What changed in this filing

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Item 1. Business

2021-12-20 compared with 2020-12-18 · 1269 added, 1390 removed, 340 unchanged (89% of the section changed)

1 unchanged sentence

We have included or incorporated

by reference in this Annual Report on Form 10-K, and from time to time our management may make, statements that may constitute

“forward-looking statements”

within the meaning of the safe harbour provisions of the U.S.

Private Securities Litigation

Reform Act of 1995.

Forward-looking statements are not historical facts but instead represent only our beliefs regarding future

events, many of which, by their nature, are inherently uncertain and outside our control.

These statements include statements other

than historical information or statements of current condition and may relate to our future plans and objectives and results, as

well as statements about the objective and effectiveness of our risk management and liquidity policies, statements about trends

in or growth opportunities for our business, statements about our future status, and activities or reporting under U.S.

and financial regulation.

Forward-looking statements generally are identified by the words “believe,”

“project,”

“expect,”

“anticipate,”

“estimate,”

“intend,”

“strategy,”

“future,”

“opportunity,”

“plan,”

“may,”

“should,”

“will,”

“would,”

“will be,”

“will continue,”

“will likely result,”

and similar expressions.

By identifying these

statements for you in this manner, we are alerting you to the possibility that our actual results and financial condition may differ,

possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements.

factors that could cause our actual results and financial condition to differ from those indicated in the forward-looking statements

include, among others, those discussed below and under “Risk Factors”

in Part 1, Item 1A of this Annual Report on Form

Magyar Bancorp, MHC

Magyar Bancorp, MHC is

the New Jersey-chartered mutual holding company of Magyar Bancorp, Inc.

Magyar Bancorp, MHC’s only business is the ownership

of 55.0% of the issued shares of common stock of Magyar Bancorp, Inc.

So long as Magyar Bancorp, MHC exists, it will be required

to own a majority of the voting stock of Magyar Bancorp, Inc.

The executive office of Magyar Bancorp, MHC is located at 400 Somerset

Street, New Brunswick, New Jersey 08901, and its telephone number is (732) 342-7600.

Magyar Bancorp, MHC is subject to regulation

and examination by the Board of Governors of the Federal Reserve System (“FRB”) and the New Jersey Department of Banking

and Insurance (“NJDBI”).

Magyar Bancorp, Inc.

the mid-tier stock holding company of Magyar Bank.

by reference in this Annual Report on Form 10-K, and from time to time our management may make, statements that may constitute “forward-looking

statements” within the meaning of the safe harbour provisions of the U.S.

Private Securities Litigation Reform Act of 1995.

Forward-looking

statements are not historical facts but instead represent only our beliefs regarding future events, many of which, by their nature, are

inherently uncertain and outside our control.

These statements include statements other than historical information or statements of current

condition and may relate to our future plans and objectives and results, as well as statements about the objective and effectiveness of

our risk management and liquidity policies, statements about trends in or growth opportunities for our business, statements about our

future status, and activities or reporting under U.S.

banking and financial regulation.

Forward-looking statements generally are identified

by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,”

“strategy,” “future,” “opportunity,” “plan,” “may,” “should,”

“will,” “would,” “will be,” “will continue,” “will likely result,” and similar

By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results and

financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking

Important factors that could cause our actual results and financial condition to differ from those indicated in the forward-looking

statements include, among others, those discussed below and under “Risk Factors” in Part 1, Item 1A of this Annual Report

on Form 10-K.

and Reorganization of Magyar Bancorp, MHC

Prior to consummation of its mutual

to stock conversion in July 2021, Magyar Bancorp, MHC (the “MHC”) was the New Jersey-chartered mutual holding company of Magyar

Bancorp, Inc.

(the “Company”).

The MHC’s only business was the ownership of 55.0% of the issued shares of common stock

of the Company.

On February 25, 2021, the MHC adopted a Plan of Conversion and Reorganization (the “Plan”) pursuant to which

the MHC would undertake a “second-step” conversion and Magyar Bank, the Company’s wholly owned subsidiary, would reorganize

from the two-tier mutual holding company structure to the fully-public stock holding company structure.

The Plan received all required

regulatory, depositor and stockholder approval, and the conversion and offering were consummated on July 14, 2021 on which date the MHC

ceased to exist.

Pursuant to the Plan, (i) the

shares of the Company’s common stock held by persons other than the MHC (the shares held by the MHC were canceled) were converted

into new shares of the Company’s common stock based on an exchange ratio designed to preserve the percentage ownership interests

of such persons, and (ii) the Company offered and sold shares of common stock, representing the ownership interest of the MHC in the Company,

in a subscription offering.

In the stock offering, the Company raised gross proceeds of $39.1 million by selling 3,910,000 shares of common

stock at $10.00 per share.

Concurrent with the completion of the stock offering, each share of the Company’s common stock owned

by public stockholders (stockholders other than the MHC) was exchanged for 1.2213 new shares of Company common stock.

A total of 7,097,825

shares of common stock were issued and outstanding at September 30, 2021.

As a result of the second-step conversion, all share and per

share information has been subsequently revised to reflect the 1.2213 exchange ratio, unless otherwise noted.

Magyar Bancorp, Inc.

is a Delaware-chartered corporation and owns 100% of the

outstanding shares of common stock of Magyar Bank.

The Company is a Delaware-chartered

corporation which owns 100% of the outstanding shares of common stock of Magyar Bank.

Magyar Bancorp, Inc.

has not engaged in any significant business activity other

than owning all of the shares of common stock of Magyar Bank.

has not engaged in any significant

business activity other than owning all of the shares of common stock of Magyar Bank.

At September 30, 2021, Magyar Bancorp, Inc.

had consolidated assets

of $754.0 million, total deposits of $618.3 million and stockholders’

equity of $56.9 million.

consolidated assets of $774.0 million, total deposits of $639.8 million and stockholders’ equity of $97.6 million.

The executive

office of Magyar Bancorp, Inc.

is located at 400 Somerset Street, New Brunswick, New Jersey 08901, and its telephone number is (732) 342-7600.

Magyar Bancorp, Inc.

to comprehensive regulation and examination by the FRB and the NJDBI.

is subject to regulation and examination by the Board of Governors of the Federal Reserve System (“FRB”)

and the New Jersey Department of Banking and Insurance (“NJDBI”).

Magyar Bank is a New Jersey-chartered

savings bank headquartered in New Brunswick, New Jersey that was originally founded in 1922 as a New Jersey building and loan association.

In 1954, Magyar Bank converted to a New Jersey savings and loan association, before converting to a New Jersey savings bank charter

We conduct business from our main office located at 400 Somerset Street, New Brunswick, New Jersey, and our seven branch

offices located in New Brunswick, North Brunswick, South Brunswick, Branchburg, Bridgewater, and Edison, New Jersey.

The telephone

number at our main office is (732) 342-7600 and our website is located at www.magbank.com.

Our principal business

consists of attracting retail deposits from the general public in the areas surrounding our main office in New Brunswick, New Jersey

and our branch offices located in Middlesex and Somerset Counties, New Jersey, and investing those deposits, together with funds

generated from operations and wholesale funding, in residential mortgage loans, home equity loans, home equity lines of credit,

commercial real estate loans, commercial business loans, Small Business Administration (“SBA”) loans, construction

loans and investment securities.

We also originate consumer loans, which consist primarily of secured demand loans.

loans primarily for our loan portfolio.

However, from time to time we have

sold some of our long-term fixed-rate residential mortgage

loans into the secondary market, while retaining the servicing rights for such loans.

In addition we sell the SBA guaranteed portion

of SBA loans while retaining the servicing rights for such loans.

Our revenues are derived principally from interest on loans and

securities, our investment securities consist primarily of mortgage-backed securities and U.S.

Government and government-sponsored

enterprise obligations.

We also generate revenues from fees and service charges.

Our primary sources of funds are deposits, borrowings

and principal and interest payments on loans and securities.

We are subject to comprehensive regulation and examination by the

NJDBI and the Federal Deposit Insurance Corporation (“FDIC”).

We are headquartered in

New Brunswick, New Jersey, and our primary deposit market area is concentrated in the communities surrounding our headquarters

branch and our branch offices located in Middlesex and Somerset Counties, New Jersey.

Our primary lending market area is broader

than our deposit market area and includes all of New Jersey.

The economy of our primary

market area is largely urban and suburban with a broad economic base that is typical for counties surrounding the New York metropolitan

The median household income in Middlesex and Somerset county ranks among the highest in the nation.

We face intense competition

within our market area both in making loans and attracting deposits.

Our market area has a high concentration of financial institutions

including large money center and regional banks, community banks and credit unions.

Some of our competitors offer products and

services that we currently do not offer, such as trust services and private banking.

According to the Federal Deposit Insurance

Corporation’s annual Summary of Deposit report, at June 30, 2020 our market share of deposits was 1.22% and 0.46%

in Middlesex and Somerset Counties, respectively.

In 1954, Magyar Bank converted to a New Jersey savings and loan association, before converting to a New Jersey savings bank charter in

We conduct business from our main office located at 400 Somerset Street, New Brunswick, New Jersey, and our seven branch offices

located in New Brunswick, North Brunswick, South Brunswick, Branchburg, Bridgewater, and Edison, New Jersey.

The telephone number at our

main office is (732) 342-7600 and our website is located at www.magbank.com.

Our principal business consists

of attracting retail deposits from the general public in the areas surrounding our main office in New Brunswick, New Jersey and our branch

offices located in Middlesex and Somerset Counties, New Jersey, and investing those deposits, together with funds generated from operations

and wholesale funding, in residential mortgage loans, home equity loans, home equity lines of credit, commercial real estate loans, commercial

business loans, Small Business Administration (“SBA”) loans, construction loans and investment securities.

We also originate

consumer loans, which consist primarily of secured demand loans.

We originate loans primarily for our loan portfolio.

However, from time

to time we have sold some of our long-term, fixed-rate residential mortgage loans into the secondary market, while retaining the servicing

rights for such loans.

In addition, we sell the SBA-guaranteed portion of SBA loans into the secondary market, while retaining the servicing

rights for such loans.

Our revenues are derived principally from interest on loans and securities, our investment securities consist primarily

of mortgage-backed securities and U.S.

Government and government-sponsored enterprise obligations.

We also generate revenues from fees

and service charges.

Our primary sources of funds are deposits, borrowings and principal and interest payments on loans and securities.

We are subject to comprehensive regulation and examination by the NJDBI and the Federal Deposit Insurance Corporation (“FDIC”).

We are headquartered in New Brunswick,

New Jersey, and our primary deposit market area is concentrated in the communities surrounding our headquarters branch and our branch

offices located in Middlesex and Somerset Counties, New Jersey.

Our primary lending market area is broader than our deposit market area

and includes all of New Jersey.

The economy of our primary market

area is largely urban and suburban with a broad economic base that is typical for counties surrounding the New York metropolitan area.

The median household income in Middlesex and Somerset Counties ranks among the highest in the nation.

We face intense competition within

our market area both in making loans and attracting deposits.

Our market area has a high concentration of financial institutions including

large money center and regional banks, community banks and credit unions.

Some of our competitors offer products and services that we

currently do not offer, such as trust services and private banking.

According to the Federal Deposit Insurance Corporation’s annual

Summary of Deposit report, at June 30, 2021, our market share of deposits was 1.33% and 0.42% in Middlesex and Somerset Counties,

respectively.

Our market share of deposits was 1.22% and 0.46%, respectively, at June 30, 2020.

Our competition for loans

and deposits comes principally from commercial banks, savings institutions, mortgage banking firms and credit unions.

We face additional

competition for deposits from short-term money market funds, brokerage firms, mutual funds and insurance companies.

focus is to build and develop profitable customer relationships across all lines of business while maintaining our role as a community

Our competition for loans and

deposits comes principally from commercial banks, savings institutions, mortgage banking firms and credit unions.

We face additional competition

for deposits from short-term money market funds, brokerage firms, mutual funds and insurance companies.

Our primary focus is to build

and develop profitable customer relationships across all lines of business while maintaining our role as a community bank.

Lending Activities

We originate residential

mortgage loans to purchase or refinance residential real property.

Residential mortgage loans represented $210.4 million, or 34.4%

of our total loans at September 30, 2020.

Historically, we have not originated a significant number of loans for the purpose of

reselling them in the secondary market.

In the future, however, to help manage interest rate risk and to increase fee income, we

may increase our origination and sale of residential mortgage loans.

We originate residential mortgage

loans to purchase or refinance residential real property.

Residential mortgage loans represented $203.0 million, or 34.2% of our total

loans at September 30, 2021.

Historically, we have not originated a significant number of loans for the purpose of reselling them in the

secondary market.

In the future, however, to help manage interest rate risk and to increase fee income, we may increase our origination

and sale of residential mortgage loans.

No loans were held for sale at September 30, 2021.

originate commercial real estate, commercial business and construction loans.

At September 30, 2020, these loans totaled $248.1

million, $101.0 million and $28.2 million, respectively.

We also originate commercial real estate, commercial

business and construction loans.

At September 30, 2021, these loans totaled $280.8 million, or 47.2%, $68.7 million, or 11.6%, and $20.4

million, or 3.4%, respectively, of our total loan portfolio.

We also offer consumer loans, which consist primarily of home equity lines

1 unchanged sentence

At September 30, 2021, home equity lines of credit and stock-secured demand loans totaled $17.9

$19.4 million and $4.1 million, respectively.

million, or 3.0% and $3.8 million, or 0.6%, respectively, of our total loan portfolio.

Loan Portfolio Composition.

12 unchanged sentences

The following table summarizes the scheduled repayments of our loan portfolio at September 30, 2021.

loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less.

Demand loans,

loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less.

One-to-Four-Family

11 unchanged sentences

2037 and beyond

The following table sets

forth the scheduled repayments of fixed- and adjustable-rate loans at September 30, 2020 that are contractually due after September

The following table sets forth

the scheduled repayments of fixed- and adjustable-rate loans at September 30, 2021 that are contractually due after September 30, 2022.

Due After September 30,

4 unchanged sentences

Commercial business

Mortgage Loans.

We originate residential mortgage loans, most of which are secured by properties located in our primary

market area and most of which we hold in portfolio.

At September 30, 2020, $210.4 million, or 34.4% of our total loan portfolio,

consisted of residential mortgage loans (including home equity loans).

Residential mortgage loan originations are generally obtained

from our in-house loan representatives, from existing or past customers, through advertising, and through referrals from local

builders, real estate brokers and attorneys, and are underwritten pursuant to Magyar Bank’s policies and standards.

residential mortgage loans are originated in amounts up to 80% of the lesser of the appraised value or purchase price of the property,

with private mortgage insurance required on loans with a loan-to-value ratio in excess of 80%.

We generally will not make residential

mortgage loans with a loan-to-value ratio in excess of 95%, which is the upper limit that has been established by the Board of

Mortgage loans have been primarily originated for terms of up to 30 years.

Magyar Bank does not originate or purchase

“sub-prime”

(mortgages granted to borrowers whose credit history is not sufficient to get a conventional mortgage)

or option ARM mortgage loans.

At September 30, 2020, non-performing residential mortgage loans totaled $905,000, or 0.43% of the

total residential loan portfolio.

Interest income of $30,000 would have been recorded on non-performing residential mortgage loans

for the year ended September 30, 2020, if they had been current in accordance with their original terms.

During the year ended

September 30, 2020, there were no charge-offs against the allowance for loan loss for impaired residential real estate loans while

$9,000 was recovered from prior year charge offs.

We also originate

home equity loans secured by residences located in our market area.

The underwriting standards we use for home equity loans include

a determination of the applicant’s credit history, an assessment of the applicant’s ability to meet existing obligations,

the ongoing payments on the proposed loan and the value of the collateral securing the loan.

The maximum combined (first and second

mortgage liens) loan-to-value ratio for home equity loans and home equity lines of credit is 80%.

Home equity loans are generally

offered with fixed rates of interest with the loan amount not to exceed $500,000 and with terms of up to 30 years.

30, 2020, there were no non-performing home equity loans and there were no charge-offs during the year ended September 30, 2020.

Residential Mortgage

We originate residential mortgage loans, most of which are secured by properties located in our primary market area and

most of which we hold in portfolio.

At September 30, 2021, $203.0 million, or 34.2% of our total loan portfolio, consisted of residential

mortgage loans (including home equity loans).

Residential mortgage loan originations are generally obtained from our in-house loan representatives,

from existing or past customers, through advertising, and through referrals from attorneys, real estate brokers, and local builders and

are underwritten pursuant to Magyar Bank’s policies and standards.

Generally, residential mortgage loans are originated in amounts

up to 80% of the lesser of the appraised value or purchase price of the property, with private mortgage insurance required on loans with

a loan-to-value ratio in excess of 80%.

We generally will not make residential mortgage loans with a loan-to-value ratio in excess of

95%, which is the upper limit that has been established by the Board of Directors.

Mortgage loans have been primarily originated for terms

of up to 30 years.

Magyar Bank does not originate or purchase “sub-prime” (mortgages granted to borrowers whose credit history

is not sufficient to get a conventional mortgage) or option ARM mortgage loans.

At September 30, 2021, non-performing residential mortgage

loans totaled $1.2 million, or 0.57% of the total residential loan portfolio.

Interest income of $55,000 would have been recorded on non-performing

residential mortgage loans for the year ended September 30, 2021 if they had been current in accordance with their original terms.

the year ended September 30, 2021, there were no charge-offs against the allowance for loan loss for impaired residential real estate

loans while $1,000 was recovered from prior year charge-offs.

We also originate home

equity loans secured by residences located in our market area.

The underwriting standards we use for home equity loans include a determination

of the applicant’s credit history, an assessment of the applicant’s ability to meet existing obligations, the ongoing payments

on the proposed loan and the value of the collateral securing the loan.

The maximum combined (first and second mortgage liens) loan-to-value

ratio for home equity loans and home equity lines of credit is 80%.

Home equity loans are generally offered with fixed rates of interest

with the loan amount not to exceed $500,000 and with terms of up to 30 years.

There were no non-performing home equity loans and there

were no charge-offs against the allowance for loan loss for impaired home equity loans while $1,000 was recovered from prior year charge-offs

for the year ended September 30, 2021.

We offer fixed-rate mortgage

loans with terms of either 10, 15, 20 or up to 30 years.

While these loans are normally originated with up to 30-year terms, such loans

typically remain outstanding for substantially shorter periods because borrowers often prepay their loans in full upon sale of the property

pledged as security or upon refinancing the original loan.

Therefore, average loan maturity is a function of, among other factors, the

level of purchase and sale activity in the real estate market, prevailing interest rates and the interest rates payable on outstanding

Generally, all fixed-rate

residential mortgage loans are underwritten according to Federal Home Loan Mortgage Corporation (“Freddie Mac”) guidelines,

policies and procedures.

Historically, we have not originated a significant number of loans for the purpose of reselling them in

the secondary market.

In the future we may increase our origination and sale of fixed-rate residential mortgage loans to help manage

interest rate risk and to increase fee income.

There were no fixed-rate mortgage loans sold to Freddie Mac during the year ended

September 30, 2020 and there were no loans were held for sale at September 30, 2020.

We generally do

not purchase residential mortgage loans, except for loans to low-income borrowers to enhance our Community Reinvestment Act performance.

However, we purchased $13.2 million in residential mortgage loans during the year ended September 30, 2020 to augment our in-house

originations.

We underwrite purchased residential mortgage loans using the same criteria as if we were originating the loans.

Historically, we have not originated a significant number of loans for the purpose of reselling them in the secondary

In the future we may increase our origination and sale of fixed-rate residential mortgage loans to help manage interest rate risk

and to increase fee income.

There were no fixed-rate mortgage loans sold to Freddie Mac during the year ended September 30, 2021 and there

were no loans were held for sale at September 30, 2021.

We generally do not purchase

residential mortgage loans, except for loans to low-income borrowers to enhance our Community Reinvestment Act performance.

no residential mortgage loans purchased during the year ended

September 30, 2021.

We underwrite

purchased residential mortgage loans using the same criteria as if we were originating the loans.

At September 30, 2021,

2020, we had $127.8 million of fixed-rate residential mortgage loans, which represented 60.8% of our total residential mortgage

loan portfolio.

we had $125.9 million of fixed-rate residential mortgage loans, which represented 62.0% of our total residential mortgage loan portfolio.

At September 30, 2021, our largest fixed-rate residential mortgage loan was $1.8 million.

The loan was performing

in accordance with its terms at September 30, 2020.

The loan was performing in accordance with its

repayment terms at September 30, 2021.

We also offer adjustable-rate

residential mortgage loans with interest rates based on the weekly average yield on U.S.

Treasuries or the London Interbank Offering

Rate (“LIBOR”) adjusted to a constant maturity of one year, which adjusts either annually from the outset of the loan

or which adjusts annually after a one-, three-, five-, seven-, and ten-year initial fixed-rate period.

Our adjustable-rate mortgage

loans generally provide for maximum rate adjustments of 2% per adjustment, with a lifetime maximum adjustment up to 5%, regardless

of the initial rate.

We also offer adjustable-rate mortgage loans with an interest rate based on the prime rate as published in

The Wall Street Journal or the Federal Home Loan Bank of New York advance rates.

Adjustable-rate

mortgage loans decrease the risk associated with changes in market interest rates by periodically repricing.

However, these loans

have other risks because, as interest rates increase, the underlying payments by the borrower increase, which increases the potential

for default by the borrower.

At the same time, the marketability of the underlying collateral may be adversely affected by higher

Treasuries or the London Interbank Offering Rate

(“LIBOR”) adjusted to a constant maturity of one year, which adjusts either annually from the outset of the loan or which

adjusts annually after a one-, three-, five-, seven-, and ten-year initial fixed-rate period.

Our adjustable-rate mortgage loans generally

provide for maximum rate adjustments of 2% per adjustment, with a lifetime maximum adjustment up to 5%, regardless of the initial rate.

We also offer adjustable-rate mortgage loans with an interest rate based on the prime rate as published in The Wall Street Journal

or the Federal Home Loan Bank of New York advance rates.

Due to historically low

interest rate levels, borrowers generally have preferred fixed-rate mortgage loans in recent years.

Adjustable-rate mortgage loans decrease

the risk associated with changes in market interest rates by periodically repricing.

However, these loans have other risks because, as

interest rates increase, the underlying payments by the borrower increase, which increases the potential for default by the borrower.

At the same time, the marketability of the underlying collateral may be adversely affected by higher interest rates.

The maximum periodic

and lifetime interest rate adjustments also may limit the effectiveness of adjustable-rate mortgage loans during periods of rapidly rising

interest rates.

The maximum periodic and lifetime interest rate adjustments also may limit the effectiveness of adjustable-rate

mortgage loans during periods of rapidly rising interest rates.

At September 30, 2021,

adjustable-rate residential mortgage loans totaled $77.1 million, or 38.0% of our total residential mortgage loan portfolio.

The largest adjustable-rate residential mortgage loan was for $2.6 million.

The loan was performing in accordance with its terms

at September 30, 2020.

In an effort to

provide financing for low-and moderate-income home buyers, we offer low-to-moderate income residential mortgage loans.

are offered with fixed rates of interest and terms of up to 40 years, and are secured by one-to four-family residential properties.

All of these loans are originated using underwriting guidelines of U.S.

government-sponsored enterprises such as Federal Home Loan

Mortgage Corporation (“Freddie Mac”).

adjustable-rate residential mortgage loan was for $2.5 million.

The loan was performing in accordance with its repayment terms at September

In an effort to provide

financing for low-and moderate-income home buyers, we offer low-to-moderate income residential mortgage loans.

These loans are offered

with fixed rates of interest and terms of up to 40 years, and are secured by one-to four-family residential properties.

All of these loans

are originated using underwriting guidelines of U.S.

government-sponsored enterprises such as Federal Home Loan Mortgage Corporation (“Freddie

These loans are originated with maximum loan-to-value ratios of 95%.

All residential

mortgage loans we originate include “due-on-sale”

clauses, which give us the right to declare a loan immediately due

and payable if the borrower sells or otherwise disposes of the real property securing the mortgage loan.

All borrowers are required

to obtain title insurance, fire and casualty insurance and, if warranted, flood insurance on properties securing real estate loans.

Real Estate Loans.

We also originate commercial real estate loans, most of which are secured by properties located in our

primary market area.

All residential mortgage

loans we originate include “due-on-sale” clauses, which give us the right to declare a loan immediately due and payable if

the borrower sells or otherwise disposes of the real property securing the mortgage loan.

All borrowers are required to obtain title insurance,

fire and casualty insurance and, if warranted, flood insurance on properties securing real estate loans.

Commercial Real Estate

We also originate commercial real estate loans, most of which are secured by properties located in our primary market area.

At September 30, 2021, $280.8 million, or 47.2%, of our total loan portfolio consisted of these types of loans.

Commercial real estate loans are generally secured by five-or-more-unit apartment buildings, industrial properties and properties

used for business purposes such as small office buildings and retail facilities.

We generally originate adjustable-rate commercial

real estate loans with a maximum term of 25 years with adjustable rate periods every five years.

The maximum loan-to-value ratio

for our commercial real estate loans is 75%, based on the appraised value of the property.

We consider a number

of factors when we originate commercial real estate loans.

During the underwriting process we evaluate the business qualifications

and financial condition of the borrower, including credit history, profitability of the property being financed, as well as the

value and condition of the mortgaged property securing the loan.

When evaluating the business qualifications of the borrower, we

consider the financial resources of the borrower, the borrower’s experience in owning or managing similar property and the

borrower’s payment history with us and other financial institutions.

In evaluating the property securing the loan, we consider

the net operating income of the mortgaged property before debt service and depreciation, the ratio of the loan amount to the appraised

value of the mortgaged property and the debt service coverage ratio (the ratio of net operating income to debt service) to ensure

it is at least 120% of the monthly debt service.

We require personal guarantees on all commercial real estate loans made to individuals.

Generally, commercial real estate loans made to corporations, partnerships and other business entities require personal guarantees

by the principals.

All borrowers are required to obtain title, fire and casualty insurance and, if warranted, flood insurance.

Loans secured by

commercial real estate generally are larger than residential mortgage loans and involve greater credit risk.

Commercial real estate

loans often involve large loan balances to single borrowers or groups of related borrowers.

Repayment of these loans depends to

a large degree on the results of operations and management of the properties securing the loans or the businesses conducted on

such property, and may be affected to a greater extent by adverse conditions in the real estate market or the economy in general.

Accordingly, the nature of these loans makes them more difficult for management to monitor and evaluate.

The maximum amount

of a commercial real estate loan is limited by our Board-established loans-to-one-borrower limit, which is currently 15% of Magyar

Bank’s capital, or $9.7 million.

At September 30, 2020, our largest commercial real

estate loan was $5.7 million to finance

the purchase of a manufacturing business in New Jersey.

loans are generally secured by five-or-more-unit apartment buildings, industrial properties and properties used for business purposes

such as small office buildings and retail facilities.

We generally originate adjustable-rate commercial real estate loans with a maximum

term of 25 years with adjustable-rate periods every five years.

The maximum loan-to-value ratio for our commercial real estate loans is

75%, based on the appraised value of the property.

We consider a number of

factors when we originate commercial real estate loans.

During the underwriting process we evaluate the business qualifications and financial

condition of the borrower, including credit history, profitability of the property being financed, as well as the value and condition

of the mortgaged property securing the loan.

When evaluating the business qualifications of the borrower, we consider the financial resources

of the borrower, the borrower’s experience in owning or managing similar property and the borrower’s payment history with

us and other financial institutions.

In evaluating the property securing the loan, we consider the net operating income of the mortgaged

property before debt service and depreciation, the ratio of the loan amount to the appraised value of the mortgaged property and the debt

service coverage ratio (the ratio of net operating income to debt service) to ensure it is at least 120% of the monthly debt service.

We require personal guarantees on all commercial real estate loans made to individuals.

Generally, commercial real estate loans made to

corporations, partnerships and other business entities require personal guarantees by the principals.

All borrowers are required to obtain

title, fire and casualty insurance and, if warranted, flood insurance.

Loans secured by commercial

real estate generally are larger than residential mortgage loans and involve greater credit risk.

Commercial real estate loans often involve

large loan balances to single borrowers or groups of related borrowers.

Repayment of these loans depends to a large degree on the results

of operations and management of the properties securing the loans or the businesses conducted on such property, and may be affected to

a greater extent by adverse conditions in the real estate market or the economy in general.

Accordingly, the nature of these loans makes

them more difficult for management to monitor and evaluate.

The maximum amount of a commercial

real estate loan is limited by our Board-established loans-to-one-borrower limit, which is currently 15% of Magyar Bank’s capital,

or $13.0 million.

At September 30, 2021, our largest commercial real estate loan was $12.0 million to finance the purchase of a nursing

and rehabilitation home in Edison, New Jersey.

The loan amount was 65% of the lower of the purchase price, which was lower than the appraised

The loan was performing in accordance with its terms at September 30, 2021.

At September 30,

2020, eight commercial real estate loans totaling $2.2 million were non-performing.

During the year ended September 30, 2020, there

were no charge-offs against the allowance for loan loss, however there were $5,000 in recoveries from prior year charge-offs.

income of $87,000 would have been recorded on non-performing commercial real estate loans for the year ended September 30, 2020,

if they had been current in accordance with their original terms.

All other loans secured by commercial real estate were performing

in accordance with their terms.

We also originate construction loans for the development of one-to four-family homes, apartment buildings and commercial

Construction loans are generally offered to experienced local developers operating in our primary market area and to

individuals for the construction of their personal residences.

At September 30, 2020, our construction loans totaled $28.2 million,

or 4.6% of total loans.

Non-performing commercial

real estate loans decreased $1.1 million, or 51.4%, to $1.1 million at September 30, 2021 from $2.2 million at September 30, 2020.

the year ended September 30, 2021, there was one charge-off totaling $51,000 against the allowance for loan loss and there were no recoveries

of prior year charge-offs.

Interest income of $97,000 would have been recorded on non-performing commercial real estate loans for the

year ended September 30, 2021 if they had been current in accordance with their original terms.

All other loans secured by commercial

real estate were performing in accordance with their terms.

Construction Loans.

We also originate construction loans for the development of one-to four-family homes, apartment buildings and commercial properties.

Construction loans are generally offered to experienced local developers operating in our primary market area and to individuals for the

construction of their personal residences.

At September 30, 2021, our construction loans totaled $20.4 million, or 3.4% of total loans.

At September 30, 2021,

construction loans for the development of one-to four-family residential properties totaled $10.9 million.

These construction

loans generally have a maximum term of 24 months.

We provide financing for land acquisition, site improvement and construction

of individual homes.

Land acquisition loans are limited to 50% to 75% of the sale price of the land.

Site improvement loans are

limited to 100% of the bonded site improvement costs.

Construction loans are limited to 75% of the lesser of the contract sale

price or appraised value of the property (less funds already advanced for land acquisition and site improvement).

These construction loans generally

have a maximum term of 24 months.

We provide financing for land acquisition, site improvement and construction of individual homes.

acquisition loans are limited to 50% to 75% of the sale price of the land.

Site improvement loans are limited to 100% of the bonded site

improvement costs.

Construction loans are limited to 75% of the lesser of the contract sale price or appraised value of the property (less

funds already advanced for land acquisition and site improvement).

At September 30, 2021,

construction loans for the development of commercial properties totaled $9.1 million.

These construction loans have a maximum

term of 24 months.

These construction loans have a maximum term of

The maximum loan-to-value ratio limit applicable to these loans is 75% of the appraised value of the property.

At September 30, 2021,

2020, construction loans for the development of town homes, condominiums and apartment buildings totaled $2.9 million.

loan-to-value ratio limit applicable to these loans is 70% of the appraised value of the property.

We may retain up to 10% of each

loan advance until the property attains a 90% occupancy level.

The maximum amount of a

construction loan is limited by our loans-to-one-borrower limit, which is currently 15% of Magyar Bank’s capital, or $9.7

At September 30, 2020, our largest outstanding construction loan was a $2.8 million loan to finance the construction of

single-family home in Colts Neck, New Jersey.

The loan has been past due greater than 90 days since the Bank declined to renew

the loan upon its maturity in January 2018.

At September 30, 2020, the Bank was in the process of foreclosing on the real estate

collateral securing the loan as well as pursuing the personal guarantors of the loan.

At September 30, 2020, there were a total

of three non-performing construction loan totaling $5.1 million.

Interest income of $297,000 would have been recorded on these

non-performing construction loan for the year ended September 30, 2020, if they had been current in accordance with their original

During the year ended September 30, 2020, $65,000 was charged-off against the allowance for loan loss and there were no recoveries

from prior year charge-offs.

Before making a

commitment to fund a construction loan, we require an appraisal of the property by an independent licensed appraiser.

also engage an outside engineering firm to review and inspect each property before disbursement of funds during the term of a construction

Loan proceeds are disbursed after inspection based on the percentage of completion method.

We require a personal guarantee

from each principal of all of our construction loan borrowers.

Construction lending

is generally considered to involve a higher degree of credit risk than long-term financing on improved, owner-occupied real estate.

Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the value of the property at completion

of construction compared to the estimated cost (including interest) of construction and other assumptions.

construction loans for the development of town homes, condominiums and apartment buildings totaled $358,000.

The maximum loan-to-value

ratio limit applicable to these loans is 70% of the appraised value of the property.

We may retain up to 10% of each loan advance until

the property attains a 90% occupancy level.

The maximum amount of a construction

loan is limited by our loans-to-one-borrower limit, which is currently 15% of Magyar Bank’s capital, or $13.0 million.

30, 2021, our largest outstanding construction loan was a $2.8 million loan to finance the construction of a single-family home in Colts

Neck, New Jersey.

The loan has been past due greater than 90 days since the Bank declined to renew the loan upon its maturity in January

At September 30, 2021, the Bank was in the process of foreclosing on the real estate collateral securing the loan as well as pursuing

the personal guarantors of the loan.

At September 30, 2021, there were a total of two non-performing construction loan totaling $4.6 million.

Interest income of $327,000 would have been recorded on these non-performing construction loans for the year ended September 30, 2021,

if they had been current in accordance with their original term.

During the year ended September 30, 2021, there were no charge-offs against

the allowance for loan loss and there were no recoveries from prior year charge-offs.

Before making a commitment

to fund a construction loan, we require an appraisal of the property by an independent licensed appraiser.

We generally also engage an

outside engineering firm to review and inspect each property before disbursement of funds during the term of a construction loan.

proceeds are disbursed after inspection based on the percentage of completion method.

We require a personal guarantee from each principal

of all of our construction loan borrowers.

Construction lending is

generally considered to involve a higher degree of credit risk than long-term financing on improved, owner-occupied real estate.

of loss on a construction loan depends largely upon the accuracy of the initial estimate of the value of the property at completion of

construction compared to the estimated cost (including interest) of construction and other assumptions.

If the estimate of construction

cost is inaccurate, we may be required to advance funds beyond the amount originally committed in order to protect the value of

the property.

Additionally, if our estimate of the value of the completed property is inaccurate, our construction loan may exceed

the value of the collateral.

Business Loans.

cost is inaccurate, we may be required to advance funds beyond the amount originally committed in order to protect the value of the property.

Additionally, if our estimate of the value of the completed property is inaccurate, our construction loan may exceed the value of the

Commercial Business

At September 30, 2021, our commercial business loans totaled $68.7 million, or 11.6% of total loans.

make commercial business loans primarily in our market area to a variety of professionals, sole proprietorships and small and mid-sized

Our commercial business loans include term loans and revolving lines of credit.

The maximum term of a commercial business

loan is 25 years.

We make commercial

business loans primarily in our market area to a variety of professionals, sole proprietorships and small and mid-sized businesses.

commercial business loans include term loans and revolving lines of credit.

The maximum term of a commercial business loan is 25 years.

Such loans are generally used for longer-term working capital purposes such as purchasing equipment or furniture.

Commercial business loans are made with either

adjustable or fixed rates of interest.

The interest rates for adjustable commercial

business loans are typically based on the prime rate as published in The Wall Street Journal .

Included in commercial

business loans are SBA 7(a) loans, on which the SBA provides guarantees of up to 75% of the principal balance (85% for loans under

These loans are made for the purposes of providing working capital and financing the purchase of equipment, inventory

or commercial real estate, and may be made inside or outside the Company’s market place.

Commercial business

loans are made with either adjustable or fixed rates of interest.

The interest rates for adjustable commercial business loans are typically

based on the prime rate as published in The Wall Street Journal .

Included in commercial business

loans are SBA 7(a) loans, on which the SBA provides guarantees of up to 75% (90% during the COVID-19 pandemic) of the principal balance

(85% for loans under $150,000).

These loans are made for the purposes of providing working capital and financing the purchase of equipment,

inventory or commercial real estate, and may be made inside or outside the Company’s market place.

Generally, an SBA 7(a) loan has

a deficiency in its credit profile that would not allow the borrower to qualify for a traditional commercial loan, which is why

the government provides the guarantee.

The deficiency may be a higher loan to value ratio, lower debt service coverage ratio or

weak personal financial guarantees.

In addition, many SBA 7(a) loans are for start-up businesses where there is no history of financial

Finally, many SBA borrowers do not have an ongoing and continuous banking relationship with the Bank, but merely work

with the Bank on a single transaction.

The guaranteed portions of the Company’s SBA loans are generally sold in the secondary

a deficiency in its credit profile that would not allow the borrower to qualify for a traditional commercial loan, which is why the government

provides the guarantee.

The deficiency may be a higher loan to value ratio, lower debt service coverage ratio or weak personal financial

In addition, many SBA 7(a) loans are for start-up businesses where there is no history of financial information.

many SBA borrowers do not have an ongoing and continuous banking relationship with the Bank, but merely work with the Bank on a single

The guaranteed portions of the Company’s SBA loans are generally sold in the secondary market.

When making commercial

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In addition, we generally require the business principals to execute personal guarantees.

Commercial business

loans generally have greater credit risk than residential mortgage loans.

Unlike residential mortgage loans, which generally are

made on the basis of the borrower’s ability to repay the loan from his or her employment income, and which are secured by

real property with ascertainable value, commercial business loans generally are made on the basis of the borrower’s ability

to repay the loan from the cash flow of the borrower’s business.

As a result, the repayment of commercial business loans

may depend substantially on the success of the borrower’s business.

As such the performance of these types of loans may be

particularly sensitive to local and/or national economic conditions.

Further, any collateral securing commercial business loans

may depreciate over time, may be difficult to appraise and may fluctuate in value.

We try to minimize these risks through our underwriting

The Bank participated in

the Paycheck Protection Program (“PPP”), which was designed by the U.S.

Treasury under the Coronavirus Aid, Relief

and Economic Security Act of 2020 (the “CARES Act”) to provide liquidity using the SBA’s platform to small businesses

and self-employed individuals to maintain their staff and operations through the COVID-19 pandemic.

This liquidity is in the form

of a loan, 100% guaranteed by the SBA, that is forgivable provided the funds are used on qualifying payroll costs, and to a lesser

extent, rent, utilities and interest on qualifying mortgage payments.

The loans bear a fixed rate of 1.0% and loan payments are

deferred through the date that the SBA remits the borrower’s loan forgiveness amount to the lender (or, if the borrower does

not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period).

The Company originated

350 loans totaling $56.0 million through September 30, 2020.

These loans have a two year term for loans originated prior to June

4, 2020 and a five year term for loans originated June 5, 2020 or later.

The Company expects the majority of these loans to be

approved for full forgiveness by the SBA.

The maximum amount

of a commercial business loan is limited by our loans-to-one-borrower limit, which is 15% of Magyar Bank’s capital, or $9.7

At September 30, 2020, our largest commercial business loan was a $5.5 million loan to a company that provides janitorial

services and was secured by the accounts receivable of the company.

This loan was performing according to its terms at September

At September 30, 2020, three commercial business loan totaling $1.5 million were non-performing.

Interest income of $93,000

would have been recorded on non-performing commercial business loans for the year ended September 30, 2020, if they had been current

in accordance with their original terms.

During the year ended September 30, 2020, $204,000 was charged-off against the allowance

for loan loss for one impaired commercial business loan and there was a $100,000 recovery from a prior year charge-off.

Lines of Credit and Other Loans.

Commercial business loans

generally have greater credit risk than residential mortgage loans.

Unlike residential mortgage loans, which generally are made on the

basis of the borrower’s ability to repay the loan from his or her employment income, and which are secured by real property with

ascertainable value, commercial business loans generally are made on the basis of the borrower’s ability to repay the loan from

the cash flow of the borrower’s business.

As a result, the repayment of commercial business loans may depend substantially on the

success of the borrower’s business.

As such the performance of these types of loans may be particularly sensitive to local and/or

national economic conditions.

Further, any collateral securing commercial business loans may depreciate over time, may be difficult to

appraise and may fluctuate in value.

We try to minimize these risks through our underwriting standards.

The Bank participated in the Paycheck

Protection Program (“PPP”), which was designed by the U.S.

Treasury under the Coronavirus Aid, Relief and Economic Security

Act of 2020 (the “CARES Act”) to provide liquidity using the SBA’s platform to small businesses and self-employed individuals

to maintain their staff and operations through the COVID-19 pandemic.

This liquidity is in the form of a loan, 100% guaranteed by the

SBA, that is forgivable provided the funds are used on qualifying payroll costs, and to a lesser extent, rent, utilities and interest

on qualifying mortgage payments.

The loans bear a fixed rate of 1.0% and loan payments are deferred through the date that the SBA remits

the borrower’s loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, 10 months after the

end of the borrower’s loan forgiveness covered period).

The Company originated 350 loans totaling $56.0 million under the CARES

Act, all of which were repaid during the year ended September 30, 2021.

The Company expects the majority of these loans to be approved

for full forgiveness by the SBA.

The Economic Aid to Hard-Hit Small

Businesses, Nonprofits, and Venues (“Economic Aid Act”) extended the SBA’s authority to guarantee “Second Draw”

PPP loans, under generally the same terms and conditions available under the First Draw program.

In order to qualify for a Second Draw

PPP loan, an applicant must have experienced a revenue reduction of at least 25% in 2020 relative to 2019.

We originated 212 Second Draw

PPP loans totaling $35.3 million.

The contractual term of the loans is five years, although the Company expects the majority of these

loans to be approved for full forgiveness by the SBA.

At September 30, 2021, the Company held 111 Second Draw PPP loans totaling $25.1

The maximum amount of a

commercial business loan is limited by our loans-to-one-borrower limit, which is 15% of Magyar Bank’s capital, or $13.0 million.

At September 30, 2021, our largest commercial business loan was a $6.0 million loan to a company that provides janitorial services and

was secured by the accounts receivable of the company.

This loan was performing according to its repayment terms at September 30, 2021.

At September 30, 2021, one commercial business loan totaling $1.3 million was non-performing.

Interest income of $75,000 would have been

recorded on non-performing commercial business loans for the year ended September 30, 2021 if the loan had been current in accordance

with its original term.

During the year ended September 30, 2021, there were no charge-offs against the allowance for loan loss for impaired

commercial business loans and there were $96,000 in recoveries from prior year charge-offs.

Home Equity Lines

of Credit and Other Loans.

We originate home equity lines of credit secured by residences located in our market area.

At September 30, 2020, these loans totaled $19.4 million, or 3.2% of our total loan portfolio.

The underwriting standards we use

for home equity lines of credit include a determination of the applicant’s credit history, an assessment of the applicant’s

ability to meet existing obligations, the ongoing payments on the proposed loan and the value of the collateral securing the loan.

The maximum combined (first and second mortgage liens) loan-to-value ratio for home equity lines of credit is 80%.

lines of credit have adjustable rates of interest, indexed to the prime rate, as reported in The Wall Street Journal , with

terms of up to 25 years.

The maximum amount

of a home equity line of credit loan is limited by our loans-to-one-borrower limit, which is 15% of Magyar Bank’s capital,

or $9.7 million currently.

At September 30, 2020, our largest home equity line of credit loan

was $2.3 million.

The loan was performing

according to its terms at September 30, 2020.

At September 30, 2020, there were no home equity lines of credit charge-offs, while

there was $1,000 recovered from a prior year charge-off.

We also originate

loans secured by the common stock of publicly traded companies, provided their shares are listed on the New York Stock Exchange

or the NASDAQ Stock Market, and provided the company is not a banking company.

Stock-secured loans are interest-only and are offered

for terms up to twelve months and for adjustable rates of interest indexed to the prime rate, as reported in The Wall Street

The loan amount is not to exceed 70% of the value of the stock securing the loan at any time.

30, 2021, these loans totaled $17.9 million, or 3.0% of our total loan portfolio.

The underwriting standards we use for home equity lines

of credit include a determination of the applicant’s credit history, an assessment of the applicant’s ability to meet existing

obligations, the ongoing payments on the proposed loan and the value of the collateral securing the loan.

The maximum combined (first

and second mortgage liens) loan-to-value ratio for home equity lines of credit is 80%.

Home equity lines of credit have adjustable rates

of interest, indexed to the prime rate, as reported in The Wall Street Journal , with terms of up to 25 years.

The maximum amount of a

home equity line of credit loan is limited by our loans-to-one-borrower limit, which is 15% of Magyar Bank’s capital, or $13.0 million.

At September 30, 2021, our largest home equity line of credit loan was $1.4 million.

The loan was performing according to its terms at

September 30, 2021.

At September 30, 2021, there were no charge-offs to home equity lines of credit, while there was $1,000 recovered

from a prior year charge-off.

We also originate loans

secured by the common stock of publicly traded companies, provided their shares are listed on the New York Stock Exchange or the NASDAQ

Stock Market, and provided the company is not a banking company.

Stock-secured loans are interest-only and are offered for terms up to

twelve months and for adjustable rates of interest indexed to the prime rate, as reported in The Wall Street Journal.

amount is not to exceed 70% of the value of the stock securing the loan at any time.

At September 30, 2021,

stock-secured loans totaled $3.8 million, or 0.6% of our total net loan portfolio.

Generally, we limit the aggregate amount

of loans secured by the common stock of any one corporation to 15% of Magyar Bank’s capital, with the exception of Johnson

& Johnson, for which the collateral concentration limit is 150% of Magyar Bank’s capital.

At September 30, 2020, loans

totaling $4.0 million, or 0.67% of our loan portfolio, were secured by the common stock of Johnson & Johnson a New York Stock

Exchange company that operates a number of facilities in our market area and employs a substantial number of residents.

these loans are underwritten based on the ability of the individual borrower to repay the loan, the concentration of our portfolio

secured by this stock subjects us to the risk of a decline in the market price of the stock and, therefore, a reduction in the

value of the collateral securing these loans.

As of September 30, 2020, the aggregate loan-to-value ratio of the stock-secured

portfolio was 30.5%.

Generally, we limit the aggregate amount of loans secured

by the common stock of any one corporation to 15% of Magyar Bank’s capital.

At September 30, 2021, loans totaling $3.5 million,

or 0.6% of our loan portfolio, were secured by the common stock of Johnson & Johnson a New York Stock Exchange company that operates

a number of facilities in our market area and employs a substantial number of residents.

Although these loans are underwritten based on

the ability of the individual borrower to repay the loan, the concentration of our portfolio secured by this stock subjects us to the

risk of a decline in the market price of the stock and, therefore, a reduction in the value of the collateral securing these loans.

of September 30, 2021, the aggregate loan-to-value ratio of the stock-secured portfolio was 13.6%.

Loan Originations,

Purchases, Participations and Servicing of Loans.

Lending activities are conducted primarily by our loan personnel operating

at our main and branch office locations.

Lending activities are conducted primarily by our loan personnel operating at

our main and branch office locations.

All loans originated by us are underwritten pursuant to our policies and procedures.

originate both adjustable rate and fixed rate loans.

Our ability to originate fixed or adjustable rate loans is dependent upon

the relative customer demand for such loans, which is affected by the current and expected future levels of market interest rates.

Generally, we retain

in our portfolio substantially all loans that we originate.

Historically, we have not originated a significant number of loans

for the purpose of selling them in the secondary market.

In the future, however, to help manage our interest rate risk and to increase

fee income, we may increase our origination and sale of fixed-rate residential loans and commercial business loans guaranteed by

All one-to four-family residential mortgage loans that we sell in the secondary market are sold with servicing rights

retained pursuant to master commitments negotiated with Freddie Mac.

both adjustable rate and fixed rate loans.

Our ability to originate fixed or adjustable rate loans is dependent upon the relative customer

demand for such loans, which is affected by the current and expected future levels of market interest rates.

Generally, we retain in

our portfolio substantially all loans that we originate.

Historically, we have not originated a significant number of loans for the purpose

of selling them in the secondary market.

In the future, however, to help manage our interest rate risk and to increase fee income, we

may increase our origination and sale of fixed-rate residential loans and commercial business loans guaranteed by the SBA.

four-family residential mortgage loans that we sell in the secondary market are sold with servicing rights retained pursuant to master

commitments negotiated with Freddie Mac.

We sell our loans to Freddie Mac without recourse.

were held for sale at September 30, 2020.

No loans were held for sale at September 30,

At September 30, 2021,

2020, we were servicing SBA guaranteed and commercial participation loans sold in the amount of $22.2 million and $15.2 million,

respectively.

Loan servicing includes collecting and remitting loan payments, accounting for principal and interest, contacting

delinquent mortgagors, supervising foreclosures and property dispositions in the event of unremedied defaults, making certain insurance

and tax payments on behalf of the borrowers and generally administering the loans.

From time-to-time,

we will also participate in loans, sometimes as the “lead lender.”

Whether we are the lead lender or not, we underwrite

our participation portion of the loan according to our own underwriting criteria and procedures.

At September 30, 2020, we had

$17.2 million of loan participation interests in which we were the lead lender, and $16.4 million in loan participations in which

we were not the lead lender.

There were no commercial real estate loan participations originated during the year ended September

30, 2020 in which we were not the lead lender.

We have entered into certain loan participations when the aggregate outstanding

balance of a particular customer relationship exceeds our loan-to-one-borrower limit.

All loan participations are loans secured

by real estate that adhere to our loan policies.

At September 30, 2020, all participation loans were performing in accordance with

During the fiscal

year ended September 30, 2020, we originated $38.5 million of fixed-rate and adjustable-rate one-to four-family residential mortgage

loans and $32.6 million of fixed-rate and adjustable-rate commercial real estate loans.

The fixed-rate loans are primarily loans

with terms of 30 years or less.

In addition, we purchased $11.1 million of adjustable-rate one-to four-family residential mortgage

loans We also originated $11.4 million of construction loans, $60.3 million of commercial business loans (which includes $56.0

million of PPP loans), and $3.0 million of home equity lines of credit and other loans.

We generally do

not purchase residential mortgage loans, except for loans to low-income borrowers as part of our Community Reinvestment Act lenders

At September 30, 2020, we had $16.7 million of one-to four-family residential mortgage loans that were serviced by other

we were servicing SBA-guaranteed and commercial participation loans sold in the amount of $24.2 million and $11.4 million, respectively.

Loan servicing includes collecting and remitting loan payments, accounting for principal and interest, contacting delinquent mortgagors,

supervising foreclosures and property dispositions in the event of unremedied defaults, making certain insurance and tax payments on behalf

of the borrowers and generally administering the loans.

From time-to-time, we will

also participate in loans, sometimes as the “lead lender.” Whether we are the lead lender or not, we underwrite our participation

portion of the loan according to our own underwriting criteria and procedures.

At September 30, 2021, we had $28.4 million of loan participation

interests in which we were the lead lender, and $17.6 million in loan participations in which we were not the lead lender.

no commercial real estate loan participations originated during the year ended September 30, 2021 in which we were not the lead lender.

We have entered into certain loan participations when the aggregate outstanding balance of a particular customer relationship exceeds

our loan-to-one-borrower limit.

All loan participations are loans secured by real estate that adhere to our loan policies.

30, 2021, all participation loans were performing in accordance with their terms.

During the fiscal year

ended September 30, 2021, we originated $31.3 million of fixed-rate and adjustable-rate one-to four-family residential mortgage loans

and $60.5 million of fixed-rate and adjustable-rate commercial real estate loans.

The fixed-rate loans are primarily loans with terms

of 30 years or less.

We also originated $47.9 million of commercial business loans (which includes $25.1 million of PPP loans), $9.5 million

of construction loans, and $9.8 million of home equity lines of credit and other loans.

We generally do not purchase

residential mortgage loans, except for loans to low-income borrowers as part of our Community Reinvestment Act lenders program.

30, 2021, we had $6.7 million of one-to four-family residential mortgage loans that were serviced by other lenders.

Asset Quality

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efforts when a loan becomes 15 days past due with system-generated reminder notices.

Subsequent late charge and delinquent notices

are issued and the account is monitored on a regular basis thereafter.

Personal, direct contact with the borrower is attempted

early in the collection process as a courtesy reminder and later to determine the reason for the delinquency and to safeguard our

When a loan is more than 60 days past due, the credit file is reviewed and, if deemed necessary, information is updated

or confirmed and collateral re-evaluated.

We make every effort to contact the borrower and develop a plan of repayment to cure

the delinquency.

Loans are placed on non-accrual status when they are delinquent for more than three months.

When loans are placed

on non-accrual status, unpaid accrued interest is fully reversed, and further income is recognized only to the extent received.

A summary report

of all loans 30 days or more past due is provided to the Board of Directors on a monthly basis.

If no repayment plan is in process,

the file is referred to counsel for the commencement of foreclosure or other collection efforts.

Non-Performing

The table below sets forth the amounts and categories of our non-performing assets at the dates indicated.

table includes troubled debt restructurings (loans for which a portion of interest or principal has been forgiven and loans modified

at interest rates materially less than current market rates) for each date presented.

September 30,

Subsequent late charge and delinquent notices are

issued and the account is monitored on a regular basis thereafter.

Personal, direct contact with the borrower is attempted early in the

collection process as a courtesy reminder and later to determine the reason for the delinquency and to safeguard our collateral.

a loan is more than 60 days past due, the credit file is reviewed and, if deemed necessary, information is updated or confirmed and collateral

re-evaluated.

We make every effort to contact the borrower and develop a plan of repayment to cure the delinquency.

Loans are placed on

non-accrual status when they are delinquent for more than three months.

When loans are placed on non-accrual status, unpaid accrued interest

is fully reversed, and further income is recognized only to the extent received.

A summary report of all

loans 30 days or more past due is provided to the Board of Directors on a monthly basis.

If no repayment plan is in process, the file

is referred to counsel for the commencement of foreclosure or other collection efforts.

Non-Performing Assets.

The following table sets forth the amounts and categories of our non-performing assets at the dates indicated.

The table includes

troubled debt restructurings (loans for which a portion of interest or principal has been forgiven and loans modified at interest rates

materially less than current market rates) for each date presented.

(Dollars in thousands)

Non-accrual loans:

One-to four-family residential

Commercial real estate

Home equity lines of credit

Commercial business

Total non-accrual loans

Accruing loans three months or more past due:

One-to four-family residential

Commercial real estate

Home equity lines of credit

Commercial business

Total loans three months or more past due

Total non-performing loans

Other real estate owned

four-family residential

Commercial real

lines of credit

non-accrual loans

Accruing loans three months or more

One-to four-family

Commercial real

lines of credit

loans three months or more past due

Total non-performing

troubled debt restructurings

Performing troubled

debt restructurings

total non-performing assets

Performing troubled debt restructurings

and total non-performing assets

Total non-performing loans to total loans

Total non-performing loans and performing

troubled debt restructurings to total loans

Total non-performing assets to total assets

Total non-performing assets and performing

troubled debt restructurings to total assets

Total non-performing

loans to total loans

Total non-performing

loans and performing

troubled debt

restructurings to total loans

Total non-performing

assets to total assets

Total non-performing

assets and performing

troubled debt

restructurings to total assets

Commercial business, commercial

real estate and construction loans generally have more risk than one-to four-family residential mortgage loans.

At September 30, 2021,

our portfolio of commercial business, commercial real estate and construction loans totaled $377.4 million, or 61.7% of our total

loans, compared to $309.8 million, or 59.2% of our total loans, at September 30, 2019.

Commercial business, commercial real estate

and construction loans generally have more risk than one-to four-family residential mortgage loans.

As shown in the table above,

our troubled debt restructurings and total non-performing assets decreased $2.3 million to $12.5 million at September 30, 2020

from $14.8 million at September 30, 2019, and increased $3.0 million from $9.5 million at September 30, 2018.

Additional interest income

of approximately $508,000 and $530,000 would have been recorded during the fiscal years ended September 30, 2020 and 2019, respectively,

our portfolio of commercial business, commercial real estate and construction loans totaled $369.9 million, or 62.2% of our total loans,

compared to $377.4 million, or 61.7% of our total loans, at September 30, 2020.

Additional interest income of

approximately $555,000 and $508,000 would have been recorded during the fiscal years ended September 30, 2021 and 2020, respectively,

if the non-accrual loans summarized in the above table had performed in accordance with their original terms.

The Company accounts for

its impaired loans in accordance with generally accepted accounting principles, which require that a creditor measure impairment

based on the present value of expected future cash flows discounted at the loan’s effective interest rate except that, as

a practical expedient, a creditor may measure impairment based on a loan’s observable market price less estimated costs of

disposal, or the fair value of the collateral less estimated costs of disposal if the loan is collateral dependent.

of the measurement method, a creditor may measure impairment based on the fair value of the collateral when the creditor determines

that foreclosure is probable.

The Company records cash

receipts on impaired loans that are non-performing as a reduction to principal before applying amounts to interest or late charges

unless specifically directed by the Bankruptcy Court to apply payments otherwise.

The Company generally continues to recognize

interest income on impaired loans that are performing.

Troubled debt restructurings

(“TDRs”) occur when a creditor, for economic or legal reasons related to a debtor’s financial condition, grants

a concession to the debtor that it would not otherwise consider, such as a below market interest rate, extending the maturity of

a loan, or a combination of both.

There was one new TDR loan totaling $220,000 during the fiscal year ended September 30,

2020 that was performing in accordance with its restructured terms at September 30, 2020.

For comparison purposes, there was one

TDR loan totaling $363,000 during the fiscal year ended September 30, 2019.

The Company accounts for its impaired

loans in accordance with generally accepted accounting principles, which require that a creditor measure impairment based on the present

value of expected future cash flows discounted at the loan’s effective interest rate except that, as a practical expedient, a creditor

may measure impairment based on a loan’s observable market price less estimated costs of disposal, or the fair value of the collateral

less estimated costs of disposal if the loan is collateral dependent.

Regardless of the measurement method, a creditor may measure impairment

based on the fair value of the collateral when the creditor determines that foreclosure is probable.

The Company records cash receipts

on impaired loans that are non-performing as a reduction to principal before applying amounts to interest or late charges unless specifically

directed by the Bankruptcy Court to apply payments otherwise.

The Company generally continues to recognize interest income on impaired

loans that are performing.

Troubled debt restructurings (“TDRs”)

occur when a creditor, for economic or legal reasons related to a debtor’s financial condition, grants a concession to the debtor

that it would not otherwise consider, such as a below market interest rate, extending the maturity of a loan, or a combination of both.

were two new TDR loans totaling $340,000 during the

fiscal year ended September 30, 2021 that were performing

in accordance with their restructured terms at September 30, 2021.

For comparison purposes, there was one TDR loan totaling $220,000 during

the fiscal year ended September 30, 2020.

Delinquent Loans .

The following table sets forth certain information with respect to our loan portfolio delinquencies at the dates indicated.

delinquent more than three months are generally classified as non-accrual loans.

Loans delinquent

more than three months are generally classified as non-accrual loans.

Loans Delinquent For

90 Days and Over

(Dollars in thousands)

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Commercial real estate

Home equity lines of credit

Commercial business

10 unchanged sentences

Real Estate Owned .

Real estate we acquire as a result of foreclosure or by deed in lieu of foreclosure is classified as other real estate owned (“OREO”)

When property is acquired it is recorded at fair value less estimated cost to

sell at the date of foreclosure, establishing

Real estate we acquire as a result of foreclosure or by deed in lieu of foreclosure is classified as other real estate owned (“OREO”)

When property is acquired it is recorded at fair value less estimated cost to sell at the date of foreclosure, establishing

a new cost basis.

Holding costs and declines in fair value result in charges to expense after acquisition.

The Company held $2.6 million

of OREO properties at September 30, 2020, a decrease of $4.9 million from $7.5 million at September 30, 2019.

The Company was able

to dispose of seven properties with an aggregate carrying value of $4.6 million for a net gain of $42,000.

There were no new properties

recorded as OREO during the year ended September 30, 2020.

OREO at September 30, 2020

consisted of one residential property totaling $215,000, one compilation of real estate lots/land totaling $490,000, and three

commercial real estate buildings totaling $1.9 million.

The Bank is determining the proper course of action for its OREO, which

may include holding the properties until the real estate market improves, marketing the properties for individual sale, or selling

properties to an investor and/or developer.

The Company recorded $371,000

in valuation allowances against its OREO during the year ended September 30, 2020 based on updated appraisals or executed contracts

Further declines in real estate values may result in a charge to expense in the future.

Routine holding costs are charged

to expense as incurred and improvements to OREO that enhance the value of the real estate are capitalized.

Federal banking regulations provide that loans and other assets of lesser quality should be classified as “substandard,”

“doubtful”

or “loss”

An asset is considered “substandard”

if it is inadequately protected

by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.

“Substandard”

include those characterized by the “distinct possibility”

we will sustain “some loss”

if the deficiencies

are not corrected.

Assets classified as “doubtful”

have all of the weaknesses inherent in those classified “substandard,”

with the added characteristic that the weaknesses present make “collection or liquidation in full,”

on the basis of

currently existing facts, conditions, and values, “highly questionable and improbable.”

Assets classified as “loss”

are those considered “un-collectible”

and of such little value their continuance as assets without the establishment

of a specific loss reserve is not warranted.

We classify an asset as “special mention”

if the asset has a potential

weakness that warrants management’s close attention.

While such assets are not impaired, management has concluded that if

the potential weakness in the asset is not addressed, the value of the asset may deteriorate, adversely affecting the repayment

of the asset.

On the basis of our review at September 30, 2020, classified assets consisted of $2.8 million in special mention

loans, $12.2 million in substandard loans, and $1.3 million in substandard OREO.

We are required

to establish an allowance for loan losses in an amount deemed prudent by management for loans classified substandard or doubtful,

as well as for other problem loans.

General allowances represent loss allowances which have been established to recognize the inherent

losses associated with lending activities, but which, unlike impairment allowances, have not been allocated to particular problem

When we classify problem assets, we are required to determine whether or not impairment exists.

A loan is impaired when,

based on current information and events, it is probable that Magyar Bank will be unable to collect all amounts due according to

the contractual terms of the loan agreement.

When it is determined that impairment exists, a specific allowance for loss is established.

For collateral-dependent loans, the loan is reduced by the impairment amount via a reduction to the loan and the allowance for

Our determination as to the classification of our assets and the amount of our valuation allowances is subject to review

by the NJDBI and the FDIC, which can direct us to establish additional loss allowances.

The Company held $636,000 of OREO

properties at September 30, 2021, a decrease of $2.0 million from $2.6 million at September 30, 2020.

Classified Assets.

Federal banking regulations provide that loans and other assets of lesser quality should be classified as “substandard,” “doubtful”

or “loss” assets.

An asset is considered “substandard” if it is inadequately protected by the current net worth

and paying capacity of the obligor or of the collateral pledged, if any.

“Substandard” assets include those characterized

by the “distinct possibility” we will sustain “some loss” if the deficiencies are not corrected.

Assets classified

as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic

that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions,

and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “un-collectible”

and of such little value their continuance as assets without the establishment of a specific loss reserve is not warranted.

an asset as “special mention” if the asset has a potential weakness that warrants management’s close attention.

such assets are not impaired, management has concluded that if the potential weakness in the asset is not addressed, the value of the

asset may deteriorate, adversely affecting the repayment of the asset.

On the basis of our review at September 30, 2021, classified assets

consisted of $7.7 million in special mention loans, $9.2 million in substandard loans, and $636,000 in substandard OREO.

We are required to establish

an allowance for loan losses in an amount deemed prudent by management for loans classified substandard or doubtful, as well as for other

problem loans.

General allowances represent loss allowances which have been established to recognize the inherent losses associated with

lending activities, but which, unlike impairment allowances, have not been allocated to particular problem assets.

When we classify problem

assets, we are required to determine whether or not impairment exists.

A loan is impaired when, based on current information and events,

it is probable that Magyar Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement.

it is determined that impairment exists, a specific allowance for loss is established.

For collateral-dependent loans, the loan is reduced

by the impairment amount via a reduction to the loan and the allowance for loan loss.

Our determination as to the classification of our

assets and the amount of our valuation allowances is subject to review by the NJDBI and the FDIC, which can direct us to establish additional

loss allowances.

The loan portfolio is reviewed

2 unchanged sentences

assets constitute non-performing assets.

Allowance for

Our allowance for

loan losses is maintained at a level management deems necessary to absorb loan losses that are both probable and reasonably estimable.

Management, in determining the allowance for loan losses, considers the losses in our loan portfolio both probable and reasonably

estimable, and changes in the nature and volume of loan activities, along with the general economic and real estate market conditions.

The allowance for loan losses as of September 30, 2020 was maintained at a level that represents management’s best estimate

of losses in the loan portfolio both probable and reasonably estimable.

However, this analysis process is inherently subjective,

as it requires us to make estimates that are susceptible to revisions as more information becomes available.

Although we believe

we have established the allowance at levels to absorb probable and estimable losses, future additions may be necessary if economic

or other conditions in the future differ from the current environment.

In addition, as an integral

part of their examination process, the NJDBI and the FDIC will periodically review our allowance for loan losses.

Such agencies

may require us to recognize additions to the allowance based on their judgments of information available to them at the time of

their examination.

The provision for loan

losses increased $1.0 million to $1.7 million for the year ended September 30, 2020 compared to $668,000 for the year ended September

The increase was attributable to growth in total loans receivable and higher adjustments to the historical loss factors

for economic conditions relating to the COVID-19 pandemic.

Allowance for Loan

Allowance for Loan Losses

Our allowance for loan

losses is maintained at a level management deems necessary to absorb loan losses that are both probable and reasonably estimable.

in determining the allowance for loan losses, considers the losses in our loan portfolio both probable and reasonably estimable, and changes

in the nature and volume of loan activities, along with the general economic and real estate market conditions.

The allowance for loan

losses as of September 30, 2021 was maintained at a level that represents management’s best estimate of losses in the loan portfolio

both probable and reasonably estimable.

However, this analysis process is inherently subjective, as it requires us to make estimates that

are susceptible to revisions as more information becomes available.

Although we believe we have established the allowance at levels to

absorb probable and estimable losses, future additions may be necessary if economic or other conditions in the future differ from the

current environment.

In addition, as an integral part

of their examination process, the NJDBI and the FDIC will periodically review our allowance for loan losses.

Such agencies may require

us to recognize additions to the allowance based on their judgments of information available to them at the time of their examination.

The provision for loan losses

decreased $37,000 to $1.6 million for the year ended September 30, 2021 compared to $1.7 million for the year ended September 30, 2020.

The decrease was attributable to contraction in net total loans receivable, offset by adjustments to historical loss factors for economic

conditions relating to the COVID-19 pandemic.

Allowance for Loan Losses.

The following table sets forth activity in our allowance for loan losses for the periods indicated.

4 unchanged sentences

Commercial real estate

Home equity lines of credit

Commercial business

5 unchanged sentences

Total recoveries

Net charge-offs

Net charge-offs (recoveries)

Provision for loan losses

Balance at end of period

Net charge-offs to average loans outstanding

Allowance for loan losses to total

non-performing loans at end of period

Net charge-offs (recoveries) to average loans outstanding

Allowance for loan losses to total non-performing loans

Allowance for loan losses to total loans

at end of period

Allocation of Allowance

for Loan Losses.

The following table sets forth the allowance for loan losses allocated by loan category, the percent of

the allowance to the total allowance and the percent of loans in each category to total loans at the dates indicated.

The allowance

for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not

restrict the use of the allowance to absorb losses in other categories.

The following table sets forth the allowance for loan losses allocated by loan category, the percent of the allowance

to the total allowance and the percent of loans in each category to total loans at the dates indicated.

The allowance for loan losses

allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of

the allowance to absorb losses in other categories.

% of Allowance

36 unchanged sentences

This policy determines the types of securities in which we may invest.

The Investment Policy

is reviewed annually by the Board of Directors and changes to the policy are subject to approval by our Board of Directors.

general investment strategies are developed by the Asset and Liability Committee, the execution of specific actions rests primarily

with our President and our Chief Financial Officer.

They are responsible for ensuring the guidelines and requirements included

in the Investment Policy are followed.

They are authorized to execute transactions that fall within the scope of the established

Investment Policy up to $2.5 million per transaction individually or $5.0 million per transaction jointly.

Investment transactions

in excess of $5.0 million must be approved by the Asset and Liability Committee.

Investment transactions are reviewed and ratified

by the Board of Directors at their regularly scheduled meetings.

Our investments

portfolio may include U.S.

Treasury obligations, debt and equity securities issued by various government-sponsored enterprises,

including Fannie Mae and Freddie Mac, mortgage-backed securities, certain certificates of deposit of insured financial institutions,

overnight and short-term loans to other banks, investment-grade corporate debt instruments, and municipal securities.

we may invest in equity securities subject to certain limitations and not in excess of Magyar Bank’s Tier 1 capital.

The Investment Policy

requires that securities transactions be conducted in a safe and sound manner, and purchase and sale decisions be based upon a

thorough analysis of each security to determine its quality and inherent risks and fit within our overall asset/liability management

The analysis must consider the effect of an investment or sale on our risk-based capital and prospects for yield and

appreciation.

The Investment Policy is reviewed

annually by the Board of Directors and changes to the policy are subject to approval by our Board of Directors.

While general investment

strategies are developed by the Asset and Liability Committee, the execution of specific actions rests primarily with our President and

our Chief Financial Officer.

They are responsible for ensuring the guidelines and requirements included in the Investment Policy are followed.

They are authorized to execute transactions that fall within the scope of the established Investment Policy up to $2.5 million per transaction

individually or $5.0 million per transaction jointly.

Investment transactions in excess of $5.0 million must be approved by the Asset

and Liability Committee.

Investment transactions are reviewed and ratified by the Board of Directors at their regularly scheduled meetings.

Our investments portfolio

may include U.S.

Treasury obligations, debt and equity securities issued by various government-sponsored enterprises, including Fannie

Mae and Freddie Mac, mortgage-backed securities, certain certificates of deposit of insured financial institutions, overnight and short-term

loans to other banks, investment-grade corporate debt instruments, and municipal securities.

In addition, we may invest in equity securities

subject to certain limitations and not in excess of Magyar Bank’s Tier 1 capital.

The Investment Policy requires

that securities transactions be conducted in a safe and sound manner, and purchase and sale decisions be based upon a thorough analysis

of each security to determine its quality and inherent risks and fit within our overall asset/liability management objectives.

must consider the effect of an investment or sale on our risk-based capital and prospects for yield and appreciation.

At September 30, 2021,

our securities portfolio totaled $70.6 million, or 9.1% of our total assets.

Securities are classified as held-to-maturity

or available-for-sale when purchased.

At September 30, 2020, $30.4 million of our securities were classified as held-to-maturity

and reported at amortized cost, and $14.6 million were classified as available-for-sale and reported at fair value.

30, 2020, we held no investment securities classified as held-for-trading.

Agency and Government-Sponsored Enterprise Obligations.

Securities are classified as held-to-maturity or available-for-sale

when purchased.

At September 30, 2021, $57.7 million of our securities were classified as held-to-maturity and reported at amortized cost,

and $12.9 million were classified as available-for-sale and reported at fair value.

At September 30, 2021, we held no investment securities

classified as held-for-trading.

Government Agency

and Government-Sponsored Enterprise Obligations.

At September 30, 2021, our U.S.

Government Agency and Government-Sponsored

Enterprise Obligations totaled $41.7 million, or 92.8% of our total securities portfolio.

Of this amount, $32.2 million were mortgage-backed

securities and $9.5 million were debt securities.

While these securities generally provide lower yields than other securities in

our securities portfolio, we hold these securities, to the extent appropriate, for liquidity purposes and as collateral for certain

deposits or borrowings.

We invest in these securities to achieve positive interest rate spreads with minimal administrative expense,

and to lower our credit risk as a result of the guarantees provided by these issuers.

Mortgage-Backed

We purchase mortgage-backed pass through and collateralized mortgage obligation (“CMO”) securities

insured or guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.

To a lesser extent, we also invest in mortgage-backed securities

issued or sponsored by private issuers.

At September 30, 2020, our mortgage-backed securities, including CMOs, totaled $32.5 million,

or 72.2% of our total securities portfolio.

Included in this balance was $259,000 of mortgage-backed securities issued by private

Our policy is to limit purchases of privately issued mortgage-backed securities to non-high risk securities rated “A”

or higher by a nationally recognized credit rating agency.

High risk securities generally are defined as those exhibiting significantly

greater volatility of estimated average life and price due to changes in interest rates than 30-year fixed rate securities.

Mortgage-backed

pass through securities are created by pooling mortgages and issuing a security with an interest rate less than the interest rate

on the underlying mortgages.

Mortgage-backed pass through securities represent a participation interest in a pool of single-family

or multi-family mortgages.

As loan payments are made by the borrowers, the principal and interest portion of the payment is passed

through to the investor as received.

CMOs are also backed by mortgages.

However they differ from mortgage-backed pass through securities

because the principal and interest payments on the underlying mortgages are structured so that they are paid to the security holders

of pre-determined classes or tranches at a faster or slower pace.

The receipt of these principal and interest payments, which depends

on the estimated average life for each class, is contingent on a prepayment speed assumption assigned to the underlying mortgages.

Variances between the assumed payment speed and actual payments can significantly alter the average lives of such securities.

Mortgage-backed

securities and CMOs generally yield less than the loans that underlie such securities because of the cost of payment guarantees

and credit enhancements.

However, mortgage-backed securities are usually more liquid than individual mortgage loans and may be

used to collateralize borrowings and other liabilities.

Mortgage-backed

securities present a risk that actual prepayments may differ from estimated prepayments over the life of the security, which may

require adjustments to the amortization of any premium or accretion of any discount relating

to such instruments that can change

the net yield on the securities.

There is also reinvestment risk associated with the cash flows from such securities or if the

securities are redeemed by the issuer.

In addition, the market value of such securities may be adversely affected by changes in

interest rates.

Our mortgage-backed

securities portfolio had a weighted average yield of 2.51% at September 30, 2020.

The estimated fair value of our mortgage-backed

securities portfolio at September 30, 2020 was $33.2 million, which was $783,000 million more than the amortized cost.

Mortgage-backed

securities in Magyar Bank’s portfolio do not contain sub-prime mortgage loans.

and Other Securities .

At September 30, 2020, the Bank held one corporate note issued by Wells Fargo Bank at its amortized

value totaling $3.0 million.

Our Investment Policy allows for the purchase of such instruments and requires that corporate debt

obligations be rated in one of the four highest categories by a nationally recognized rating service.

We may invest up to 25% of

Magyar Bank’s investment portfolio in corporate debt obligations and up to 15% of Magyar Bank’s capital in any one

Government Agency and Government-Sponsored Enterprise

Obligations totaled $65.3 million, or 92.5% of our total securities portfolio.

Of this amount, $52.8 million were mortgage-backed securities

and $12.5 million were debt securities.

While these securities generally provide lower yields than other securities in our securities

portfolio, we hold these securities, to the extent appropriate, for liquidity purposes and as collateral for certain deposits or borrowings.

We invest in these securities to achieve positive interest rate spreads with minimal administrative expense, and to lower our credit risk

as a result of the guarantees provided by these issuers.

Mortgage-Backed Securities.

We purchase mortgage-backed pass through and collateralized mortgage obligation (“CMO”) securities insured or guaranteed

by Fannie Mae, Freddie Mac or Ginnie Mae.

To a lesser extent, we also invest in mortgage-backed securities issued or sponsored by private

At September 30, 2021, our mortgage-backed securities, including CMOs, totaled $53.0 million, or 75.1% of our total securities

Included in this balance was a $242,000 mortgage-backed security issued by a private issuer.

Our policy is to limit purchases

of privately issued mortgage-backed securities to non-high risk securities rated “A” or higher by a nationally recognized

credit rating agency.

High risk securities generally are defined as those exhibiting significantly greater volatility of estimated average

life and price due to changes in interest rates than 30-year fixed rate securities.

Mortgage-backed pass through

securities are created by pooling mortgages and issuing a security with an interest rate less than the interest rate on the underlying

Mortgage-backed pass through securities represent a participation interest in a pool of single-family or multi-family mortgages.

As loan payments are made by the borrowers, the principal and interest portion of the payment is passed through to the investor as received.

CMOs are also backed by mortgages, however they differ from mortgage-backed pass through securities because the principal and interest

payments on the underlying mortgages are structured so that they are paid to the security holders of pre-determined classes or tranches

at a faster or slower pace.

The receipt of these principal and interest payments, which depends on the estimated average life for each

class, is contingent on a prepayment speed assumption assigned to the underlying mortgages.

Variances between the assumed payment speed

and actual payments can significantly alter the average lives of such securities.

Mortgage-backed securities and CMOs generally yield

less than the loans that underlie such securities because of the cost of payment guarantees and credit enhancements.

However, mortgage-backed

securities are usually more liquid than individual mortgage loans and may be used to collateralize borrowings and other liabilities.

Mortgage-backed securities

present a risk that actual prepayments may differ from estimated prepayments over the life of the security, which may require adjustments

to the amortization of any premium or accretion of any discount relating

to such instruments that can change the net

yield on the securities.

There is also reinvestment risk associated with the cash flows from such securities or if the securities are

redeemed by the issuer.

In addition, the market value of such securities may be adversely affected by changes in interest rates.

Our mortgage-backed securities

portfolio had a weighted average yield of 1.83% at September 30, 2021.

The estimated fair value of our mortgage-backed securities portfolio

at September 30, 2021 was $53.0 million, which was $166,000 less than the amortized cost.

Mortgage-backed securities in Magyar Bank’s

portfolio do not contain sub-prime mortgage loans.

Corporate and Other

At September 30, 2021, the Bank held one corporate note issued by Wells Fargo Bank at its amortized value totaling

$3.0 million.

Our Investment Policy allows for the purchase of such instruments and requires that corporate debt obligations be rated

in one of the four highest categories by a nationally recognized rating service.

We may invest up to 25% of Magyar Bank’s investment

portfolio in corporate debt obligations and up to 15% of Magyar Bank’s capital in any one issuer.

Equity Securities.

At September 30, 2020, we held no equity securities other than $2.0 million in Federal Home Loan Bank of New York stock.

The investment

in Federal Home Loan Bank of New York stock is classified as a restricted security, carried at cost and evaluated for impairment.

Equity securities are not insured or guaranteed investments and are affected by market interest rates and stock market fluctuations.

Such investments other than the Federal Home Loan Bank of New York are carried at their fair value and fluctuations in the fair

value of such investments, including temporary declines in value, directly affect our net capital position.

At September 30, 2021, we held no equity securities other than $1.7 million in Federal Home Loan Bank of New York (“FHLBNY”)

The investment in FHLBNY stock is classified as a restricted security, carried at cost and evaluated for impairment.

Equity securities

are not insured or guaranteed investments and are affected by market interest rates and stock market fluctuations.

Such investments other

than the FHLBNY are carried at their fair value and fluctuations in the fair value of such investments, including temporary declines in

value, directly affect our net capital position.

Securities Portfolios.

The following tables set forth the composition of our securities portfolio (excluding Federal Home Loan Bank of New York

common stock) at the dates indicated.

At September 30, 2020

At September 30, 2019

following tables set forth the composition of our securities portfolio (excluding FHLBNY common stock) at the dates indicated.

At September 30,

Securities available for sale:

(In thousands)

Securities available for sale:

Obligations of U.S.

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Total securities available for sale

At September 30, 2020

At September 30, 2019

At September 30, 2018

Securities held to maturity:

(In thousands)

Obligations of U.S.

7 unchanged sentences

Private label mortgage-backed securities-residential

Obligations of state and political subdivisions

Corporate securities

Total securities held to maturity

At September 30, 2020,

a total of nine securities with an aggregate fair value of $10.0 million had gross unrealized losses of $259,000, or approximately

2.6% of fair value.

Total investment securities:

At September 30, 2021, a total

of 36 securities with an aggregate fair value of $53.7 million had gross unrealized losses of $1.0 million, or approximately 1.9% of fair

None of these unrealized losses were considered other-than-temporary.

Portfolio Maturities

The composition, maturities and weighted average yields of the investment debt securities portfolio and the

mortgage-backed securities portfolio at September 30, 2020 are summarized in the following tables.

Maturities are based on the

final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur.

Portfolio Maturities and

The composition, maturities and weighted average yields of the investment debt securities portfolio and the mortgage-backed

securities portfolio at September 30, 2021 are summarized in the following tables.

Maturities are based on the final contractual payment

dates, and do not reflect the impact of prepayments or early redemptions that may occur.

September 30, 2021

11 unchanged sentences

Mortgage-backed securities-residential

Debt securities

Total securities available for sale

September 30, 2020

More Than Five

Years Through

One Year or Less

Total Securities

(Dollars in thousands)

securities available for sale

Securities held to maturity:

8 unchanged sentences

Private label mortgage-backed securities - residential

Obligations of state and political subdivisions

Corporate securities

Total securities held to maturity

securities held to maturity

Sources of Funds

including certificates of deposit, demand, savings, NOW and money market accounts, have traditionally been the primary source of

funds used for our lending and investment activities.

We obtain certificates of deposit primarily through our branch network and

to a lesser extent via the brokered CD market.

We also use borrowings, primarily Federal Home Loan Bank advances, to supplement

cash flow needs, to lengthen the maturities of liabilities for interest rate risk management and to manage our cost of funds.

sources of funds include principal and interest payments from loans and securities, loan and security prepayments and maturities,

income on other earning assets and stockholders’

While cash flows from loans and securities payments can be relatively

stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions

and levels of competition.

including certificates of deposit, demand, savings, NOW and money market accounts, have traditionally been the primary source of funds

used for our lending and investment activities.

We obtain certificates of deposit primarily through our branch network and to a lesser

extent via the brokered CD market.

We also use borrowings, primarily Federal Home Loan Bank advances, to supplement cash flow needs, to

lengthen the maturities of liabilities for interest rate risk management and to manage our cost of funds.

Additional sources of funds

include principal and interest payments from loans and securities, loan and security prepayments and maturities, income on other earning

assets and stockholders’ equity.

While cash flows from loans and securities payments can be relatively stable sources of funds,

deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition.

Our deposits are generated primarily from customers within our primary market area.

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demand accounts, NOW accounts, money market accounts, savings accounts, retirement accounts and certificates of deposit.

account terms vary, with the principal differences being the minimum balance required, the amount of time the funds must remain

on deposit and the interest rate.

Deposit account

terms vary, with the principal differences being the minimum balance required, the amount of time the funds must remain on deposit and

the interest rate.

We also accept brokered deposits when attractive rates and terms are available.

30, 2020, we had $9.4 million in brokered deposits as compared to $6.9 million at September 30, 2019.

Interest rates,

maturity terms, service fees and withdrawal penalties are established on a periodic basis.

Deposit rates and terms are based primarily

on current operating strategies and market rates, liquidity requirements, rates paid by competitors and growth goals.

customer service, long-standing relationships with customers and an active marketing program are relied upon to attract and retain

The flow of deposits

is influenced significantly by general economic conditions, changes in money market and other prevailing interest rates and competition.

At September 30, 2021, we had $6.0

million in brokered deposits, compared to $9.4 million at September 30, 2020.

Interest rates, maturity

terms, service fees and withdrawal penalties are established on a periodic basis.

Deposit rates and terms are based primarily on current

operating strategies and market rates, liquidity requirements, rates paid by competitors and growth goals.

Personalized customer service,

long-standing relationships with customers and an active marketing program are relied upon to attract and retain deposits.

The flow of deposits is

influenced significantly by general economic conditions, changes in money market and other prevailing interest rates and competition.

The variety of deposit accounts offered allows us to be competitive in obtaining funds and responding to changes in consumer demand.

Based on experience, we believe that our deposits are relatively stable.

However, the ability to attract and maintain deposits,

and the rates paid on these deposits, has been and will continue to be significantly affected by market conditions.

30, 2020, $126.4 million, or 20.4% of our deposit accounts, were certificates of deposit (including individual retirement accounts).

The following table sets

forth the distribution of total deposit accounts, by account type, at the dates indicated.

on experience, we believe that our deposits are relatively stable.

However, the ability to attract and maintain deposits, and the rates

paid on these deposits, has been and will continue to be significantly affected by market conditions.

At September 30, 2021, $116.9 million,

or 18.3% of our deposit accounts, were certificates of deposit (including individual retirement accounts).

The following table sets forth

the distribution of total deposit accounts, by account type, at the dates indicated.

September 30,

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Total deposits

As of September 30, 2020,

the aggregate amount of outstanding certificates of deposit (including retirement and brokered accounts) in amounts greater than

or equal to $100,000 was $90.4 million.

The following table sets forth the maturity of these certificates as of September 30, 2020

At September 30, 2021 and

2020, the aggregate amount of uninsured deposits (which are deposits in amounts greater than $250,000, which is the maximum amount for

federal deposit insurance) was $41.7 million and $52.7 million, respectively.

At September 30, 2021 and September 30, 2020, we had no

deposits that were uninsured for any reason other than being in excess of the maximum amount for federal deposit insurance.

The following table sets forth

the maturity of our uninsured certificates of deposit at September 30, 2021.

At September 30,

(In thousands)

Maturity Period:

Three months or less

Over three months through six months

Over six months through one year

Over one year to three years

Over three years

At September 30, 2020,

$79.1 million of our certificates of deposit had maturities of one year or less.

We monitor activity on these accounts and, based

on historical experience and our current pricing strategy, we believe we will retain a large portion of these accounts upon maturity.

The following table sets

forth the interest-bearing deposit activities for the periods indicated.

Over three through six months

Over six through twelve months

Over twelve months

At September 30, 2021, $72.8 million

of our certificates of deposit had maturities of one year or less.

We monitor activity on these accounts and, based on historical experience

and our current pricing strategy, we believe we will retain a large portion of these accounts upon maturity.

The following table sets forth

the interest-bearing deposit activities for the periods indicated.

September 30,

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Ending balance

Borrowings increased $31.2 million, or 86.3%, to $67.4 million at September 30, 2020 from $36.2 million at September 30, 2019.

The Bank borrowed $36.9 million in Paycheck Protection Program Liquidity Facility (“PPPLF”) advances from the Federal

Reserve Bank during the year ended September 30, 2020 to offset the liquidity and capital impacts of the PPP loans.

Loan Bank of New York advances decreased $5.7 million to $30.5 million at September 30, 2020 from $36.2 million at September 30,

2019 as deposit inflows were used to repay maturing long-term advances.

These aggregate borrowings

represent 9.7% of total liabilities and had a weighted average rate of 1.14% at September 30, 2020.

Based on eligible collateral

pledged to the Federal Home Loan Bank of New York at September 30, 2020, we had an aggregate borrowing capacity of $141.8 million

with the Federal Home Loan Bank.

Repurchase agreements are

recorded as financing transactions as we maintain effective control over the transferred or pledged securities.

The dollar amount

of the securities underlying the agreements continues to be carried in our securities portfolio while the obligations to repurchase

the securities are reported as liabilities in our Consolidated Balance Sheets.

The securities underlying the agreements are delivered

to the party with whom each transaction is executed.

Those parties agree to resell to us the identical securities we delivered

to them at the maturity or call period of the agreement.

The Company did not have any repurchase agreements at or during the year

ended September 30, 2020.

Long-term Federal Home

Loan Bank of New York and Federal Reserve Bank of New York advances as of September 30, 2020 mature as follows (in thousands):

decreased $44.0 million, or 65.4%, to $23.4 million at September 30, 2021 from $67.4 million at September 30, 2020.

The Bank repaid all

$36.9 million in Paycheck Protection Program Liquidity Facility (“PPPLF”) advances to the Federal Reserve Bank during the

year ended September 30, 2021 that were used to fund Round 1 PPP loans.

The Bank did not utilize the PPPLF to fund its Round 2 PPP loans.

FHLBNY advances decreased $7.1 million to $23.4 million at September 30, 2021 from $30.5 million at September 30, 2020 as deposit inflows

were used to repay maturing long-term advances.

The borrowings represent 3.5%

of total liabilities and had a weighted average interest rate of 2.13% at September 30, 2021.

Based on eligible collateral pledged to

the FHLBNY at September 30, 2021, we had an aggregate borrowing capacity of $151.2 million with the FHLBNY.

Long-term FHLBNY advances as of

September 30, 2021 mature as follows (in thousands):

Year Ending September

Information concerning

overnight line of credit advances with the Federal Home Loan Bank of New York is summarized as follows:

September 30,

(Dollars in thousands)

Balance at end of year

Weighted average balance during the year

Maximum month-end balance during the year

Average interest rate during the year

The Bank is also able to borrow

funds from an overnight line of credit with the FHLBNY.

The Bank did not access the line of credit at any time during the years ended

September 30, 2021 and 2020.

Subsidiary Activities

Magyar Investment

Company is a Delaware investment corporation subsidiary for the purpose of buying, selling and holding investment securities.

income earned on Magyar Investment Company’s investment securities may be subject to a lower state tax than that assessed

on income earned on investment securities maintained at Magyar Bank.

Magyar Investment Company

is a New Jersey investment corporation subsidiary for the purpose of buying, selling and holding investment securities.

The income earned

on Magyar Investment Company’s investment securities are subject to a lower state tax than that assessed on income earned on investment

securities maintained at Magyar Bank.

Hungaria Urban Renewal,

LLC is a Delaware limited-liability corporation established in 2002 as a qualified intermediary operating for the purpose of acquiring

and developing Magyar Bank’s main office.

On January 24, 2006, Magyar Bank exercised a purchase option within its lease from

Hungaria Urban Renewal, LLC allowing Magyar Bank to purchase the land and building from this entity.

Magyar Bank acquired a 100%

interest in Hungaria Urban Renewal, LLC, which has no other business other than owning Magyar Bank’s main office site.

part of a tax abatement agreement with the City of New Brunswick, Magyar Bank’s new office will remain in Hungaria Urban

Renewal, LLC’s name.

Magyar Service Corp., a

and developing Magyar Bank’s main office.

In 2006, Magyar Bank acquired a 100% interest in Hungaria Urban Renewal, LLC, which has

no other business other than owning Magyar Bank’s main office site.

As part of a tax abatement agreement with the City of New Brunswick,

Magyar Bank’s new office will remain in Hungaria Urban Renewal, LLC’s name.

Magyar Service Corporation, a

New Jersey corporation, is a wholly owned subsidiary of Magyar Bank.

Magyar Service Corp.

offers Magyar Bank customers and others

a complete range of non-deposit investment products and financial planning

services, including insurance products, fixed and variable

Magyar Service Corporation offers Magyar Bank customers and others

a complete range of non-deposit investment products and financial planning services, including insurance products, fixed and variable

annuities, and retirement planning for individual and commercial customers.

Employees and

Human Capital Resources

At September 30, 2020 we

employed 98 full-time employees and 6 part-time employees.

Employees and Human

Capital Resources

At September 30, 2021 we employed

94 full-time employees and 7 part-time employees.

Our employees are not represented by any collective bargaining group.

Management believes that we have good relations with our employees.

We encourage and support

the growth and development of our employees and, wherever possible, seek to fill positions by promotion and transfer from within

the organization.

Continual learning and career development is advanced through annual performance and development conversations

with employees, internally developed training programs, customized corporate training engagements and seminars, conferences, and

other training events employees are encouraged to attend in connection with their job duties.

The safety, health and

wellness of our employees is a top priority.

The COVID-19 pandemic presented a unique challenge with regard to maintaining employee

safety while continuing successful operations.

Through teamwork and the adaptability of our management and staff, we were able

to transition during the peak of the pandemic, over a short period of time, to a rotational work schedule allowing employees to

effectively work from remote locations and ensure a safely-distanced working environment for employees performing customer facing

activities, at branches and operations centers.

All employees are asked not to come to work when they experience signs or symptoms

of a possible COVID-19 illness and have been provided paid time off to cover compensation during such absences.

On an ongoing basis,

we further promote the health and wellness of our employees by strongly encouraging work-life balance, offering flexible work schedules,

and keeping the employee portion of health care premiums to a minimum.

Employee retention helps

us operate efficiently and achieve one of our business objectives, which is being a high-level service provider.

We believe our

commitment to living out our core values, actively prioritizing concern for our employees’

well-being, supporting our employees’

career goals, offering competitive wages and providing valuable fringe benefits aids in retention of our top-performing employees.

In addition, nearly all of our employees are stockholders of the Company through participation in our Employee Stock Ownership

Plan, which aligns associate and stockholder interests by providing stock ownership on a tax-deferred basis at no investment cost

to our associates.

Management believes

that we have good relations with our employees.

We encourage and support the growth

and development of our employees and, wherever possible, seek to fill positions by promotion and transfer from within the organization.

Continual learning and career development is advanced through annual performance and development conversations with employees, internally

developed training programs, customized corporate training engagements and seminars, conferences, and other training events employees

are encouraged to attend in connection with their job duties.

The safety, health and wellness

of our employees is a top priority.

The COVID-19 pandemic presented a unique challenge with regard to maintaining employee safety while

continuing successful operations.

Through teamwork and the adaptability of our management and staff, our branches and operations centers

remained open and in-person during the year ended September 30, 2021.

All employees are asked not to come to work when they experience

signs or symptoms of a possible COVID-19 illness and have been provided paid time off to cover compensation during such absences.

ongoing basis, we further promote the health and wellness of our employees by strongly encouraging work-life balance, offering flexible

work schedules, and keeping the employee portion of health care premiums to a minimum.

Employee retention helps us operate

efficiently and achieve one of our business objectives, which is being a high-level service provider.

We believe our commitment to living

out our core values, actively prioritizing concern for our employees’ well-being, supporting our employees’ career goals,

offering competitive wages and providing valuable fringe

benefits aids in retention of our top-performing employees.

In addition, nearly all of our employees are stockholders of the Company through participation in our Employee Stock Ownership Plan, which

aligns associate and stockholder interests by providing stock ownership on a tax-deferred basis at no investment cost to our associates.

At September 30, 2021, 27% of our current staff had been with us for fifteen years or more.

FEDERAL AND STATE

FEDERAL AND STATE TAXATION

Federal Taxation

Magyar Bancorp, Inc.

and Magyar Bank are subject to federal income taxation in the same general manner as other corporations,

with some exceptions discussed below.

The most recent audit of Magyar Bank’s federal tax returns by the Internal Revenue

Service was for the period ended September 30, 2013.

The audit did not result in any material adjustments to the Company’s

tax returns or the Company’s financial statements.

The following discussion of federal taxation is intended only to summarize

certain pertinent federal income tax matters and is not a comprehensive description of the tax rules applicable to Magyar Bancorp,

and Magyar Bank are subject to federal income taxation in the same general manner as other corporations, with

some exceptions discussed below.

The most recent audit of Magyar Bank’s federal tax returns by the Internal Revenue Service was

for the period ended September 30, 2015.

The audit did not result in any material adjustments to the Company’s tax returns or the

Company’s financial statements.

The following discussion of federal taxation is intended only to summarize certain pertinent federal

income tax matters and is not a comprehensive description of the tax rules applicable to Magyar Bancorp, Inc.

or Magyar Bank.

Method of Accounting .

For federal income tax purposes, Magyar Bancorp, Inc.

reports its income and expenses on the accrual

method of accounting and uses a tax year ending September 30th for filing its federal and state income tax returns.

reports its income and expenses on the accrual method of accounting and uses

a tax year ending September 30th for filing its federal and state income tax returns.

Bad Debt Reserves .

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and Recapture .

Prior to the 1996 Act, bad debt reserves created prior to January 1, 1988 (pre-base year reserves)

were subject to recapture into taxable income if Magyar Bank failed to meet certain thrift asset and definitional tests.

At September 30,

2020, our total federal pre-base year reserve was approximately $1.3 million.

However, under current law, pre-base year reserves

remain subject to recapture if Magyar Bank makes certain non-dividend distributions, repurchases any of its stock, pays dividends

in excess of tax earnings and profits, or ceases to maintain a bank charter.

Net Operating Loss

At September 30, 2020, a financial institution was able to carry back net operating losses to the preceding

five taxable years and forward to the succeeding 20 taxable years.

At September 30, 2020, the Company did not have any federal

or state net operating loss carry forwards available to offset future taxable income for tax reporting purposes.

Prior to the 1996 Act, bad debt reserves created prior to January 1, 1988 (pre-base year reserves) were

subject to recapture into taxable income if Magyar Bank failed to meet certain thrift asset and definitional tests.

At September 30, 2021, our total

federal pre-base year reserve was approximately $1.3 million.

However, under current law, pre-base year reserves remain subject to recapture

if Magyar Bank makes certain non-dividend distributions, repurchases any of its stock, pays dividends in excess of tax earnings and profits,

or ceases to maintain a bank charter.

Net Operating Loss Carryovers .

At September 30, 2021, a financial institution was able to carry back net operating losses to the preceding five taxable years and

forward to the succeeding 20 taxable years.

At September 30, 2021, the Company did not have any federal or state net operating loss carry

forwards available to offset future taxable income for tax reporting purposes.

Corporate Dividends-Received

Magyar Bancorp, Inc.

may exclude from its federal taxable income 100% of dividends received from Magyar

Bank as a wholly owned subsidiary.

The corporate dividends-received deduction is 65% when the dividend is received from a corporation

having at least 20% of its stock owned by the recipient corporation.

A 50% dividends-received deduction is available for dividends

received from corporations owned less than 20% by the recipient corporation.

State Taxation

may exclude from its federal taxable income 100% of dividends received from Magyar Bank

as a wholly owned subsidiary.

The corporate dividends-received deduction is 65% when the dividend is received from a corporation having

at least 20% of its stock owned by the recipient corporation.

A 50% dividends-received deduction is available for dividends received from

corporations owned less than 20% by the recipient corporation.

State Taxation

The income of savings institutions in New Jersey, which is calculated based on federal taxable income,

subject to certain adjustments, is subject to New Jersey tax.

Magyar Bancorp, Inc., Magyar Bank, Magyar Service Corporation, and

Magyar Investment Company filed separate New Jersey corporate income tax returns for their fiscal years ended September 30, 2020.

For the tax years

ending after July 31, 2019, New Jersey tax law requires members of an affiliated group where there is common ownership to calculate

their corporation business tax on a combined or consolidated basis.

Magyar Bancorp, Inc., Magyar Bank, Magyar Service Corporation,

and Magyar Investment Company will file a New Jersey tax return on a consolidated basis for the year ended September 30, 2020.

New Jersey State

The income of savings institutions in New Jersey, which is calculated based on federal taxable income, subject to certain

adjustments, is subject to New Jersey tax.

For the tax years ending after July 31, 2019, New Jersey tax law requires members of an affiliated

group where there is common ownership to calculate their corporation business tax on a combined or consolidated basis.

Magyar Bancorp,

Inc., Magyar Bank, Magyar Service Corp., and Magyar Investment Company are not currently under audit with respect to their New

Jersey income tax returns.

Their respective state tax returns have been audited within the past three years.

New Jersey State Taxation.

Inc., Magyar Bank, Magyar Service Corporation, and Magyar Investment Company have filed a New Jersey tax return on a consolidated basis

for the year ended September 30, 2020 and intend to file on a consolidated basis for the year ended September 30, 2021.

Magyar Bancorp, Inc., Magyar

Bank, Magyar Service Corporation, and Magyar Investment Company are not currently under audit with respect to their New Jersey income

Their respective state tax returns have not been audited within the past three years.

Delaware and New

Jersey State Taxation.

As a Delaware holding company not earning income in Delaware, Magyar Bancorp, Inc.

from Delaware corporate income tax, but is required to file annual returns and pay annual fees and a franchise tax to the State

is exempt from Delaware

corporate income tax, but is required to file annual returns and pay annual fees and a franchise tax to the State of Delaware.

Magyar Bancorp, Inc.

subject to New Jersey corporate income taxes in the same manner as described above for Magyar Bank.

to New Jersey corporate income taxes in the same manner as described above for Magyar Bank.

SUPERVISION AND REGULATION

Magyar Bank is a

New Jersey-chartered savings bank, and its deposit accounts are insured up to applicable limits by the FDIC under the Deposit Insurance

Fund (“DIF”).

Magyar Bank is subject to extensive regulation, examination and supervision by the Commissioner of the

New Jersey Department of Banking and Insurance (the “Commissioner”) as the issuer of its charter, and by the FDIC as

deposit insurer and its primary federal regulator.

Magyar Bank is a New Jersey-chartered

savings bank, and its deposit accounts are insured up to applicable limits by the Federal Deposit Insurance Corporation (“FDIC”)

under the Deposit Insurance Fund (“DIF”).

Magyar Bank is subject to extensive regulation, examination and supervision by the

Commissioner of the New Jersey Department of Banking and Insurance (the “Commissioner”) as the issuer of its charter, and

by the FDIC as deposit insurer and its primary federal regulator.

Magyar Bank must file reports with the Commissioner and the FDIC concerning

its activities and financial condition, and it must obtain regulatory approval prior to entering into certain transactions, such

as mergers with, or acquisitions of, other depository institutions and opening or acquiring branch offices.

The Commissioner and

the FDIC conduct periodic examinations to assess Magyar Bank’s compliance with various regulatory requirements.

This regulation

and supervision establishes a comprehensive framework of activities in which a savings bank can engage and is intended primarily

for the protection of the deposit insurance fund and depositors.

The regulatory structure also gives the regulatory authorities

extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies

with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes.

Magyar Bancorp,

Inc., as a bank holding company controlling Magyar Bank, is subject to the Bank Holding Company Act of 1956, as amended (“BHCA”),

and the rules and regulations of the FRB under the BHCA and to the provisions of the New Jersey Banking Act of 1948 (the “New

Jersey Banking Act”), and to the regulations of the Commissioner under the New Jersey Banking Act applicable to bank holding

its activities and financial condition, and it must obtain regulatory approval prior to entering into certain transactions, such as mergers

with, or acquisitions of, other depository institutions and opening or acquiring branch offices.

The Commissioner and the FDIC conduct

periodic examinations to assess Magyar Bank’s compliance with various regulatory requirements.

This regulation and supervision establishes

a comprehensive framework of activities in which a savings bank can engage and is intended primarily for the protection of the deposit

insurance fund and depositors.

The regulatory structure also gives the regulatory authorities extensive discretion in connection with

their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets

and the establishment of adequate loan loss reserves for regulatory purposes.

Magyar Bancorp, Inc., as

a bank holding company controlling Magyar Bank, is subject to the Bank Holding Company Act of 1956, as amended (“BHCA”), and

the rules and regulations of the FRB under the BHCA and to the provisions of the New Jersey Banking Act of 1948 (the “New Jersey

Banking Act”), and to the regulations of the Commissioner under the New Jersey Banking Act applicable to bank holding companies.

Magyar Bank and Magyar Bancorp, Inc.

are required to file reports with, and otherwise comply with the rules and regulations

of the FRB and the Commissioner.

are required to file reports with, and otherwise comply with the rules and regulations of the FRB

and the Commissioner.

Magyar Bancorp, Inc.

is required to file certain reports with, and otherwise comply with, the

rules and regulations of the Securities and Exchange Commission under the federal securities laws.

Any change in such

laws and regulations, whether by the Commissioner, the Federal Deposit Insurance Corporation, the Federal Reserve Board or through

legislation, could have a material adverse impact on Magyar Bank and Magyar Bancorp, Inc.

is required to file certain reports with, and otherwise comply with, the rules and regulations

of the Securities and Exchange Commission under the federal securities laws.

Any change in such laws

and regulations, whether by the Commissioner, the FDIC, the Federal Reserve Board or through legislation, could have a material adverse

impact on Magyar Bank and Magyar Bancorp, Inc.

and their operations and stockholders.

Certain of the laws and

regulations applicable to Magyar Bank and Magyar Bancorp, Inc.

Certain of the laws and regulations

applicable to Magyar Bank and Magyar Bancorp, Inc.

are summarized below.

These summaries do not purport to be complete

and are qualified in their entirety by reference to such laws and regulations.

These summaries do not purport to be complete and are qualified

in their entirety by reference to such laws and regulations.

New Jersey Banking Regulation

Activity Powers.

Magyar Bank derives its lending, investment and other activity powers primarily from the applicable provisions of the New Jersey

Banking Act and its related regulations.

Under these laws and regulations, savings banks, including Magyar Bank, generally may

Magyar Bank derives its lending, investment and other activity powers primarily from the applicable provisions of the New Jersey Banking

Act and its related regulations.

Under these laws and regulations, savings banks, including Magyar Bank, generally may invest in:

real estate mortgages;

consumer and commercial loans;

specific types of debt securities, including certain corporate debt securities and obligations

of federal, state and local governments and agencies;

specific types of debt securities, including certain corporate debt securities and obligations of federal,

state and local governments and agencies;

certain types of corporate equity securities;

certain other assets.

A savings bank may

also make other investments pursuant to “leeway”

authority that permits investments not otherwise permitted by the

New Jersey Banking Act.

“Leeway”

investments must comply with a number of limitations on the individual and aggregate

amounts of “leeway”

A savings bank may also

make other investments pursuant to “leeway” authority that permits investments not otherwise permitted by the New Jersey Banking

“Leeway” investments must comply with a number of limitations on the individual and aggregate amounts of “leeway”

A savings bank may also exercise trust powers upon approval of the Commissioner.

Jersey savings banks may exercise those powers, rights, benefits or privileges authorized for national banks or out-of-state banks

or for federal or out-of-state savings banks or savings associations, provided that before exercising any such power, right, benefit

or privilege, prior approval by the Commissioner by regulation or by specific authorization is required.

The exercise of these

lending, investment and activity powers are limited by federal law and regulations.

See “Federal Banking Regulation-Activity

Restrictions on State-Chartered Banks”

New Jersey savings banks may exercise those

powers, rights, benefits or privileges authorized for national banks or out-of-state banks or for federal or out-of-state savings banks

or savings associations, provided that before exercising any such power, right, benefit or privilege, prior approval by the Commissioner

by regulation or by specific

authorization is required.

The exercise of

these lending, investment and activity powers are limited by federal law and regulations.

See “Federal Banking Regulation-Activity

Restrictions on State-Chartered Banks” below.

Loans-to-One-Borrower

With certain specified exceptions, a New Jersey-chartered savings bank may not make loans or extend credit

to a single borrower or to entities related to the borrower in an aggregate amount that would exceed 15% of the bank’s capital

A savings bank may lend an additional 10% of the bank’s capital funds if secured by collateral meeting the requirements

of the New Jersey Banking Act.

With certain specified exceptions, a New Jersey-chartered savings bank may not make loans or extend credit to a single

borrower or to entities related to the borrower in an aggregate amount that would exceed 15% of the bank’s capital funds.

bank may lend an additional 10% of the bank’s capital funds if secured by collateral meeting the requirements of the New Jersey

Magyar Bank currently complies with applicable loans-to-one-borrower limitations.

Under the New Jersey Banking Act, a stock savings bank may declare and pay a dividend on its capital stock only to the extent that

the payment of the dividend would not impair the capital stock of the savings bank.

In addition, a stock savings bank may not pay

a dividend unless the savings bank would, after the payment of the dividend, have a surplus of not less than 50% of its capital

stock, or alternatively, the payment of the dividend would not reduce the surplus.

Federal law may also limit the amount of dividends

that may be paid by Magyar Bank.

See “Federal Banking Regulation-Prompt Corrective Action”

Minimum Capital

Under the New Jersey Banking Act, a stock savings bank may declare and pay a dividend on its capital stock only to the extent that the

payment of the dividend would not impair the capital stock of the savings bank.

In addition, a stock savings bank may not pay a dividend

unless the savings bank would, after the payment of the dividend, have a surplus of not less than 50% of its capital stock, or alternatively,

the payment of the dividend would not reduce the surplus.

Federal law may also limit the amount of dividends that may be paid by Magyar

See “Federal Banking Regulation-Prompt Corrective Action” below.

Minimum Capital Requirements.

Regulations of the Commissioner impose on New Jersey-chartered depository institutions, including Magyar Bank, minimum capital requirements

similar to those imposed by the Federal Deposit Insurance Corporation on insured state banks.

See “Federal Banking Regulation-Capital

Requirements.”

Regulations of the Commissioner impose on New Jersey-chartered depository institutions, including Magyar

Bank, minimum capital requirements similar to those imposed by the Federal Deposit Insurance Corporation on insured state banks.

See “Federal Banking Regulation-Capital Requirements.”

Examination and Enforcement.

The NJDBI may examine Magyar Bank whenever it deems an examination advisable.

The NJDBI examines Magyar Bank at least every two

The Commissioner may order any savings bank to discontinue any violation of law or unsafe or unsound business practice and

may direct any director, officer, attorney or employee of a savings bank engaged in an objectionable activity, after the Commissioner

has ordered the activity to be terminated, to show cause at a hearing before the Commissioner why such person should not be removed.

The Commissioner also has authority to appoint a conservator or receiver for a savings bank under certain circumstances such as

insolvency or unsafe or unsound condition to transact business.

The NJDBI examines Magyar Bank at least every three years.

The Commissioner may order any savings bank to discontinue any violation of law or unsafe or unsound business practice and may direct

any director, officer, attorney or employee of a savings bank engaged in an objectionable activity, after the Commissioner has ordered

the activity to be terminated, to show cause at a hearing before the Commissioner why such person should not be removed.

The Commissioner

also has authority to appoint a conservator or receiver for a savings bank under certain circumstances such as insolvency or unsafe or

unsound condition to transact business.

Federal Banking Regulation

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Federal regulations require FDIC-insured depository institutions to meet several minimum capital standards:

a common equity

Tier 1 capital to risk-based assets ratio, a Tier 1 capital to risk-based assets ratio, a total capital to risk-based assets, and

a Tier 1 capital to total assets leverage ratio.

The existing capital requirements were effective January 1, 2015 and are the result

of a final rule implementing regulatory amendments based on recommendations of the Basel Committee on Banking Supervision and certain

requirements of the Dodd-Frank Act.

The capital standards

require the maintenance of common equity Tier 1 capital, Tier 1 capital and total capital to risk-weighted assets of

at least 4.5%, 6% and 8%, respectively, and a leverage ratio of at least 4% Tier 1 capital.

Common equity Tier 1 capital is

generally defined as common stockholders’

equity and retained earnings.

Tier 1 capital is generally defined as common equity

Tier 1 and additional Tier 1 capital.

Additional Tier 1 capital includes certain noncumulative perpetual preferred stock and related

surplus and minority interests in equity accounts of consolidated subsidiaries.

Total capital includes Tier 1 capital (common equity

Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital.

Tier 2 capital is comprised of capital instruments and related

surplus, meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory

convertible securities, intermediate preferred stock and subordinated debt.

Also included in Tier 2 capital is the allowance for

loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions that have exercised an opt-out

election regarding the treatment of Accumulated Other Comprehensive Income (“AOCI”), up to 45% of net unrealized gains

on available-for-sale equity securities with readily determinable fair market values.

Institutions that have not exercised the

AOCI opt-out have AOCI incorporated into common equity Tier 1 capital (including unrealized gains and losses on available-for-sale-securities).

Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations.

In determining the

amount of risk-weighted assets for purposes of calculating risk-based capital ratios, all assets, including certain off-balance

sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk weight factor

assigned by the regulations based on the risks believed inherent in the type of asset.

Higher levels of capital are required for

asset categories believed to present greater risk.

For example, a risk weight of 0% is assigned to cash and U.S.

government securities,

a risk weight of 50% is generally assigned to prudently underwritten first lien one-to four-family residential mortgages, a risk

weight of 100% is assigned to commercial and consumer loans, a risk weight of 150% is assigned to certain past due loans and a

risk weight of between 0% to 600% is assigned to permissible equity interests, depending on certain specified factors.

a common equity Tier

1 capital to risk-based assets ratio, a Tier 1 capital to risk-based assets ratio, a total capital to risk-based assets, and a Tier 1

capital to total assets leverage ratio.

The existing capital requirements were effective January 1, 2015 and are the result of a final

rule implementing regulatory amendments based on recommendations of the Basel Committee on Banking Supervision and certain requirements

of the Dodd-Frank Act.

The capital standards require

the maintenance of common equity Tier 1 capital, Tier 1 capital and total capital to risk-weighted assets of at least 4.5%,

6% and 8%, respectively, and a leverage ratio of at least 4% Tier 1 capital.

Common equity Tier 1 capital is generally defined as

common stockholders’ equity and retained earnings.

Tier 1 capital is generally defined as common equity Tier 1 and additional Tier

Additional Tier 1 capital includes certain noncumulative perpetual preferred stock and related surplus and minority interests

in equity accounts of consolidated subsidiaries.

Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier

1 capital) and Tier 2 capital.

Tier 2 capital is comprised of capital instruments and related surplus, meeting specified requirements,

and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred

stock and subordinated debt.

Also included in Tier 2 capital is the allowance for loan and lease losses limited to a maximum of 1.25%

of risk-weighted assets and, for institutions that have exercised an opt-out election regarding the treatment of Accumulated Other Comprehensive

Income (“AOCI”), up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair

market values.

Institutions that have not exercised the AOCI opt-out have AOCI incorporated into common equity Tier 1 capital (including

unrealized gains and losses on available-for-sale-securities).

Calculation of all types of regulatory capital is subject to deductions

and adjustments specified in the regulations.

On April 9, 2020, the Federal

Reserve Board, the OCC, and the FDIC issued an interim final rule to allow banking organizations to exclude from regulatory capital measures

any exposures pledged as collateral for a non-recourse loan from the Federal Reserve.

Since PPPLF extensions of credit are non-recourse,

PPP loans pledged to the PPPLF qualify for exclusion under the interim final rule.

In determining the amount

of risk-weighted assets for purposes of calculating risk-based capital ratios, all assets, including certain off-balance sheet assets

(e.g., recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk weight factor assigned by the regulations

based on the risks believed inherent in the type of asset.

Higher levels of capital are required for asset categories believed to present

greater risk.

For example, a risk weight of 0% is assigned to cash

government securities, a risk weight

of 50% is generally assigned to prudently underwritten first lien one-to four-family residential mortgages, a risk weight of 100% is assigned

to commercial and consumer loans, a risk weight of 150% is assigned to certain past due loans and a risk weight of between 0% to 600%

is assigned to permissible equity interests, depending on certain specified factors.

In addition to establishing

the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments

to management if the institution does not hold a “capital conservation buffer”

consisting of 2.5% of common equity

Tier 1 capital to risk-weighted asset above the amount necessary to meet its minimum risk-based capital requirements.

In assessing an

institution’s capital adequacy, the FDIC takes into consideration, not only these numeric factors, but qualitative factors

as well, and has the authority to establish higher capital requirements for individual institutions where deemed necessary.

At September 30, 2020,

Magyar Bank’s common equity Tier 1 capital to risk-based assets ratio was 11.93%, total capital to risk-based assets was

13.08%, and Tier 1 capital to total assets leverage ratio was 8.30%.

Legislation enacted in

May 2018 required the federal banking agencies to establish an optional “community bank leverage ratio”

8% to 10% Tier 1 equity/consolidated assets (the “Community Bank Leverage Ratio”).

The Community Bank Leverage Ratio

is available to institutions with less than $10 billion of assets that meet certain other requirements.

Institutions with capital

meeting or exceeding the specified requirements and electing to follow the alternative regulatory capital structure will be considered

to comply with the applicable regulatory capital requirements, including the risk-based requirements.

The federal banking agencies

adopted final regulations that set 9.0% as the minimum capital for the Community Bank Leverage Ratio, effective January 1, 2020.

A qualifying institution may opt in and out of the community bank leverage ratio framework on its quarterly call report.

An institution

that ceases to meet any qualifying criteria is provided with a two-quarter grace period to either comply with the community bank

leverage ratio requirements or comply with the general capital regulations, including the risk-based capital requirements.

Section 4012 of the CARES

Act required that the community bank leverage ratio be temporarily lowered to 8%.

The federal regulators issued a rule implementing

the lower ratio effective April 23, 2020.

The rule also established a two-quarter grace period for a qualifying institution whose

leverage ratio falls below the 8% community bank leverage ratio requirement so long as the bank maintains a leverage ratio of 7%

Another rule was issued to transition back to the 9% community bank leverage ratio by increasing the ratio to 8.5%

for calendar year 2021 and 9% thereafter.

the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management

if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted

asset above the amount necessary to meet its minimum risk-based capital requirements.

In assessing an institution’s

capital adequacy, the FDIC takes into consideration, not only these numeric factors, but qualitative factors as well, and has the authority

to establish higher capital requirements for individual institutions where deemed necessary.

At September 30, 2021, Magyar

Bank’s common equity Tier 1 capital to risk-based assets ratio was 15.74%, total capital to risk-based assets was 16.99%, and Tier

1 capital to total assets leverage ratio was 10.18%.

Legislation enacted in May 2018

required the federal banking agencies to establish an optional “community bank leverage ratio” of between 8% to 10% Tier 1

equity/consolidated assets (the “Community Bank Leverage Ratio”).

The Community Bank Leverage Ratio is available to institutions

with less than $10 billion of assets that meet certain other requirements.

Institutions with capital meeting or exceeding the specified

requirements and electing to follow the alternative regulatory capital structure will be considered to comply with the applicable regulatory

capital requirements, including the risk-based requirements.

The federal banking agencies adopted final regulations that set 9.0% as the

minimum capital for the Community Bank Leverage Ratio, effective January 1, 2020.

A qualifying institution may opt in and out of the community

bank leverage ratio framework on its quarterly call report.

An institution that ceases to meet any qualifying criteria is provided with

a two-quarter grace period to either comply with the community bank leverage ratio requirements or comply with the general capital regulations,

including the risk-based capital requirements.

Section 4012 of the CARES Act

required that the community bank leverage ratio be temporarily lowered to 8%.

The federal regulators issued a rule implementing the lower

ratio effective April 23, 2020.

The rule also established a two-quarter grace period for a qualifying institution whose leverage ratio

falls below the 8% community bank leverage ratio requirement so long as the bank maintains a leverage ratio of 7% or greater.

rule was issued to transition back to the 9% community bank leverage ratio by increasing the ratio to 8.5% for calendar year 2021 and

9% thereafter.

Prompt Corrective

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The FDIC has adopted regulations to implement the prompt corrective action legislation.

The regulations were amended

to incorporate the previously mentioned increased regulatory capital standards that were effective January 1, 2015.

An institution

is deemed to be “well capitalized”

if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based

capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater and a common equity Tier 1 ratio of 6.5% or greater.

An institution

is “adequately capitalized”

if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital

ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common equity Tier 1 ratio of 4.5% or greater.

An institution

is “undercapitalized”

if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio

of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier 1 ratio of less than 4.5%.

The regulations were amended to

incorporate the previously mentioned increased regulatory capital standards that were effective January 1, 2015.

An institution is deemed

to be “significantly undercapitalized”

if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based

capital ratio of less than 4.0%, a leverage ratio of less than 3.0% or a common equity Tier 1 ratio of less than 3.0%.

An institution

is considered to be “critically undercapitalized”

if it has a ratio of tangible equity (as defined in the regulations)

to total assets that is equal to or less than 2.0%.

Effective March 31, 2020, qualifying community banking organizations that elect

to use the Community Bank Leverage Ratio framework and that maintain a leverage ratio of greater than 9.0% will be considered to

have satisfied the risk-based and leverage capital requirements to be deemed well-capitalized.

Undercapitalized

institutions are subject to a variety of mandatory supervisory measures including the requirement to file a capital plan for the

FDIC’s approval and dividend restrictions as well as other discretionary actions by the regulator.

The FDIC is required,

with some exceptions, to appoint a receiver or conservator for an insured state bank if that bank is “critically undercapitalized.”

For this purpose, “critically undercapitalized”

means having a ratio of tangible capital to total assets of less than

The FDIC may also appoint a conservator or receiver for a state bank on the basis of the institution’s financial condition

or upon the occurrence of certain events, including:

to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio

of 8.0% or greater, a leverage ratio of 5.0% or greater and a common equity Tier 1 ratio of 6.5% or greater.

An institution is “adequately

capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater,

a leverage ratio of 4.0% or greater and a common equity Tier 1 ratio of 4.5% or greater.

An institution is “undercapitalized”

if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of

less than 4.0% or a common equity Tier 1 ratio of less than 4.5%.

An institution is deemed to be “significantly undercapitalized”

if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of

less than 3.0% or a common equity Tier 1 ratio of less than 3.0%.

An institution is considered to be “critically undercapitalized”

if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%.

Effective March

31, 2020, qualifying community banking organizations that elect to use the Community Bank Leverage Ratio framework and that maintain a

leverage ratio of greater than 9.0% will be considered to have satisfied the risk-based and leverage capital requirements to be deemed

well-capitalized.

Undercapitalized institutions

are subject to a variety of mandatory supervisory measures including the requirement to file a capital plan for the FDIC’s approval

and dividend restrictions as well as other discretionary actions by the regulator.

The FDIC is required, with

some exceptions, to appoint a receiver or conservator for an insured state bank if that bank is “critically undercapitalized.”

For this purpose, “critically undercapitalized” means having a ratio of tangible capital to total assets of less than 2%.

The FDIC may also appoint a conservator or receiver for a state bank on the basis of the institution’s financial condition or upon

the occurrence of certain events, including:

insolvency, or when the assets of the bank are less than its liabilities to depositors and others;

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existence of an unsafe or unsound condition to transact business;

likelihood that the bank will be unable to meet the demands of its depositors or to pay its obligations

in the normal course of business;

insufficient capital, or the incurring or likely incurring of losses that will deplete substantially

all of the institution’s capital with no reasonable prospect of replenishment of capital without federal assistance.

likelihood that the bank will be unable to meet the demands of its depositors or to pay its obligations in

the normal course of business;

insufficient capital, or the incurring or likely incurring of losses that will deplete substantially all of

the institution’s capital with no reasonable prospect of replenishment of capital without federal assistance.

Activity Restrictions

on State-Chartered Banks.

Federal law and FDIC regulations generally limit the activities and investments of state-chartered

Federal Deposit Insurance Corporation-insured banks and their subsidiaries to those permissible for national banks and their subsidiaries,

unless such activities and investments are specifically exempted by law or consented to by the Federal Deposit Insurance Corporation.

Before making a

new investment or engaging in a new activity that is not permissible for a national bank or otherwise permissible under federal

law or the FDIC regulations, an insured bank must seek approval from the FDIC to make such investment or engage in such activity.

The FDIC will not approve the activity unless the bank meets its minimum capital requirements and the FDIC determines that the

activity does not present a significant risk to the DIF.

Certain activities of subsidiaries that are engaged in activities permitted

for national banks only through a “financial subsidiary”

are subject to additional restrictions.

Federal law permits

a state-chartered savings bank to engage, through financial subsidiaries, in any activity in which a national bank may engage through

a financial subsidiary and on substantially the same terms and conditions.

In general, the law permits a national bank that is

well-capitalized and well-managed to conduct, through a financial subsidiary, any activity permitted for a financial holding company

other than insurance underwriting, insurance investments, real estate investment or development or merchant banking.

assets of all such financial subsidiaries may not exceed the lesser of 45% of the bank’s total assets or $50 million.

bank must have policies and procedures to assess the financial subsidiary’s risk and protect the bank from such risk and

potential liability, must not consolidate the financial subsidiary’s assets with the bank’s and must exclude from its

own assets and equity all equity investments, including retained earnings, in the financial subsidiary.

State-chartered savings

banks may retain subsidiaries in existence as of March 11, 2000 and may engage in activities that are not authorized under federal

Although Magyar Bank meets all conditions necessary to establish and engage in permitted activities through financial subsidiaries,

it has not yet determined to engage in such activities.

Loan Bank System.

Magyar Bank is a member of the Federal Home Loan Bank system, which consists of eleven regional federal

home loan banks, each subject to supervision and regulation by the Federal Housing Finance Board (“FHFB”).

home loan banks provide a central credit facility primarily for member thrift institutions as well as other entities involved in

home mortgage lending.

Magyar Bank, as a member of the Federal Home Loan Bank of New York, is required to purchase and hold shares

of capital stock in the Federal Home Loan Bank of New York in specified amounts.

Federal law and FDIC regulations generally limit the activities and investments of state-chartered Federal

Deposit Insurance Corporation-insured banks and their subsidiaries to those permissible for national banks and their subsidiaries, unless

such activities and investments are specifically exempted by law or consented to by the Federal Deposit Insurance Corporation.

Before making a new investment

or engaging in a new activity that is not permissible for a national bank or otherwise permissible under federal law or the FDIC regulations,

an insured bank must seek approval from the FDIC to make such investment or engage in such activity.

The FDIC will not approve the activity

unless the bank meets its minimum capital requirements and the FDIC determines that the activity does not present a significant risk to

Certain activities of subsidiaries that are engaged in activities permitted for national banks only through a “financial

subsidiary” are subject to additional restrictions.

Federal law permits a state-chartered

savings bank to engage, through financial subsidiaries, in any activity in which a national bank may engage through a financial subsidiary

and on substantially the same terms and conditions.

In general, the law permits a national bank that is well-capitalized and well-managed

to conduct, through a financial subsidiary, any activity permitted for a financial holding company other than insurance underwriting,

insurance investments, real estate investment or development or merchant banking.

The total assets of all such financial subsidiaries

may not exceed the lesser of 45% of the bank’s total assets or $50 million.

The bank must have policies and procedures to assess

the financial subsidiary’s risk and protect the bank from such risk and potential liability, must not consolidate the financial

subsidiary’s assets with the bank’s and must exclude from its own assets and equity all equity investments, including retained

earnings, in the financial subsidiary.

State-chartered savings banks may retain subsidiaries in existence as of March 11, 2000 and may

engage in activities that are not authorized under federal law.

Although Magyar Bank meets all conditions necessary to establish and engage

in permitted activities through financial subsidiaries, it has not yet determined to engage in such activities.

Federal Home Loan

Magyar Bank is a member of the Federal Home Loan Bank system, which consists of eleven regional federal home loan

banks, each subject to supervision and regulation by the Federal Housing Finance Board.

The federal home loan banks provide a central

credit facility primarily for member thrift institutions as well as other entities involved in home mortgage lending.

Magyar Bank, as

a member of the FHLBNY, is required to purchase and hold shares of capital stock in the FHLBNY in specified amounts.

As of September 30, 2021,

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The Federal Deposit Insurance Corporation has extensive enforcement authority over insured savings banks, including Magyar Bank.

This enforcement authority includes, among other things, the ability to assess civil money penalties, issue cease and desist orders

and remove directors and officers.

In general, these enforcement actions may be initiated in response to violations of laws and

regulations and to unsafe or unsound practices.

enforcement authority includes, among other things, the ability to assess civil money penalties, issue cease and desist orders and remove

directors and officers.

In general, these enforcement actions may be initiated in response to violations of laws and regulations and to

unsafe or unsound practices.

Deposit Insurance.

Magyar Bank is a member of the Deposit Insurance Fund, which is administered by the Federal Deposit Insurance Corporation.

accounts at Magyar Bank are insured by the Federal Deposit Insurance Corporation, generally up to a maximum of $250,000 for each

separately insured depositor.

FDIC assesses insured depository institutions to maintain the Deposit Insurance Fund.

Under the FDIC’s risk-based assessment

system, banks that are deemed to be less risky pay lower assessments.

Assessments for institutions with assets of less than $10

billion of assets, such as Magyar Bank, are based on financial measures and supervisory ratings derived from statistical modeling

estimating the probability of failure of an institution’s failure within three years.

FDIC rule effective April 1, 2011, the deposit insurance assessment range was set at 2.5 to 45 basis points of total assets less

tangible equity.

In conjunction with the Deposit Insurance Fund’s reserve ratio reaching 1.15%, effective July 1, 2016, the

assessment range was reduced for insured institutions of less than $10 billion of total assets to 1.5 basis points to 30 basis

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) increased the minimum target

Deposit Insurance Fund ratio from 1.15% of estimated insured deposits to 1.35% of estimated insured deposits.

The FDIC was required

to achieve the 1.35% ratio by September 30, 2020.

The law required insured institutions with assets of $10 billion or more to fund

the increase from 1.15% to 1.35% and, effective July 1, 2016, such institutions were subjected to a surcharge to achieve that goal.

The 1.35% ratio was reached effective September 30, 2018.

As a result, the surcharges ceased and institutions with less than $10

billion of assets received credits for assessment payments made that contributed to achieving the 1.35% ratio.

These credits were

exhausted on September 30, 2020.

The Dodd-Frank Act also eliminated the 1.5% statutory maximum ratio for the Deposit Insurance

Fund and delegated to the FDIC the authority to set a maximum ratio.

The FDIC has established a long-term target reserve ratio

of 2.0% for the Deposit Insurance Fund, and it is expected that the current deposit insurance assessment structure will continue

until the target reserve ratio is attained.

of deposits may be terminated by the Federal Deposit Insurance Corporation upon a finding that an institution has engaged in unsafe

or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation,

rule, order or condition imposed by the Federal Deposit Insurance Corporation.

The Bank does not believe that it is taking or is

subject to any action, condition or violation that could lead to termination of its deposit insurance.

with Affiliates of Magyar Bank.

Magyar Bank’s authority to engage in transactions with its affiliates is limited

by Sections 23A and 23B of the Federal Reserve Act and its implementing Regulation W promulgated by the Board of Governors of the

Federal Reserve System.

An affiliate is a company that controls, is controlled by, or is under common control with an insured depository

institution such as Magyar Bancorp, Inc.

and Magyar Bancorp, MHC.

In general, loan transactions between an insured depository institution

and its affiliates are subject to certain quantitative and collateral requirements.

In this regard, transactions between an insured

depository institution and its affiliates are limited to 10% of the institution’s unimpaired capital and unimpaired surplus

for transactions with any one affiliate and 20% of unimpaired capital and unimpaired surplus for transactions in the aggregate

with all affiliates.

Collateral of specific types and in specified amounts ranging from 100% to 130% of the amount of the transaction

must usually be provided by affiliates in order to receive loans from the savings association.

In addition, transactions with affiliates

must be consistent with safe and sound banking practices, not involve low-quality assets and be on terms that are as favorable

to the institution as comparable transactions with non-affiliates.

Magyar Bank is in compliance with these requirements.

Against Tying Arrangements.

The Dodd-Frank Act permanently increased the maximum amount of deposit insurance for banks, savings institutions and credit unions to

$250,000 per depositor.

assessment system is based on each institution’s total assets less tangible capital, and ranges from 1.5 to 40 basis points.

for institutions of less than $10 billion of assets are based on financial measures and supervisory ratings derived from statistical modeling

estimating the institution’s probability of failure over a three-year period.

2020, the FDIC issued a final rule that mitigates the deposit insurance assessment effects of participating in certain COVID-19 liquidity

The FDIC will generally remove the effect of PPP lending in calculating an institution’s deposit insurance assessment.

The final rule also provides an offset to an institution’s total assessment amount for the increase in its assessment base attributable

to participation in the PPP.

of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe

or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

The Bank does not believe that it is taking or is subject to any action, condition or violation that could lead to termination of its

deposit insurance.

Transactions with

Affiliates of Magyar Bank.

Magyar Bank’s authority to engage in transactions with its affiliates is limited by Sections

23A and 23B of the Federal Reserve Act and its implementing Regulation W promulgated by the Board of Governors of the Federal Reserve

An affiliate is a company that controls, is controlled by, or is under common control with an insured depository institution such

as Magyar Bancorp, Inc..

In general, loan transactions between an insured depository institution and its affiliates are subject to certain

quantitative and collateral requirements.

In this regard, transactions between an insured depository institution and its affiliates are

limited to 10% of the institution’s unimpaired capital and unimpaired surplus for transactions with any one affiliate and 20% of

unimpaired capital and unimpaired surplus for transactions in the aggregate with all affiliates.

Collateral of specific types and in specified

amounts ranging from 100% to 130% of the amount of the transaction must usually be provided by affiliates in order to receive loans from

the savings association.

In addition, transactions with affiliates must be consistent with safe and sound banking practices, not involve

low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates.

is in compliance with these requirements.

Prohibitions Against

Tying Arrangements.

Banks are subject to the prohibitions of 12 U.S.C.

Section 1972 on certain tying arrangements.

A depository institution is prohibited, subject to some exceptions, from extending credit to or

offering any other service, or

fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional

service from the institution or its affiliates or not obtain services of a competitor of the institution.

Reinvestment Act and Fair Lending Laws.

All FDIC insured institutions have a responsibility under the Community Reinvestment

Act (“CRA”) and related regulations to help meet the credit needs of their communities, including low- and moderate-income

neighbourhoods.

In connection with its examination of a state chartered savings bank, the FDIC is required to assess the institution’s

record of compliance with the CRA.

Among other things, the current CRA regulations replace the prior process-based assessment factors

with a new evaluation system that rates an institution based on its actual performance in meeting community needs.

In particular,

the current evaluation system focuses on three tests:

a lending test, to evaluate the institution’s record of making loans in its service areas;

an investment test, to evaluate the institution’s record of investing in community development

projects, affordable housing, and programs benefiting low or moderate income individuals and businesses;

a service test, to evaluate the institution’s delivery of services through its service channels.

An institution’s

institution is prohibited, subject to some exceptions, from extending credit to or offering any other service, or fixing or varying the

consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the institution

or its affiliates or not obtain services of a competitor of the institution.

Community Reinvestment

Act and Fair Lending Laws.

All FDIC-insured institutions have a responsibility under the Community Reinvestment Act (“CRA”)

and related regulations to help meet the credit needs of their communities, including low- and moderate-income neighbourhoods.

In connection

with its examination of a state chartered savings bank, the FDIC is required to assess the institution’s record of compliance with

Among other things, the current CRA regulations replace the prior process-based assessment factors with a new evaluation system

that rates an institution based on its actual performance in meeting community needs.

In particular, the current evaluation system focuses

on three tests:

a lending test, to evaluate the institution’s record of making loans in its service areas;

an investment test, to evaluate the institution’s record of investing in community development projects,

affordable housing, and programs benefiting low or moderate income individuals and businesses;

a service test, to evaluate the institution’s delivery of services through its service channels.

An institution’s

failure to comply with the provisions of the CRA could, at a minimum, result in regulatory restrictions on its activities.

an “outstanding”

CRA rating in our most recently completed federal examination, which was conducted by the FDIC in

In addition, the Equal

Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of

characteristics specified in those statutes.

The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act

could result in enforcement actions by the FDIC, as well as other federal regulatory agencies and the Department of Justice.

Loans to a Bank’s

an “Outstanding” CRA rating in our most recently completed federal examination, which was conducted by the FDIC in 2019.

In addition, the Equal Credit

Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics

specified in those statutes.

The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement

actions by the FDIC, as well as other federal regulatory agencies and the Department of Justice.

Consumer Protection .

Magyar Bank and Magyar Bancorp are subject to federal and state laws designed to protect consumers and prohibit unfair, deceptive or abusive

business practices, including the Equal Credit Opportunity Act, Fair Housing Act, Home Ownership Protection Act, Fair Credit Reporting

Act, as amended by the Fair and Accurate Credit Transactions Act of 2003 (the “FACT Act”), the Gramm-Leach Bliley Act, the

Truth in Lending Act (“TILA”), the CRA, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the National

Flood Insurance Act and various state law counterparts.

These laws and regulations mandate certain disclosure requirements and regulate

the manner in which financial institutions must interact with clients when taking deposits, making loans, collecting loans and providing

other services.

Further, the Consumer Financial Protection Bureau also has a broad mandate to prohibit unfair or deceptive acts and practices

and is specifically empowered to require certain disclosures to consumers and draft model disclosure forms.

Failure to comply with consumer

protection laws and regulations can subject financial institutions to enforcement actions, fines and other penalties.

The failure to comply

with these laws could result in enforcement actions by the federal banking agencies, as well as other federal regulatory agencies and

the Department of Justice.

Mortgage Reform .

The Dodd-Frank Act prescribes certain standards that mortgage lenders must consider before making a residential mortgage loan, including

verifying a borrower’s ability to repay such mortgage loan, and allows borrowers to assert violations of certain provisions of TILA

as a defense to foreclosure proceedings.

Under the Dodd-Frank Act, prepayment penalties are prohibited for certain mortgage transactions

and creditors are prohibited from financing insurance policies in connection with a residential mortgage loan or home equity line of credit.

In addition, the Dodd-Frank Act prohibits mortgage originators from receiving compensation based on the terms of residential mortgage

loans and generally limits the ability of a mortgage originator to be compensated by others if compensation is received from a consumer.

The Dodd-Frank Act requires mortgage lenders to make additional disclosures prior to the extension of credit, and in each billing statement,

for negative amortization loans and hybrid adjustable-rate mortgages.

The Economic Growth Act included provisions that ease certain requirements

related to mortgage transactions for certain institutions with less than $10 billion in total consolidated assets.

Privacy Regulations .

Federal regulations generally require that Magyar Bank disclose its privacy policy, including identifying with whom it shares a customer’s

“non-public personal information,” to customers at the time of establishing the customer relationship and annually thereafter.

In addition, Magyar Bank is required to provide its customers with the ability to “opt-out” of having their personal information

shared with unaffiliated third parties and not to disclose account numbers or access codes to non-affiliated third parties for marketing

Except as otherwise required or permitted by law, Magyar Bank is prohibited from disclosing such information.

Magyar Bank currently

has a privacy protection policy in place and believes that such policy is in compliance with the regulations.

Loans to a Bank’s Insiders

Federal Regulation.

A bank’s loans to its executive officers, directors, any owner of 10% or more of its stock (each, an insider) and any of

certain entities affiliated with any such person (an insider’s related interest) are subject to the conditions and limitations

imposed by Section 22(h) of the Federal Reserve Act and its implementing regulations.

Under these restrictions, the aggregate amount

of the loans to any insider and the insider’s related interests may not exceed the loans-to-one-borrower limit applicable

to national banks, which is comparable to the loans-to-one-borrower limit applicable to Magyar Bank’s loans.

See “New

Jersey Banking Regulation—Loans-to-One Borrower Limitations.”

All loans by a bank to all insiders and insiders’

related interests in the aggregate may not exceed the bank’s unimpaired capital and unimpaired surplus.

With certain exceptions,

loans to an executive officer, other than loans for the education of the officer’s children and certain loans secured by

the officer’s residence, may not exceed the lesser of (1) $100,000 or (2) the greater of $25,000 or 2.5% of the bank’s

A bank’s loans to its executive officers, directors, any owner of 10% or more of its stock (each, an insider) and any of certain

entities affiliated with any such person (an insider’s related interest) are subject to the conditions and limitations imposed by

Section 22(h) of the Federal Reserve Act and its implementing regulations.

Under these restrictions, the aggregate amount of the loans

to any insider and the insider’s related interests may not exceed the loans-to-one-borrower limit applicable to national banks,

which is comparable to the loans-to-one-borrower limit applicable to Magyar Bank’s loans.

See “New Jersey Banking Regulation—Loans-to-One

Borrower Limitations.” All loans by a bank to all insiders and insiders’ related interests in the aggregate may not exceed

the bank’s unimpaired capital and unimpaired surplus.

With certain exceptions, loans to an executive officer, other than loans for

the education of the officer’s children and certain loans secured by the officer’s residence, may not exceed the lesser of

(1) $100,000 or (2) the greater of $25,000 or 2.5% of the bank’s unimpaired capital and surplus.

Federal regulation also requires

that any proposed loan to an insider or a related interest of that insider be approved in advance by a majority of the Board of Directors

of the bank, with any interested directors not participating in the voting, if such loan, when aggregated with any existing loans to that

insider and the insider’s related interests, would exceed either (1) $250,000 or (2) the greater of $25,000 or 5% of the bank’s

unimpaired capital and surplus.

Federal regulation also requires that any proposed loan to an insider or a related interest of

that insider be approved in advance by a majority of the Board of Directors of the bank, with any interested directors not participating

in the voting, if such loan, when aggregated with any existing loans to that insider and the insider’s related interests,

would exceed either (1) $250,000 or (2) the greater of $25,000 or 5% of the bank’s unimpaired capital and surplus.

such loans must be made on substantially the same terms as, and follow credit underwriting procedures that are not less stringent

than, those that are prevailing at the time for comparable transactions with other persons.

An exception is made for

extensions of credit made pursuant to a benefit or compensation plan of a bank that is widely available to employees of the bank

and that does not give any preference to insiders of the bank over other employees of the bank.

In addition, federal law

prohibits extensions of credit to a bank’s insiders and their related interests by any other institution that has a correspondent

banking relationship with the bank, unless such extension of credit is on substantially the same terms as those prevailing at the

time for comparable transactions with other persons and does not involve more than the normal risk of repayment or present other

unfavourable features.

Generally, such loans must be made on substantially the same terms as, and follow credit underwriting

procedures that are not less stringent than, those that are prevailing at the time for comparable transactions with other persons.

An exception is made for extensions

of credit made pursuant to a benefit or compensation plan of a bank that is widely available to employees of the bank and that does not

give any preference to insiders of the bank over other employees of the bank.

In addition, federal law prohibits

extensions of credit to a bank’s insiders and their related interests by any other institution that has a correspondent banking

relationship with the bank, unless such extension of credit is on substantially the same terms as those prevailing at the time for comparable

transactions with other persons and does not involve more than the normal risk of repayment or present other unfavourable features.

New Jersey Regulation.

Provisions of the New Jersey Banking Act impose conditions and limitations on the liabilities to a savings bank of its directors

and executive officers and of corporations and partnerships controlled by such persons, that are comparable in many respects to

the conditions and limitations imposed on the loans and extensions of credit to insiders and their related interests under federal

law, as discussed above.

The New Jersey Banking Act also provides that a savings bank that is in compliance with federal law is

deemed to be in compliance with such provisions of the New Jersey Banking Act.

Provisions of the New Jersey Banking Act impose conditions and limitations on the liabilities to a savings bank of its directors and executive

officers and of corporations and partnerships controlled by such persons, that are comparable in many respects to the conditions and limitations

imposed on the loans and extensions of credit to insiders and their related interests under federal law, as discussed above.

The New Jersey

Banking Act also provides that a savings bank that is in compliance with federal law is deemed to be in compliance with such provisions

of the New Jersey Banking Act.

Federal Reserve System

Federal Reserve Board regulations

require all depository institutions to maintain reserves at specified levels against their transaction accounts (primarily NOW

and regular checking accounts).

At September 30, 2020, Magyar Bank was in compliance with the Federal Reserve Board’s reserve

requirements.

Savings banks, such as Magyar Bank, are authorized to borrow from the Federal Reserve Bank “discount window.”

Magyar Bank is deemed by the Federal Reserve Board to be generally sound and thus is eligible to obtain secondary credit from its

Federal Reserve Bank.

Generally, secondary credit is extended on a very short-term basis to meet the liquidity needs of the institution.

Loans must be secured by acceptable collateral and carry a rate of interest above the Federal Open Market Committee’s federal

funds target rate.

require all depository institutions to maintain reserves at specified levels against their transaction accounts (primarily NOW and regular

checking accounts).

At September 30, 2021, Magyar Bank was in compliance with the Federal Reserve Board’s reserve requirements.

Savings banks, such as Magyar Bank, are authorized to borrow from the Federal Reserve Bank “discount window.” Magyar Bank

is deemed by the Federal Reserve Board to be

generally sound and thus is eligible to obtain secondary

credit from its Federal Reserve Bank.

Generally, secondary credit is extended on a very short-term basis to meet the liquidity needs of

the institution.

Loans must be secured by acceptable collateral and carry a rate of interest above the Federal Open Market Committee’s

federal funds target rate.

The USA PATRIOT Act

The USA PATRIOT Act gives

the federal government new powers to address terrorist threats through enhanced domestic security measures, expanded surveillance

powers, increased information sharing and broadened anti-money laundering requirements.

The USA PATRIOT Act also requires the federal

banking agencies to take into consideration the effectiveness of controls designed to combat money laundering activities in determining

whether to approve a merger or other acquisition application of a member institution.

Accordingly, if we engage in a merger or

other acquisition, our controls designed to combat money laundering would be considered as part of the application process.

have established policies, procedures and systems designed to comply with these regulations.

The USA PATRIOT Act gives the

federal government new powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers,

increased information sharing and broadened anti-money laundering requirements.

The USA PATRIOT Act also requires the federal banking

agencies to take into consideration the effectiveness of controls designed to combat money laundering activities in determining whether

to approve a merger or other acquisition application of a member institution.

Accordingly, if we engage in a merger or other acquisition,

our controls designed to combat money laundering would be considered as part of the application process.

We have established policies,

procedures and systems designed to comply with these regulations.

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act

of 2002 (“SOX”) is a law that addresses, among other issues, corporate governance, auditing and accounting, executive

compensation, and enhanced and timely disclosure of corporate information.

As directed by Section 302(a) of SOX, Magyar Bancorp,

Inc.’s Chief Executive Officer and Chief Financial Officer each are required to certify that its quarterly and annual reports

do not contain any untrue statement of a material fact.

The rules have several requirements, including having these officers certify

they are responsible for establishing, maintaining and regularly evaluating the effectiveness of our internal controls;

have made certain disclosures to our auditors and the audit committee of the Board of Directors about our internal controls;

they have included information in our quarterly and annual reports about their evaluation and whether there have been significant

changes in our internal controls or in other factors that could significantly affect internal controls.

Magyar Bancorp, Inc.

existing policies, procedures and systems designed to comply with these regulations, and is further enhancing and documenting such

policies, procedures and systems to ensure continued compliance with these regulations.

SOX Section 404(b) requires

independent auditors to report on management’s assessment of internal controls over financial reporting.

The 2010 Dodd-Frank

Act provided an exemption on compliance with SOX Section 404(b) for registrants that are neither accelerated nor large accelerated

filers as defined by Rule 12b-2 of the Securities and Exchange Act of 1934.

The inclusion of the exemption in the final reform

legislation permanently exempted the auditor attestation requirement and significantly reduced the compliance burdens of smaller

reporting companies.

Disclosure of management attestations on internal control over financial reporting continues to be required

for smaller reporting companies.

Sarbanes-Oxley Act of 2002 is intended to improve corporate responsibility, to provide for enhanced penalties for accounting and auditing

improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures

pursuant to the securities laws.

We have policies, procedures and systems designed to comply with these regulations, and we review and

document such policies, procedures and systems to ensure continued compliance with these regulations.

Holding Company Regulation

2 unchanged sentences

is regulated as a bank holding company.

Bank holding companies are subject to examination, regulation and

periodic reporting under the Bank Holding Company Act, as administered by the Federal Reserve Board.

Bank holding companies are

generally subject to consolidated capital requirements established by the FRB.

The Dodd-Frank Act required the FRB to amend its

consolidated minimum capital requirements for bank holding companies to make them no less stringent than those applicable to insured

depository institutions themselves.

However, legislation was enacted in December 2014 which required the FRB to amend its “Small

Bank Holding Company”

exemption from consolidated holding company capital requirements to generally extend the applicability

of the exemption from $500 million to $1 billion in assets.

Furthermore, the Economic Growth Act expanded the category of holding

companies that may rely on the policy statement by raising the maximum amount of assets a qualifying holding company may have from

$1 billion to $3 billion.

Consequently, bank holding companies of under $3 billion in consolidated assets remain exempt from consolidated

regulatory capital requirements, unless the Federal Reserve determines otherwise in particular cases.

Regulations of the FRB

provide that a bank holding company must serve as a source of strength to any of its subsidiary banks and must not conduct its

activities in an unsafe or unsound manner.

The Dodd-Frank Act codified the source of strength policy and requires the promulgation

of implementing regulations.

Under the prompt corrective action provisions of the Act, a bank holding company parent of an undercapitalized

subsidiary bank would be directed to guarantee, within

limitations, the capital restoration plan that is required of such an undercapitalized

See “Federal Banking Regulation—Prompt Corrective Action.”

If the undercapitalized bank fails to file an

acceptable capital restoration plan or fails to implement an accepted plan, the FRB may prohibit the bank holding company parent

of the undercapitalized bank from paying any dividend or making any other form of capital distribution without the prior approval

As a bank holding

company, Magyar Bancorp, Inc.

is required to obtain the prior approval of the FRB to acquire all, or substantially all, of the

assets of any bank or bank holding company.

Bank holding companies are subject to examination, regulation and periodic

reporting under the Bank Holding Company Act, as administered by the Federal Reserve Board (“FRB”).

Bank holding companies

are generally subject to consolidated capital requirements established by the FRB.

Bank holding companies under $3 billion in consolidated

assets remain exempt from consolidated regulatory capital requirements, unless the FRB determines otherwise in particular cases.

Regulations of the FRB provide

that a bank holding company must serve as a source of strength to any of its subsidiary banks and must not conduct its activities in an

unsafe or unsound manner.

The Dodd-Frank Act codified the source of strength policy and requires the promulgation of implementing regulations.

Under the prompt corrective action provisions of the Dodd-Frank Act, a bank holding company parent of an undercapitalized subsidiary bank

would be directed to guarantee, within limitations, the capital restoration plan that is required of such an undercapitalized bank.

“Federal Banking Regulation—Prompt Corrective Action.” If the undercapitalized bank fails to file an acceptable capital

restoration plan or fails to implement an accepted plan, the FRB may prohibit the bank holding company parent of the undercapitalized

bank from paying any dividend or making any other form of capital distribution without the prior approval of the FRB.

As a bank holding company,

Magyar Bancorp, Inc.

is required to obtain the prior approval of the FRB to acquire all, or substantially all, of the assets of any bank

or bank holding company.

Prior FRB approval is required for Magyar Bancorp, Inc.

to acquire direct or indirect

ownership or control of any voting securities of any bank or bank holding company if, after giving effect to such acquisition,

it would, directly or indirectly, own or control more than 5% of any class of voting shares of such bank or bank holding company.

A bank holding company

is required to give the FRB prior written notice of any purchase or redemption of its outstanding equity securities if the gross

consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions

during the preceding 12 months, will be equal to 10% or more of the company’s consolidated net worth.

The FRB may disapprove

such a purchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice, or would violate

any law, regulation, FRB order or directive, or any condition imposed by, or written agreement with, the FRB.

Such notice and approval

is not required for a bank holding company that would be treated as “well capitalized”

under applicable regulations

of the FRB, that has received a composite “1”

or “2”

rating, as well as a “satisfactory”

for management, at its most recent bank holding company inspection by the FRB, and that is not the subject of any unresolved supervisory

In addition, a bank holding

company that does not elect to be a financial holding company under federal regulation, is generally prohibited from engaging in,

or acquiring direct or indirect control of any company engaged in non-banking activities.

One of the principal exceptions to this

prohibition is for activities found by the FRB to be so closely related to banking or managing or controlling banks as to be permissible.

Some of the principal activities that the FRB has determined by regulation to be so closely related to banking as to be permissible

to acquire direct or indirect ownership or control of

any voting securities of any bank or bank holding company if, after giving effect to such acquisition, it would, directly or indirectly,

own or control more than 5% of any class of voting shares of such bank or bank holding company.

A bank holding company is required

to give the FRB prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for

the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12

months, will be equal to 10% or more of the company’s consolidated net worth.

The FRB may disapprove such a purchase or redemption

if it determines that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, FRB order or

directive, or any condition imposed by, or written agreement with, the FRB.

Such notice and approval is not required for a bank holding

company that would be treated as “well capitalized” under applicable regulations of the FRB, that has received a composite

“1” or “2” rating, as well as a “satisfactory” rating for management, at its most recent bank holding

company inspection by the FRB, and that is not the subject of any unresolved supervisory issues.

In addition, a bank holding company

that does not elect to be a financial holding company under federal regulation, is generally prohibited from engaging in, or acquiring

direct or indirect control of any company engaged in non-banking activities.

One of the principal exceptions to this prohibition is for

activities found by the FRB to be so closely related to banking or managing or controlling banks as to be permissible.

Some of the principal

activities that the FRB has determined by regulation to be so closely related to banking as to be permissible are:

making or servicing loans;

5 unchanged sentences

Bank holding companies

that elect to be a financial holding company may engage in activities that are financial in nature or incident to activities which

are financial in nature, including investment banking and insurance underwriting.

that elect to be a financial holding company may engage in activities that are financial in nature or incident to activities which are

financial in nature, including investment banking and insurance underwriting.

Magyar Bancorp, Inc.

has not elected to be a

financial holding company, although it may seek to do so in the future.

Bank holding companies may elect to become a financial

holding company if:

each of its depository institution subsidiaries is “well capitalized;”

each of its depository institution subsidiaries is “well managed;”

each of its depository institution subsidiaries has at least a “satisfactory”

Reinvestment Act rating at its most recent examination;

the bank holding company has filed a certification with the FRB stating that it elects to become

a financial holding company.

has not elected to be a financial holding

company, although it may seek to do so in the future.

Bank holding companies may elect to become a financial holding company if:

each of its depository institution subsidiaries is “well capitalized;”

each of its depository institution subsidiaries is “well managed;”

each of its depository institution subsidiaries has at least a “satisfactory” Community Reinvestment

Act rating at its most recent examination;

the bank holding company has filed a certification with the FRB stating that it elects to become a financial

holding company.

Under federal law, depository

institutions are liable to the FDIC for losses suffered or anticipated by the FDIC in connection with the default of a commonly

controlled depository institution or any assistance provided by the FDIC to such an institution in danger of default.

would be applicable potentially to Magyar Bancorp, Inc.

if it ever acquired as a separate subsidiary a depository institution in

addition to Magyar Bank.

It has been the policy

of many mutual holding companies to waive the receipt of dividends declared by its subsidiary.

In connection with its approval

of the reorganization, however, the FRB required Magyar Bancorp, MHC to obtain prior FRB approval before it may waive any dividends.

As of the date hereof, FRB policy is to prohibit a mutual bank holding company from waiving the receipt of dividends from its holding

company or bank subsidiary, and management is not aware of any

instance in which the FRB has given its approval for a mutual bank

holding company to waive dividends.

It is not currently intended that Magyar Bancorp, MHC will waive dividends declared by Magyar

Bancorp, Inc.

as long as Magyar Bancorp, MHC is regulated by the Federal Reserve Board.

Conversion of Magyar

Bancorp, MHC to Stock Form .

Magyar Bancorp, MHC is permitted to convert from the mutual form of organization to the capital

stock form of organization (a “Conversion Transaction”).

There can be no assurance when, if ever, a Conversion Transaction

will occur, and the Board of Directors has no current intention or plan to undertake a Conversion Transaction.

In a Conversion

Transaction a new stock holding company may be formed as the successor to Magyar Bancorp, Inc.

(the “New Holding Company”),

Magyar Bancorp, MHC’s corporate existence would end, and certain depositors of Magyar Bank would receive the right to subscribe

for additional shares of the New Holding Company.

In a Conversion Transaction, each share of common stock held by stockholders

other than Magyar Bancorp, MHC (“Minority Stockholders”) would be converted into a number of shares of common stock

of the New Holding Company determined pursuant to an exchange ratio that ensures that Minority Stockholders own the same percentage

of common stock in the New Holding Company as they owned in Magyar Bancorp, Inc.

immediately before the Conversion Transaction,

subject to any adjustment required by regulation or regulatory policy.

The total number of shares held by Minority Stockholders

after a Conversion Transaction also would be increased by any purchases by Minority Stockholders in the stock offering conducted

as part of the Conversion Transaction.

Any Conversion Transaction

would require the approval of a majority of the outstanding shares of Magyar Bancorp, Inc.

common stock held by Minority Stockholders

and the approval of a majority of the eligible votes of depositors of Magyar Bank.

Under the New Jersey Banking Act, a company owning or controlling a savings bank is regulated as a bank holding

The New Jersey Banking Act defines the terms “company”

and “bank holding company”

as such terms

are defined under the BHCA.

Each bank holding company controlling a New Jersey-chartered bank or savings bank must file certain

reports with the Commissioner and is subject to examination by the Commissioner.

of Magyar Bancorp, Inc.

Under federal law and under the New Jersey Banking Act, no person may acquire control of Magyar

institutions are liable to the FDIC for losses suffered or anticipated by the FDIC in connection with the default of a commonly controlled

depository institution or any assistance provided by the FDIC to such an institution in danger of default.

This law would be applicable

potentially to Magyar Bancorp, Inc.

if it ever acquired as a separate subsidiary a depository institution in addition to Magyar Bank.

New Jersey Regulation.

Under the New Jersey Banking Act, a company owning or controlling a savings bank is regulated as a bank holding company.

The New Jersey

Banking Act defines the terms “company” and “bank holding company” as such terms are defined under the BHCA.

bank holding company controlling a New Jersey-chartered bank or savings bank must file certain reports with the Commissioner and is subject

to examination by the Commissioner.

Acquisition of Magyar

Bancorp, Inc.

without first obtaining approval of such acquisition of control by the Federal Reserve Board and the Commissioner.

Federal Securities

Under federal law and under the New Jersey Banking Act, no person may acquire control of Magyar Bancorp, Inc.

first obtaining approval of such acquisition of control by the FRB and the Commissioner.

Federal Securities Laws.

Magyar Bancorp, Inc.

common stock is registered with the Securities and Exchange Commission under the Securities

Exchange Act of 1934, as amended.

common stock is registered with the Securities and Exchange Commission under the Securities Exchange Act

of 1934, as amended.

Magyar Bancorp, Inc.

is subject to the information, proxy solicitation, insider trading restrictions

and other requirements under the Securities Exchange Act of 1934.

is subject to the information, proxy solicitation, insider trading restrictions and other requirements

under the Securities Exchange Act of 1934.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business