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Item 7. Management’s Discussion and Analysis

2024-12-19 compared with 2023-12-15 · 341 added, 406 removed, 168 unchanged (82% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Magyar Bancorp, Inc.

(the “Company”)

is a Delaware-chartered stock holding company whose most significant business activity is ownership of 100% of the common stock of Magyar

Magyar Bank’s principal business is attracting retail deposits from the general public and investing those deposits, together

with funds generated from operations, principal repayments on loans and securities and borrowed funds, into one-to four-family residential

mortgage loans, multi-family and commercial real estate mortgage loans, home equity loans and lines of credit, commercial business loans

and construction loans.

Our results of operations depend primarily on our net interest income which is the difference between the interest

we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities.

Our net interest income is primarily

affected by the market interest rate environment, the shape of the U.S.

Treasury yield curve, the timing of the placement of interest-earning

assets and interest-bearing liabilities, and the prepayment rate on our mortgage-related assets.

Other factors that may affect our results

of operations are general and local economic and competitive conditions, government policies and actions of regulatory authorities.

The Company is a Delaware-chartered

stock holding company whose most significant business activity is ownership of 100% of the common stock of Magyar Bank.

Magyar Bank’s

principal business is attracting retail deposits from the general public and investing those deposits, together with funds generated from

operations, principal repayments on loans and securities and borrowed funds, into one-to four-family residential mortgage loans, multi-family

and commercial real estate mortgage loans, home equity loans and lines of credit, commercial business loans and construction loans.

results of operations depend primarily on our net interest income which is the difference between the interest we earn on our interest-earning

assets and the interest we pay on our interest-bearing liabilities.

Our net interest income is primarily affected by the market interest

rate environment, the shape of the U.S.

Treasury yield curve, the timing of the placement of interest-earning assets and interest-bearing

liabilities, and the prepayment rate on our mortgage-related assets.

Other factors that may affect our results of operations are general

and local economic and competitive conditions, government policies and actions of regulatory authorities.

During the year ended September

30, 2024, the Company’s total assets grew $44.6 million, or 4.9%, to $951.9 million compared with $907.3 million at September 30,

The increase was attributable to a $69.2 million increase in net loans receivable and a $41.3 million increase in interest-earning

deposits with banks, offset by a $4.9 million decrease in investment securities.

The increase was attributable to an $82.8 million increase in net loans receivable, a $5.3 million increase in bank-owned life insurance,

and a $3.4 million increase in other real estate owned.

Offsetting these increases was a $46.9 million decrease in interest-earning deposits

Total deposits increased $41.2

2 unchanged sentences

The Company’s net income

decreased $210,000, or 2.7%, to $7.7 million during the year ended September 30, 2023 compared with net income of $7.9 million for the

year ended September 30, 2022.

Throughout fiscal 2024, we expect

to continue increasing our commercial real estate and commercial business loans while managing non-interest expenses in an effort to increase

profitability of the Company.

Critical Accounting Policies

Critical accounting policies

are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different

results under different assumptions and conditions.

Critical accounting policies may involve complex subjective decisions or assessments.

We consider the following to be our critical accounting policies.

Allowance for Loan

The allowance for loan losses is the amount estimated by management as necessary to cover credit losses in the loan portfolio

both probable and reasonably estimable at the balance sheet date.

The allowance is established through the provision for loan losses which

is charged against income.

In determining the allowance for loan losses, management makes significant estimates and has identified this

policy as one of our most critical.

Due to the high degree of judgment involved, the subjectivity of the assumptions utilized and the

potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses,

the methodology for determining the allowance for loan losses is considered a critical accounting policy by management.

As a substantial amount

of our loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans and discounted cash

flow valuations of properties are critical in determining the amount of the

allowance required for specific loans.

Assumptions for appraisals

and discounted cash flow valuations are instrumental in determining the value of properties.

Overly optimistic assumptions or negative

changes to assumptions could significantly affect the valuation of a property securing a loan and the related allowance determined.

assumptions supporting such appraisals and discounted cash flow valuations are carefully reviewed by management to determine that the

resulting values reasonably reflect amounts realizable on the related loans.

Management performs a quarterly

evaluation of the adequacy of the allowance for loan losses.

We consider a variety of factors in establishing this estimate including,

but not limited to, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying

collateral, the financial strength of the borrower, results of internal loan reviews and other relevant factors.

This evaluation is inherently

subjective as it requires material estimates by management that may be susceptible to significant change based on changes in economic

and real estate market conditions.

The evaluation has a specific

and general component.

The specific component relates to loans that are delinquent or otherwise identified as impaired through the application

of our loan review process and our loan grading system.

All such loans are evaluated individually, with principal consideration given

to the value of the collateral securing the loan and discounted cash flows.

Specific impairment allowances are established as required

by this analysis.

However, the Bank’s Federal and State regulators generally require that the specific reserve against impaired

collateral-dependent loans be charged-off, reducing the carrying balance of the loan and allowance for loan loss.

The general component

is determined by segregating the remaining loans by type of loan, risk weighting (if applicable) and payment history.

We analyze historical

loss experience, delinquency trends, general economic conditions and geographic and industry concentrations in establishing the general

portion of the reserve.

This analysis establishes factors that are applied to the loan groups to determine the amount of the general component

of the allowance for loan losses.

Actual loan losses may be significantly

greater than the allowances we have established, which could have a material negative effect on our financial results.

The Company will adopt

Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses:

Measurement of Credit Losses on Financial

Instruments on October 1, 2023, using a modified retrospective approach.

The Company’s implementation process includes scoping,

segmentation and the design of a methodology appropriate for each respective financial instrument.

The process also includes the development

of loss forecasting models as well as the incorporation of qualitative adjustments.

Evaluation of technical accounting topics, updates

to our allowance policy documentation, model validation, governance and reporting, processes and related internal controls, as well as

overall operational readiness has been completed throughout September 30, 2023 in preparation for adoption.

Based on analyses performed during

the quarter ending September 30, 2023, as well as an implementation analysis utilizing exposures and forecasts of economic conditions

as of September 30, 2023, the Company recorded a reduction to its allowance for credit losses on October 1, 2023 in the amount of $492,000.

The reduction was comprised of a reduction in the allowance for on-balance sheet exposures, which includes held to maturity debt securities,

totaling $1.0 million and an increase in the allowance for off-balance sheet exposures, which includes unfunded commitments, totaling

The impact will be reflected as a cumulative effect adjustment, net of taxes.

The change in the allowance for credit losses

upon adoption will not have a material effect on the Company’s capital and regulatory capital amounts and ratios.

Deferred Income Taxes.

Company records income taxes using the asset and liability method.

Accordingly, deferred tax assets and liabilities:

(i) are recognized

for the expected future tax consequences of events that have been recognized in the financial statements or tax returns;

attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax

and (iii) are measured using enacted tax rates expected to apply in the years when those temporary differences are expected

to be recovered or settled.

Deferred tax assets are likely

to be realized and therefore do not have a valuation allowance.

increased $74 thousand, or 1.0%, to $7.8 million during the year ended September 30, 2024 compared with net income of $7.7 million for

the year ended September 30, 2023 from higher net interest income, lower provision for credit losses and higher other income, partially

offset by higher income tax and other expenses.

Throughout fiscal 2025, we

expect to continue increasing our commercial real estate and commercial business loans while managing non-interest expenses in an effort

to increase profitability of the Company.

Our business operations are

subject to risks and uncertainties that could materially affect our operating results.

The extent of such impact will depend on future

developments, which are highly uncertain.

There continues to be various other risks and uncertainties that could impact the Company’s

businesses and future results, such as changes to the U.S.

economic condition, market interest rates, the Federal Reserve Board's monetary

policy, other government policies, and actions of regulatory agencies.

Comparison of Financial Condition

at September 30, 2023 and September 30, 2022

at September 30, 2024 and 2023

Total Assets.

assets increased $108.7 million, or 13.6%, to $907.3 million during the year ended September 30, 2023 compared with $798.5 million at

September 30, 2022.

The change was attributable to a $69.2 million, or 11.2%.

increase in loans receivable, net of allowance for loan

loss, to $689.1 million and a $41.3 million, or 147.1%, increase in

interest-earning deposits with banks to $69.4 million, partially offset

by a $4.9 million, or 4.9%, decrease in investment securities to $96.0 million.

assets increased $44.6 million, or 4.9%, to $951.9 million during the year ended September 30, 2024 compared with $907.3 million at September

The increase was attributable to higher loans receivable, bank-owned life insurance and other real estate owned.

Partially offsetting

these increases were lower interest-earning deposits with banks, as we used cash and cash equivalents to fund loan growth.

Loans Receivable.

loans receivable increased $83.0 million, or 11.9%, to $781.2 million at September 30, 2024 from $698.2 million at September 30, 2023.

Growth occurred in commercial real estate loans, which increased $46.3 million, or 13.5%, to $389.1 million, in one-to four-family residential

mortgage loans (including home equity lines of credit), which increased $21.6 million, or 9.3%, to $254.7 million, and in construction

loans, which increased $6.6 million, or 43.5%, to $21.9 million.

Offsetting these increases were decreases in commercial business loans,

which decreased $4.5 million, or 12.9%, to $30.2 million and in other consumer loans, which decreased $771,000, or 24.6%, to $2.3 million.

Total loans receivable at September

30, 2023 were comprised of $389.1 million (55.8%) in commercial real estate loans, $237.7 million (34.1%) in one- to four- family residential

mortgage loans, $30.2 million (4.3%) in commercial business loans, $21.9 million (3.1%) in construction loans, and $19.3 million (2.8%)

in home equity lines of credit and other loans.

For comparison, total loans receivable at September 30, 2022 were comprised of $342.8

million (54.5%) in commercial real estate loans, $214.4 million (34.1%) in one- to four- family residential mortgage loans, $34.7 million

(5.5%) in commercial business loans, $15.2 million (2.4%) in construction loans, and $21.8 million (3.5%) in home equity lines of credit

and other loans.

Total non-performing loans increased

$2.2 million, or 79.3%, to $5.1 million at September 30, 2023 from $2.8 million at September 30, 2022.

The ratio of non-performing loans

to total loans was 0.7% at September 30, 2023 compared to 0.5% at September 30, 2022.

There were two non-performing

one-to four-family residential loans totaling $386,000, at September 30, 2023 compared with none at September 30, 2022.

The weighted average

loan-to-value of these properties was 35% based on updated appraisals of the real estate securing the loans.

During the year ended September

30, 2023, there were no charge-offs against the allowance for loan loss for one-to four-family residential real estate loans while $4,000

was recovered from prior year charge-offs.

There was one non-performing commercial

real estate loan totaling $2.2 million at September 30, 2023, compared with none at September 30, 2022.

The loan-to-value of this property

was 82% based on an updated appraisal of the real estate securing the loan.

Magyar Bank had begun foreclosure proceedings on the property

securing this loan and pursuing judgments against the guarantors of the loan at September 30, 2023.

During the year ended September 30,

2023 there were no charge-offs against the allowance for loan loss or recoveries for commercial real estate loans.

There were no non-performing commercial

business loans at September 30, 2023 or 2022.

During the year ended September 30, 2023 there were two charge-offs totaling $488,000 against

the allowance for loan loss for commercial business loans and no recoveries from prior year charge-offs.

There were two non-performing

construction loans totaling $2.5 million at September 30, 2023 compared with $2.8 million at September 30, 2022.

The weighted average

loan-to-value of these properties was 54% based on updated appraisals of the real estate securing the loans.

Magyar Bank had begun foreclosure

proceedings on the properties securing these loans and pursuing judgments against the guarantors of the loans at September 30, 2023.

the year ended September 30, 2023, there were no charge-offs against the allowance for loan loss or recoveries for construction loans.

The ratio of non-performing loans

to total loans receivable increased to 0.73% at September 30, 2023 from 0.45% at September 30, 2022.

The allowance for loan losses decreased

$103,000 to $8.3 million, or 163.9% of non-performing loans at September 30, 2023 compared with $8.4 million, or 297.5% of non-performing

loans at September 30, 2022.

Provisions for loan loss during the year ended September 30, 2023 were $381,000 while net charge-offs were

$484,000, compared with a provision of $304,000 and a net recovery of $54,000 for the prior year.

The allowance for loan losses was 1.19%

and 1.34% of gross loans outstanding at September 30, 2023 and 2022, respectively.

The allowance for loan loss decreased in amount and

as a percentage of gross loans during the year from higher balances of lower risk loans and lower balances of higher risk loans in addition

to lower adjustments to the historical loss for all loan categories for improving economic conditions.

The growth occurred in commercial real estate loans, which increased $72.2 million, or 18.6%, to $461.3 million, in one-to four-family

residential mortgage loans (including home equity lines of credit), which increased $16.3 million, or 6.4%, to $270.9 million, and in

construction and land loans, which increased $869 thousand, or 4.0%, to $22.7 million.

Offsetting these increases were declines in commercial

business loans, which decreased $6.2 million, or 20.5%, to $24.0 million and in other consumer loans, which decreased $124 thousand, or

5.3%, to $2.2 million.

Given the significance of

commercial real estate (“CRE”) loans to our total loan portfolio, the following table further disaggregates these loans by

occupied status and by collateral type as of September 30, 2024:

(In thousands)

Owner-occupied

Total owner-occupied

Non-owner occupied

Total non-owner occupied

Total commercial real estate loans

The Company obtains an appraisal

of the real estate collateral securing a CRE loan prior to originating the loan.

The appraised value is used to calculate the ratio of

the outstanding loan balance to the value of the real estate collateral, or loan-to-value ratio ("LTV").

The original appraisal

is used to monitor the LTVs within the CRE portfolio unless an updated appraisal is received, which may happen for a variety of reasons

including, but not limited to, payment delinquency, additional loan requests using the same collateral, and loan modifications.

The following

table presents the ranges in the LTVs of our CRE loans at September 30, 2024:

(Dollars in thousands)

As of September 30, 2024 and 2023,

non-owner occupied commercial real estate loans (as defined by regulatory guidance) to total risk-based capital were estimated at approximately

270% and 262%, respectively.

Management believes that Magyar Bank has implemented appropriate risk management practices, including risk

assessments, board-approved underwriting policies and related procedures, which include monitoring loan portfolio performance and stressing

of the commercial real estate portfolio under adverse economic conditions.

Our asset quality with respect

to commercial real estate loans has remained strong despite recent economic and market conditions.

As of September 30, 2024 and 2023,

we had $116 thousand and $2.2 million of non-performing commercial real estate loans, respectively.

Such amounts totaled 0.03% and 0.60%

of total commercial real estate loans as of September 30, 2024 and 2023, respectively.

In 2024, the Company adopted

ASU 2016-13, Financial Instruments - Credit Losses , and subsequent related updates, using the modified retrospective approach for

all financial assets measured at amortized cost, including loans, held-to-maturity debt securities, and unfunded commitments.

1, 2023, the Company recorded a cumulative effect increase to retained earnings of $354 thousand, net of tax, which consisted of a $743

thousand reduction related to loans, and a $389 thousand increase related to unfunded commitments.

There were no such charges for investment

securities held by the Company at the date of adoption.

Investment Securities.

Investment securities decreased $4.9 million, or 4.9%, to $96.0 million at September 30, 2023 from $100.9 million at September 30, 2022.

Investment securities at September 30, 2023 consisted of $65.8 million in mortgage-backed securities issued by U.S.

government agencies

government-sponsored enterprises, $23.5 million in U.S.

government-sponsored enterprise debt securities, $3.0 million in corporate

notes, $3.5 million in municipal bonds and

$207,000 in “private-label” mortgage-backed securities.

There were no other-than-temporary-impairment

charges for the Company’s investment securities for the year ended September 30, 2023.

Investment securities decreased $528 thousand, or 0.6%, to $95.4 million at September 30, 2024 from $96.0 million at September 30, 2023.

Securities available-for-sale

increased $896,000, or 9.7%, to $10.1 million at September 30, 2023 from $9.2 million at September 30, 2022.

increased $5.5 million, or 54.2%, to $15.6 million at September 30, 2024 from $10.1 million at September 30, 2023.

The increase was attributable

to purchases totaling $2.0 million, partially offset by principal repayments totaling $970,000, premium amortization of $51,000 and unrealized

losses of $47,000.

Securities held-to-maturity decreased

$5.8 million, or 6.3%, to $85.8 million at September 30, 2023 from $91.6 million at September 30, 2022.

The decrease was the attributable

to principal repayments and maturities totaling $10.3 million and premium amortization of $85,000, partially offset by purchases totaling

$4.6 million.

to purchases totaling $6.0 million, unrealized gain of $834 thousand partially offset by principal repayments totaling $1.3 million.

Securities held-to-maturity

decreased $6.0 million, or 7.0%, to $79.8 million at September 30, 2024 from $85.8 million at September 30, 2023.

The decrease was the

attributable to principal repayments totaling $12.5 million and partially offset by purchases totaling $6.5 million.

Bank-Owned Life Insurance.

The cash surrender value of life insurance held for directors and officers of Magyar Bank increased $370,000, or 2.7%, to $18.0 million

at September 30, 2023 from $17.7 million at September 30, 2022.

The change was due to an increase in the cash surrender value of the policies.

The Company did not purchase any new life insurance policies during the year ended September 30, 2023.

The cash surrender value of life insurance held for directors and executive officers of Magyar Bank increased $5.3 million, or 29.5%,

to $23.3 million at September 30, 2024 from $18.0 million at September 30, 2023.

In addition to a $433 thousand

increase in the cash surrender value of policies, the Company purchased new life insurance policies on directors and executive officers

of the Bank totaling $6.6 million and redeemed policies totaling $1.7 million during the twelve months ended September 30, 2024.

was in the process of restructuring $7.9 million of its BOLI portfolio at September 30, 2024 that is expected to increase the crediting

rate on the restructured BOLI policies from 2.24% (3.20% tax-equivalent yield) to 4.93% (7.04% tax-equivalent yield).

The surrender of

BOLI policies also impacted income tax expense during the year ended September 30, 2024 as discussed below.

Other Real Estate Owned.

OREO increased $47,000, or 16.7%, to $328,000 at September 30, 2023 from $281,000 at September 30, 2022.

The change was due to

the capital improvements to the one OREO property held by the Bank, which was under contract for sale at September 30, 2023.

which include noninterest-bearing demand deposits, interest-bearing demand deposits, money market deposits, savings deposits and time

deposits, are the primary source of the Company’s funds.

The Company offers a variety of products designed to attract and retain

customers, with primary focus on building and expanding relationships.

The Company continues to focus on establishing relationships

with businesses, seeking deposits as well as lending relationships.

Total deposits increased $87.7

million, or 13.1%, to $755.5 million at September 30, 2023 from $667.7 million at September 30, 2022.

The increase in deposits during

the year ended September 30, 2023 occurred in money market account balances, which increased $62.7 million, or 28.2%, to $284.9 million,

in certificates of deposit (including individual retirement accounts) which increased $22.1 million, or 26.7%, to $104.7 million, in interest-bearing

checking account balances, which increased $16.5 million, or 16.8% to $115.2 million, and in non-interest checking account balances, which

increased $6.1 million, or 3.4%, to $188.5 million.

Offsetting these increases was a decline in savings account balances, which decreased

Other real estate owned increased $3.4 million to $3.7 million for the year ended September 30, 2024.

The Company acquired four

properties totaling $4.4 million and sold two properties totaling $1.0 million during the year ended September 30, 2024.

remaining properties owned at September 30, 2024, two totaling $3.3 million were under contract of sale.

deposits increased $41.2 million, or 5.5%, during the year ended September 30, 2024.

The growth in deposits occurred in certificates of

deposit (including individual retirement accounts) which increased $55.0 million, or 52.5%, to $159.7 million, in interest-bearing checking

account balances, which increased $31.6 million, or 27.4% to $146.7 million, and in money market account balances, which increased $19.7

million, or 6.9%, to $304.6 million.

Included in the Company’s total deposits were $13.8 million in brokered certificates

The Company held $246.4 million

in municipal depositor deposits at September 30, 2023, which represents 32.6% of total deposits.

Under State of New Jersey legislation,

municipal deposits exceeding 70% of the Bank’s capital must be collateralized.

Magyar Bank was in compliance with the State’s

requirements at September 30, 2023.

The FDIC provides $250,000 of

deposit insurance per depositor for each account ownership category.

Depositors may qualify for coverage over $250,000 if they have funds

in different ownership categories and all FDIC requirements are met.

Included in the Company’s total deposits at September 30, 2023

was an estimated $109.3 million that was not collateralized and exceeded the FDIC’s insurance coverage limit.

The Company’s deposit strategy

in 2023 focused on growing its non-interest checking account balances and managing the overall cost of its interest-bearing liabilities

during a period of rapidly rising market interest rates.

Offsetting these increases were declines in non-interest checking account balances, which decreased

$55.7 million, or 29.6%, to $132.8 million and in savings account balances, which decreased $9.3 million, or 15.0%, to $52.9 million.

Customers sought higher-yielding deposit products during a period of increased interest rates.

Included in the Company’s

deposits were $249.9 million in municipal deposits at September 30, 2024, which represented 29.1% of total deposits.

Under current State

of New Jersey legislation, municipal deposits exceeding 70% of the Bank’s capital must be collateralized.

Magyar Bank was in compliance

with the State’s requirements at September 30, 2024.

The Company’s deposit

strategy in 2024 focused on retaining deposits and managing the overall cost of its interest-bearing liabilities during a period with

an inverted yield curve.

In addition, the Company opened its eighth retail branch office in Martinsville, New Jersey in October 2024.

Borrowed Funds.

increased $13.9 million, or 88.9%, to $29.5 million at September 30, 2023 compared with $15.6 million at September 30, 2022.

borrowed several long-term advances from the FHLBNY during the year ended September 30, 2023 to fund its loan originations.

Stockholders’ Equity.

Stockholders’ equity increased $6.3 million, or 6.4%, to $104.8 million at September 30, 2023 from $98.5 million at September

The increase was attributable to the Company’s net income from operations totaling $7.7 million, partially offset by $1.3

million in dividends paid to shareholders and $1.2 million in treasury share repurchases.

The Company’s book value per share increased

to $15.70, based on total equity of $104.8 million and 6,674,184 shares outstanding at September 30, 2023 from $14.60, based on total

equity of $98.5 million and 6,745,128 shares outstanding.at September 30, 2022.

decreased $947 thousand, or 3.2%, to $28.6 million at September 30, 2024 compared with $29.5 million at September 30, 2023.

Stockholders’

Stockholders’ equity increased $5.7 million, or 5.5%, to $110.5 million at September 30, 2024 from $104.8 million

at September 30, 2023.

The increase was attributable to the Company’s net income from operations totaling $7.8 million, partially

offset by $1.7 million in dividends paid and $2.4 million in share repurchases.

In addition, other comprehensive income, stock-based compensation

expense and the effect of adopting ASU 2016-13 increased the

Company’s equity by $2.1 million.

The Company’s book value per

share increased to $16.98 at September 30, 2024 from $15.70 at September 30, 2023.

Comparison of Operating Results

for the Years Ended September 30, 2024 and 2023

Company’s net income decreased $210,000, or 2.7%, to $7.7 million during the year ended September 30, 2023 compared with $7.9 million

for the year ended September 30, 2022 due to higher non-interest expenses, partially offset by higher net interest and dividend income.

Net Interest and Dividend

The primary source of the Company’s operating income is net interest and dividend income, which is the difference

between interest and dividends earned on earning assets and fees earned on loans, and interest paid on interest-bearing liabilities.

Company’s net interest and dividend income is affected by regulatory, economic and competitive factors that influence interest rates,

loan demand, deposit flows and levels of nonperforming assets.

During the year ended September

30, 2023, net interest and dividend income increased $715,000, or 2.6%, to $27.7 million compared to $27.0 million for the year ended

September 30, 2022.

Interest and dividend income increased $8.6 million, or 29.0%, to $38.1 million at September 30, 2023 from $29.5 million

at September 30, 2022, while interest expense increased $7.6 million, or 316.0%, to $10.3 million at September 30, 2023 from $2.5 million

at September 30, 2022.

The Company’s net interest margin decreased 11 basis points to 3.50% for the year ended September 30, 2023

Company’s net income increased $74 thousand, or 1.0%, to $7.8 million during the year ended September 30, 2024 compared with $7.7

million for the year ended September 30, 2023 from higher net interest income, lower provision for credit losses and higher other income,

partially offset by higher income tax and other expenses.

Earnings per share increased to $1.23 for the year ended September 30, 2024

from $1.20 for the year ended September 30, 2023.

Net Interest and Dividend

Net interest and dividend income increased $240 thousand, or 0.9%, to $28.0 million during the year ended September 30,

2024 compared to $27.7 million for the year ended September 30, 2023.

The Company’s net interest

margin decreased 36 basis points to 3.14% for the year ended September 30, 2024 from 3.50% for the year ended September 30, 2023.

in the Company’s average interest-earning assets more than offset margin compression between periods due to market interest rate

levels and the prolonged inversion to the yield curve.

Average Balance Sheet.

following table presents certain information regarding our financial condition and net interest income for the years ended September 30,

2023 and 2022.

The table presents the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

derived the yields and costs by dividing income or expense by the average balance of interest-earning assets and interest-bearing liabilities,

respectively, for the periods shown.

The following table presents certain information regarding our financial condition and net interest income for the years ended

September 30, 2024 and 2023.

The table presents the average yield on interest-earning assets and the average cost of interest-bearing

We derived the yields and costs by dividing income or expense by the average balance of interest-earning assets and interest-bearing

liabilities, respectively, for the periods shown.

We derived average balances from daily balances over the periods indicated.

Interest income includes

fees that we consider adjustments to yields.

Interest income on loans includes loan fees, but such amounts were not material for the years

ended September 30, 2023 or 2022.

Year Ended September 30,

income includes fees that we consider adjustments to yields.

Interest income on loans includes loan fees, but such amounts were not material

for the years ended September 30, 2024 or 2023.

Years Ended September 30,

(Dollars In Thousands)

20 unchanged sentences

Net interest margin (6)

Average interest-earning assets to average

interest-bearing liabilities

Average interest-earning assets to

average interest-bearing liabilities

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

(2) Calculated using the Company's 21% federal tax rate.

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

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

1 unchanged sentence

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

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

(6) Calculated

as annualized net interest income divided by average total interest-earning assets.

Rate/Volume Analysis.

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Total interest-bearing liabilities

Increase (decrease) in tax equivalent net interest

Increase (decrease) in tax equivalent

net interest income

Change in tax-equivalent basis adjustment

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

Interest and Dividend Income.

Interest and dividend income increased $8.6 million, or 29.0%, to $38.1 million for the year ended September 30, 2023 from $29.5 million

for the year ended September 30, 2022.

The average balance of interest-earnings assets between the two periods increased $43.7 million,

or 5.8%, to $791.4 million from $747.7 million, while the yield on such assets increased 86 basis point to 4.81% for the year ended September

30, 2023 from 3.95% for the year ended September 30, 2022.

Interest and Dividend

Interest and dividend income increased $10.5 million, or 27.6%, to $48.6 million for the year ended September 30, 2024

from $38.1 million for the year ended September 30, 2023.

The average balance of interest-earnings assets between the two periods increased

$99.4 million, or 12.6%, to $890.8 million from $791.4 million, while the yield on such assets increased 64 basis point to 5.45% for the

year ended September 30, 2024 from 4.81% for the year ended September 30, 2023.

Interest income on loans increased

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securities, including interest earned on deposits but excluding FHLBNY stock, increased $2.5 million, or 94.3%, to $5.2 million for the

year ended September 30, 2023 from $1.6 million for fiscal 2022.

The increase was attributable to a 115 basis point increase in the average

yield on investment securities and interest earned

on deposits to 2.25% from 1.10%, partially offset by a $25.0 million, or 17.2%, decrease

in the average balance of investment securities and interest earning deposits to $120.5 million from $145.5 million during the year ended

September 30, 2022.

year ended September 30, 2024 from $2.7 million for the year ended

The increase was attributable to a 116 basis point increase in

the average yield on investment securities and interest earned on deposits to 3.41% from 2.25%, and $33.6 million increase in the average

balance of investment securities and interest earning deposits to $154.1 million from $120.5 million during the year ended September 30,

Interest Expense.

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The average balance of interest-bearing

deposits increased $31.2 million, or 6.6%, to $501.7 million for the year ended September 30, 2023 from $470.5 million for the year ended

September 30, 2022 while the average cost on such interest-bearing deposits increased 145 basis points to 1.89% from 0.44%.

Average expense

on interest-bearing deposits increased $7.4 million, or 358.4%, to 9.5 million at September 30, 2023 compared with $2.1 million at September

Interest expense on advances increased

$432,000, or 104.3%, to $846,000 for the year ended September 30, 2023 from $414,000 for the year ended September 30, 2022.

cost of borrowings increased 106 basis points to 3.31% for the year ended September 30, 2023 from 2.25% for the year ended September 30,

2022 while the average balance of those borrowings increased $7.2 million to $25.6 million for the year ended September 30, 2023 from

$18.4 million the prior year.

Provision for Loan Losses.

We establish provisions for loan losses, which are charged to earnings, at a level necessary to absorb known and inherent losses that

are both probable and reasonably estimable at the date of the financial statements.

In evaluating the level of the allowance for loan

losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations

that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, peer group information and prevailing

economic conditions.

This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as

more information becomes available or as future events occur.

The provision for loan losses

increased $77,000, or 25.3%, to $381,000 for the year ended September 30, 2023 compared to $304,000 for the year ended September 30, 2022.

There were $488,000 in loan charge-offs and $4,000 in loan recoveries for the year ended September 30, 2023 compared with no loan charge-offs

and $54,000 in loan recoveries for the year ended September 30, 2022.

deposits increased $127.4 million, or 25.4%, to $629.1 million for the year ended September 30, 2024 from $501.7 million for the year

ended September 30, 2023 while the average cost on such interest-bearing deposits increased 125 basis points to 3.14% from 1.89%.

expense on interest-bearing deposits increased $10.2 million, or 107.9%, to 19.7 million at September 30, 2024 compared with $9.5 million

at September 30, 2023.

Interest expense on advances

increased $26 thousand, or 3.1%, to $872 thousand for the year ended September 30, 2024 from $846 thousand for the year ended September

The average cost of borrowings decreased 29 basis points to 3.02% for the year ended September 30, 2024 from 3.31% for the year

ended September 30, 2023 while the average balance of those borrowings increased $3.3 million to $28.9 million for the year ended September

30, 2024 from $25.6 million the prior year.

Provision for Credit

The provision for credit losses decreased $291 thousand, or 76.4%, to $90 thousand for the year ended September 30, 2024

compared to $381 thousand for the year ended September 30, 2023.

During the year ended September 30, 2024, the Company recorded $69 thousand

in net loan recoveries compared with $484 thousand in net charge-offs for the year ended September 30, 2023.

In addition to lower net

charge-offs, the provision for credit losses on loans decreased in amount and as a percentage of gross loans during the year from higher

balances of lower risk loans and lower balances of higher risk loans in addition to lower adjustments to the historical loss for all loan

categories for improving economic conditions.

Other Income.

income decreased $33,000, or 1.2%, to $2.7 million during the year ended September 30, 2023 compared with the year ended September 30,

2022 from lower gains on the sale of SBA loans, partially offset by higher service charge income between periods.

The Bank sells the guaranteed

portion of the SBA 7(a) program loans it originates in the secondary market.

Gains from the sale of SBA loans were $565,000 during the

year ended September 30, 2023 compared with $925,000 during the year ended September 30, 2022 due to a reduction in the volume of loans

Service charge income increased

$404,000, or 34.0%, to $1.6 million compared with $1.2 million for the prior year from higher commercial loan prepayment fees received

during the current year.

The Company received $423,000 in prepayment penalties during the year ended September 30, 2023, compared with

$130,000 during the year ended September 30, 2022.

income increased $931 thousand, or 34.7%, to $3.6 million during the year ended September 30, 2024 compared with $2.7 million the year

ended September 30, 2023.

The Company’s gains on other real estate, SBA loans and premises were $1.3 million, $599 thousand and

$60 thousand, respectively, during the year ended September 30, 2024 compared with $0, $565 thousand and $9 thousand, respectively, during

the year ended September 30, 2023.

In addition, service charges decreased $457 thousand to $1.1 million during the year ended September

30, 2024 compared with $1.6 million for the year ended September 30, 2023 from lower commercial loan prepayment fees.

Other Expenses.

expenses increased $1.0 million, or 5.7%, to $19.3 million compared to $18.3 million for the year ended September 30, 2022 due primarily

to higher compensation, benefit, FDIC insurance premium and occupancy expenses, partially offset by lower professional fees.

Compensation and benefit expense

increased $650,000, or 6.2%, to $11.1 million for the year ended September 30, 2023 from $10.5 million for the year ended September 30,

Stock award and stock option expenses related to the Company’s 2022 Equity Incentive Plan accounted for a $658,000 increase

in compensation expense.

In addition, the Company incurred higher director fees, which increased $149,000 during the year ended September

30, 2023 from the prior year due to the addition of three new directors.

Deposit insurance premiums increased

$125,000, or 58.1%, to $340,000 for the year ended September 30, 2023 from $215,000 for the year ended September 30, 2022 from higher

insurance assessment rates implemented by the FDIC for all insured institutions effective January 1, 2023.

Occupancy expenses increased $171,000,

or 5.7%, to $3.2 million for the year ended September 30, 2023 from $3.0 million for the year ended September 30, 2022.

The increase was

attributable to additional maintenance and repairs to the Bank’s branch locations, the elimination of off-site records previously

held in storage and inflationary increases in computer processing and communications.

Professional fees decreased $307,000,

or 28.9%, to $755,000 for the year ended September 30, 2023 from $1.1 million for the year ended September 30, 2022 from lower legal and

consulting fees related to the collection and foreclosure of non-performing assets.

expenses increased $1.1 million, or 5.7%, to $20.4 million during the year ended September 30, 2024 compared to $19.3 million for the

year ended September 30, 2023 due primarily to higher compensation benefit expenses, which increased $689 thousand, or 6.2%, to $11.8

million for the year ended September 30, 2024 from $11.1 million for the year ended September 30, 2023.

The increase was due to fewer

open positions between the two years and the additions of a commercial lender and a commercial credit analyst, as well as annual merit

Other expenses increased $202

thousand, or 9.4%, from higher recruitment costs, loan origination and servicing costs and operating expenses.

In addition, deposit insurance

premiums increased $81 thousand, or 23.8%, to $421 thousand from deposit growth and higher insurance assessment rates implemented by the

FDIC for all insured institutions effective January 1, 2023.

Income Tax Expense.

The Company recorded tax expense of $3.0 million on income of $10.7 million for the year ended September 30, 2023 compared with tax expense

of $3.3 million on income of $11.2 million for the year ended September 30, 2022.

The lower income tax expense resulted from a $428,000,

or 3.8%, decrease in the Company’s results from operations.

The Company’s effective

tax rate for the year ended September 30, 2023 was 28.2% compared with 29.1% for the year ended September 30, 2022.

Income tax expense increased $285 thousand, or 9.4%, to $3.3 million for the year ended September 30, 2024 from $3.0 million for the year

ended September 30, 2023.

The increase was attributable to higher pre-tax income and a $456 thousand expense for taxable gains on surrendered

bank-owned life insurance policies during the year ended September 30, 2024.

The Company’s effective income tax rate was 29.9% for

the year ended September 30, 2024 and 28.2% for the year ended September 30, 2023.

Management of Market Risk

of our assets and liabilities are monetary in nature.

Consequently, our most significant form of market risk is interest rate risk.

assets, consisting primarily of mortgage loans, have longer maturities than our liabilities, consisting primarily of deposits.

a principal part of our business strategy is to manage interest rate risk and reduce the exposure of our net interest income to changes

in market interest rates.

Accordingly, our Board of Directors has established an Asset and Liability Management Committee which is responsible

for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate, given

our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with

the guidelines approved by the Board of Directors.

Senior management monitors the level of interest rate risk on a regular basis and the

Asset and Liability Committee meets at least on a quarterly basis to review our asset/liability policies and interest rate risk position.

We have sought to manage

our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates.

majority of our assets and liabilities are monetary in nature.

Consequently, our most significant form of market risk is interest rate

Our assets, consisting primarily of mortgage loans, have longer maturities than our

liabilities, consisting primarily of deposits.

As a result, a principal part of our business strategy is to manage interest rate risk and reduce the exposure of our net interest income

to changes in market interest rates.

Accordingly, our Board of Directors has established an Asset and Liability Management Committee which

is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is

appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this

risk consistent with the guidelines approved by the Board of Directors.

Senior management monitors the level of interest rate risk on

a regular basis and the Asset and Liability Committee meets at least on a quarterly basis to review our asset/liability policies and interest

rate risk position.

We have sought to manage our

interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates.

As part of our ongoing

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By following these strategies, we believe that we are well-positioned to react to changes in market interest rates.

Net Interest Income Analysis.

The table below sets forth, as of September 30, 2023, the estimated changes in our Net Interest Income (“NII”) for each of

the next two years that would result from the designated instantaneous changes in interest rates.

These estimates require making certain

assumptions including loan and mortgage-related investment prepayment speeds, reinvestment rates, and deposit maturities and decay rates.

These assumptions are inherently uncertain and, as a result, we cannot precisely predict the impact of changes in interest rates on net

interest income.

Actual results may differ significantly due to timing, magnitude and frequency of interest rate changes and changes in

market conditions.

Net Interest Income

The table below sets forth, as of September 30, 2024, the estimated changes in our Net Interest Income (“NII”)

for each of the next two years that would result from the designated instantaneous changes in interest rates.

These estimates require

making certain assumptions including loan and mortgage-related investment prepayment speeds, reinvestment rates, and deposit maturities

and decay rates.

These assumptions are inherently uncertain and, as a result, we cannot precisely predict the impact of changes in interest

rates on net interest income.

Actual results may differ significantly due to timing, magnitude and frequency of interest rate changes

and changes in market conditions.

Further, certain shortcomings are inherent in the methodology used in the interest rate risk measurement.

changes in net interest income require making certain assumptions that may or may not reflect the manner in which actual yields and costs

respond to changes in market interest rates.

Modeling changes in net interest income require making certain assumptions that may or may not reflect the manner in which actual yields

and costs respond to changes in market interest rates.

Estimated Increase

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Liquidity and Capital Resources

Liquidity is the ability

to meet current and future financial obligations of a short-term nature.

Our primary sources of funds consist of deposit inflows, loan

repayments, FHLBNY borrowings and maturities and sales of investment securities.

While maturities and scheduled amortization of loans

and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates,

economic conditions and competition.

Our Asset/Liability Management Committee is responsible for establishing and monitoring our liquidity

targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs of our customers as well as

unanticipated contingencies.

Liquidity is the ability to

meet current and future financial obligations of a short-term nature.

Our primary sources of funds consist of deposit inflows, loan repayments,

FHLBNY borrowings and maturities and sales of investment securities.

While maturities and scheduled amortization of loans and securities

are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions

and competition.

Our Asset/Liability Management Committee is responsible for establishing and monitoring our liquidity targets and strategies

in order to ensure that sufficient liquidity exists for meeting the borrowing needs of our customers as well as unanticipated contingencies.

We seek to maintain a liquidity ratio of 5.0% of assets or greater.

The liquidity ratio is calculated by

determining the sum of the difference between liquid assets (cash and unpledged investment securities) and short-term liabilities (estimated

30-day deposit outflows), plus our borrowing capacity from the FHLBNY and dividing the sum by total assets.

At September 30, 2023, our

liquidity ratio was 9.7% of assets.

We regularly adjust our

investments in liquid assets based upon our assessment of expected loan demand, expected deposit flows, yields available on interest-earning

deposits and securities, and the objectives of our asset/liability management program.

Excess liquid assets are invested generally in

interest-earning deposits and short-and intermediate-term securities.

Our most liquid assets

are cash and cash equivalents.

The levels of these assets are dependent on our operating, financing, lending and investing activities

during any given period.

At September 30, 2023, cash and cash equivalents totaled $72.5 million compared with $30.9 million at September

Securities classified as available-for-sale, which provide additional sources of liquidity from sales, totaled $10.1 million

at September 30, 2023 compared with $9.2 million at September 30, 2022.

The liquidity ratio is calculated by determining the sum of the difference

between liquid assets (cash and unpledged investment securities) and short-term liabilities (estimated 30-day deposit outflows), plus

our borrowing capacity from the FHLBNY and dividing the sum by total assets.

At September 30, 2024, our liquidity ratio was 7.6% of assets.

We regularly adjust our investments

in liquid assets based upon our assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits

and securities, and the objectives of our asset/liability management program.

Excess liquid assets are invested generally in interest-earning

deposits and short-and intermediate-term securities.

Our most liquid assets are

cash and cash equivalents.

The levels of these assets are dependent on our operating, financing, lending and investing activities during

any given period.

At September 30, 2024, cash and cash equivalents totaled

$25.6 million compared with $72.5 million at September 30,

Securities classified as available-for-sale, which provide additional sources of liquidity from sales, totaled $15.6 million at

September 30, 2024 compared with $10.1 million at September 30, 2023.

At September 30, 2024, we also had the ability to borrow $272.3 million

from the FHLBNY compared with $230.1 million at September 30 2023.

On that date, we had an aggregate of $29.5 million in advances outstanding

and $80.0 million in municipal letters of credit outstanding with the FHLBNY.

Our cash flows are derived from operating activities, investing

activities and financing activities as reported in our consolidated Statements of Cash Flows included in our consolidated Financial Statements.

At September 30, 2023,

we had $30.1 million in loan origination commitments outstanding.

In addition to commitments to originate loans, we had $89.9 million

in unused lines of credit to borrowers.

At September 30, 2024, we had an aggregate of $28.6 million in advances

outstanding and $120.0 million in municipal letters of credit outstanding with the FHLBNY leaving $164.9 million as our remaining borrowing

Our cash flows are derived from operating activities, investing activities and financing activities as reported in our consolidated

Statements of Cash Flows included in our consolidated Financial Statements.

At September 30, 2024, we

had $28.6 million in loan origination commitments outstanding.

In addition to commitments to originate loans, we had $88.3 million in

unused lines of credit to borrowers.

Certificates of deposit due within one year of September 30, 2024 totaled $99.2 million, or 12.45%

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We experienced a net increase in total deposits of $41.2 million, or 5.46%,

to $755.5 million for the year ended September 30, 2023 compared with a net decrease in total deposits of $27.9 million, or 4.4%, to $667.7

to $796.7 million for the year ended September 30, 2024 compared with a net increase in total deposits of $87.7 million, or 13.1%, to

$755.5 million for the year ended September 30, 2023.

Deposit flows are affected by the overall level of interest rates, the interest rates and

products offered by us and our local competitors and other factors.

Liquidity management is

both a daily and long-term function of business management.

If we require funds beyond our ability to generate them internally, borrowing

agreements exist with the FHLBNY, which provide an additional source of funds.

FHLBNY advances totaled $29.5 million and $15.6 million

at September 30, 202 and 2022, respectively.

Deposit flows are affected by the overall level of interest rates, the interest

rates and products offered by us and our local competitors and other factors.

Liquidity management is both

a daily and long-term function of business management.

If we require funds beyond our ability to generate them internally, borrowing agreements

exist with the FHLBNY, which provide an additional source of funds.

FHLBNY advances totaled $28.6 million and $29.5 million at September

30, 2024 and 2023, respectively.

FHLBNY advances have primarily been used to fund loan demand.

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held $29.6 million in brokered deposits and $20.0 million from deposit listing services.

Magyar Bank is subject

to various regulatory capital requirements, (see “Supervision and Regulation-Federal Banking Regulation-Capital Requirements”).

Magyar Bank is subject to

various regulatory capital requirements, (see “Supervision and Regulation-Federal Banking Regulation-Capital Requirements”).

As of September 30, 2024, Magyar Bank’s Tier 1 capital as a percentage of the Bank’s average assets was 11.11% and the total

qualifying capital as a percentage of risk-weighted assets was 15.85%.

Bank-owned life insurance is a

tax-advantaged financing transaction that is used to offset employee benefit plan costs.

Policies are purchased insuring directors and

officers of Magyar Bank using a single premium method of payment.

Bank-owned life insurance

is a tax-advantaged financing transaction that is used to offset employee benefit plan costs.

Policies are purchased insuring directors

and officers of Magyar Bank using a single premium method of payment.

Magyar Bank is the owner and beneficiary of the policies and records

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and Aggregate Contractual Obligations

a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments

As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments

to extend credit, standby letters of credit and unused lines of credit.

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to the same credit policies and approval process accorded to loans made by us.

For additional information, see Note P, “Commitments,”

and Note Q “Financial Instruments with Off-Balance-Sheet Risk” to our consolidated financial statements.

For additional information, see Note O, “Commitments,”

and Note P “Financial Instruments with Off-Balance-Sheet Risk” to our consolidated financial statements.

Contractual Obligations.

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premises and equipment.

Critical Accounting Policies

The Company’s accounting

policies are more fully described in Note B - Summary of Significant Accounting Policies in the notes to the Consolidated Financial Statements.

As disclosed in Note B, the preparation of financial statements in conformity with generally accepted accounting principles in the United

States requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements

and accompanying notes.

Actual results could differ significantly from those estimates.

The Company believes that the following discussion

addresses the Company’s most critical accounting policies, which are those that are most important to the portrayal of the Company’s

financial condition and results of operations and require management’s most difficult, subjective and complex judgments.

Allowance for Credit Losses.

The allowance for credit

losses is the amount estimated by management as necessary to cover expected credit losses in the loan portfolio at the balance sheet

The allowance is established through the provision for credit losses which is charged against income.

In determining the

allowance for credit losses, management makes significant estimates and has identified this policy as one of our most critical.

to the high degree of judgment involved, the subjectivity of the assumptions utilized and the potential for changes in the economic

environment that could result in changes to the amount of the recorded allowance for credit losses, the methodology for determining

the allowance for credit losses is considered a critical accounting policy by management.

As a substantial amount of

our loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans and discounted cash

flow valuations of properties are critical in determining the amount of the allowance required for specific loans.

Assumptions for appraisals

and discounted cash flow valuations are instrumental in determining the value of properties.

Overly optimistic assumptions or negative

changes to assumptions could significantly affect the valuation of a property securing a loan and the related allowance determined.

assumptions supporting such appraisals and discounted cash flow valuations are carefully reviewed by management to determine that the

resulting values reasonably reflect amounts realizable on the related loans.

Management performs a quarterly

evaluation of the adequacy of the allowance for credit losses.

We consider a variety of factors in establishing this estimate including,

but not limited to, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying

collateral, the financial strength of the borrower, results of internal loan reviews and other relevant factors.

This evaluation is inherently

subjective as it requires material estimates by management that may be susceptible to significant change based on changes in economic

and real estate market conditions.

The evaluation has a specific

and general component.

The specific component relates to loans that are delinquent or otherwise identified as impaired through the application

of our loan review process and our loan grading system.

All such loans are evaluated individually, with principal consideration given

to the value of the collateral securing the loan and discounted cash flows.

Specific impairment allowances are established as required

by this analysis.

However, the Bank’s Federal and State regulators generally require that the specific reserve against impaired

collateral-dependent loans be charged-off, reducing the carrying balance of the loan and allowance for loan loss.

The general component

is determined by segregating the remaining loans into homogenous categories.

We analyze the historical loss experience of each category,

delinquency trends, general economic conditions and geographic and industry concentrations in establishing the general portion of the

This analysis establishes factors that are applied to the loan groups to determine the amount of the general component of the

allowance for credit losses.

The process of determining

the level of the allowance for credit losses requires a high degree of judgment.

To the extent actual outcomes differ from our estimates,

additional provision for credit and lease losses may be required that would reduce future earnings.

Quantitative and Qualitative Disclosures About Market Risk

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What changed 10-K

Item 7. Management’s Discussion and Analysis