UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
For the transition period from _____________ to _____________
Commission File Number
(Exact Name of Registrant as Specified in Its Charter)
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Securities registered pursuant to Section 12(b) of the Act:
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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.
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| ☑ | 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. ☐
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The number of shares outstanding of the issuer's
common stock at August 1, 2024 was
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 | 27 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 36 |
| Item 4. | Controls and Procedures | 36 |
| PART II. OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 37 |
| Item 1A. | Risk Factors | 37 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 37 |
| Item 3. | Defaults Upon Senior Securities | 37 |
| Item 4. | Mine Safety Disclosures | 37 |
| Item 5. | Other Information | 37 |
| Item 6. | Exhibits | 38 |
| Signature Pages | 39 | |
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
MAGYAR BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Data)
| June 30, | September 30, | |||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Cash and due from banks | $ | $ | ||||||
| Interest earning deposits with banks | ||||||||
| Total cash and cash equivalents | ||||||||
| Investment securities - available for sale, at fair value | ||||||||
| Investment securities - held to maturity, at amortized cost (fair value of $ | ||||||||
| Federal Home Loan Bank of New York stock, at cost | ||||||||
| Loans receivable | ||||||||
| Allowance for credit losses-loans | ( | ) | ( | ) | ||||
| Bank owned life insurance | ||||||||
| Accrued interest receivable | ||||||||
| Premises and equipment, net | ||||||||
| Other real estate owned ("OREO") | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders' Equity | ||||||||
| Liabilities | ||||||||
| Deposits | $ | $ | ||||||
| Escrowed funds | ||||||||
| Borrowings | ||||||||
| Accrued interest payable | ||||||||
| Accounts payable and other liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders' equity | ||||||||
| Preferred stock: $ | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock: | ( | ) | ( | ) | ||||
| Unearned Employee Stock Ownership Plan shares | ( | ) | ( | ) | ||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total stockholders' equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
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 | Nine Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (Unaudited) | ||||||||||||||||
| Interest and dividend income | ||||||||||||||||
| Loans, including fees | $ | $ | $ | $ | ||||||||||||
| Investment securities | ||||||||||||||||
| Taxable | ||||||||||||||||
| Tax-exempt | ||||||||||||||||
| Federal Home Loan Bank of New York stock | ||||||||||||||||
| Total interest and dividend income | ||||||||||||||||
| Interest expense | ||||||||||||||||
| Deposits | ||||||||||||||||
| Borrowings | ||||||||||||||||
| Total interest expense | ||||||||||||||||
| Net interest and dividend income | ||||||||||||||||
| Provision (recovery) for credit losses-loans | ( | ) | ||||||||||||||
| Recovery for credit losses-unfunded commitments | ( | ) | ||||||||||||||
| Total (recovery) provision for credit losses | ( | ) | ( | ) | ||||||||||||
| Net interest and dividend income after provision (recovery) for credit losses | ||||||||||||||||
| Other income | ||||||||||||||||
| Service charges | ||||||||||||||||
| Income on bank owned life insurance | ||||||||||||||||
| Interest rate swap fees | ||||||||||||||||
| Other operating income | ||||||||||||||||
| Gains on sales of premises and equipment | ||||||||||||||||
| Gains on sale of SBA loans | ||||||||||||||||
| Gains on sale of OREO | ||||||||||||||||
| Total other income | ||||||||||||||||
| Other expenses | ||||||||||||||||
| Compensation and employee benefits | ||||||||||||||||
| Occupancy expenses | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Data processing expenses | ||||||||||||||||
| Director fees and benefits | ||||||||||||||||
| Marketing and business development | ||||||||||||||||
| FDIC deposit insurance premiums | ||||||||||||||||
| Other expenses | ||||||||||||||||
| Total other expenses | ||||||||||||||||
| Income before income tax expense | ||||||||||||||||
| Income tax expense | ||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Earnings per share - basic | $ | $ | $ | $ | ||||||||||||
| Earnings per share - diluted | $ | $ | $ | $ | ||||||||||||
| Weighted average shares outstanding - basic | ||||||||||||||||
| Weighted average shares outstanding - diluted | ||||||||||||||||
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 | Nine Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (Unaudited) | ||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Other comprehensive income (loss): | ||||||||||||||||
| Unrealized gain (loss) on securities available for sale | ( | ) | ( | ) | ||||||||||||
| Other comprehensive income (loss), before tax | ( | ) | ( | ) | ||||||||||||
| Deferred income tax effect | ( | ) | ( | ) | ||||||||||||
| Total other comprehensive income (loss) | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||
| Total comprehensive income | $ | $ | $ | $ | ||||||||||||
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 and Nine Months Ended June 30, 2024 and 2023
(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 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||
| Net income | — | |||||||||||||||||||||||||||||||
| Dividends paid on common stock ($ | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Effect of adopting ASU 2016-13 | — | |||||||||||||||||||||||||||||||
| Other comprehensive income | — | |||||||||||||||||||||||||||||||
| ESOP shares allocated | — | |||||||||||||||||||||||||||||||
| Purchase of treasury stock | ( | ) | — | — | ( | ) | — | — | — | ( | ) | |||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||
| Net income | — | |||||||||||||||||||||||||||||||
| Dividends paid on common stock ($ | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Other comprehensive loss | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| ESOP shares allocated | — | |||||||||||||||||||||||||||||||
| Purchase of treasury stock | ( | ) | — | — | ( | ) | — | — | — | ( | ) | |||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||||||||||||||
| Balance, March 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||
| Net income | — | |||||||||||||||||||||||||||||||
| Dividends paid on common stock ($ | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Other comprehensive loss | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| ESOP shares allocated | — | |||||||||||||||||||||||||||||||
| Purchase of treasury stock | ( | ) | — | — | ( | ) | — | — | — | ( | ) | |||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||||||||||||||
| Balance, June 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
| 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 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||
| Net income | — | |||||||||||||||||||||||||||||||
| Dividends paid on common stock ($ | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Other comprehensive income | — | |||||||||||||||||||||||||||||||
| ESOP shares allocated | — | |||||||||||||||||||||||||||||||
| Purchase of treasury stock | ( | ) | — | — | ( | ) | — | — | — | ( | ) | |||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||
| Net income | — | |||||||||||||||||||||||||||||||
| Dividends paid on common stock ($ | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Other comprehensive income | — | |||||||||||||||||||||||||||||||
| Treasury stock used for restricted stock plan | ( | ) | ||||||||||||||||||||||||||||||
| ESOP shares allocated | — | |||||||||||||||||||||||||||||||
| Purchase of treasury stock | ( | ) | — | — | ( | ) | — | — | — | ( | ) | |||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||
| Net income | — | |||||||||||||||||||||||||||||||
| Dividends paid on common stock ($ | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Other comprehensive loss | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| ESOP shares allocated | — | |||||||||||||||||||||||||||||||
| Retirement of | — | ( | ) | |||||||||||||||||||||||||||||
| Purchase of treasury stock | ( | ) | — | — | ( | ) | — | — | — | ( | ) | |||||||||||||||||||||
| Stock-based compensation expense | — | |||||||||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
MAGYAR BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(In Thousands)
| Nine Months Ended | ||||||||
| June 30, | ||||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| Operating activities | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation expense | ||||||||
| Premium amortization on investment securities, net | ||||||||
| Provision for credit losses | ||||||||
| Originations of SBA loans held for sale | ( | ) | ( | ) | ||||
| Proceeds from the sales of SBA loans | ||||||||
| Gains on sale of SBA loans | ( | ) | ( | ) | ||||
| Gains on the sales of other real estate owned | ( | ) | ||||||
| Gains on the sale of premises and equipment | ( | ) | ( | ) | ||||
| ESOP compensation expense | ||||||||
| Stock-based compensation expense | ||||||||
| Deferred income tax benefit | ( | ) | ( | ) | ||||
| Increase in accrued interest receivable | ( | ) | ( | ) | ||||
| Income on bank owned life insurance | ( | ) | ( | ) | ||||
| Decrease (increase) in other assets | ( | ) | ||||||
| Increase in accrued interest payable | ||||||||
| Decrease in accounts payable and other liabilities | ( | ) | ( | ) | ||||
| Net cash provided by operating activities | ||||||||
| Investing activities | ||||||||
| Net increase in loans receivable | ( | ) | ( | ) | ||||
| Purchases of loans receivable | ( | ) | ( | ) | ||||
| Purchases of investment securities held-to-maturity | ( | ) | ||||||
| Purchases of investment securities available-for-sale | ( | ) | ||||||
| Principal repayments on investment securities held-to-maturity | ||||||||
| Principal repayments on investment securities available-for-sale | ||||||||
| Redemption of bank owned life insurance | — | |||||||
| Purchases of premises and equipment, net | ( | ) | ( | ) | ||||
| Proceeds from the sale of premises and equipments | ||||||||
| Investment in other real estate owned | ( | ) | ||||||
| Proceeds from other real estate owned | ||||||||
| Purchase of Federal Home Loan Bank stock | ( | ) | ( | ) | ||||
| Redemption of Federal Home Loan Bank stock | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing activities | ||||||||
| Net increase in deposits | ||||||||
| Net increase in escrowed funds | ||||||||
| Proceeds from long-term advances | ||||||||
| Repayments of long-term advances | ( | ) | ( | ) | ||||
| Net change in short-term advances | ||||||||
| Cash dividends paid on common stock | ( | ) | ( | ) | ||||
| Purchase of treasury stock | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net decrease in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information | ||||||||
| Cash paid for | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Non-cash operating activities | ||||||||
| Real estate acquired in full satisfaction of loans in foreclosure | $ | $ | ||||||
| Adoption of ASU 2016-13 | $ | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
MAGYAR BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
NOTE A – BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Magyar Bancorp, Inc. (the “Company”), its wholly owned subsidiary, Magyar Bank (the “Bank”), and the Bank’s wholly owned subsidiaries Magyar Service Corporation, Hungaria Urban Renewal, LLC, and Magyar Investment Company. All material intercompany transactions and balances have been eliminated. The Company prepares its consolidated financial statements on the accrual basis and in conformity with accounting principles generally accepted in the United States of America ("US GAAP"). The unaudited information furnished herein reflects all adjustments (consisting of normal recurring accruals) that are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented.
Operating results for the nine months ended June 30, 2024 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 credit losses, the valuation of available-for-sale investment securities, the valuation of other real estate owned (“OREO”), and the assessment of realizability of deferred income tax assets.
The Company has evaluated events and transactions occurring subsequent to the balance sheet date of June 30, 2024 for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the date these consolidated financial statements were issued.
NOTE B - RECENT ACCOUNTING PRONOUNCEMENTS
In connection with the preparation of quarterly and annual reports in accordance with the Securities Exchange Act of 1934, Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin Topic 11.M requires the disclosure of the impact that recently issued accounting standards will have on consolidated financial statements when they are adopted in the future.
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.
7
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 and unfunded commitments. The Company recorded a cumulative effect increase to
retained earnings of $
| 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 | ||||||||||||
| Commercial real estate | ( | ) | ||||||||||
| Construction and land | ( | ) | ||||||||||
| Home equity lines of credit | ( | ) | ||||||||||
| Commercial business | ( | ) | ||||||||||
| Other | ( | ) | ||||||||||
| Liabilities | ||||||||||||
| ACL on unfunded commitments | ||||||||||||
| Total | $ | $ | ( | ) | $ | |||||||
Allowance for Credit Losses on Loans
The Company maintains its ACL at a level that management believes to be appropriate to absorb expected 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.
8
The Company
has elected to exclude $
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 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 Consolidated Balance Sheets 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 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 the expected for credit losses on its’ held-to-maturity portfolio is not significant.
Accrued interest
receivable on held-to-maturity debt securities totaled $
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.
9
The ACL on available-for-sale debt securities is included within the recorded balance of securities available-for-sale on the Consolidated Balance Sheets. 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 $
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
| Three Months | Nine Months | |||||||||||||||
| Ended June 30, | Ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (Dollars in thousands, except share and per share data) | ||||||||||||||||
| Income applicable to common shares | $ | $ | $ | $ | ||||||||||||
| Weighted average common shares outstanding- basic | ||||||||||||||||
| Weighted average common shares outstanding- diluted | ||||||||||||||||
| Earnings per share - basic | $ | $ | $ | $ | ||||||||||||
| Earnings per share - diluted | $ | $ | $ | $ | ||||||||||||
Options to purchase
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
10
| Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life in Years | Aggregate Intrinsic Value | |||||||||||||
| Balance at September 30, 2023 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ||||||||||||||||
| Forfeited | ||||||||||||||||
| Expired | ||||||||||||||||
| Balance at June 30, 2024 | $ | $ | ||||||||||||||
| Exercisable at June 30, 2024 | $ | $ | ||||||||||||||
| Shares | Weighted Average Grant Date Fair Value | |||||||
| Balance at September 30, 2023 | $ | |||||||
| Granted | ||||||||
| Vested | ||||||||
| Forfeited | ||||||||
| Balance at June 30, 2024 | $ | |||||||
Stock option and
stock award expenses included with compensation expense were $
At June 30, 2024,
total compensation cost not yet recognized for the Company’s unvested stock options and stock awards was $
On December 8, 2022,
the Company announced the authorization of a second stock repurchase plan pursuant to which the Company intends to repurchase up to an
additional
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.
11
In connection with
the Company’s second-step stock offering during its fiscal year ending September 30, 2021, the ESOP trustees purchased
At June 30, 2024,
ESOP shares allocated to participants totaled
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 and nine months ended June 30, 2024 and 2023.
| Three Months Ended June 30, | ||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||
| Net of | Net of | |||||||||||||||||||||||
| Before Tax | Tax | Tax | Before Tax | Tax | Tax | |||||||||||||||||||
| Amount | Benefit | Amount | Amount | Benefit | Amount | |||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
| Unrealized holding loss arising during period on: | ||||||||||||||||||||||||
| Available-for-sale investments (1) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||
| Other comprehensive loss, net | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||
| Nine Months Ended June 30, | ||||||||||||||||||||||||
| 2024 |
|
2023 | ||||||||||||||||||||||
| Net of | Net of | |||||||||||||||||||||||
| Before Tax | Tax | Tax | Before Tax | Tax | Tax | |||||||||||||||||||
| Amount | Expense | Amount | Amount | Expense | Amount | |||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
| Unrealized holding gain arising during period on: | ||||||||||||||||||||||||
| Available-for-sale investments (1) | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Other comprehensive income, net | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
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. |
12
The Company based its fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The following is a description of valuation methodologies used for assets measured at fair value on a recurring basis.
Securities available-for-sale
The securities available-for-sale portfolio is carried at estimated fair value on a recurring basis, with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income/loss in stockholders’ equity. The securities available-for-sale portfolio consists of U.S government-sponsored mortgage-backed securities. The fair values of these securities are obtained from an independent nationally recognized pricing service. An independent pricing service provides the Company with prices which are categorized as Level 2, as quoted prices in active markets for identical assets are generally not available for the securities in the Company’s portfolio. Various modeling techniques are used to determine pricing for Company’s mortgage-backed securities, including option pricing and discounted cash flow models. The inputs to these models include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data.
Derivatives
The Bank executes interest rate swaps with commercial lending customers to facilitate their respective risk management strategies. The fair values of such derivatives are based on valuation models from a third party using current market terms (including interest rates and fees), the remaining terms of the agreements and the credit worthiness of the counter party as of the measurement date (Level 2).
| June 30, 2024 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
| (In thousands) | ||||||||||||||||
| Assets: | ||||||||||||||||
| Securities available for sale: | ||||||||||||||||
| Obligations of U.S. government agencies: | ||||||||||||||||
| Mortgage-backed securities - residential | $ | $ | $ | $ | ||||||||||||
| Obligations of U.S. government-sponsored enterprises: | ||||||||||||||||
| Mortgage-backed securities-residential | ||||||||||||||||
| Corporate securities | ||||||||||||||||
| Total securities available for sale | $ | $ | $ | $ | ||||||||||||
| Derivative assets | ||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||||
| Derivative liabilities | $ | $ | $ | $ | ||||||||||||
| Total Liabilities | $ | $ | $ | $ | ||||||||||||
| September 30, 2023 | ||||||||||||||||
| Assets: | ||||||||||||||||
| Securities available for sale: | ||||||||||||||||
| Obligations of U.S. government agencies: | ||||||||||||||||
| Mortgage-backed securities - residential | $ | $ | $ | $ | ||||||||||||
| Obligations of U.S. government-sponsored enterprises: | ||||||||||||||||
| Mortgage-backed securities-residential | ||||||||||||||||
| Total securities available for sale | $ | $ | $ | $ | ||||||||||||
| Derivative assets | ||||||||||||||||
| Total assets | $ | $ | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||||
| Derivative liabilities | $ | $ | $ | $ | ||||||||||||
| Total Liabilities | $ | $ | $ | $ | ||||||||||||
13
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.
There were no
assets measured at fair value on a non-recurring basis at June 30, 2024.
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| September 30, 2023 | (In thousands) | |||||||||||||||
| Impaired loans | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands)
| Fair Value | Valuation | ||||
| September 30, 2023 | Estimate | Techniques | Unobservable Input | Range (Weighted Average) | |
| Impaired loans | $ | collateral (1) | |||
| (1) |
| (2) |
The following
presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments carried
at cost or amortized cost as of June 30, 2024 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.
14
| Carrying | Fair | Fair Value Measurement Placement | ||||||||||||||||||
| Value | Value | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| June 30, 2024 | ||||||||||||||||||||
| Financial instruments - assets | ||||||||||||||||||||
| Investment securities held to maturity | $ | $ | $ | $ | $ | |||||||||||||||
| Loan receivable net allowance for credit losses | ||||||||||||||||||||
| Financial instruments - liabilities | ||||||||||||||||||||
| Certificates of deposit including retirement certificates | ||||||||||||||||||||
| Borrowings | ||||||||||||||||||||
| September 30, 2023 | ||||||||||||||||||||
| Financial instruments - assets | ||||||||||||||||||||
| Investment securities held-to-maturity | $ | $ | $ | $ | $ | |||||||||||||||
| Loan receivable net allowance for credit losses | ||||||||||||||||||||
| Financial instruments - liabilities | ||||||||||||||||||||
| Certificates of deposit including retirement certificates | ||||||||||||||||||||
| Borrowings | ||||||||||||||||||||
NOTE H – LEASES
Accounting Standard Update ASC 842, “Leases” requires lessees to recognize a lease liability and a right-of-use (“ROU”) asset, measured at the present value of the future minimum lease payments, at the lease commencement date.
On April 1, 2024,
the Bank entered into a lease agreement to rent a retail office space in Martinsville, New Jersey to increase its presence in Somerset
County. The initial term of the lease is for
Operating lease ROU assets represent our right to use an underlying asset during the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at lease commencement base on the present value of the remaining lease payments using a discount rate that represents our incremental borrowing rate. The incremental borrowing rate used by the Company to value its operating leases is based on the interpolated term advance rate available from the FHLBNY, based on the remaining lease term.
| June 30, | September 30, | |||||||
| 2024 | 2023 | |||||||
| (Dollars in thousands) | ||||||||
| Operating lease right-of-use asset | $ | $ | ||||||
| Operating lease liabilities | $ | $ | ||||||
| Weighted average remaining lease term in years | ||||||||
| Weighted average discount rate | ||||||||
Total rental expense,
included in occupancy expense, was approximately $
15
NOTE I - INVESTMENT SECURITIES
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| June 30, 2024 | Cost | Gains | Losses | Value | ||||||||||||
| (In thousands) | ||||||||||||||||
| Securities available-for-sale: | ||||||||||||||||
| Obligations of U.S. government agencies: | ||||||||||||||||
| Mortgage-backed securities - residential | $ | $ | $ | ( | ) | $ | ||||||||||
| Obligations of U.S. government-sponsored enterprises: | ||||||||||||||||
| Mortgage-backed securities-residential | ( | ) | ||||||||||||||
| Corporate securities | ||||||||||||||||
| Total securities available-for-sale | $ | $ | $ | ( | ) | $ | ||||||||||
| Securities held-to-maturity: | ||||||||||||||||
| Obligations of U.S. government agencies: | ||||||||||||||||
| Mortgage-backed securities - residential | $ | $ | $ | ( | ) | $ | ||||||||||
| Mortgage-backed securities - commercial | ( | ) | ||||||||||||||
| Obligations of U.S. government-sponsored enterprises: | ||||||||||||||||
| Mortgage-backed-securities - residential | ( | ) | ||||||||||||||
| Debt securities | ( | ) | ||||||||||||||
| Private label mortgage-backed securities - residential | ( | ) | ||||||||||||||
| Obligations of state and political subdivisions | ( | ) | ||||||||||||||
| Corporate securities | ( | ) | ||||||||||||||
| Total securities held-to-maturity | $ | $ | $ | ( | ) | $ | ||||||||||
| Total investment securities | $ | $ | $ | ( | ) | $ | ||||||||||
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 June 30, 2024, there were no non-performing held-to-maturity debt securities and no allowance
for credit losses were required. The majority of the investment securities are explicitly or implicitly guaranteed by the United States
government, and any estimate of expected credit losses would be insignificant to the Company.
| Credit Rating at Amortized Cost | ||||||||||||
| AAA/AA/A | BBB/BB/B | Non-rated | ||||||||||
| June 30, 2024 | (In thousands) | |||||||||||
| Securities held-to-maturity: | ||||||||||||
| Obligations of U.S. government agencies: | ||||||||||||
| Mortgage-backed securities - residential | $ | $ | $ | |||||||||
| Mortgage-backed securities - commercial | ||||||||||||
| Obligations of U.S. government-sponsored enterprises: | ||||||||||||
| Mortgage backed securities - residential | ||||||||||||
| Debt securities | ||||||||||||
| Private label mortgage-backed securities - residential | ||||||||||||
| Obligations of state and political subdivisions | ||||||||||||
| Corporate securities | ||||||||||||
| Totals | $ | $ | $ | |||||||||
16
| June 30, 2024 | ||||||||
| Amortized | Fair | |||||||
| Cost | Value | |||||||
| (In thousands) | ||||||||
| Due within 1 year | $ | $ | ||||||
| Due after 1 but within 5 years | ||||||||
| Due after 5 but within 10 years | ||||||||
| Due after 10 years | ||||||||
| Total debt securities | ||||||||
| Mortgage backed securities: | ||||||||
| Residential | ||||||||
| Commercial | ||||||||
| Total | $ | $ | ||||||
| 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 | $ | $ | $ | ( | ) | $ | ||||||||||
| Obligations of U.S. government-sponsored enterprises: | ||||||||||||||||
| Mortgage-backed securities-residential | ( | ) | ||||||||||||||
| Total securities available for sale | $ | $ | $ | ( | ) | $ | ||||||||||
| Securities held-to-maturity: | ||||||||||||||||
| Obligations of U.S. government agencies: | ||||||||||||||||
| Mortgage-backed securities - residential | $ | $ | $ | ( | ) | $ | ||||||||||
| Mortgage-backed securities - commercial | ( | ) | ||||||||||||||
| Obligations of U.S. government-sponsored enterprises: | ||||||||||||||||
| Mortgage backed securities - residential | ( | ) | ||||||||||||||
| Debt securities | ( | ) | ||||||||||||||
| Private label mortgage-backed securities - residential | ( | ) | ||||||||||||||
| Obligations of state and political subdivisions | ( | ) | ||||||||||||||
| Corporate securities | ( | ) | ||||||||||||||
| Total securities held to maturity | $ | $ | $ | ( | ) | $ | ||||||||||
| Total investment securities | $ | $ | $ | ( | ) | $ | ||||||||||
As of June 30, 2024 investment securities
having an estimated fair value of approximately $
NOTE J – UNREALIZED 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.
17
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.
| Less Than 12 Months | 12 Months Or Greater | Total | ||||||||||||||||||||||||||
| Number of | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | ||||||||||||||||||||||
| Securities | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||||||
| June 30, 2024 | (Dollars in thousands) | |||||||||||||||||||||||||||
| Obligations of U.S. government agencies: | ||||||||||||||||||||||||||||
| Mortgage-backed securities - residential | 1 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||
| Obligations of U.S. government-sponsored enterprises | ||||||||||||||||||||||||||||
| Mortgage-backed securities - residential | 8 | ( | ) | ( | ) | |||||||||||||||||||||||
| Total | 9 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||
Prior to the adoption of ASU 2016-13,
details of our entire investment portfolio were required to be disclosed.
| 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 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||
| Mortgage-backed securities - commercial | 2 | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Obligations of U.S. government-sponsored enterprises | ||||||||||||||||||||||||||||
| Mortgage-backed securities - residential | 50 | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Debt securities | 12 | ( | ) | ( | ) | |||||||||||||||||||||||
| Private label mortgage-backed securities residential | 1 | ( | ) | ( | ) | |||||||||||||||||||||||
| Obligations of state and political subdivisions | 7 | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Corporate securities | 1 | ( | ) | ( | ) | |||||||||||||||||||||||
| Total | 79 | $ | $ | ( | ) | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
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 no allowance for credit loss was required as of June 30, 2024.
18
NOTE K – LOANS RECEIVABLE, NET AND RELATED ALLOWANCE FOR CREDIT LOSSES
| June 30, | September 30, | |||||||
| 2024 | 2023 | |||||||
| (In thousands) | ||||||||
| One-to-four family residential | $ | $ | ||||||
| Commercial real estate | ||||||||
| Construction and land | ||||||||
| Home equity loans and lines of credit | ||||||||
| Commercial business | ||||||||
| Other | ||||||||
| Total loans receivable | ||||||||
| Net deferred loan costs | ( | ) | ( | ) | ||||
| Total loans receivable, net | $ | $ | ||||||
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.
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.
19
| Revolving Loans | ||||||||||||||||||||||||||||||||||||
| June 30, 2024 | 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 | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Non-performing | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross charge-offs | ||||||||||||||||||||||||||||||||||||
| Commercial real estate | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross charge-offs | ||||||||||||||||||||||||||||||||||||
| Construction and land | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross charge-offs | ||||||||||||||||||||||||||||||||||||
| Home equity loans and lines of credit | ||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Non-performing | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross charge-offs | ||||||||||||||||||||||||||||||||||||
| Commercial business | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special Mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Doubtful | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross charge-offs | ||||||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Non-performing | ||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Current period gross charge-offs | ||||||||||||||||||||||||||||||||||||
Information presented in the
table above is not required for periods prior to the adoption of ASU 2016-13.
20
| Special | ||||||||||||||||||||
| Pass | Mention | Substandard | Doubtful | Total | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| September 30, 2023 | ||||||||||||||||||||
| One-to-four family residential | $ | $ | $ | $ | $ | |||||||||||||||
| Commercial real estate | ||||||||||||||||||||
| Construction and land | ||||||||||||||||||||
| Home equity lines of credit | ||||||||||||||||||||
| Commercial business | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
Management further monitors
the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded
payment is past due. The Bank was not accruing interest on any loans delinquent 90 days or greater as of June 30, 2024 or September 30,
2023.
| 30-59 | 60-89 | |||||||||||||||||||
| Days | Days | 90 Days + | Total | |||||||||||||||||
| Current | Past Due | Past Due | Past Due | Loans | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| June 30, 2024 | ||||||||||||||||||||
| One-to-four family residential | $ | $ | $ | $ | $ | |||||||||||||||
| Commercial real estate | ||||||||||||||||||||
| Construction and land | ||||||||||||||||||||
| Home equity lines of credit | ||||||||||||||||||||
| Commercial business | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
| 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 | $ | $ | $ | $ | $ | |||||||||||||||
| Commercial real estate | ||||||||||||||||||||
| Construction and land | ||||||||||||||||||||
| Home equity lines of credit | ||||||||||||||||||||
| Commercial business | ||||||||||||||||||||
| Other | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
21
| Total | Non-Accrual | Non-Accrual | ||||||||||
| Non-Accrual | with ACL | without ACL | ||||||||||
| (In thousands) | ||||||||||||
| June 30, 2024 | ||||||||||||
| One-to-four family residential | $ | $ | $ | |||||||||
| Commercial real estate | ||||||||||||
| Construction and land | ||||||||||||
| Total | $ | $ | $ | |||||||||
| Non- | Specific | |||||||
| Accrual | Reserve | |||||||
| (In thousands) | ||||||||
| September 30, 2023 | ||||||||
| One-to four-family residential | $ | $ | ||||||
| Commercial real estate | ||||||||
| Construction and land | ||||||||
| Total | $ | $ | ||||||
| June 30, | ||||
| 2024 | ||||
| Real-estate type: | (In thousands) | |||
| One- to four-family residential | $ | |||
| Commercial real estate | ||||
| Construction and land | ||||
| Total | $ | |||
The Company’s
adoption of ASU 2016-13 eliminated the requirement to disclose impaired loans.
| 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 | $ | $ | $ | $ | $ | |||||||||||||||
| Commercial real estate | ||||||||||||||||||||
| Construction and land | ||||||||||||||||||||
| Commercial business | ||||||||||||||||||||
| Total impaired loans | $ | $ | $ | $ | $ | |||||||||||||||
22
| Three Months Ended | Nine Months Ended | |||||||
| June 30, 2023 | June 30, 2023 | |||||||
| (In thousands) | ||||||||
| One-to-four family residential | $ | $ | ||||||
| Commercial real estate | ||||||||
| Construction and land | ||||||||
| Commercial business | ||||||||
| Average investment in impaired loans | $ | $ | ||||||
| Interest income recognized on an accrual basis on impaired loans: | ||||||||
| One-to-four family residential | $ | $ | ||||||
| Commercial real estate | ||||||||
| Commercial business | ||||||||
| Total | $ | $ | ||||||
An allowance for credit losses is maintained to absorb losses from the loan portfolio. Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ACL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ACL. Since loans individually evaluated for impairment are promptly written down to their fair value, typically there is no portion of the ACL for individually evaluated loans.
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 credit 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 “Recent Accounting Pronouncements” 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 allowance for credit losses allocated to each loan category does not represent the total available for future losses which may occur within the loan category since the total allowance for credit losses is a valuation allocation applicable to the entire loan portfolio. The Company generally charges-off the collateral or discounted cash flow deficiency on all loans at 90 days past due and all loans rated substandard or worse that are 90 days past due.
23
| One-to-Four | Construction | Home Equity | ||||||||||||||||||||||||||||||
| Family | Commercial | and | Lines of | Commercial | ||||||||||||||||||||||||||||
| Residential | Real Estate | Land | Credit | Business | Other | Unallocated | Total | |||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||
| Balance- September 30, 2023 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Effect of adopting ASU 2016-13 | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Charge-offs | ||||||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||
| Provision (credit) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance- December 31, 2023 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Charge-offs | ||||||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||
| Provision (credit) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance- March 31, 2024 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Charge-offs | ||||||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||
| Provision (credit) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance- June 30, 2024 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| One-to-Four | Construction | Home Equity | ||||||||||||||||||||||||||||||
| Family | Commercial | and | Lines of | Commercial | ||||||||||||||||||||||||||||
| Residential | Real Estate | Land | Credit | Business | Other | Unallocated | Total | |||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||
| Balance- September 30, 2022 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Charge-offs | ||||||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||
| Provision (credit) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance- December 31, 2022 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||||||
| Provision (credit) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance- March 31, 2023 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Recoveries | — | |||||||||||||||||||||||||||||||
| Provision (credit) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Balance- June 30, 2023 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
During the nine months ended June 30, 2024 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 portfolio as well as our construction and land loan commitments during the nine months ended June 30, 2024 and a corresponding increase in the provision for credit losses for these portfolios. An adjustment to the expected loss rate for one-to-four family residential loans for improving economic conditions, as measured by the U.S. unemployment rate, resulted in a reduction in the provision for credit losses for that loan category during the nine months ended June 30, 2024.
24
The allowance for credit
losses increased $
| 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 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Individually evaluated | ||||||||||||||||||||||||||||||||
| for impairment | ||||||||||||||||||||||||||||||||
| Collectively evaluated | ||||||||||||||||||||||||||||||||
| for impairment | ||||||||||||||||||||||||||||||||
| Loans receivable: | ||||||||||||||||||||||||||||||||
| Balance - September 30, 2023 | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Individually evaluated | ||||||||||||||||||||||||||||||||
| for impairment | ||||||||||||||||||||||||||||||||
| Collectively evaluated | ||||||||||||||||||||||||||||||||
| for impairment | ||||||||||||||||||||||||||||||||
During the nine
months ended June 30, 2024, there were no loans modified to borrowers experiencing financial difficulty. During the nine months ended
June 30, 2023, 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.
| Nine Months Ended June 30, 2023 | ||||||||||||
| Number of | Investment Before | Investment After | ||||||||||
| Loans | TDR Modification | TDR Modification | ||||||||||
| (Dollars in thousands) | ||||||||||||
| One-to four-family residential | $ | $ | ||||||||||
| Total | $ | $ | ||||||||||
There was
one residential loans totaling $
NOTE L - DEPOSITS
| June 30, | September 30, | |||||||
| 2024 | 2023 | |||||||
| (In thousands) | ||||||||
| Demand accounts | $ | $ | ||||||
| Savings accounts | ||||||||
| NOW accounts | ||||||||
| Money market accounts | ||||||||
| Certificates of deposit | ||||||||
| Retirement certificates | ||||||||
| Total deposits | $ | $ | ||||||
25
Included in
the Company’s deposits at June 30, 2024 were $
At June 30,
2024 and September 30, 2023, the aggregate deposits in amounts greater than $
NOTE M - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company may use derivative financial instruments, such as interest rate swaps and interest rate floors and caps, as part of its interest rate risk management. Interest rate caps and floors are agreements whereby one party agrees to pay or receive a floating rate of interest on a notional principal amount for a predetermined period of time if certain market interest rate thresholds are met. The Company considers the credit risk inherent in these contracts to be negligible. As of June 30, 2024, the Company did not hold any interest rate floors or collars.
The Company is a party to interest rate derivatives that are not designated as hedging instruments. Under a program, the Company executes interest rate swaps with commercial lending customers to facilitate their respective risk management strategies. These interest rate swaps with customers are simultaneously offset by interest rate swaps that the Company executes with a third-party financial institution, such that the Company minimizes its net risk exposure resulting from such transactions. Because the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. The changes in the fair value of the swaps offset each other, except for the credit risk of the counterparties, which is determined by taking into consideration the risk rating, probability of default and loss given default for all counterparties, and was not significant to the total fair value. The Company was not required to pledge any collateral for its interest rate swaps with financial institutions at June 30, 2024 and September 30, 2023.
| Notional Amount | Average Maturiy (Years) | Weighted Average Fixed Rate | Weighted Average Variable Rate | Fair Value | ||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||
| June 30, 2024 | ||||||||||||||||||
| Classified in Other Assets: | ||||||||||||||||||
| Customer interest rate swaps | $ | | $ | |||||||||||||||
| Total | $ | $ | ||||||||||||||||
| Classified in Other Liabilities: | ||||||||||||||||||
| 3rd Party interest rate swaps | $ | | $ | |||||||||||||||
| Total | $ | $ | ||||||||||||||||
| September 30, 2023 | ||||||||||||||||||
| Classified in Other Assets: | ||||||||||||||||||
| Customer interest rate swaps | $ | | $ | |||||||||||||||
| Total | $ | $ | ||||||||||||||||
| Classified in Other Liabilities: | ||||||||||||||||||
| 3rd Party interest rate swaps | $ | | $ | |||||||||||||||
| Total | $ | $ | ||||||||||||||||
26
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.
| June 30, | September 30, | |||||||
| 2024 | 2023 | |||||||
| (In thousands) | ||||||||
| Financial instruments whose contract amounts | ||||||||
| represent credit risk | ||||||||
| Letters of credit | $ | $ | ||||||
| Unused lines of credit | ||||||||
| Fixed rate loan commitments | ||||||||
| Variable rate loan commitments | ||||||||
| Totals | $ | $ | ||||||
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 $
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, levels of uninsured deposits, and with respect to the loans extended by the Company and real estate owned, the following: risks related to the economic environment in the market areas in which the Bank operates, particularly with respect to the real estate market in New Jersey; the risk that the value of the real estate securing these loans may decline in value; and the risk that significant expense may be incurred by the Company in connection with the resolution of these loans.
The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and advises readers that various factors, including regional and national economic conditions, substantial changes in levels of market interest rates, credit and other risks of lending and investing activities, and competitive and regulatory factors, could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from those anticipated or projected.
The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.
Critical Accounting Policies
Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. Critical accounting policies may involve complex subjective decisions or assessments. Please refer to the Company’s Form 10-K for the Company’s critical accounting policies. There were no significant changes to the Company’s critical accounting policies, other than a change to the methodology for calculating the allowance for credit losses during the nine months ended June 30, 2024.
27
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, not measured at amortized cost and unfunded commitments. The Company recorded a cumulative effect increase to retained earnings of $492 thousand ($354 thousand net of taxes), which was comprised of a $1.0 million ($725 thousand net of tax) increase related to loans and $540 thousand ($379 thousand 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 Accounting Standards Codification 326, while prior period amounts continue to be reported in accordance with previously applicable accounting standards.
Comparison of Financial Condition at June 30, 2024 and September 30, 2023
Total Assets. Total assets increased $37.1 million, or 4.1%, to $944.4 million at June 30, 2024 from $907.3 million at September 30, 2023. The increase was attributable to higher balances of loans receivable, partially offset by lower interest-earning deposits with banks.
Interest Earning Deposits. Interest-earning deposits with banks decreased $23.6 million, or 34.0%, to $45.8 million at June 30, 2024 from $69.4 million at September 30, 2023 resulting primarily from deployment of these fund into loans receivable during the nine months ended June 30, 2024.
Loans Receivable. Total loans receivable increased $62.2 million, or 8.9%, to $760.4 million at June 30, 2024 from $698.2 million at September 30, 2023. The increase in total loans receivable during the nine months ended June 30, 2024 occurred in commercial real estate loans, which increased $57.9 million, one-to four-family residential real estate loans (including home equity lines of credit), which increased $8.0 million, and construction and land loans, which increased $2.2 million. Partially offsetting these increases were commercial business loans, which decreased $5.8 million and other loans, which decreased $114 thousand.
Given the significance of commercial real estate (“CRE”) loans to our total loan portfolio, the following table further disaggregates these loans by occupied status and by collateral type as of June 30, 2024:
| 2024 | ||||||||
| June 30 | ||||||||
| Amount | Percent | |||||||
| (In thousands) | ||||||||
| Owner-occupied | ||||||||
| Retail | $ | 44,505 | 10.0% | |||||
| Hotel/Motel | 42,642 | 9.5% | ||||||
| Professional | 36,722 | 8.2% | ||||||
| Office | 11,315 | 2.5% | ||||||
| Restaurant | 17,760 | 4.0% | ||||||
| Other | 26,284 | 5.9% | ||||||
| Total owner-occupied | $ | 179,228 | 40.1% | |||||
| Non-owner occupied | ||||||||
| Retail | $ | 81,746 | 18.3% | |||||
| Multi-family | 72,278 | 16.2% | ||||||
| Professional | 18,378 | 4.1% | ||||||
| Office | 40,445 | 9.0% | ||||||
| Restaurant | 8,122 | 1.8% | ||||||
| Hotel/Motel | 2,575 | 0.6% | ||||||
| Other | 44,251 | 9.9% | ||||||
| Total non-owner occupied | $ | 267,795 | 59.9% | |||||
| Total commercial real estate loans | $ | 447,023 | 100.0% | |||||
The Company obtains an appraisal of the real estate collateral securing a CRE loan prior to originating the loan. The appraised value is used to calculate the ratio of the outstanding loan balance to the value of the real estate collateral, or loan-to-value ratio ("LTV"). The original appraisal is used to monitor the LTVs within the CRE portfolio unless an updated appraisal is received, which may happen for a variety of reasons, including but not limited to payment delinquency, additional loan requests using the same collateral, and loan modifications. The following table presents the ranges in the LTVs of our CRE loans at June 30, 2024:
28
| Number of | ||||||||
| LTV Range | Loans | Amount | ||||||
| (Dollars in thousands) | ||||||||
| 0%-25.0% | 113 | $ | 45,456 | |||||
| 25.01%-50.0% | 120 | 112,463 | ||||||
| 50.01%-60.0% | 67 | 111,073 | ||||||
| 60.01%-70.0% | 91 | 116,230 | ||||||
| 70.01%-75.0% | 28 | 43,551 | ||||||
| 75.01%-80.0% | 9 | 14,774 | ||||||
| > 80.0% | 2 | 3,476 | ||||||
| Totals | 430 | $ | 447,023 | |||||
As of June 30, 2024, non-owner occupied commercial real estate loans (as defined by regulatory guidance) to total risk-based capital was estimated at approximately 262%. 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.
Our asset quality with respect to commercial real estate loans has remained strong despite recent economic and market conditions. As of June 30, 2024 and September 30, 2023, we had $2.8 million and $2.2 million of non-performing commercial real estate loans, respectively. Such amounts totaled 0.6% of total commercial real estate loans as of June 30, 2024 and September 30, 2023.
Total non-performing loans decreased $532 thousand, or 10.5%, to $4.6 million at June 30, 2024 from $5.1 million at September 30, 2023. The decline was attributable to the foreclosure of a residential property previously securing a $777 thousand construction loan and payments totaling $386 thousand, partially offset by a $631 thousand increase from new non-performing loans secured by three commercial real estate properties and one single family residential property. The ratio of non-performing loans to total loans decreased to 0.60% at June 30, 2024 from 0.73% at September 30, 2023.
The allowance for credit losses increased $16 thousand to $8.3 million during the nine months ended June 30, 2024. Upon adoption of ASU 2016-13 on October 1, 2023, the Company’s allowance for credit losses decreased $492 thousand. Growth in loans receivable and loan commitments during the nine months ended June 30, 2024 resulted in additional provisions for credit loss totaling $441 thousand and there were $67 thousand in loan recoveries. The allowance for on-balance sheet credit losses decreased to $7.7 million at June 30, 2024 from $8.3 million at September 30, 2023 while its reserve for off-balance sheet commitments increased to $602 thousand at June 30, 2024 from $0 at September 30, 2023.
The allowance for on-balance sheet loan losses as a percentage of non-performing loans increased to 170.1% at June 30, 2024 from 163.9% at September 30, 2023. The allowance for on-balance sheet loan losses as a percentage of total loans was 1.02% at June 30, 2024 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 June 30, 2024, investment securities totaled $94.5 million, reflecting a decrease of $1.5 million, or 1.5%, from $96.0 at September 30, 2023. The decrease resulted from matured bonds totaling $6.5 million and payments from mortgage-backed securities totaling $5.4 million during the nine months ended June 30, 2024. Offsetting these decreases were purchases totaling $10.0 million and a $400 thousand increase in the market value of the Company’s available-for-sale investment securities. There were no credit losses recorded for the Company’s investment securities during the nine months ended June 30, 2024.
Investment security purchases during the nine months ended June 30, 2024 consisted of a $4.0 million corporate note issued by Provident Financial Services, Inc., a $2.0 million bond issued by the Federal Home Loan Bank of New York, a $2.0 million mortgage-backed security issued by the Federal National Mortgage Association and a $2.0 million participation certificate issued by the U.S. Small Business Administration.
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Investment securities at June 30, 2024 consisted of $64.8 million in mortgage-backed securities issued by U.S. government agencies and U.S. government-sponsored enterprises, $19.0 million in U.S. government-sponsored enterprise debt securities, $7.0 million in corporate notes, $3.5 million in municipal bonds, and $195 thousand in “private-label” mortgage-backed securities. There was no allowance for credit losses for the Company’s investment securities for the nine months ended June 30, 2024.
Deposits. Total deposits increased $33.7 million, or 4.5%, to $789.2 million at June 30, 2024 from $755.4 million at September 30, 2023.
The inflow in deposits occurred in certificates of deposit (including individual retirement accounts), which increased $38.9 million, or 37.2%, to $143.6 million, in interest-bearing checking accounts (NOW), which increased $35.2 million, or 30.6%, to $150.4 million and in money market accounts, which increased $18.7 million, or 6.6%, to $303.6 million. Partially offsetting these increases were decreases in non-interest bearing checking accounts, which decreased $51.6 million, or 27.4%, to $136.9 million and in savings accounts, which decreased $7.5 million, or 12.1%, to $54.7 million. Brokered deposits, which are included in certificates of deposit within total deposits, increased $7.8 million to $21.6 million at June 30, 2024 from $13.8 million at September 30, 2023. The Company utilized brokered deposits to extend the duration of its liabilities as part of its interest rate risk management.
Borrowed Funds. Borrowings decreased $947 thousand, or 3.2%, to $28.6 million at June 30, 2024 from $29.5 million at September 30, 2023. The Company repaid a matured long term advance totaling $4.4 million and utilized a new $3.4 million long term advance from the Federal Home Loan Bank of New York during the nine months ended June 30, 2024.
Stockholders’ Equity. Stockholders’ equity increased $4.2 million, or 4.1%, to $109.0 million at June 30, 2024 from $104.8 million at September 30, 2023. The increase was primarily due to net income of $5.2 million, followed by a $367 thousand reduction in other accumulated comprehensive loss, a $354 thousand increase for the Company’s adoption of ASU 2016-13, a $484 thousand increase from stock-based compensation and an $118 thousand increase for ESOP shares allocated for the nine months ended June 30, 2024. Partially offsetting these increases were $1.4 million in dividends ($0.21 per share) paid and 85,628 shares repurchased during the period totaling $953 thousand. As a result, the Company’s book value per share increased to $16.55 at June 30, 2024 from $15.70 at September 30, 2023.
Average Balance Sheets for the Three and Nine Months Ended June 30, 2024 and 2023
The following tables present certain information regarding the Company’s financial condition and net interest income for the three and nine months ended June 30, 2024 and 2023. The tables present the annualized average yield on interest-earning assets and the annualized average cost of interest-bearing liabilities. We derived the yields and costs by dividing annualized income or expense by the average balance of interest-earning assets and interest-bearing liabilities, respectively, for the periods shown. We derived average balances from daily balances over the period indicated. Interest income includes fees that we consider adjustments to yields.
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| Three Months Ended June 30, | ||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||
| 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 | $ | 57,178 | $ | 737 | 5.17% | $ | 24,976 | $ | 294 | 4.73% | ||||||||||||||
| Loans receivable, net (1) | 744,914 | 10,962 | 5.90% | 674,985 | 9,033 | 5.37% | ||||||||||||||||||
| Securities | ||||||||||||||||||||||||
| Taxable | 92,248 | 561 | 2.44% | 94,049 | 398 | 1.70% | ||||||||||||||||||
| Tax-exempt (2) | 3,370 | 18 | 2.17% | 3,370 | 18 | 2.17% | ||||||||||||||||||
| FHLBNY stock | 2,326 | 53 | 9.20% | 2,204 | 38 | 6.84% | ||||||||||||||||||
| Total interest-earning assets | 900,036 | 12,331 | 5.50% | 799,584 | 9,781 | 4.91% | ||||||||||||||||||
| Noninterest-earning assets | 49,563 | 48,283 | ||||||||||||||||||||||
| Total assets | $ | 949,599 | $ | 847,867 | ||||||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||||||
| Savings accounts (3) | $ | 55,914 | 86 | 0.62% | $ | 68,648 | 86 | 0.50% | ||||||||||||||||
| NOW accounts (4) | 463,135 | 3,955 | 3.43% | 339,784 | 2,023 | 2.39% | ||||||||||||||||||
| Time deposits (5) | 139,120 | 1,296 | 3.74% | 92,855 | 539 | 2.33% | ||||||||||||||||||
| Total interest-bearing deposits | 658,169 | 5,337 | 3.25% | 501,287 | 2,648 | 2.12% | ||||||||||||||||||
| Borrowings | 28,510 | 206 | 2.90% | 27,967 | 239 | 3.43% | ||||||||||||||||||
| Total interest-bearing liabilities | 686,679 | 5,543 | 3.24% | 529,254 | 2,887 | 2.19% | ||||||||||||||||||
| Noninterest-bearing liabilities | 157,405 | 219,291 | ||||||||||||||||||||||
| Total liabilities | 844,084 | 748,545 | ||||||||||||||||||||||
| Retained earnings | 105,515 | 99,322 | ||||||||||||||||||||||
| Total liabilities and retained earnings | $ | 949,599 | $ | 847,867 | ||||||||||||||||||||
| Tax-equivalent basis adjustment | (4 | ) | (4 | ) | ||||||||||||||||||||
| Net interest and dividend income | $ | 6,784 | $ | 6,890 | ||||||||||||||||||||
| Interest rate spread | 2.26% | 2.72% | ||||||||||||||||||||||
| Net interest-earning assets | $ | 213,357 | $ | 270,330 | ||||||||||||||||||||
| Net interest margin (6) | 3.02% | 3.46% | ||||||||||||||||||||||
| Average interest-earning assets to average interest-bearing liabilities | 131.07% | 151.08% | ||||||||||||||||||||||
(1) The average balance of loans receivable, net includes non-accrual loans.
(2) Interest income and yield are calculated using the Company's 21% federal tax rate.
(3) Includes passbook savings, money market passbook and club accounts.
(4) Includes interest-bearing checking and money market accounts.
(5) Includes certificates of deposits and individual retirement accounts.
(6) Calculated as annualized net interest income divided by average total interest-earning assets.
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| Nine Months Ended June 30, | ||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||
| 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 | $ | 63,265 | $ | 2,453 | 5.18% | $ | 17,175 | $ | 513 | 4.00% | ||||||||||||||
| Loans receivable, net (1) | 724,804 | 31,584 | 5.83% | 661,320 | 25,610 | 5.18% | ||||||||||||||||||
| Securities | ||||||||||||||||||||||||
| Taxable | 92,579 | 1,560 | 2.25% | 95,780 | 1,194 | 1.67% | ||||||||||||||||||
| Tax-exempt (2) | 3,370 | 55 | 2.17% | 3,370 | 55 | 2.17% | ||||||||||||||||||
| FHLBNY stock | 2,291 | 165 | 9.60% | 1,926 | 92 | 6.42% | ||||||||||||||||||
| Total interest-earning assets | 886,309 | 35,817 | 5.40% | 779,571 | 27,464 | 4.71% | ||||||||||||||||||
| Noninterest-earning assets | 49,235 | 48,319 | ||||||||||||||||||||||
| Total assets | $ | 935,544 | $ | 827,890 | ||||||||||||||||||||
| Interest-bearing liabilities: | ||||||||||||||||||||||||
| Savings accounts (3) | $ | 58,607 | $ | 270 | 0.62% | $ | 73,798 | $ | 258 | 0.47% | ||||||||||||||
| NOW accounts (4) | 436,112 | 10,737 | 3.29% | 331,024 | 4,764 | 1.92% | ||||||||||||||||||
| Time deposits (5) | 122,962 | 3,183 | 3.46% | 86,682 | 1,110 | 1.71% | ||||||||||||||||||
| Total interest-bearing deposits | 617,681 | 14,190 | 3.07% | 491,504 | 6,132 | 1.67% | ||||||||||||||||||
| Borrowings | 28,972 | 663 | 3.06% | 24,515 | 594 | 3.24% | ||||||||||||||||||
| Total interest-bearing liabilities | 646,653 | 14,853 | 3.07% | 516,019 | 6,726 | 1.74% | ||||||||||||||||||
| Noninterest-bearing liabilities | 179,201 | 208,451 | ||||||||||||||||||||||
| Total liabilities | 825,854 | 724,470 | ||||||||||||||||||||||
| Retained earnings | 109,690 | 103,420 | ||||||||||||||||||||||
| Total liabilities and retained earnings | $ | 935,544 | $ | 827,890 | ||||||||||||||||||||
| Tax-equivalent basis adjustment | (12 | ) | (12 | ) | ||||||||||||||||||||
| Net interest and dividend income | $ | 20,952 | $ | 20,726 | ||||||||||||||||||||
| Interest rate spread | 2.33% | 2.97% | ||||||||||||||||||||||
| Net interest-earning assets | $ | 239,656 | $ | 263,552 | ||||||||||||||||||||
| Net interest margin (6) | 3.16% | 3.55% | ||||||||||||||||||||||
| Average interest-earning assets to average interest-bearing liabilities | 137.06% | 151.07% | ||||||||||||||||||||||
(1) The average balance of loans receivable, net includes non-accrual loans.
(2) Interest income and yield are calculated using the Company's 21% federal tax rate.
(3) Includes passbook savings, money market passbook and club accounts.
(4) Includes interest-bearing checking and money market accounts.
(5) Includes certificates of deposits and individual retirement accounts.
(6) Calculated as annualized net interest income divided by average total interest-earning assets.
Comparison of Operating Results for the Three Months Ended June 30, 2024 and 2023
Net Income. Net income decreased $227 thousand, or 11.8%, to $1.7 million for the three-month period ended June 30, 2024 compared with net income of $1.9 million for the three months ended June 30, 2023. The decrease was due to lower net interest and dividend income, lower other income and higher other expenses.
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Net Interest and Dividend Income. Net interest and dividend income decreased $106 thousand, or 1.5%, to $6.8 million for the three months ended June 30, 2024 from $6.9 million for the three months ended June 30, 2023. The decrease was attributable to a 44-basis point decrease in the Company’s net interest margin to 3.02% for the three months ended June 30, 2024 from 3.46% for the three months ended June 30, 2023, partially offset by a $100.5 million increase in the average balance of interest-earning assets between the periods.
Interest and Dividend Income. Interest and dividend income increased $2.5 million, or 26.1%, to $12.3 million for the three months ended June 30, 2024 compared with $9.8 million for the three months ended June 30, 2023. The increase was attributable to a 59-basis point increase in the yield on interest-earning assets to 5.50% for the three months ended June 30, 2024 from 4.91% for the three months ended June 30, 2023, which was attributable to higher market interest rates between periods. Also contributing to the higher interest and dividend income were higher average balances of loans and interest-earning deposits, which increased $69.9 million and $32.2 million, respectively.
The average balance of loans receivable, net of allowance for credit loss, increased $69.9 million to $744.9 million during the three months ended June 30, 2024 from $675.0 million during the three months ended June 30, 2023 while the yield on loans receivable increased 53 basis points to 5.90% for the three months ended June 30, 2024 from 5.37% for the three months ended June 30, 2023 due to higher market interest rates. The higher average balance and yield accounted for a $1.9 million, or 21.4%, increase in loan interest income between periods.
Interest earned on investment securities, including interest-earning deposits and excluding FHLB stock, increased $606 thousand, or 85.8%, to $1.3 million for the three months ended June 30, 2024 from $706 thousand for the three months ended June 30, 2023. The average yield on such assets increased 113 basis points to 3.46% for the three months ended June 30, 2024 from 2.33% for the three months ended June 30, 2023, and the average balance of investment securities and interest-earning deposits increased by $30.4 million, or 24.8%, to $152.8 million for the three months ended June 30, 2024 from $122.4 million for the three months ended June 30, 2023.
Interest Expense. Interest expense increased $2.6 million, or 92.0%, to $5.5 million for the three months ended June 30, 2024 from $2.9 million for the three months ended June 30, 2023. The cost of interest-bearing liabilities increased 105 basis points to 3.24% for the three months ended June 30, 2024 compared with 2.19% for the three months ended June 30, 2023 resulting primarily from higher market interest rates. In addition, the average balance of interest-bearing liabilities increased $157.4 million, or 29.7%, to $686.7 million from higher money market and time deposit account balances.
The average balance of interest-bearing deposits increased $156.9 million, or 31.3%, to $658.2 million for the three months ended June 30, 2024 from $501.3 million for the three months ended June 30, 2023, while the average cost of such deposits increased 113 basis points to 3.25% from 2.12%. As a result, interest paid on interest-bearing deposits increased $2.7 million to $5.3 million for the three months ended June 30, 2024 compared with $2.6 million for the three months ended June 30, 2023. The increase in the cost of deposits due to higher market interest rate environment.
Interest paid on borrowings decreased $33 thousand, or 13.8%, to $206 thousand for the three months ended June 30, 2024 from $239 thousand for the three months ended June 30, 2023, while a 53-basis point decrease in the cost of borrowings to 2.90% for the three months ended June 30, 2024 from 3.43% for the three months ended June 30, 2023. The average balance of borrowings increased $543 thousand to $28.5 million for the three months ended June 30, 2024 compared to $28.0 million for the three months ended June 30, 2023.
Provision for Credit Losses. The Company recorded a net reduction of $54 thousand in its provision for credit losses for the three months ended June 30, 2024 compared with a net reduction of $81 thousand for the three months ended June 30, 2023. The net reduction in provisions resulted from lower balances (including commitments) of construction loans and commercial lines of credit, which require higher provisions for credit loss. The Company recorded $1 thousand in net loan recoveries during the three months ended June 30, 2024 compared with $385 thousand in net loan charge-offs during the three months ended June 30, 2023.
Other Income. Other income decreased $212 thousand, or 34.1%, to $409 thousand during the three months ended June 30, 2024 compared to $621 thousand for the three months ended June 30, 2023. The decrease was due to lower loan prepayment fees, which caused service charges to decline by $110 thousand to $282 thousand from $392 thousand and lower gains from the sale of Small Business Administration 7(a) loans, which decreased by $103 thousand between the two periods.
Other Expenses. Other expenses increased $169 thousand, or 3.5%, to $5.1 million during the three months ended June 30, 2024 compared with $4.9 million for the three months ended June 30, 2023. The increase was primarily attributable to higher compensation and benefit expense, which increased $91 thousand, or 3.2%, to $2.9 million, due to the additions of a commercial lender and a commercial credit analyst, as well as annual merit increases.
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Also contributing to the higher other expenses were occupancy, professional and FDIC insurance premiums. Occupancy expenses increased $22 thousand, or 2.7%, from higher rental expense related to a new lease executed April 1, 2024 for a new branch office in Martinsville, NJ. Professional fees increased $12,000, or 6.4%, from higher legal and foreclosure expenses incurred by the Company compared with the prior year period. FDIC insurance premiums increased $10,000, or 10.4%, from deposit growth.
Income Tax Expense. The Company recorded tax expense of $501 thousand on pre-tax income of $2.2 million for the three months ended June 30, 2024, compared with $788 thousand on pre-tax income of $2.7 million for the three months ended June 30, 2023. The Company’s effective tax rate for the three months ended June 30, 2024 was 22.9% compared with 29.1% for the three months ended June 30, 2023. The decrease in income tax expense was driven by changes in deferred tax items between the periods as well as changes in the State of New Jersey’s entity consolidation rule.
Comparison of Operating Results for the Nine Months Ended June 30, 2024 and 2023
Net Income. Net income decreased $284 thousand, or 5.1%, to $5.2 million during the nine months ended June 30, 2024 compared with $5.5 million for the nine months ended June 30, 2023. The decrease was due to lower other income and higher other expenses, partially offset by higher net interest and dividend income.
Net Interest and Dividend Income. Net interest and dividend income increased $226 thousand, or 1.1%, to $21.0 million for the nine months ended June 30, 2024 from $20.7 million for the nine months ended June 30, 2023. The increase was attributable to a $106.7 million, or 13.7%, increase in the average balance of interest-earning assets between the periods, partially offset by a 39-basis point decrease in the Company’s net interest margin to 3.16% for the nine months ended June 30, 2024 from 3.55% for the nine months ended June 30, 2023.
Interest and Dividend Income. Interest and dividend income increased $8.3 million, or 30.4%, to $35.8 million for the nine months ended June 30, 2024 from $27.5 million for the nine months ended June 30, 2023. The increase was attributable to a 69-basis point increase in the yield on interest-earning assets to 5.40% from 4.71%, as well as a $63.5 million increase in the average balance of net loans receivable and a $46.1 million increase in the average balance of interest-earning deposits. 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 credit losses, increased $63.5 million to $724.8 million during the nine months ended June 30, 2024 from $661.3 million during the nine months ended June 30, 2023. The average interest earned on loans receivable, net of allowance for credit losses, increased $6.0 million, or 23.3%, to $31.6 million for the nine months ended June 30, 2024 from $25.6 million for the same period prior year. The increase was due to higher market interest rates, which resulted in a 65-basis point increase in the yield on the average balance of loans receivable, net of allowance for credit losses to 5.83% for the nine months ended June 30, 2024 from 5.18% for the nine months ended June 30, 2023.
Interest earned on investment securities, including interest-earning deposits and excluding FHLBNY stock, increased $2.3 million, or 131.8%, to $4.1 million for the nine months ended June 30, 2024 from $1.8 million for the nine months ended June 30, 2023. The increase was attributable to a 138-basis point increase in the yield to 3.41 for the nine months ended June 30, 2024 from 2.03% for the nine months ended June 30, 2023, and the average balance of investment securities and interest-earning deposits increased by $42.9 million, or 36.9%, to $159.2 million for the nine months ended June 30, 2024 from $116.3 million for the nine months ended June 30, 2023.
Interest Expense. Interest expense increased $8.1 million, or 120.8%, to $14.9 million for the nine months ended June 30, 2024 from $6.7 million for the nine months ended June 30, 2023. The cost of interest-bearing liabilities increased 133-basis points to 3.07% for the nine months ended June 30, 2024 compared with 1.74% for the nine months ended June 30, 2023 resulting primarily from higher market interest rates between periods. In addition, the average balance of interest-bearing liabilities increased $130.6 million, or 25.3%, to $646.6 million from $516.0 million primarily due to the higher money market account and time deposit account balances.
The average balance of interest-bearing deposits increased $126.2 million, or 25.7%, to $617.7 million for the nine months ended June 30, 2024 from $491.5 million for the nine months ended March 31, 2023, while the average interest paid on the interest-bearing deposits increased 140 basis points to 3.07% for the nine months ended June 30, 2024 from 1.67% for the nine months ended June 30, 2023 due to the higher market interest rate environment. As a result, interest paid on interest-bearing deposits increased $8.1 million to $14.2 million for the nine months ended June 30, 2024 from $6.1 million for the nine months ended June 30, 2023.
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Interest expense on borrowings increased $69 thousand, or 11.6%, to $663 thousand for the nine months ended June 30, 2024 from $594 thousand for the nine months ended June 30, 2023, partially offset by an 18-basis point decrease in the cost of borrowings to 3.06% for the nine months ended June 30, 2024 from 3.24% for the nine months ended June 30, 2023. The average balance of borrowings increased $4.4 million to $28.9 million for the nine months ended June 30, 2024 from $24.5 million for the nine months ended June 30, 2023 to partially fund the growth in the Company’s loans receivable. The Company was able to lower the cost of borrowings while increasing the balance of its borrowings with zero-cost advances from the Federal Home Loan Bank of New York;
Provision for Credit Losses. The Company’s provision for credit losses was $441 thousand for the nine months ended June 30, 2024 compared with $432 thousand for the nine months ended June 30, 2023. Provisions for credit losses resulted from growth in the Company’s loan portfolio, particularly commercial real estate loans, during the nine months ended June 30, 2024. The Company recorded $67 thousand in net loan recoveries during the nine months ended June 30, 2024 compared with $487 thousand in net loan charge-offs during the nine months ended June 30, 2023.
Other Income. Other income decreased $213 thousand, or 11.5%, to $1.6 million during the nine months ended June 30, 2024 compared with $1.9 million for the nine months ended June 30, 2023. The decrease was due to lower loan prepayment fees, which declined by $79 thousand to $878 thousand from $957 thousand, and lower gains from the sale of Small Business Administration 7(a) loans, which decreased by $143 thousand between the two periods.
Other Expenses. Other expenses increased $920 thousand, or 6.4%, to $15.2 million during the nine months ended June 30, 2024 from $14.3 million during the nine months ended June 30, 2023. The increase was primarily attributable to higher compensation and benefit expense, which increased $549 thousand, or 6.7%, to $8.7 million, due to fewer open positions between periods and the additions of a commercial lender and a commercial credit analyst, as well as annual merit increases.
Also contributing to the increase were higher occupancy expenses, professional expenses, FDIC deposit insurance premiums and other expenses. Occupancy expenses increased $63 thousand, or 2.7%, from higher rental expense, furniture and equipment related to a new lease executed April 1, 2024 for a new branch office in Martinsville, NJ. Professional fees increased $33,000, or 5.8%, from higher legal and foreclosure expenses incurred by the Company compared with the prior year period. Deposit insurance premiums increased $71,000, or 29.2%, from deposit growth and higher insurance assessment rates implemented by the FDIC for all insured institutions effective January 1, 2023. Other expenses increased $237,000, or 15.4%, from higher loan origination and servicing costs, higher losses on fraudulent checks, higher recruitment costs and higher data communication costs.
Income Tax Expense. The Company recorded tax expense of $1.7 million on pre-tax income of $7.0 million for the nine months ended June 30, 2024, compared with $2.4 million on pre-tax income of $7.9 million for the nine months ended June 30, 2023. The Company’s effective tax rate for the nine months ended June 30, 2024 was 24.8% compared with 29.9% for the nine months ended June 30, 2023. The decrease in income tax expense was driven by changes in deferred tax items between the periods as well as changes in the State of New Jersey’s entity consolidation rule.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
The Company’s liquidity is a measure of its ability to fund loans, pay withdrawals of deposits, and other cash outflows in an efficient, cost-effective manner. The Company’s short-term sources of liquidity include maturity, repayment and sales of assets, excess cash and cash equivalents, new deposits, other borrowings, and new advances from the FHLBNY. Based on eligible loan collateral pledged to the FHLBNY at June 30, 2024, we had an aggregate borrowing capacity of $114.9 million. There has been no material adverse change during the nine months ended June 30, 2024 in the ability of the Company and its subsidiaries to fund their operations.
At June 30, 2024, the Company had commitments outstanding under letters of credit totaling $690 thousand, commitments to originate loans totaling $38.5 million, and commitments to fund undisbursed balances of closed loans and unused lines of credit totaling $93.1 million. There has been no material change during the current quarter ended June 30, 2024 in any of the Company’s other contractual obligations or commitments to make future payments.
Capital Requirements
At June 30, 2024, the Bank’s Tier 1 capital as a percentage of the Bank’s total assets was 10.92%, and total qualifying capital as a percentage of risk-weighted assets was 15.93%.
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Item 3- Quantitative and Qualitative Disclosures about Market Risk
Not applicable to smaller reporting companies.
Item 4 – Controls and Procedures
Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.
There has been no change in the Company's internal control over financial reporting during the quarter ended June 30, 2024 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
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PART II - OTHER INFORMATION
| Item 1. | Legal proceedings |
None.
| Item 1A. | Risk Factors |
There were no material changes to the risk factors relevant to the Company’s operations as described in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023 filed on December 15, 2023.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
| a.) | Not applicable. |
| b.) | Not applicable. |
| c.) | The Company repurchased 85,628 shares of its common stock during the nine months ended June 30, 2024. Through June 30, 2024, the Company held 509,269 shares in treasury that were repurchased at a weighted average price of $12.40 pursuant to stock repurchase plans. On December 8, 2022, the Company announced a stock repurchase program of up to 5% of its outstanding shares of common stock, or 337,146 shares, 150,688 shares of which remained subject to repurchase under the plan at the nine months ended June 30, 2024. |
The following table reports information regarding repurchases of our common stock during the current quarter ended June 30, 2024.
| Remaining Number | ||||||||||||
| Total Number | Average | of Shares That | ||||||||||
| of Shares | Price Paid | May be Purchased | ||||||||||
| Period | Purchased | Per Share | Under the Plan | |||||||||
| April 1, 2024 through April 30, 2024 | 8,579 | $ | 11.10 | 155,992 | ||||||||
| May 1, 2024 through May 31, 2024 | 3,444 | $ | 11.08 | 152,548 | ||||||||
| June 1, 2024 through June 30, 2024 | 1,860 | $ | 11.00 | 150,688 | ||||||||
| Total | 13,883 | $ | 11.08 | |||||||||
| Item 3. | Defaults Upon Senior Securities |
None
| Item 4. | Mine Safety Disclosures |
Not applicable.
| Item 5. | Other Information |
| a.) | Not applicable. |
| b.) | During the three months ended June 30, 2024, no directors or executive officers of the Company |
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| Item 6. | Exhibits |
| 31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) | |
| 31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) | |
| 32.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101 | Interactive data file containing the following financial statements formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets at June 30, 2024 and September 30, 2023; (ii) the Consolidated Statements of Income for the Three and Nine Months Ended June 30, 2024 and 2023; (iii) the Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended June 30, 2024 and 2023; (iv) the Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended June 30, 2024 and 2023; (v) the Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2024 and 2023; and (vi) the Notes to Consolidated Financial Statements, tagged as blocks of text. | |
| 104 | Cover Page Interactive Data File (embedded within Inline XBRL document contained in Exhibit 101). |
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| MAGYAR BANCORP, INC. | |
| (Registrant) | |
| Date: August 13, 2024 | /s/ John S. Fitzgerald |
| John S. Fitzgerald | |
| President and Chief Executive Officer | |
| Date: August 13, 2024 | /s/ Jon R. Ansari |
| Jon R. Ansari | |
| Executive Vice President and Chief Financial Officer |
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