling $2.3 million, in addition to valuation
allowances and other net reductions totaling $205,000. Offsetting these
decreases were two additions totaling $547,000 during the year, both of which
were sold.


The Company recorded $337,000 and $371,000 in valuation allowances against its
OREO during the year ended September 30, 2021 and 2020, respectively, based on
updated appraisals or executed contracts of sale. Further declines in real
estate values may result in a charge to expense in the future.



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OREO at September 30, 2021 consisted of one commercial real estate property
totaling $268,000 and an assemblage of approved real estate lots/land totaling
$368,000. All of the properties are listed for sale. The Bank is determining the
proper course of action for its OREO, which may include holding the properties
until the real estate market improves, marketing the properties for individual
sale, or selling properties to an investor and/or developer.



Deposits. Deposits, which include noninterest-bearing demand deposits,
interest-bearing demand deposits, money market deposits, savings deposits and
time deposits, are the primary source of the Company's funds. The Company offers
a variety of products designed to attract and retain customers, with primary
focus on building and expanding relationships. The Company continues to focus on
establishing relationships with business borrowers, seeking deposits as well as
lending relationships.



Total deposits increased $21.5 million, or 3.5%, to $639.8 million at September
30, 2021 from $618.3 million at September 30, 2020. The increase in deposits
during the twelve month ended September 30, 2021 occurred in non-interest
checking account balances, which increased $18.4 million, or 11.3%, to $182.0
million, in savings account balances, which increased $6.8 million, or 9.1%, to
$81.7 million, and in interest-bearing checking account balances, which
increased $5.9 million, or 9.0% to $71.3 million. Offsetting these increases was
a $9.5 million, or 7.5%, decrease in certificates of deposit (including
individual retirement accounts), to $116.9 million, and a $125,000, or 0.1%,
decrease in money market account balances to $187.9 million. Deposits accounted
for 82.7% of assets and 109.3% of net loans receivable at September 30, 2021
compared with 82.0% of assets and 102.5% of net loans receivable at September
30, 2020, respectively.


Commercial and consumer deposit inflows were higher during this period from PPP
loan disbursements, government stimulus programs, lower spending and customers'
preferences for liquidity during the ongoing COVID-19 pandemic.



At September 30, 2021, the Company held $6.0 million in brokered certificates of
deposit, compared with $9.4 million at September 30, 2020. The $3.4 million
decrease resulted from the repayment of $7.4 million in matured deposits, offset
by one new $4.0 million during the year ended September 30, 2021.



The company’s 2021 deposit strategy focused on increasing its interest-free checking account balances and lowering the overall cost of its interest-bearing accounts to offset the decline in market interest rates.



Borrowed Funds. Borrowings decreased $44.0 million, or 65.4%, to $23.4 million
at September 30, 2021 from $67.4 million at September 30, 2020. The decrease was
primarily due to the repayment of all $36.9 million in Paycheck PPPLF advances
to the Federal Reserve Bank during the year ended September 30, 2021 that were
used to fund Round 1 PPP loans. FHLBNY advances decreased $7.1 million to $23.4
million at September 30, 2021 from $30.5 million at September 30, 2020 as
deposit inflows were used to repay maturing term advances.



Stockholders' Equity. Stockholders' equity increased $40.8 million, or 71.8%, to
$97.6 million at September 30, 2021 from $56.9 million at September 30, 2020.
The increase in stockholders' equity was primarily attributable to $37.4 million
raised from the Company's stock offering/second step conversion, net of offering
costs, as well as the Company's results of operations and for the year ended
September 30, 2021.



The Company's book value per share increased $3.98 during the year to $13.76 at
September 30, 2021, based on total equity of $97.6 million and 7,097,825 shares
outstanding. The Company's book value per share was $9.78 at September 30, 2020,
based on total equity of $56.9 million and 5,810,746 shares outstanding.



Comparison of the operating results of the past years September 30, 2021 and 2020

Net Income. The Company's net income increased $3.9 million, or 179.5%, to $6.1
million during the year ended September 30, 2021 compared with $2.2 million for
the year ended September 30, 2020 due to higher net interest and dividend income
and higher non-interest income, partially offset by higher non-interest
expenses.



Net Interest and Dividend Income. The primary source of the Company's operating
income is net interest and dividend income, which is the difference between
interest and dividends earned on earning assets and fees earned on loans, and
interest paid on interest-bearing liabilities. The Company's net interest and
dividend income is affected by regulatory, economic and competitive factors that
influence interest rates, loan demand, deposit flows and levels of nonperforming
assets.


During the year ended September 30, 2021, net interest and dividend income
increased $4.2 million, or 19.5%, to $25.6 million compared to $21.4 million for
the year ended September 30, 2020. Interest and dividend income increased $1.6
million, or 5.9%, to $28.5 million while interest expense decreased $2.6
million, or 46.7%, to $2.9 million.



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Average Balance Sheet. The following table presents certain information
regarding our financial condition and net interest income for the years ended
September 30, 2021, 2020 and 2019. The table presents 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 periods indicated.
Interest income includes fees that we consider adjustments to yields.


                                                                                            For the Year Ended September 30,
                                                            2021                                          2020                                          2019
                                                        Interest                                      Interest                                      Interest
                                           Average       Income/       Yield/Cost        Average       Income/       Yield/Cost        Average       Income/       Yield/Cost
                                           Balance       Expense      (Annualized)       Balance       Expense      (Annualized)       Balance       Expense      (Annualized)
                                                                                                 (Dollars In Thousands)
Interest-earning assets:
Interest-earning deposits                 $  61,655     $      88             0.14%     $  35,612     $     208             0.58%     $  24,525     $     510             2.08%
Loans receivable, net                       605,176        27,551             4.55%       562,209        25,626             4.55%       516,076        25,154             4.87%
Securities
Taxable                                      55,487           789             1.42%        45,308           965             2.13%        55,133         1,290             2.34%
Tax-exempt (1)                                  410             7             1.64%             -             -             0.00%             -             -             0.00%
FHLBNY stock                                  1,925            95             4.94%         2,018           128             6.33%         2,162           149             6.88%
Total interest-earning assets               724,653        28,530          
  3.94%       645,147        26,927             4.16%       597,896        27,103             4.53%
Noninterest-earning assets                   44,193                                        46,839                                        42,566
Total assets                              $ 768,846                                     $ 691,986                                     $ 640,462

Interest-bearing liabilities:
Savings accounts (2)                      $  87,812     $     155             0.18%     $  72,290     $     347             0.48%     $  74,497     $     493             0.66%
NOW accounts (3)                            258,261           707             0.27%       241,508         2,105             0.87%       234,953         3,231             1.38%
Time deposits (4)                           116,944         1,425             1.22%       127,576         2,318             1.81%       121,706         2,197             1.81%
Total interest-bearing deposits             463,017         2,287          
  0.49%       441,374         4,770             1.08%       431,156         5,921             1.37%
Borrowings                                   47,220           654             1.39%        45,647           743             1.62%        35,175           789             2.24%
Total interest-bearing liabilities          510,237         2,941             0.58%       487,021         5,513             1.13%       466,331         6,710             1.44%
Noninterest-bearing liabilities             188,084                        
              148,080                                       119,384
Total liabilities                           698,321                                       635,101                                       585,715
Retained earnings                            70,525                                        56,885                                        54,747
Total liabilities and retained earnings   $ 768,846                                     $ 691,986                                     $ 640,462

Tax-equivalent basis adjustment                                (2 )                                           -                                         

Net interest and dividend income                        $  25,587          
                          $  21,414                                     $  20,393
Interest rate spread                                                          3.36%                                         3.03%                                         3.09%
Net interest-earning assets               $ 214,416                                     $ 158,126                                     $ 131,565
Net interest margin (5)                                                       3.53%                                         3.31%                                         3.41%

Average interest-bearing assets

 average interest-bearing liabilities       142.02%                        
              132.47%                                       128.21%






(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 the annualized net interest income divided by the average total interest-bearing assets.

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Rate/Volume Analysis.The following table presents the effects of changing rates
and volumes on our net interest income for the periods indicated. The rate
column shows the effects attributable to changes in rate (changes in rate
multiplied by average volume). The volume column shows the effects attributable
to changes in volume (changes in average volume multiplied by prior rate). The
net column represents the sum of the prior columns. For purposes of this table,
changes attributable to both rate and volume, which cannot be segregated, have
been allocated proportionately, based on the changes due to rate and the changes
due to volume.



                                                                             September 30,
                                                        2021 vs. 2020                             2020 vs. 2019
                                              Increase (decrease)                       Increase (decrease)
                                                     due to                                    due to
                                              Volume          Rate         Net          Volume          Rate         Net
                                                                            (In thousands)
Interest-earning assets:
Interest-earning deposits                   $       95      $   (215 )   $ 
 (120 )   $      167      $   (469 )   $   (302 )
Loans                                            1,925            (0 )      1,925          2,176        (1,704 )        472
Securities
Taxable                                            188          (364 )       (176 )         (216 )        (109 )       (325 )
Tax-exempt (1)                                       7             -            7              -             -            -
FHLBNY stock                                        (6 )         (27 )        (33 )          (10 )         (11 )        (21 )
Total interest-earning assets                    2,209          (606 )     

1,603 2,117 (2,293) (176)

Interest-bearing liabilities:
Savings accounts (2)                                62          (254 )       (192 )          (14 )        (132 )       (146 )
NOW accounts (3)                                   137        (1,535 )     (1,398 )           89        (1,215 )     (1,126 )
Time deposits (4)                                 (182 )        (711 )       (893 )          121             0          121
Total interest-bearing deposits                     17        (2,500 )     (2,483 )          196        (1,347 )     (1,151 )
Borrowings                                          24          (113 )        (89 )          202          (248 )        (46 )
Total interest-bearing liabilities                  41        (2,613 )    

(2,572) 398 (1,595) (1,197) Increase (decrease) in tax-equivalent net interest income

                         $    2,169      $  2,006     $  4,175     $    1,719      $   (698 )   $  1,021
Change in tax-equivalent basis adjustment                                      (2 )                                       -
Increase in net interest income                                          $  4,173                                  $  1,021




(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.



Interest and Dividend Income.Interest and dividend income increased $1.6
million, or 5.9%, to $28.5 million for the year ended September 30, 2021 from
$26.9 million for the year ended September 30, 2020. The average balance of
interest-earnings assets between the two periods increased $79.5 million, or
12.3%, to $724.6 million from $645.1 million, while the yield on such assets
decreased 22 basis points to 3.94% for the year ended September 30, 2021 from
4.16% for the year ended September 30, 2020.



Interest income on loans increased $1.9 million, or 7.5%, to $27.5 million for
the year ended September 30, 2021 from $25.6 million for the year ended
September 30, 2020, while the average balance of loans increased $43.0 million,
or 7.6%, to $605.2 million from $562.2 million. The average yield on such loans
was 4.55% at September 30, 2021 and 2020. The recognition of PPP loans fees
totaling $2.0 million during the year ended September 30, 2021, compared with
$335,000 for the year ended September 30, 2020, accounted for the majority of
the increase in interest income between periods.



Interest earned on investment securities, including interest earned on deposits
but excluding FHLBNY stock, decreased $291,000, or 24.8%, to $882,000 for the
year ended September 30, 2021 from $1.2 million for the same period prior year.
The decrease was attributable to a 70 basis point decrease in the average yield
on investment securities and interest earned on deposits to 0.75% from 1.45%,
partially offset by a $36.6 million, or 45.3%, increase in the average balance
of

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Investment securities and interest-bearing deposits $ 117.5 million from $ 80.9 million during the year ended September 30, 2021.



Interest Expense. Interest expense decreased $2.6 million, or 46.7%, to $2.9
million for the year ended September 30, 2021 from $5.5 million for the year
ended September 30, 2020. The average balance of interest-bearing liabilities
increased $23.7 million, or 4.9%, to $510.7 million from $487.0 million between
the two periods while the cost of such liabilities decreased 55 basis points to
0.58% for the year ended September 30, 2021 from 1.13% for the same period prior
year due to the lower market interest rate environment.



The average balance of interest-bearing deposits increased $21.6 million, or
4.9%, to $463.0 million for the year ended September 30, 2021 from $441.4
million for the prior year while the average cost of such deposits decreased 59
basis points to 0.49% from 1.08%. Interest expense on deposits decreased $2.5
million, or 52.1%, to $2.3 million for the year ended September 30, 2021 from
$4.8 million for the year ended September 30, 2020.



Interest expense on advances decreased $89,000, or 12.0%, to $654,000 for the
year ended September 30, 2021 from $743,000 for the year ended September 30,
2020. The average cost of borrowings decreased 23 basis points to 1.39% for the
year ended September 30, 2021 from 1.62% for the year ended September 30, 2020
while the average balance of borrowings increased $1.6 million to $47.2 million
for the year ended September 30, 2021 from $45.6 million the prior year.



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.



The provision for loan losses decreased $37,000 to $1.6 million for the year
ended September 30, 2021 compared to $1.7 million for the year ended September
30, 2020. There were net recoveries of $46,000 during the year ended September
30, 2021 compared with net charge-offs of $154,000 for the year ended September
30, 2020.



Other Income. Other income increased $1.7 million, or 98.7%, to $3.4 million
during the year ended September 30, 2021 compared with $1.7 million the prior
year. Higher fees for other customer services, gains from the sale of loans,
interest rate swap fees, and service charges accounted for the increase.



Fees for other customer services increased to $777,000 from fees earned from the
Bank's assistance with its local government's Small Business Relief Grant
program. The program was designed to assist small local businesses impacted by
the COVID-19 pandemic. The Company received a fee of 3.0% of the grants it
assisted with processing.



The Bank sells the guaranteed portion of its SBA loans in the secondary market.
During the year ended September 30, 2021, $6.4 million in loans were sold,
generating $749,000 in gains compared with sales of $3.6 million and $317,000 in
gains for the twelve months ended September 30, 2020.



The Bank began offering a commercial loan swap product through a correspondent
bank during its fiscal year 2021. During the twelve months ended September 30,
2021 the Company originated three commercial swap loans totaling $20.4 million,
which generated $313,000 in interest rate swap fees.



The Bank assesses service charges for a variety of loan and deposit services.
These services were negatively impacted by the COVID-19 induced economic
shut-down during our fiscal year 2020. The re-opening of the economy in turn
increased the services and correspondent service charges the Bank receives. In
addition, the Bank received more prepayment penalties from commercial loan
payoffs. Accordingly, service charges increased $242,000, or 26.9%, to $1.1
million for the year ended September 30, 2021, compared with $901,000 for the
year ended September 30, 2020.



Other Expenses. Other expenses increased $289,000, or 1.6%, to $18.6 million for
the year ended September 30, 2021 compared to $18.4 million for the year ended
September 30, 2020. Higher compensation and benefit expenses, higher
professional fees and higher other expenses were partially offset by lower OREO
expenses, lower data processing expenses, and lower FDIC insurance assessments.



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Compensation and benefit expenses increased $336,000, or 3.3%, to $10.6 million
for the year ended September 30, 2021 from $10.3 million for the year ended
September 30, 2020. Higher incentive accruals and employee benefit expenses
accounted for the increase, partially offset by lower compensation expense
due
to lower staffing levels.



Professional fees include legal and consulting fees related to the collection
and foreclosure of non-performing assets. These fees increased $161,000, or
10.3%, to $1.7 million for the year ended September 30, 2021, compared with $1.6
million for the year ended September 30, 2020. In addition, other expenses
increased $165,000, or 11.4%, to $1.6 million for the year ended September 30,
2021, compared with $1.4 million for the year ended September 30, 2020. The
increases were primarily attributable to temporary prior year reductions related
to the COVID-19 pandemic in areas such as marketing and business development,
contributions, and operating costs.



Offsetting the higher expenses were lower OREO expenses, data processing
expenses, and FDIC insurance assessments. OREO expenses decreased $274,000, or
54.9%, to $225,000 from lower valuation allowances, higher gains on sales, and
fewer properties compared with the prior year. Data processing expenses
decreased $61,000, or 10.4%, to $528,000 from the extension and reduction in
cost of the Bank's core services provider contract. FDIC insurance assessments
decreased $57,000, or 11.9%, to $422,000 from higher capital levels resulting
from the Company's stock offering completed in July of 2021 as well as higher
income from operations and lower levels of non-performing assets.



Income Tax Expense.The Company recorded tax expense of $2.6 million on income of
$8.7 million for the year ended September 30, 2021 compared with tax expense of
$920,000 on income of $3.1 million for the year ended September 30, 2020. The
higher income tax expense resulted from a $5.6 million increase in the Company's
results from operations.


The company’s effective tax rate for the past year September 30, 2021 was 29.9% compared to 29.6% in the past year September 30, 2020.




Management of Market Risk


General. The majority of our assets and liabilities are monetary in nature.
Consequently, our most significant form of market risk is interest rate risk.
Our assets, consisting primarily of mortgage loans, have longer maturities than
our liabilities, consisting primarily of deposits. As a result, a principal part
of our business strategy is to manage interest rate risk and reduce the exposure
of our net interest income to changes in market interest rates. Accordingly, our
Board of Directors has established an Asset and Liability Management Committee
which is responsible for evaluating the interest rate risk inherent in our
assets and liabilities, for determining the level of risk that is appropriate,
given our business strategy, operating environment, capital, liquidity and
performance objectives, and for managing this risk consistent with the
guidelines approved by the Board of Directors. Senior management monitors the
level of interest rate risk on a regular basis and the Asset and Liability
Committee meets at least on a quarterly basis to review our asset/liability
policies and interest rate risk position.



We have sought to manage our interest rate risk in order to minimize the
exposure of our earnings and capital to changes in interest rates. As part of
our ongoing asset-liability management, we seek to manage our exposure to
interest rate risk by retaining in our loan portfolio fewer fixed rate
residential loans, by originating and retaining adjustable-rate loans in the
residential, construction and commercial real estate loan portfolios, by using
alternative funding sources, such as advances from the FHLBNY, to "match fund"
longer-term residential and commercial mortgage loans, and by originating and
retaining variable rate home equity and short-term and medium-term fixed-rate
commercial business loans. We began offering a commercial loan swap product in
our fiscal year 2021 that allows the Bank to receive floating-rate interest loan
payments while its borrowers pay a fixed rate of interest on their loans. We
have also increased money market account deposits as a percentage of our total
deposits. Money market accounts offer a variable rate based on market
indications. By following these strategies, we believe that we are
well-positioned to react to changes in market interest rates.

Net Interest Income Analysis.The table below sets forth, as of September 30,
2021, the estimated changes in our Net Interest Income ("NII") for each of the
next two years that would result from the designated instantaneous changes in
interest rates. These estimates require making certain assumptions including
loan and mortgage-related investment prepayment speeds, reinvestment rates, and
deposit maturities and decay rates. These assumptions are inherently uncertain
and, as a result, we cannot precisely predict the impact of changes in interest
rates on net interest income. Actual results may differ significantly due to
timing, magnitude and frequency of interest rate changes and changes in market
conditions. Further, certain shortcomings are inherent in the methodology used
in the interest rate risk measurement. Modeling changes in net interest income
require making certain assumptions that may or may not reflect the manner in
which actual yields and costs respond to changes in market interest rates.
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    Change in                           Estimated Decrease                                 Estimated Increase
 Interest rates      Estimated             in NII Year 1             

Estimated (decrease) in NII year 2 (basis points) (1) NII year 1 amount Percentage NII year 2 amount

            Percentage
                                                (Dollars in thousands)

      +200          $    26,218     $      895            3.53%     $    26,714     $        1,800              7.22%
    Unchanged            25,323              -                -          24,914                  -                  -
      -100               24,191         (1,132 )         -4.47%          23,167             (1,747 )           -7.01%



(1) Assumes an instantaneous uniform change in interest rates for all maturities.

Liquidity and capital resources



Liquidity is the ability to meet current and future financial obligations of a
short-term nature. Our primary sources of funds consist of deposit inflows, loan
repayments, FHLBNY borrowings and maturities and sales of investment securities.
While maturities and scheduled amortization of loans and securities are
predictable sources of funds, deposit flows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions and competition. Our
Asset/Liability Management Committee is responsible for establishing and
monitoring our liquidity targets and strategies in order to ensure that
sufficient liquidity exists for meeting the borrowing needs of our customers as
well as unanticipated contingencies. We seek to maintain a liquidity ratio of
5.0% of assets or greater. The liquidity ratio is calculated by determining the
sum of the difference between liquid assets (cash and unpledged investment
securities) and short-term liabilities (estimated 30-day deposit outflows), plus
our borrowing capacity from the FHLBNY and dividing the sum by total assets. At
September 30, 2021, our liquidity ratio was 20.8% of assets.

We regularly adjust our investments in liquid assets based upon our assessment
of expected loan demand, expected deposit flows, yields available on
interest-earning deposits and securities, and the objectives of our
asset/liability management program. Excess liquid assets are invested generally
in interest-earning deposits and short-and intermediate-term securities.

Our most liquid assets are cash and cash equivalents. The levels of these assets
are dependent on our operating, financing, lending and investing activities
during any given period. At September 30, 2021, cash and cash equivalents
totaled $75.2 million compared with $61.7 million at September 30, 2020.
Securities classified as available-for-sale, which provide additional sources of
liquidity from sales, totaled $12.9 million at September 30, 2020 compared with
$14.6 at September 30, 2020. At September 30, 2021, we also had the ability to
borrow $151.2 million from the FHLBNY compare with $141.8 million at September
30 2021. On that date, we had an aggregate of $23.4 million in advances
outstanding and $40.0 million in municipal letters of credit outstanding with
the FHLBNY. Our cash flows are derived from operating activities, investing
activities and financing activities as reported in our consolidated Statements
of Cash Flows included in our consolidated Financial Statements.

At September 30, 2021, we had $23.7 million in loan origination commitments
outstanding. In addition to commitments to originate loans, we had $63.8 million
in unused lines of credit to borrowers. Certificates of deposit due within one
year of September 30, 2021 totaled $72.8 million, or 11.4% of total deposits. If
these deposits do not remain with us, we will be required to seek other sources
of funds, including other deposits and FHLBNY advances. Depending on market
conditions, we may be required to pay higher rates on such deposits or other
borrowings than we currently pay on the certificates of deposit (including
individual retirement accounts and brokered certificate deposit accounts) due on
or before September 30, 2022. We believe, however, that based on past experience
a significant portion of our certificates of deposit (including individual
retirement accounts and brokered certificate deposit accounts) will remain with
us. We have the ability to attract and retain deposits by adjusting the interest
rates offered.

Our primary investing activities are the origination of loans and the purchase
of investment securities. We originated $159.0 million in loans (including $35.3
million in PPP loans) and we purchased $49.5 million of investment securities
for the year ended September 30, 2021. Comparatively, we originated $145.9
million in loans (including $56.0 million in PPP loans) and purchased $19.8
million of investment securities for the year ended September 30, 2020.

Financing activities consist primarily of activity in deposit accounts and
FHLBNY advances. We experienced a net increase in total deposits of $21.5
million, or 3.5%, to $639.8 million for the year ended September 30, 2021
compared with a net increase in total deposits of $88.3 million, or 16.6%, to
$618.3 million for the year ended September 30, 2020. Deposit flows are affected
by the overall level of interest rates, the interest rates and products offered
by us and our local competitors and other factors.

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Liquidity management is both a daily and long-term function of business
management. If we require funds beyond our ability to generate them internally,
borrowing agreements exist with the FHLBNY, which provide an additional source
of funds. FHLBNY advances totaled $23.4 million and $30.5 million at September
30, 2021 and September 30, 2020, respectively. FHLBNY advances have primarily
been used to fund loan demand.

In addition to borrowings, the Bank has the ability to raise deposits on the
brokered market or through deposit listing services. At September 30, 2021, the
Bank held $6.0 million in brokered deposits and $16.4 million from deposit
listing services.

Magyar Bank is subject to various regulatory capital requirements, (see
"Supervision and Regulation-Federal Banking Regulation-Capital Requirements").
As of September 30, 2021, Magyar Bank's Tier 1 capital as a percentage of the
Bank's average assets was 10.18% and the total qualifying capital as a
percentage of risk-weighted assets was 16.99%.

Bank-owned life insurance is a tax-advantaged financing transaction that is used
to offset employee benefit plan costs. Policies are purchased insuring directors
and officers of Magyar Bank using a single premium method of payment. Magyar
Bank is the owner and beneficiary of the policies and records tax-free income
through cash surrender value accumulation. We have minimized our credit exposure
by choosing carriers that are highly rated and limiting the concentration of any
one carrier. The investment in bank-owned life insurance has no significant
impact on our capital and liquidity.





Off-balance sheet agreements and aggregated contractual obligations

Commitments. As a financial services provider, we routinely are a party to
various financial instruments with off-balance-sheet risks, such as commitments
to extend credit, standby letters of credit and unused lines of credit. While
these contractual obligations represent our future cash requirements, a
significant portion of commitments to extend credit may expire without being
drawn upon. Such commitments are subject to the same credit policies and
approval process accorded to loans made by us. For additional information, see
Note P, "Commitments," and Note Q "Financial Instruments with Off-Balance-Sheet
Risk" to our consolidated financial statements.



Contractual Obligations.In the ordinary course of our operations, we enter into
certain contractual obligations. Such obligations include operating leases
for
premises and equipment.



The following table summarizes our significant fixed and determinable
contractual obligations and other funding needs by payment date at September 30,
2021. The payment amounts represent those amounts due to the recipient and do
not include any unamortized premiums or discounts or other similar carrying
amount adjustments.



                                                            Payments Due by Period
                                   Less Than         One to          Three to        More Than
      September 30, 2021           One Year        Three Years      Five Years      Five Years       Total
                                                                (In thousands)

Federal Home Loan Bank advances   $    10,731     $       9,125     $     3,500     $         -     $ 23,356
Operating leases                          728             1,485             978           1,533        4,724
Total                             $    11,459     $      10,610     $     4,478     $     1,533     $ 28,080





ITEM 7A. Quantitative and qualitative information on market risk

Not required for smaller reporting companies.

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