10-Q 1 mgyr-20231231.htm 10-Q

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 December 31, 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 February 1, 2024 was 6,653,933.

 

 

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 30
Item 4. Controls and Procedures 30
     
PART II. OTHER INFORMATION
     
Item 1. Legal Proceedings 31
Item 1A. Risk Factors 31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 31
Item 3. Defaults Upon Senior Securities 31
Item 4. Mine Safety Disclosures 31
Item 5. Other Information 31
Item 6. Exhibits 32
     
Signature Pages 33

 

 

 

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)

 

   December 31,   September 30, 
   2023   2023 
   (Unaudited)     
Assets        
Cash  $3,128   $3,179 
Interest earning deposits with banks   47,989    69,353 
Total cash and cash equivalents   51,117    72,532 
           
Investment securities - available for sale, at fair value   12,273    10,125 
Investment securities - at amortized cost (fair value of $75,508 and $73,728 at December 31, 2023 and September 30, 2023, respectively)   84,333    85,835 
Federal Home Loan Bank of New York stock, at cost   2,254    2,286 
Loans receivable   728,560    697,400 
Allowance for credit losses   (7,683)   (8,330)
Bank owned life insurance   18,126    18,030 
Accrued interest receivable   4,585    4,337 
Premises and equipment, net   12,534    13,339 
Other real estate owned ("OREO")   328    328 
Other assets   10,312    11,410 
           
Total assets  $916,739   $907,292 
           
Liabilities and Stockholders' Equity          
Liabilities          
Deposits  $763,548   $755,453 
Escrowed funds   3,723    3,494 
Borrowings   28,796    29,515 
Accrued interest payable   656    443 
Accounts payable and other liabilities   13,477    13,597 
           
Total liabilities   810,200    802,502 
           
Stockholders' equity          
Preferred stock: $.01 Par Value, 500,000 shares authorized; at December 31, 2023 and September 30, 2023, none issued   
    
 
Common stock: $.01 Par Value, 14,000,000 shares authorized; 7,097,825 shares issued; 6,654,952 and 6,674,184 shares outstanding          
at December 31, 2023 and September 30, 2023, respectively, at cost
   71    71 
Additional paid-in capital   62,962    62,801 
Treasury stock: 442,873 and 423,641 shares at December 31, 2023 and September 30, 2023, respectively, at cost   (5,554)   (5,362)
Unearned Employee Stock Ownership Plan shares   (3,047)   (3,097)
Retained earnings   53,456    52,166 
Accumulated other comprehensive loss   (1,349)   (1,789)
           
Total stockholders' equity   106,539    104,790 
           
Total liabilities and stockholders' equity  $916,739   $907,292 

 

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

  

1 

 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Income

(In Thousands, Except Share and Per Share Data)

 

   Three Months Ended 
   December 31, 
   2023   2022 
   (Unaudited) 
Interest and dividend income          
Loans, including fees  $10,082   $7,959 
Investment securities          
Taxable   1,406    504 
Tax-exempt   14    14 
Federal Home Loan Bank of New York stock   55    24 
Total interest and dividend income   11,557    8,501 
           
Interest expense          
Deposits   4,077    1,474 
Borrowings   236    136 
Total interest expense   4,313    1,610 
           
Net interest and dividend income   7,244    6,891 
           
Provision for credit losses- loans   384    317 
Provision for credit losses- commitments   97    
 
           
Net interest and dividend income after provision for credit losses   6,763    6,574 
           
Other income          
Service charges   303    245 
Income on bank owned life insurance   95    95 
Interest rate swap fees   
    57 
Gains on sales of premises and equipment   60    
 
Other operating income   22    20 
Gains on sales of loans   129    180 
Total other income   609    597 
           
Other expenses          
Compensation and employee benefits   2,847    2,621 
Occupancy expenses   790    761 
Professional fees   226    179 
Data processing expenses   140    146 
Director fees and benefits   224    201 
Marketing and business development   97    126 
FDIC deposit insurance premiums   103    54 
Other expenses   593    493 
Total other expenses   5,020    4,581 
Income before income tax expense   2,352    2,590 
Income tax expense   700    780 
Net income  $1,652   $1,810 
           
Earnings per share - basic  $0.26   $0.28 
Earnings per share - diluted  $0.26   $0.28 
Weighted average shares outstanding - basic   6,387,010    6,456,525 
Weighted average shares outstanding - diluted   6,387,010    6,459,446 

 

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

2 

 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Comprehensive Income

(In Thousands)

 

   Three Months Ended 
   December 31 
   2023   2022 
   (Unaudited) 
Net income  $1,652   $1,810 
Other comprehensive income          
Unrealized gains on securities available for sale   584    206 
Other comprehensive income, before tax   584    206 
Deferred income tax effect   (144)   (50)
Total other comprehensive income  $440   $156 
Total comprehensive income  $2,092   $1,966 

 

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

 

3 

 

 MAGYAR BANCORP, INC. AND SUBSIDIARY

 Consolidated Statements of Changes in Stockholders' Equity

 For the Three Months Ended December 31, 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, September 30, 2023   6,674,184   $71   $62,801   $(5,362)  $(3,097)  $52,166   $(1,789)  $104,790 
Net income       
    
    
    
    1,652    
    1,652 
Dividends paid on common stock ($0.11 per share)       
    
    
    
    (716)   
    (716)
Effect of adopting ASU 2016-13                       354    
    354 
Other comprehensive income       
    
    
    
    
    440    440 
ESOP shares allocated       
        
    50    
    
    50 
Purchase of treasury stock   (19,232)   
    
    (192)   
    
    
    (192)
Stock-based compensation expense       
    161    
    
    
    
    161 
Balance, December 31, 2023   6,654,952   $71   $62,962   $(5,554)  $(3,047)  $53,456   $(1,349)  $106,539 

 

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

 

                           Accumulated     
   Common Stock   Additional       Unearned       Other     
   Shares   Par   Paid-In   Treasury   ESOP   Retained   Comprehensive     
   Outstanding   Value   Capital   Stock   Shares   Earnings   Loss   Total 
   (Unaudited) 
Balance, September 30, 2022   6,745,128   $71   $63,734   $(5,793)  $(3,169)  $45,773   $(2,114)  $98,502 
Net income       
    
    
    
    1,810    
    1,810 
Dividends paid on common stock ($0.11 per share)       
    
    
    
    (744)   
    (744)
Other comprehensive income       
    
    
    
    
    156    156 
ESOP shares allocated       
    17    
    24    
    
    41 
Purchase of treasury stock   (2,194)   
    
    (27)   
    
    
    (27)
Stock-based compensation expense       
    180    
    
    
    
    180 
Balance, December 31, 2022   6,742,934   $71   $63,931   $(5,820)  $(3,145)  $46,839   $(1,958)  $99,918 

 

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

4 

 

MAGYAR BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

(In Thousands)

 

   For the Three Months Ended 
   December 31, 
   2023   2022 
   (Unaudited) 
Operating activities          
Net income  $1,652   $1,810 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation expense   217    208 
Premium amortization on investment securities, net   20    43 
Provision for credit losses   481    317 
Originations of SBA loans held for sale   (1,613)   (1,825)
Proceeds from the sales of SBA loans   1,741    2,005 
Gains on sale of loans   (129)   (180)
Gains on the sale of premises and equipment   (60)   
 
ESOP compensation expense   50    41 
Stock-based compensation expense   161    180 
Deferred income tax expense (benefit)   221    (237)
Increase in accrued interest receivable   (248)   (348)
Increase in surrender value of bank owned life insurance   (95)   (95)
Decrease in other assets   733    160 
Increase in accrued interest payable   213    77 
Decrease in accounts payable and other liabilities   (120)   (821)
Net cash provided by operating activities   3,224    1,335 
           
Investing activities          
Net increase in loans receivable   (31,934)   (46,554)
Purchases of investment securities held-to-maturity   (2,000)   
 
Purchases of investment securities available-for-sale   (1,953)   
 
Principal repayments on investment securities held-to-maturity   3,487    992 
Principal repayments on investment securities available-for-sale   384    209 
Purchases of premises and equipment, net   (128)   (10)
Proceeds from the sale of land   776    
 
Investment in other real estate owned   
    (11)
Purchase of Federal Home Loan Bank stock   (76)   (2,582)
Redemption of Federal Home Loan Bank stock   108    1,923 
Net cash used in investing activities   (31,336)   (46,033)
Financing activities          
Net increase in deposits   8,095    8,350 
Net increase in escrowed funds   229    (39)
Proceeds from long-term advances   1,690    3,000 
Repayments of long-term advances   (2,409)   
 
Net change in short-term advances       11,100 
Cash dividends paid on common stock   (716)   (744)
Purchase of treasury stock   (192)   (27)
Net cash provided by financing activities   6,697    21,640 
Net decrease in cash and cash equivalents   (21,415)   (23,058)
Cash and cash equivalents, beginning of period   72,532    30,936 
           
Cash and cash equivalents, end of period  $51,117   $7,878 
           
Supplemental disclosures of cash flow information          
Cash paid for          
Interest  $4,100   $1,533 
Income taxes  $
   $
 
Non-cash operating activities          
Adoption of ASU 2016-13  $354   $
 

 

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

5 

 

 MAGYAR BANCORP, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

 

 

NOTE A – BASIS OF PRESENTATION

 

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

 

Operating results for the three months ended December 31, 2023 are not necessarily indicative of the results that may be expected for the year ending September 30, 2024. The September 30, 2023 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 December 31, 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 Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326), which changed the impairment model for most financial assets. This update was intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses (“ACL”) should reflect management's current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be affected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. With certain exceptions, transition to the new requirements will be through a cumulative-effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. This update is effective for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies, to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

 

6 

 

The Company adopted ASU 2016-13 on October 1, 2023 using the modified retrospective approach for all financial assets measured at amortized cost, including loans, held-to-maturity debt securities, available-for-sale debt securities and unfunded commitments. The Company recorded a cumulative effect increase to retained earnings of $492,000 ($346,000 net of taxes), which was comprised of a $1,032,000 ($725,000 net of tax) increase related to loans and $540,000 ($379,000 net of tax) decrease related to unfunded commitments. The Company determined that there was no impact to retained earnings related to held-to-maturity securities as a result of adopting this guidance. The results reported for periods beginning on or after October 1, 2023 are presented under ASC 326, while prior period amounts continue to be reported in accordance with previously applicable accounting standards.

 

The impact of the change from the incurred loss model to the current expected credit loss model is included in the following table:

 

   October 1, 2023 
       Adoption     
   Pre-adoption   Impact   As Reported 
   (In thousands) 
Assets            
ACL on debt securities held-to-maturity  $
   $
   $
 
ACL on loans               
One-to-four family residential   1,259    7    1,266 
Commercial real estate   5,277    (589)   4,688 
Construction   472    (55)   417 
Home equity lines of credit   207    (87)   120 
Commercial business   939    (133)   806 
Other   176    (175)   1 
                
Liabilities               
ACL on unfunded commitments   
    540    540 
Total  $8,330   $(492)  $7,838 

 

Allowance for Credit Losses on Loans

 

The Company maintains its allowance for credit losses (“ACL”) at a level that management believes to be appropriate to absorb estimated credit losses as of the date of the Consolidated Statement of Financial Condition. The Company established its allowance in accordance with the guidance included in Accounting Standards Codification 326, Financial Instruments – Credit Losses (“ASC 326”). The ACL is a valuation reserve established and maintained by charges against income. Loans, or portions thereof, are charged-off against the ACL when they are deemed uncollectible. The ACL is an estimate of expected credit losses that considers our historical loss experience, the weighted average expected lives of loans, current economic conditions and forecasts of future economic conditions. The determination of an appropriate ACL is inherently subjective and may have significant changes from period to period. The methodology for determining the ACL has two main components: evaluation of expected credit losses for certain groups of homogeneous loans that share similar risk characteristics and evaluation of loans that do not share risk characteristics with other loans. The ACL is measured on a collective (pool) basis when similar characteristics exist. The Company’s loan portfolio is segmented by loan types that have similar risk characteristics and behave similarly during economic cycles.

 

Historical credit loss experience is the basis for the estimate of expected credit losses. We apply our historical loss rates to pools of loans with similar risk characteristics using the Weighted-Average Remaining Maturity (“WARM”) method. The remaining contractual life of the pools of loans with similar risk characteristics is adjusted by expected scheduled payments and prepayments. After consideration of the historical loss calculation, management applies qualitative adjustments to reflect the current conditions and reasonable and supportable forecasts not already reflected in the historical loss information. Our reasonable and supportable forecast adjustment is based on a regional economic indicator obtained from the United States Government Publishing Office. The Company selected eight qualitative metrics which were correlated with the Bank and its peer group’s historical loss patterns. The eight qualitative metrics include: changes in lending policies and procedures, changes in national and local economic conditions as well as business conditions, changes in the nature, complexity, and volume of the portfolio, changes in the experience, ability, and depth of lenders and lending management, changes in the volume and severity of past due and classified loans, changes in the value of collateral securing loans, changes in or the existence of credit concentrations, and changes in the legal and/or regulatory landscape. The adjustments are weighted for relevance before applying to each pool of loans. Each quarter, management reviews the recommended adjustment factors and applies any additional adjustments based on current conditions.

 

7 

 

The Company has elected to exclude $4.3 million of accrued interest receivable on loans as of December 31, 2023 from the measurement of its ACL. When a loan is placed on non-accrual status, any outstanding accrued interest is reversed against interest income. Accrued interest on loans is reported in the accrued interest receivable line on the consolidated statements of financial condition.

 

The ACL for individual loans begins with the use of normal credit review procedures to identify whether a loan no longer shares similar risk characteristics with other pooled loans and, therefore, should be individually assessed. We individually evaluate all commercial loans that meet the following criteria: (1) when it is determined that foreclosure is probable, (2) substandard, doubtful and nonperforming loans when repayment is expected to be provided substantially through the operation or sale of the collateral, or (3) when it is determined by management that a loan does not share similar risk characteristics with other loans. Credit loss estimates are calculated based on the following three acceptable methods for measuring the ACL: (1) the present value of expected future cash flows discounted at the loan’s original effective interest rate; (2) the loan’s observable market price; or (3) the fair value of the collateral when the loan is collateral dependent. Our individual loan evaluations consist primarily of the fair value of collateral method because most of our loans are collateral dependent. Collateral values are reduced to consider expected disposition costs when appropriate. A charge-off is recorded when the estimated fair value of the loan is less than the loan balance.

 

Allowance for Credit Losses on Unfunded Loan Commitments

 

The Company estimates expected credit losses over the contractual period in which the Bank is exposed to credit risk via a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Bank. The allowance for credit losses on unfunded loan commitments is included in accounts payable and other liabilities in the Company’s Statement of Financial Condition and is adjusted through credit loss expense. The estimate includes consideration of the likelihood that funding will occur, the amount of funding that will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.

 

Allowance for Credit Losses on Held-to-Maturity Securities

 

The Company accounts for its held-to-maturity securities in accordance with Accounting Standards Codification (ASC) 326-20, Financial Instruments – Credit Loss – Measured at Amortized Cost, which requires that the Company measure expected credit losses on held-to-maturity debt securities on a collective basis by major security type. The estimate of expected credit losses considers historical credit loss information that is adjusted for current economic conditions and reasonable and supportable forecasts.

 

The Company classifies its held-to-maturity debt securities into the following major security types: obligations of U.S. government agencies, obligations of U.S. government-sponsored enterprises, private label mortgage-backed securities, obligations of state and political subdivisions and corporate securities. Credit ratings of held-to-maturity debt securities, which are a significant input in calculating the expected credit loss, are reviewed on a quarterly basis. Based on the credit ratings of our held-to-maturity securities and our historical experience of no losses, the Company determined that an allowance for credit losses on its’ held-to-maturity portfolio is not required.

 

Accrued interest receivable on held-to-maturity debt securities totaled $215 thousand as of December 31, 2023 and is included within accrued interest receivable on the Company’s Consolidated Statement of Financial Condition. This amount is excluded from the estimate of expected credit losses. Generally, held-to-maturity debt securities are classified as nonaccrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When held-to-maturity debt securities are placed on nonaccrual status, unpaid interest credited to income is reversed against interest income.

 

Allowance for Credit Losses on Available-for-Sale Securities

 

The Company measures expected credit losses on available-for-sale debt securities when the Bank intends to sell, or when it is not more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the amortized cost basis of the security is written down to fair value through income. For available-for-sale debt securities that do not meet the previously mentioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this evaluation indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, equal to the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

 

8 

 

The ACL on available-for-sale debt securities is included within the recorded balance of securities available-for-sale on the Consolidated Statements of Financial Condition. Changes in the allowance for credit losses are recorded within provision for credit losses on the Consolidated Statements of Income. Losses are charged against the allowance when the Company believes the collectability of an available-for-sale security is in jeopardy or when either of the criteria regarding intent or requirement to sell is met.

 

Accrued interest receivable on available-for-sale debt securities totaled $26 thousand as of December 31, 2023 and is included within accrued interest receivable on the Company’s Consolidated Statement of Financial Condition. This amount is excluded from the estimate of expected credit losses. Generally, available-for-sale debt securities are classified as nonaccrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When available-for-sale debt securities are placed on nonaccrual status, unpaid interest credited to income is reversed against interest income.

 

 

NOTE C - CONTINGENCIES

 

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

 

 

NOTE D - EARNINGS PER SHARE

 

The following table presents a calculation of basic and diluted earnings per share for the three months ended December 31, 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.

 

   For the Three Months 
   Ended December 31, 
   2023   2022 
   (Dollars in thousands, except share and per share data) 
         
Income applicable to common shares  $1,652   $1,810 
Weighted average common shares outstanding- basic   6,387,010    6,456,525 
Potential diliutive common stock equivalents   
    2,921 
Weighted average common shares outstanding- diluted   6,387,010    6,459,446 
Earnings per share - basic  $0.26   $0.28 
Earnings per share - diluted  $0.26   $0.28 

 

Options to purchase 293,200 shares of common stock at a weighted average strike price of $12.58 and 124,320 shares of restricted shares at a weighted average price of $12.63 were outstanding at December 31, 2023 but were not included in the calculation of diluted EPS because they were anti-dilutive. Options to purchase 293,200 shares of common stock at a weighted average strike price of $12.58 and 156,400 shares of restricted shares at a weighted average price of $12.63 were outstanding at December 31, 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 December 31, 2023, 293,200 options and 124,320 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 the three months ended December 31, 2023:

 

9 

 

   Shares   Weighted
Average
Exercise Price
   Weighted
Average
Remaining
Contractual Life
in Years
   Aggregate
Intrinsic
Value
 
                 
Balance at September 30, 2023   293,200   $12.58    8.98   $
 
Granted   
    
    
    
 
Exercised   
    
    
    
 
Forfeited   
    
    
    
 
Expired   
    
    
    
 
Balance at December 31, 2023   293,200   $12.58    8.73   $
 
                     
Exercisable at December 31, 2023   58,640   $12.58    8.73   $
 

 

The following is a summary of the status of the Company’s non-vested restricted shares for the three months ended December 31, 2023:

 

   Shares   Weighted
Average Grant
Date Fair Value
 
Balance at September 30, 2023   124,320   $12.63 
Granted   
    
 
Vested   
    
 
Forfeited   
    
 
Balance at December 31, 2023   124,320   $12.63 

 

Stock option and stock award expenses included with compensation expense were $63,000 and $98,000 for the three months ended December 31, 2023 and $69,000 and $111,000 for the three months ended December 31, 2022. At December 31, 2023, total compensation cost not yet recognized for the Company’s unvested stock options and stock awards was $2.4 million. The Company had no other stock-based compensation plans as of December 31, 2023 except as disclosed below.

 

On December 8, 2022, the Company announced the authorization of fourth 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 120,062 shares had been repurchased at an average price of $11.51 through December 31, 2023. Under this stock repurchase program, 217,084 shares of the 337,146 shares authorized remained available for repurchase as of December 31, 2023. The Company’s intended use of the repurchased shares is for general corporate purposes. The Company held treasury stock shares totaling 442,873 at December 31, 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 fixed interest rate of 3.25% with principal and interest payable annually in equal installments over 30 years.

 

10 

 

At December 31, 2023, ESOP shares allocated to participants totaled 170,335. Unallocated ESOP shares held in suspense totaled 290,313 with an aggregate fair value of $3.3 million. The Company's contribution expense for the ESOP was $50,000 and $41,000 for the three months ended December 31, 2023 and 2022, respectively.

 

 

NOTE F – OTHER COMPREHENSIVE INCOME (LOSS)

 

Comprehensive income (loss) includes net income as well as certain other items which result in a change to equity during the period. The Company recorded no reclassification adjustments during the three months ended December 31, 2023 and 2022. The components of other comprehensive income (loss) and the related income tax effects are as follows:

 

   Three Months Ended December 31, 
   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  $584   $(144)  $440   $206   $(50)  $156 
Other comprehensive income (loss), net  $584   $(144)  $440   $206   $(50)  $156 

 

 

(a) All amounts are net of tax. Related income tax expense or benefit calculated using an income tax rate approximating 25% for available-for-sale investments.

 

 

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.

 

11 

 

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.

 

December 31, 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  $95   $
   $95   $
 
Obligations of U.S. government-sponsored enterprises:                    
Mortgage-backed securities-residential   12,178    
    12,178    
 
Total securities available for sale  $12,273   $
   $12,273   $
 
Derivative assets   1,961    
    1,961    
 
Total assets  $14,234   $
   $14,234   $
 
                     
Liabilities:                    
Derivative liabilities  $1,961   $
   $1,961   $
 
Total Liabilities  $1,961   $
   $1,961   $
 
                     
September 30, 2023                    
Assets:                    
Securities available for sale:                    
Obligations of U.S. government agencies:                    
Mortgage-backed securities - residential  $92   $
   $92   $
 
Obligations of U.S. government-sponsored enterprises:                    
Mortgage-backed securities-residential   10,033    
    10,033    
 
Total securities available for sale  $10,125   $
   $10,125   $
 
Derivative assets   2,579    
    2,579    
 
Total assets  $12,704   $
   $12,704   $
 
                     
Liabilities:                    
Derivative liabilities  $2,579   $
   $2,579   $
 
Total Liabilities  $2,579   $
   $2,579   $
 

 

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

 

Collateral Dependent Loans

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

 

The following tables provide the level of valuation assumptions used to determine the carrying value of the Company’s assets measured at fair value on a non-recurring basis at December 31, 2023 and September 30, 2023.

 

12 

 

   Total   Level 1   Level 2   Level 3 
At December 31, 2023  (In thousands) 
                 
Collateral dependent loans  $777   $
   $
   $777 
Total  $777   $
   $
   $777 
                     
                     
At September 30, 2023                    
                     
Impaired loans  $777   $
   $
   $777 
Total  $777   $
   $
   $777 

 

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      
December 31, 2023  Estimate   Techniques  Unobservable Input  Range (Weighted Average)
               
Collateral dependent loans  $777   Appraisal of collateral (1)  Appraisal adjustments (2)  -50% to -8.0% (-12.0%)

 

              
   Fair Value   Valuation      
September 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%)

 

(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 December 31, 2023 and September 30, 2023.  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.

 

13 

 

   Carrying   Fair   Fair Value Measurement Placement 
   Value   Value   (Level 1)   (Level 2)   (Level 3) 
   (In thousands) 
December 31, 2023                         
Financial instruments - assets                         
Investment securities held to maturity  $84,333   $75,508   $
   $75,508   $
 
Loans   728,560    703,158    
    
    703,158 
                          
Financial instruments - liabilities                         
Certificates of deposit including retirement certificates   112,463    110,530    
    110,530    
 
Borrowings   28,796    27,930    
    27,930    
 
                          
September 30, 2023                         
Financial instruments - assets                         
Investment securities held-to-maturity  $85,835   $73,728   $
   $73,728   $
 
Loans   689,070    664,331    
    
    664,331 
                          
Financial instruments - liabilities                         
Certificates of deposit including retirement certificates   104,668    101,216    
    101,216    
 
Borrowings   29,515    28,177    
    28,177    
 

 

 

NOTE H - INVESTMENT SECURITIES

 

The following table summarizes the amortized cost and fair values of securities classified as available-for-sale and held-to-maturity at December 31, 2023:

 

       Gross   Gross     
   Amortized   Unrealized   Unrealized   Fair 
December 31, 2023  Cost   Gains   Losses   Value 
   (In thousands) 
Securities available-for-sale:                    
Obligations of U.S. government agencies:                    
Mortgage-backed securities - residential  $103   $
   $(8)  $95 
Obligations of U.S. government-sponsored enterprises:                    
Mortgage-backed securities-residential   13,551    39    (1,412)   12,178 
Total securities available-for-sale  $13,654   $39   $(1,420)  $12,273 
Securities held-to-maturity:                    
Obligations of U.S. government agencies:                    
Mortgage-backed securities - residential  $4,986   $
   $(677)  $4,309 
Mortgage-backed securities - commercial   2,484    
    (22)   2,462 
Obligations of U.S. government-sponsored enterprises:                    
Mortgage-backed-securities - residential   47,199    
    (6,229)   40,970 
Debt securities   22,999    6    (1,378)   21,627 
Private label mortgage-backed securities - residential   203    
    (10)   193 
Obligations of state and political subdivisions   3,462    5    (324)   3,143 
Corporate securities   3,000    
    (196)   2,804 
Total securities held-to-maturity  $84,333   $11   $(8,836)  $75,508 
Total investment securities  $97,987   $50   $(10,256)  $87,781 

 

The Company monitors the credit quality of held-to-maturity debt securities, primarily through their credit ratings by nationally recognized statistical ratings organizations, on a quarterly basis. At December 31, 2023, there were no non-performing held-to-maturity debt securities and no allowance for credit losses were required. The majority of the investment securities are explicitly or implicitly guaranteed by the United States government, and any estimate of expected credit losses would be insignificant to the Company. The following table summarizes the amortized cost of held-to-maturity debt securities at December 31, 2023, aggregated by credit quality indicator:

 

14 

 

   Credit Rating 
   AAA/AA/A   BBB/BB/B   Non-rated 
December 31, 2023  (In thousands) 
Securities held-to-maturity:               
Obligations of U.S. government agencies:               
Mortgage-backed securities - residential  $4,986   $
   $
 
Mortgage-backed securities - commercial   2,484    
    
 
Obligations of U.S. government-sponsored enterprises:               
Mortgage backed securities - residential   47,199    
    
 
Debt securities   22,999    
    
 
Private label mortgage-backed securities - residential   
    
    203 
Obligations of state and political subdivisions   3,462    
    
 
Corporate securities   
    3,000    
 
Totals  $81,130   $3,000   $203 

 

The contractual maturities of debt securities, municipal bonds and certain information regarding mortgage-backed securities at December 31, 2023 are summarized in the following table:

 

   December 31, 2023 
   Amortized   Fair 
   Cost   Value 
   (In thousands) 
Due within 1 year  $4,000   $3,966 
Due after 1 but within 5 years   20,526    19,315 
Due after 5 but within 10 years   4,935    4,293 
Due after 10 years   
    
 
Total debt securities   29,461    27,574 
           
Mortgage backed securities:          
Residential   66,042    57,745 
Commercial   2,484    2,462 
Total  $97,987   $87,781 

 

The following table summarizes the amortized cost and fair values of securities classified as available-for-sale and held-to-maturity at September 30, 2023:

15 

 

       Gross   Gross     
   Amortized   Unrealized   Unrealized   Fair 
September 30, 2023  Cost   Gains   Losses   Value 
   (In thousands) 
Securities available-for-sale:                    
Obligations of U.S. government agencies:                    
Mortgage backed securities - residential  $106   $
   $(14)  $92 
Obligations of U.S. government-sponsored enterprises:                    
Mortgage-backed securities-residential   11,984    
    (1,951)   10,033 
Total securities available for sale  $12,090   $
   $(1,965)  $10,125 
Securities held-to-maturity:                    
Obligations of U.S. government agencies:                    
Mortgage-backed securities - residential  $5,070   $
   $(850)  $4,220 
Mortgage-backed securities - commercial   2,509    
    (16)   2,493 
Obligations of U.S. government-sponsored enterprises:                    
Mortgage backed securities - residential   48,086    
    (8,480)   39,606 
Debt securities   23,497    
    (1,947)   21,550 
Private label mortgage-backed securities - residential   207    
    (12)   195 
Obligations of state and political subdivisions   3,466    
    (605)   2,861 
Corporate securities   3,000    
    (197)   2,803 
Total securities held to maturity  $85,835   $
   $(12,107)  $73,728 
Total investment securities  $97,925   $
   $(14,072)  $83,853 

 

As of December 31, 2023 investment securities having an estimated fair value of approximately $12.2 million were pledged to secure public deposits.

 

 

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

 

The Company recognizes an allowance for credit losses on debt securities in earnings through a provision for credit losses while noncredit-related impairment on debt securities not expected to be sold are recognized in other comprehensive income.

 

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

 

Investment securities with fair values greater than their amortized cost contain unrealized gains. Investment securities with fair values less than their amortized cost contain unrealized losses. Details of available-for-sale securities with unrealized losses at December 31, 2023 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 
December 31, 2023  (Dollars in thousands)
Obligations of U.S. government agencies:                                   
Mortgage-backed securities - residential   1   $
   $
   $95   $(8)  $95   $(8)
Obligations of U.S. government-sponsored enterprises                                   
Mortgage-backed securities - residential   9    1,879    (9)   7,929    (1,403)   9,808    (1,412)
Total   10   $1,879   $(9)  $8,024   $(1,411)  $9,903   $(1,420)

 

16 

 

Prior to the adoption of ASU 2016-13, details of our entire investment portfolio were required to be disclosed. Accordingly, details of our held-to-maturity and available-for-sale investment securities with unrealized losses at September 30, 2023 were 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 
September 30, 2023  (Dollars in thousands)
Obligations of U.S. government agencies:                                   
Mortgage-backed securities - residential   6   $
   $
   $4,312   $(864)  $4,312   $(864)
Mortgage-backed securities - commercial   2    1,926    (14)   567    (2)   2,493    (16)
Obligations of U.S. government-sponsored enterprises                                   
Mortgage-backed securities - residential   50    4,938    (49)   44,485    (10,382)   49,423    (10,431)
Debt securities   12    
    
    21,550    (1,947)   21,550    (1,947)
Private label mortgage-backed securities residential   1    
    
    195    (12)   195    (12)
Obligations of state and political subdivisions   7    789    (43)   2,072    (562)   2,861    (605)
Corporate securities   1    
    
    2,803    (197)   2,803    (197)
Total   79   $7,653   $(106)  $75,984   $(13,966)  $83,637   $(14,072)

 

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 credit losses and determined that there are no allowance for credit loss was required as of December 31, 2023.

 

 

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

 

Loans receivable, net were comprised of the following:

 

   December 31,   September 30, 
   2023   2023 
   (In thousands) 
         
One-to-four family residential  $234,156   $237,683 
Commercial real estate   407,346    389,134 
Construction and land   34,641    21,853 
Home equity loans and lines of credit   24,069    16,983 
Commercial business   27,043    30,194 
Other   2,239    2,359 
Total loans receivable   729,494    698,206 
Net deferred loan costs   (934)   (806)
Total loans receivable, net  $728,560   $697,400 

 

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 of revolving lines of credit and loans partially guaranteed by the U.S. Small Business Administration. The consumer loan segment consists primarily of stock-secured installment loans, but also includes unsecured personal loans and overdraft lines of credit connected with customer deposit accounts.

 

17 

 

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 by origination year summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful for loans subject to the Company’s internal risk rating system and by performing status for all other loans as of December 31, 2023.

18 

 

                           Revolving Loans     
   December 31, 2023   Amortized   Converted     
   Term Loans Amortized Cost Basis by Origination Fiscal Year   Cost Basis   to Term   Total 
   2024   2023   2022   2021   2020   Prior             
   (In thousands) 
One-to-four family residential                                             
Performing  $7,180   $43,224   $33,060   $27,899   $31,288   $91,353   $
   $
   $234,004 
Non-performing   
    
    
    
    
    152    
    
    152 
Total  $7,180   $43,224   $33,060   $27,899   $31,288   $91,505   $
   $
   $234,156 
Current period gross charge-offs   
    
    
    
    
    
    
    
    
 
                                              
Commercial real estate                                             
Pass  $18,235   $82,558   $68,224   $66,529   $30,007   $131,540   $6,373   $1,540   $405,006 
Special Mention   
    
    
    
    
    116    
    
    116 
Substandard   
    
    2,224    
    
    
    
    
    2,224 
Doubtful   
    
    
    
    
    
    
    
    
 
Total  $18,235   $82,558   $70,448   $66,529   $30,007   $131,656   $6,373   $1,540   $407,346 
Current period gross charge-offs   
    
    
    
    
    
    
    
    
 
                                              
Construction and land                                             
Pass  $10,368   $12,297   $2,351   $
   $1,761   $4,665   $725   $
   $32,167 
Special Mention   
    
    
    
    
    
    
    
    
 
Substandard   
    
    
    
    
    2,474    
    
    2,474 
Doubtful   
    
    
    
    
    
    
    
    
 
Total  $10,368   $12,297   $2,351   $
   $1,761   $7,139   $725   $
   $34,641 
Current period gross charge-offs   
    
    
    
    
    
    
    
    
 
                                              
Home equity loans and lines of credit                                             
Performing  $724   $1,678   $1,657   $342   $277   $1,438   $17,953   $
   $24,069 
Non-performing   
    
    
    
    
    
    
    
    
 
Total  $724   $1,678   $1,657   $342   $277   $1,438   $17,953   $
   $24,069 
Current period gross charge-offs   
    
    
    
    
    
    
    
    
 
                                              
Commercial business                                             
Pass  $1,030   $542   $2,685   $2,047   $946   $3,390   $16,403   $
   $27,043 
Special Mention   
    
    
    
    
    
    
    
    
 
Substandard   
    
    
    
    
    
    
    
    
 
Doubtful   
    
    
    
    
    
    
    
    
 
Total  $1,030   $542   $2,685   $2,047   $946   $3,390   $16,403   $
   $27,043 
Current period gross charge-offs   
    
    
    
    
    
    
    
    
 
                                              
Other                                             
Performing  $
   $
   $65   $1   $13   $1,793   $367   $
   $2,239 
Non-performing   
    
    
    
    
    
    
    
    
 
Total  $
   $
   $65   $1   $13   $1,793   $367   $
   $2,239 
Current period gross charge-offs   
    
    
    
    
    
    
    
    
 

 

Information presented in the table above is not required for periods prior to the adoption of ASU 2016-13. The following table presents more comparable information of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the Bank’s internal risk rating system as of September 30, 2023.

 

       Special             
   Pass   Mention   Substandard   Doubtful   Total 
   (In thousands) 
September 30, 2023                         
One-to-four family residential  $236,876   $
   $807   $
   $237,683 
Commercial real estate   386,794    116    2,224    
    389,134 
Construction   19,379    
    2,474    
    21,853 
Home equity lines of credit   16,983    
    
    
    16,983 
Commercial business   30,194    
    
    
    30,194 
Other   2,359    
    
    
    2,359 
Total  $692,585   $116   $5,505   $
   $698,206 

19 

 

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The Bank was not accruing interest on any loans delinquent greater than 90 days. 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 
   Current   Past Due   Past Due   Past Due   Loans 
   (In thousands) 
December 31, 2023                         
One-to-four family residential  $232,710   $1,056   $238   $152   $234,156 
Commercial real estate   404,315    690    116    2,225    407,346 
Construction   32,167    
    
    2,474    34,641 
Home equity lines of credit   24,069    
    
    
    24,069 
Commercial business   26,404    639    
    
    27,043 
Other   2,239    
    
    
    2,239 
Total  $721,904   $2,385   $354   $4,851   $729,494 

  

       30-59   60-89         
       Days   Days   90 Days +   Total 
   Current   Past Due   Past Due   Past Due   Loans 
   (In thousands) 
September 30, 2023                         
One-to four-family residential  $236,729   $
   $568   $386   $237,683 
Commercial real estate   386,794    
    116    2,224    389,134 
Construction   19,379    
    
    2,474    21,853 
Home equity lines of credit   16,983    
    
    
    16,983 
Commercial business   30,047    147    
    
    30,194 
Other   2,359    
    
    
    2,359 
Total  $692,291   $147   $684   $5,084   $698,206 

 

The following tables present our non-accrual loans and the related allowance for credit loss by loan type as of December 31, 2023 and the non-accrual loans and specific reserves by loan type as of September 30, 2023.

 

   Non-   Allowance for 
   Accrual   Credit Loss 
   (In  thousands) 
December 31, 2023          
One-to-four family residential  $152   $
 
Commercial real estate   2,225    
 
Construction and land   2,474    
 
Home loans and lines of credit   
    
 
Commercial business   
    
 
Total  $4,851   $
 

 

20 

 

   Non-   Specific 
   Accrual   Reserve 
   (In  thousands) 
September 30, 2023          
One-to four-family residential  $386   $
 
Commercial real estate   2,224    
 
Construction and land   2,474    
 
Home equity lines of credit   
    
 
Commercial business   
    
 
Other   
    
 
Total  $5,084   $
 

 

The following table identifies our non-performing, collateral dependent loans by collateral type as of December 31, 2023:

 

   December 31, 
   2023 
   (In thousands) 
One- to four-family residential  $152 
Commercial real estate   2,225 
Land   2,474 
Total  $4,851 

 

The Company’s adoption of ASU 2016-13 eliminated the requirement to disclose impaired loans. 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 as of September 30, 2023:

 

           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 
September 30, 2023  (In thousands) 
                     
One-to four-family residential  $
   $
   $2,031   $2,031   $2,031 
Commercial real estate   
    
    2,969    2,969    2,969 
Construction   
    
    2,474    2,474    2,539 
Commercial business   
    
    147    147    147 
Total impaired loans  $
   $
   $7,621   $7,621   $7,686 

 

The following table presents the average recorded investment in impaired loans and the interest income recognized on impaired loans for the three months ended December 31, 2022.

 

21 

 

   Three Months Ended 
   December 31, 2022 
   (In thousands) 
     
One-to-four family residential  $1,447 
Commercial real estate   1,269 
Construction   2,835 
Commercial business   203 
Average investment in impaired loans  $5,754 
      
Interest income recognized on     
an accrual basis on impaired loans     
One-to-four family residential  $20 
Commercial real estate   13 
Commercial business   2 
Total  $35 

 

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

 

ASU 2016-13 requires estimated credit losses on loans to be determined based on an expected life of loan model, as compared to an incurred loss model (in effect for periods prior to October 1, 2023).  Accordingly, the allowance for losses disclosures subsequent to October 1, 2023 are not always comparable to prior dates. In addition, certain new disclosures required under ASU 2016-13 are not applicable to prior periods.  As a result, the following tables present disclosures separately for each period, where appropriate.  New disclosures required under ASU 2016-13 are only shown for the current period.  Please refer to Note B “Summary of Significant Accounting Policies” for a summary of the impact of adopting the provisions of ASU 2016-13 on October 1, 2023.

 

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

The following table presents, by loan category, the changes in the allowance for credit losses for the three months ended December 31, 2023 and the allowance for loan losses for the three months ended December 31, 2022.

22 

 

   One-to-Four           Home Equity                 
   Family   Commercial       Lines of   Commercial             
   Residential   Real Estate   Construction   Credit   Business   Other   Unallocated   Total 
   (In  thousands) 
                                 
Balance- September 30, 2023  $1,259   $5,277   $472   $207   $939   $2   $174   $8,330 
Effect of adopting ASU 2016-13   7    (589)   (55)   (87)   (133)   (1)   (174)   (1,032)
Charge-offs   
    
    
    
    
    
    
    
 
Recoveries   
    
    
    
    
    
    
    
 
Provision (credit)   (75)   161    301    (40)   39    (1)   
    385 
Balance- December 31, 2023  $1,191   $4,849   $718   $80   $845   $
   $
   $7,683 
                                         
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 

 

During the three months ended December 31, 2023 and exclusive of the impact of the adoption of ASU 2016-13, the changes in the provision for credit losses for each portfolio of loans were primarily due to fluctuations in the outstanding balance of each segment of loans collectively evaluated for impairment. Specifically, we experienced significant growth in our commercial real estate and construction loan portfolios during the three months ended December 31, 2023 and a corresponding increase in the provision for credit losses for these portfolios. The overall increase in the allowance during the three months ended December 31, 2023 is attributed to the previously mentioned growth in our commercial real estate and construction portfolios, partially offset by improved economic metrics with continued low levels of net charge-offs and a decrease in non-performing assets.

 

The following table presents, 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 and September 30, 2023.

 

   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, 2023  $1,259   $5,277   $472   $207   $939   $2   $174   $8,330 
Individually evaluated                                        
for impairment   
    
    
    
    
    
    
    
 
Collectively evaluated                                        
for impairment   1,259    5,277    472    207    939    2    174    8,330 
                                         
Loans receivable:                                        
Balance - September 30, 2023  $237,683   $389,134   $21,853   $16,983   $30,194   $2,359   $
   $698,206 
Individually evaluated                                        
for impairment   2,031    2,969    2,474    
    147    
    
    7,621 
Collectively evaluated                                        
for impairment   235,652    386,165    19,379    16,983    30,047    2,359    
    690,585 

 

During the three months ended December 31, 2023, there were no loans modified to borrowers experiencing financial difficulty. During the three months ended December 31, 2022, there was one loan modified that was identified as a troubled debt restructuring (“TDR”) and there were no TDRs that subsequently defaulted within twelve months of modification.

23 

 

 

   Three Months Ended December 31, 2022 
   Number of   Investment Before   Investment After 
   Loans   TDR Modification   TDR Modification 
   (Dollars in thousands) 
One-to four-family residential   1   $97   $107 
                
Total   1   $97   $107 

 

There were no residential loans in the process of foreclosure at December 31, 2023.

 

NOTE K - DEPOSITS

 

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

 

   December 31,   September 30, 
   2023   2023 
   (In thousands) 
         
Demand accounts  $164,453   $188,550 
Savings accounts   60,008    62,168 
NOW accounts   119,738    115,182 
Money market accounts   306,886    284,885 
Certificates of deposit   100,547    92,725 
Retirement certificates   11,916    11,943 
Total deposits  $763,548   $755,453 

 

Included in Company’s deposits at December 31, 2023 were $13.8 million in brokered certificates of deposits and $15.5 million in certificate of deposits obtained through a national deposit listing service. At September 30, 2023 the Company had $13.8 million in brokered certificates of deposits and $14.0 million in certificate of deposits obtained through a national deposit listing service.

 

At December 31, 2023 and September 30, 2023, the aggregate deposits in amounts greater than $250,000, which is the maximum amount for federal deposit insurance, were $456.7 million and $429.9 million, respectively. The estimated amount of deposits that were neither insured nor collateralized was $120.2 million and $109.3 million at December 31, 2023 and September 30, 2023, respectively.

 

 

NOTE L - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

 

The Company may use derivative financial instruments, such as interest rate swaps and interest rate floors and caps, as part of its interest rate risk management. Interest rate caps and floors are agreements whereby one party agrees to pay or receive a floating rate of interest on a notional principal amount for a predetermined period of time if certain market interest rate thresholds are met. The Company considers the credit risk inherent in these contracts to be negligible. As of December 31, 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 December 31, 2023 and September 30, 2023.

 

The following table presents summary information regarding these derivatives as of December 31, 2023 and September 30, 2023.

 

24 

 

   Notional
Amount
   Average
Maturiy
(Years)
   Weighted
Average
Fixed Rate
   Weighted Average
Variable Rate
  Fair Value 
   (Dollars in thousands) 
December 31, 2023                   
Classified in Other Assets:                       
Customer interest rate swaps  $35,743    3.9    4.96%    1 Mo. BSBY + 2.44  $1,961 
Total  $35,743    3.9    4.96%      $1,961 
                        
Classified in Other Liabilities:                       
3rd Party interest rate swaps  $35,743    3.9    4.96%    1 Mo. BSBY + 2.44  $1,961 
Total  $35,743    3.9    4.96%      $1,961 
                        
September 30, 2023                       
Classified in Other Assets:                       
Customer interest rate swaps  $36,020    4.2    4.96%    1 Mo. BSBY + 2.44  $2,579 
Total  $36,020    4.2    4.96%      $2,579 
                        
Classified in Other Liabilities:                       
3rd Party interest rate swaps  $36,020    4.2    4.96%    1 Mo. BSBY + 2.44  $2,579 
Total  $36,020    4.2    4.96%      $2,579 

 

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.

 

   December 31,   September 30, 
   2023   2023 
   (In thousands) 
         
Financial instruments whose contract amounts represent credit risk          
Letters of credit  $1,098   $1,073 
Unused lines of credit   95,333    89,933 
Fixed rate loan commitments   15,610    3,578 
Variable rate loan commitments   4,969    26,472 
Totals  $117,010   $121,056 

 

Upon adoption of ASU 2016-13 on October 1, 2023, the Company recorded an allowance for credit losses for its unused lines of credit and unfunded commitments totaling $540,000. The Company’s reserves for off-balance sheet credit losses increased to $637,000 at December 31, 2023 from $0 at September 30, 2023.

 

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.

 

25 

 

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 three months ended December 31, 2023.

 

 

Comparison of Financial Condition at December 31, 2023 and September 30, 2023

 

Total Assets. Total assets increased $9.4 million, or 1.0%, to $916.7 million at December 31, 2023 from $907.3 million at September 30, 2023. The increase was attributable to higher balances of loans receivable, net of allowance for credit loss, offset by lower interest-earning deposits with banks.

 

Interest Earning Deposits. Interest-earning deposits with banks decreased $21.4 million, or 30.8%, to $48.0 million at December 31, 2023 from $69.4 million at September 30, 2023 resulting primarily from deployment of these fund into loans receivable during the three months ended December 31, 2023.

 

Loans Receivable. Total loans receivable increased $31.3 million, or 4.5%, to $729.5 million at December 31, 2023 from $698.2 million at September 30, 2023. The increase in total loans receivable during the quarter ended December 31, 2023 occurred in commercial real estate loans, which increased $18.2 million, or 4.7%, to $407.4 million, construction loans, which increased $12.8 million, or 58.5%, to $34.6 million and one-to four-family residential real estate loans (including home equity loans and lines of credit), which increased $3.5 million, or 1.4%, to $258.2 million. Partially offsetting these increases were commercial business loans, which decreased $3.1 million, or 10.4%, to $27.0 million and other loans, which decreased $120,000, or 5.1%, to $2.2 million during the quarter.

 

As of December 31, 2023, non-owner occupied commercial real estate loans (as defined by regulatory guidance) to total risk-based capital was estimated at approximately 267%. 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.

 

Total non-performing loans decreased $233,000, or 4.6%, to $4.9 million at December 31, 2023 from $5.1 million at September 30, 2023. The decline was attributable to payments received on one residential mortgage loan that was no longer delinquent more than 90 days at December 31, 2023. The ratio of non-performing loans to total loans decreased to 0.66% at December 31, 2023 from 0.73% at September 30, 2023.

 

The allowance for credit losses was unchanged at $8.3 million during the three months ended December 31, 2023. Upon adoption of ASU 2016-13 on October 1, 2023, the Company’s allowance for credit losses decreased $492,000. Growth in loans receivable and loan commitments during the quarter resulted in additional provisions for credit loss totaling $481,000. The Company’s allowance for on-balance sheet credit losses decreased to $7.7 million at December 31, 2023 from $8.3 million at September 30, 2023 while its reserve for off-balance sheet commitments increased to $637,000 at December 31, 2023 from $0 at September 30, 2023.

 

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The allowance for credit losses as a percentage of non-performing loans increased to 171.5% at December 31, 2023 from 163.9% at September 30, 2023. Our allowance for credit losses as a percentage of total loans was 1.14% at December 31, 2023 compared with 1.19% at September 30, 2023. 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 December 31, 2023, investment securities totaled $96.6 million, reflecting an increase of $646,000, or 0.7%, from September 30, 2023. During the three months ended December 31, 2023, the Company purchased securities totaling $4.0 million and experienced a $584,000 increase in the market value of its available-for-sale investment securities. Offsetting these increases were repayments from mortgage-backed securities totaling $1.4 million and the maturity of a $2.5 million U.S. Government-sponsored enterprise debt security. There were no sales of investment securities during the period.

 

Investment securities at December 31, 2023 consisted of $66.9 million in mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises, $23.0 million in U.S. government-sponsored enterprise debt securities, $3.0 million in corporate notes, $3.5 million in municipal bonds, and $203,000 in “private-label” mortgage-backed securities. There was no allowance for credit losses for the Company’s investment securities for the three months ended December 31, 2023.

 

Deposits. Total deposits increased $8.1 million, or 1.1%, to $763.5 million at December 31, 2023 from $755.4 million at September 30, 2023.

 

The inflow in deposits occurred in money market accounts, which increased $22.0 million, or 7.7%, to $306.9 million, in certificates of deposit (including individual retirement accounts), which increased $7.8 million, or 7.4%, to $112.5 million and in interest-bearing checking accounts (NOW), which increased $4.6 million, or 4.0%, to $119.7 million. Partially offsetting these increases were decreases in non-interest bearing checking accounts, which decreased $24.1 million, or 12.8%, to $164.4 million and savings accounts, which decreased $2.2 million, or 3.5%, to $60.0 million. Included in the certificates of deposit were $13.8 million in brokered certificates of deposit.

 

Borrowed Funds. Borrowings decreased $719,000, or 2.4%, to $28.8 million at December 31, 2023 from $29.5 million at September 30, 2023. The Company repaid a matured long term advance totaling $2.4 million and borrowed a zero- cost, three-year advance totaling $1.7 million the Federal Home Loan Bank of New York during the three months ended December 31, 2023.

 

Stockholders’ Equity. Stockholders’ equity increased $1.7 million, or 1.7%, to $106.5 million at December 31, 2023 from $104.8 million at September 30, 2023. The increase was primarily due to net income of $1.6 million, followed by $440,000 in other comprehensive income, a $354,000 increase for the tax effected adoption of ASU 2016-13, a $161,000 increase for stock-based compensation and a $50,000 increase for ESOP shares allocated during the quarter. Partially offsetting these increases were $716,000 in dividends paid ($0.11 per share) and 19,232 shares repurchased during the quarter totaling $192,000. As a result, the Company’s book value per share increased to $16.01 at December 31, 2023 from $15.70 at September 30, 2023.

 

 

Average Balance Sheet for the Three Months Ended December 31, 2023 and 2022

 

The following table presents certain information regarding the Company’s financial condition and net interest income for the three months ended December 31, 2023 and 2022. 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 period indicated. Interest income includes fees that we consider adjustments to yields.

 

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   Three Months Ended December 31, 
   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  $70,954   $928    5.19%   $14,984   $109    2.88% 
Loans receivable, net   703,238    10,082    5.69%    643,206    7,959    4.91% 
Securities                              
Taxable   92,694    478    2.05%    97,121    395    1.61% 
Tax-exempt (1)    3,370    18    2.15%    3,370    18    2.15% 
FHLBNY stock   2,290    55    9.53%    1,613    24    6.00% 
Total interest-earning assets   872,546    11,561    5.26%    760,294    8,505    4.44% 
Noninterest-earning assets   49,628              48,415           
Total assets  $922,174             $808,709           
                               
Interest-bearing liabilities:                              
Savings accounts (2)   $60,661    87    0.57%   $78,263    82    0.41% 
NOW accounts (3)    413,731    3,156    3.03%    325,295    1,177    1.44% 
Time deposits (4)   107,207    834    3.09%    79,535    215    1.07% 
Total interest-bearing deposits   581,599    4,077    2.78%    483,093    1,474    1.21% 
Borrowings   29,604    236    3.16%    19,067    136    2.83% 
Total interest-bearing liabilities   611,203    4,313    2.80%    502,160    1,610    1.27% 
Noninterest-bearing liabilities   204,225              206,197           
Total liabilities   815,428              708,357           
Retained earnings   106,746              100,352           
Total liabilities and retained earnings  $922,174             $808,709           
                               
Tax-equivalent basis adjustment        (4)             (4)     
Net interest and dividend income       $7,244             $6,891      
Interest rate spread             2.46%              3.17% 
Net interest-earning assets  $261,343             $258,134           
Net interest margin (5)             3.29%              3.60% 
Average interest-earning assets to average interest-bearing liabilities   142.76%              151.40%           

 

 

(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 December 31, 2023 and 2022

 

Net Income. Net income decreased $158,000, or 8.7%, to $1,652,000 for the three-month period ended December 31, 2023 compared with net income of $1,810,000 for the three-month period ended December 31, 2022. The decrease was due to higher provisions for credit loss and other expenses, partially offset by higher net interest income.

 

Net Interest and Dividend Income. Net interest and dividend income increased $353,000, or 5.1%, to $7.2 million for the three months ended December 31, 2023 from $6.9 million for the three months ended December 31, 2022. The increase was attributable to a $112.3 million increase in the average balance of interest-earning assets between periods, partially offset by a 31 basis point decrease in the Company’s net interest margin to 3.29% for the three months ended December 31, 2023 from 3.60% for the three months ended December 31, 2022.

 

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Interest and Dividend Income. Interest and dividend income increased $3.1 million, or 35.9%, to $11.6 million for the three months ended December 31, 2023 compared with $8.5 million for the three months ended December 31, 2022. The increase was attributable to an 82 basis point increase in the yield on earning assets to 5.26% for the three months ended December 31, 2023 from 4.44% for the three months ended December 31, 2022 as well as a $112.3 million, or 14.8%, increase in the average balance of interest-earning assets. The increase in yield on the Company’s assets was attributable to higher market interest rates between periods.

 

The average balance of loans receivable, net of allowance for loan loss, increased $60.0 million to $703.2 million during the three months ended December 31, 2023 from $643.2 million during the three months ended December 31, 2022 while the yield on loans receivable increased 78 basis points to 5.69% for the three months ended December 31, 2023 from 4.91% for the three months ended December 31, 2022 due to higher market interest rates. The higher average balance and yield accounted for a $2.1 million, or 26.7%, increase in loan interest income between periods.

 

Interest earned on investment securities, including interest-earning deposits and excluding FHLB stock, increased $902,000, or 174.1%, to $1.4 million for the quarter ended December 31, 2023 from $518,000 for the prior year quarter. A 160 basis point increase in the yield on such assets to 3.39% for the three months ended December 31, 2023 from 1.79% for the three months ended December 31, 2022, and the average balance of investment securities and interest-earning deposits increased by $51.5 million, or 44.6%, to $167.0 million for the quarter ended December 31, 2023.

 

Interest Expense. Interest expense increased $2.7 million, or 167.9%, to $4.3 million for the three months ended December 31, 2023 from $1.6 million for the three months ended December 31, 2022. The cost of interest-bearing liabilities increased 153 basis points to 2.80% for the three months ended December 31, 2023 compared with 1.27% for the three months ended December 31, 2022 resulting primarily from higher market interest rates. In addition, the average balance of interest-bearing liabilities increased $109.0 million, or 21.7%, to $611.2 million.

 

The average balance of interest-bearing deposits increased $98.5 million, or 20.4%, to $581.6 million for the quarter ended December 31, 2023 from $483.0 million for the quarter ended December 31, 2022, while the average cost of such deposits increased 157 basis points to 2.78% from 1.21%. As a result, interest paid on interest-bearing deposits increased $2.6 million to $4.1 million for the three months ended December 31, 2023 compared with $$1.5 million for the three months ended December 31, 2022 due to higher market interest rate environment.

 

Interest paid on borrowings increased $100,000, or 73.5%, to $236,000 for the three months ended December 31, 2023 from $136,000 for the prior year period. The increase was the result of a 33 basis point increase in the cost of borrowings to 3.16% for the three months ended December 31, 2023 from 2.83% for the three months ended December 31, 2022. Average balance of borrowings increased $10.5 million to $29.6 million for the three months ended December 31, 2023 compared to $19.1 million for the three months ended December 31, 2022.

 

Provision for Credit Losses. The Company recorded a provision of $481,000 for the three months ended December 31, 2023 compared to $317,000 for the three months ended December 31, 2022. The higher provisions resulted from growth in the Company’s loan portfolio during the three months ended December 31, 2023, specifically in commercial real estate and construction loans. The Company recorded $461 in net recoveries during the three months ended December 31, 2023 compared with $0 in net recoveries during the three months ended December 31, 2022.

 

Other Income. Other income increased $12,000, or 2.0%, to $609,000 during the three months ended December 31, 2023 compared to $597,000 for the three months ended December 31, 2022. Higher service charge income from loan prepayment penalties and a $60,000 gain on the sale of land during the quarter were partially offset by lower interest rate swap fees and gains on the sale of SBA loans.

 

Other Expenses. Other expenses increased $439,000, or 9.6%, to $5.0 million during the three months ended December 31, 2023.

 

The increase in other expense was primarily attributable to higher compensation and benefit expense, which increased $226,000, or 8.6%, to $2.8 million, due to fewer open positions between periods and the addition of a commercial lender in September 2023. Also contributing to the increase were higher FDIC deposit insurance premiums and other expenses. Deposit insurance premiums increased $49,000, or 90.7%, from deposit growth and higher insurance assessment rates implemented by the FDIC for all insured institutions effective January 1, 2023. Other expenses increased $100,000, or 20.3%, from higher loan origination and servicing costs, higher losses on fraudulent checks, and higher OREO expenses.

 

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